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For America’s small construction contractors, one of the biggest challenges in federal contracting is not winning the work—it is getting paid when the government changes the work after the contract has been awarded. That is why ASA supports H.R. 4615, the Small Business Payment for Performance Act. The legislation addresses a basic problem faced by small construction businesses: when the federal government directs a contractor to perform additional work or changes the terms of contract performance, the contractor may have to spend the money to perform that work long before the final cost of the change is resolved. For a large contractor, carrying those costs may be manageable. For a small subcontractor or specialty contractor, it can create a serious cash-flow problem.

A simple question for Congress is: When the government orders additional work, who finances that work while the parties negotiate the final price? Under the current system, the answer can effectively be the small business contractor. Construction companies must pay employees, purchase materials, rent or operate equipment, maintain insurance and bonding, and pay their own subcontractors and suppliers. Those expenses do not wait for the government and contractor to resolve a disputed equitable adjustment. A government-directed change can therefore force a small business to put additional money into a project without receiving timely reimbursement.  H.R. 4615 would address that problem by creating an interim partial-payment mechanism.

The legislation does not require the government to immediately pay the entire amount of a disputed claim. Instead, after the small business submits its request and the agency reviews it, the agency would provide an interim payment of at least 50 percent of the estimated additional costs. That creates a reasonable middle ground. The government retains the ability to review the request and ultimately determine the appropriate final equitable adjustment. At the same time, the small business receives a portion of the money necessary to continue performing the additional work. For ASA members, that distinction is critical. The issue is not getting paid twice. It is getting access to money that may ultimately be owed while the final amount is being determined.

Construction is particularly sensitive to payment delays because it is a cash-flow-intensive industry. A small specialty contractor may have only a few dozen employees but still be responsible for millions of dollars in labor, materials, equipment, bonding, insurance, and other project costs. When the government changes the scope of work, those costs can increase immediately. Consider a small electrical, mechanical, drywall, painting, flooring, concrete, or other specialty subcontractor working on a federal project. The government directs a change that requires additional labor and materials. The contractor performs the work because it is obligated to keep the project moving, but the final value of the change remains unresolved.

  1. The contractor still has to make payroll.
  2. The contractor still has to pay suppliers.
  3. The contractor still has to pay its subcontractors.
  4. The contractor still has to keep the project moving.

H.R. 4615 recognizes that a small business should not have to finance the federal government’s change order while waiting for the government to determine what it ultimately owes.

ASA also supports the redrafted language addressing payments to first-tier subcontractors. Construction projects depend on a network of small businesses. A prime contractor may rely on multiple specialty subcontractors, and those businesses rely on suppliers and their own workforce. When a small business receives an interim payment for additional costs, the legislation requires the appropriate share to be passed through to the first-tier subcontractor. That is an important protection. A payment solution should not simply move the cash-flow problem one step down the construction chain.

The revised legislation expressly requires a small business to submit its equitable-adjustment request in accordance with the applicable agency and contract procedures. It also adds an express agency review step before the interim payment is made. These changes provide greater procedural clarity while maintaining the central protection for small businesses: an interim payment of at least 50 percent of the estimated additional costs.  The legislation also requires SBA to issue implementing regulations within 90 days of enactment and expressly requires the agency to follow the Administrative Procedure Act.

This legislation goes directly to one of ASA’s core missions: ensuring that small subcontractors are treated fairly in the federal construction marketplace. ASA members routinely face the challenges associated with change orders, payment delays, retainage, contract disputes, and cash-flow pressures. A small business should be able to compete for federal work without putting its financial survival at risk when the government changes the contract.

The legislation asks Congress to recognize a simple reality of construction: When the government changes the work, the contractor has to spend the money to perform the change before the final price is resolved.

For a small business, waiting months or longer for that money can have real consequences.