Prime contractor paying a subcontractor late: what a small machine shop checks first

What “untimely” means: 90 days past due, after the government paid the prime

FAR 52.242-5(a) defines two terms. A reduced payment is “a payment that is for less than the amount agreed upon in a subcontract in accordance with its terms and conditions, for supplies and services for which the Government has paid the prime contractor.” An untimely payment is “a payment that is more than 90 days past due under the terms and conditions of a subcontract, for supplies and services for which the Government has paid the prime contractor.”

Paragraph (b) gives the prime 14 days. The prime must notify the contracting officer in writing no later than 14 days after a small business subcontractor was entitled to payment under the subcontract and the prime made a reduced or untimely payment, or failed to make a payment that is now untimely. Paragraph (c) requires the notice to include “the reason(s)” for the reduced or untimely payment.

FAR 52.219-9 sets the same expectation from the plan side. Paragraph (d)(15) requires the plan to include “Assurances that the Contractor will pay its small business subcontractors on time and in accordance with the terms and conditions of the underlying subcontract,” and to notify the contracting officer of a reduced or untimely payment. Paragraph (d)(14) requires assurances that the prime “will not prohibit a subcontractor from discussing with the Contracting Officer any material matter pertaining to payment to or utilization of a subcontractor.” And under FAR 42.1503(h)(1)(vi), agencies report it in the FAPIIS module of the government’s contractor-performance system within 3 calendar days when a contracting officer determines that a contractor has “a history of three or more unjustified reduced or untimely payments to small business subcontractors under a single contract within a 12-month period.”

The definition has two conditions. The 90 days are counted past the due date under the subcontract’s own terms, not past the invoice date: on net 30, an invoice crosses the line around day 120. And the definition covers supplies the government “has paid the prime contractor” for — a fact the shop cannot see from its own records. That is why the first useful question to a prime is not “why are you late?” but “has this delivery been invoiced to the government, and has it been paid?”

Accelerated payment: 15 days, no fee, after a complete invoice package

FAR 52.232-40(a)(1) reads that, within 15 days after receipt of accelerated payments from the government, the prime “shall make accelerated payments to its small business subcontractors under this contract, to the maximum extent practicable and prior to when such payment is otherwise required under the applicable contract or subcontract, after receipt of a proper invoice and all other required documentation from the small business subcontractor.” Paragraph (a)(2) adds that the prime makes those payments “without any further consideration from or fees charged to the subcontractor.” Paragraph (b) says the acceleration “does not provide any new rights under the Prompt Payment Act.”

On the government side, FAR 32.009-1 sets agencies “a goal of 15 days after receipt of a proper invoice and all other required documentation” for primes that agree to pass the payment on. The statute behind both is 31 U.S.C. 3903(a)(10) and (11).

Three phrases decide how much this helps a shop. “To the maximum extent practicable” is a goal, not a fixed due date. The 15 days start when the prime receives an accelerated payment, which the shop cannot see either. And “a proper invoice and all other required documentation from the small business subcontractor” is the one part the shop controls completely. For a machine shop, the required documentation is whatever the PO asks for, so each late invoice gets checked against the PO before anyone calls:

• The invoice itself: PO number and line, part number and revision, quantity, unit price, ship date and packing-slip number
• Material certifications or mill test reports, where the PO calls for them
• A certificate of conformance, where required, in the form the PO specifies
• A first article inspection report, where the PO requires one before the first production invoice
• Proof the invoice reached the prime by the route the PO names: a supplier portal, an accounts payable mailbox or the buyer

An invoice missing one of these can sit in a prime’s queue with nobody telling the shop it was rejected. That is a records problem before it is a payment problem.

Build a per-prime aging list before making the call

The call goes better with one page in hand: every open invoice to that prime, with the fields the FAR clauses turn on.

• Prime, PO number and line, and the prime contract number if the PO shows one
• Payment clauses on the PO: 52.232-40, any subcontracting-plan reference, and the payment terms in days
• Ship date, invoice date and invoice-sent date, with the route used
• Documents sent with the invoice, and the date each one went
• Due date under the PO’s terms, and the days past that due date today
• The prime’s last word on the invoice: received, rejected with a reason, approved, scheduled, or nothing at all

Illustrative example: a shop has four open invoices with one prime, all on net 30. Two are 20 days past due, one is 75 days past due, and one has no due date in anyone’s records because the prime never acknowledged it. Call about the 75-day invoice now, before it crosses 90. Fix the unacknowledged one first: resend the full package by the PO’s route and ask for written confirmation of receipt. The numbers are invented for the example.

Who to call at the prime, in what order, and what to put in writing

Start with accounts payable and the invoice package. Ask whether the invoice is in their system, whether anything is missing, and when it is scheduled. If the answer is “we haven’t been paid by the government,” ask whether the delivery has been invoiced to the government yet, and write the answer down with the date and the name. Whether the subcontract lets the prime wait for its own payment is for the shop’s attorney.

If accounts payable cannot answer, go to the buyer or subcontract administrator who issued the PO. After that, a prime with a subcontracting plan has already named someone: FAR 52.219-9(d)(7) requires the plan to include “The name of the individual employed by the Offeror who will administer the Offeror’s subcontracting program.” That person has a direct interest in the 52.242-5 notice and in the performance record that can follow it.

Every call ends in a short email that restates the invoice numbers, the dates and what was promised. If the question reaches the contracting officer, the prime’s plan assures that the prime will not stop the shop from raising payment. How and when to do that, and whether to send a demand or bring a claim, belongs to a contracts attorney who has read the subcontract.

What the wait costs a small shop

The cost of a slow prime is not only interest. Illustrative example: $60,000 of invoices sitting 90 days past a net 30 due date, carried on a line of credit at an illustrative 10% a year, costs about $1,480 in interest (60,000 × 10% × 90 ÷ 365). The larger cost is what the shop cannot do with that money while it waits, such as buying material for the next job with cash. The figures are invented; the shop’s own line rate and aging list give the real one.

It also helps decide whether to keep quoting the prime’s work. A prime that pays once the package is complete is a paperwork problem the shop can fix. A prime that pays at 120 days whatever the package looks like is a terms problem, and terms belong in the price.

When not to hire anyone for this

If the late money sits with one prime and the shop already has a complete invoice package and a dated aging list, the next call is to a contracts attorney, not a consultant. A remedy under the subcontract, a claim or a demand letter is legal work, and nothing in this guide is legal advice.

An outside review is worth paying for when late payment is one leak among several: invoices waiting on certs, revisions shipped at the old price, quotes with no recorded outcome, terms that drift from net 30 to net 60. That is the work of a machine shop consultant who reads records rather than the floor. Our Revenue Review reads the shop’s own POs, travelers, shipping records, invoices and payments, read-only, and puts a monthly dollar figure on each leak the records support. It takes two weeks. It never contacts a prime or a contracting officer. Drawings, ITAR data and covered defense information stay out of it; the Review works from exports with no technical data. We do not run a machine shop, and there are no client case studies on this site yet.

If it is unclear whether a fee is worth it, a free 20-minute call tells a shop with one slow prime and nothing else wrong that it does not need the Review.