Federal Procurement Issues
Construction Employers of America (CEA) Position:
The CEA favors H.R. 2344 and urges its passage as well as other reforms to the federal contracting rules to provide greater confidence for contractors on federal work that they will be reliably and quickly paid for approved change orders.
The Small Business Payment for Performance Act of 2019 (H.R. 2344) reflects basic policy aims for improving contractor payment conditions on federal construction and is a long-held CEA position. H.R 2344 would make long overdue reforms advocated by small business federal contractors to more quickly and fairly resolve change order payment disputes. In the 115th Congress this bipartisan legislation (Fitzpatrick/Murphy) was reported to the floor as H.R. 2594 on June 15,2017 by an 18-3 vote of the Small Business Committee but did not receive an expected floor vote.
The CEA strongly agrees with the language and intent of the sponsors of H.R. 2344. This vitally important legislation would allow contractors to submit a request for equitable adjustment (REA) or project contract fee adjustment to an agency that had approved a performed change order to a project’s original design or scope.
The Small Business Payment for Performance Act of 2019 forces agencies to be accountable for changed work they order by funding their own construction projects in a timely manner instead of diverting that financial burden to the small contractors. Mitigating the risks imposed on small construction contractors will encourage small business participation in the federal construction marketplace, driving competition and decreasing prices for the federal government.
Small business contractors and subcontractors in the construction industry are challenged daily with the complexities of the bidding process and then receiving payment in a timely manner for work performed. Equitable changes to the contract, commonly known as change orders, are ubiquitous on construction projects and slow approval can result in delayed payment. Small businesses typically do not have enough capital and resources to sustain long periods of nonpayment and are dependent on a stable cash flow to stay afloat. Thus, small businesses are particularly vulnerable to any changes to the scope of work on a contract and corresponding delays in payments.
Changes to scope of work on a contract can be initiated, unilaterally, by one party; often, the federal agency. These unilateral changes to the requirements of the construction contract are made without the contractor’s consent. Nevertheless, small businesses perform the unilaterally-ordered changed work, incurring out-of-pocket costs for labor, supplies, etc. to avoid putting the contract at risk. The work that small businesses perform, at the behest of the agency, are done at great financial risk to the small business, hoping that they will eventually be paid on the extra work ordered unilaterally by the agency. Unfortunately, small businesses are not being paid in a timely manner, or at all, for the changed work completed. The result is fewer small businesses competing for federal contracts, thus reducing competition which results in increased costs, and lessens the pool of qualified small construction contractors willing to do work with the federal government which harms the health of the industrial base.
- Would ensure small business federal contractors get paid sooner for completed change order as directed by agency officials;
- Specifically, the legislation allows contractors to submit a request for equitable adjustment (REA) - or an increase in fee - to the agency;
- The contractor may then bill the agency for any actual change order work completed while the REA is pending;
- Once the agency receives the REA, it must pay 50% of the billed change order work amount in a timely manner to offset extra costs;
- While this legislation is not the entire solution to the millions of dollars in change order inequities CEA contractors face every year, it is a very significant first step most worthy of passage.
H.R. 2344 – The Small Business Payment for Performance Act - 116th Congress (2019-2020) Introduced in the House of Representatives on April 19, 2019 by Rep. Pete Stauber [R-MN-8] and co-sponsored by Rep. Marc Veasey [D-TX-33] referred to the Committee on Small Business.
Committees of Jurisdiction:
House – Small Business