The Defense Department on February 21 revoked a relatively new payment process that was designed to get cash in the hands of contractors and subcontractors quicker. This revocation of the “Quick Pay” initiative is due to sequestration activities and will cause payments to be delayed by at least 10 days but conceivably even more. Prior to the Quick Pay initiative, which began in 2011, DoD would hold a bill for 30 days to minimize the amount of cash it pays out. The Quick Pay initiative was instituted as a way to get payments to small businesses faster by assuring that small businesses were paid as soon as a bill was verified. The initiative was then expanded in July 2012 to prime contractors as a way to assist those companies’ small business subcontractors. Under the initiative, defense contractors were paid in about 15 to 18 days.
Now, based on studies by various services councils average payment times will probably return to the 28 to 30 days level. Contractor notifications of these payment changes will begin in the next few days. The changes are predicted to add a few days’ worth of available cash for daily DoD operations. Although less defined, but still an issue, is what impact government employee furloughs will have on the payment process. We assume that the government’s paying offices will not be immune to these short term layoffs and any reductions in staff could result in fewer people available for routine operations. The immediate impact to defense contractors will be a reduction in cash flow and probably increased expenses due to expansions on lines of credit.
Prompt payments are important for any size company, but small businesses that don’t have the finances to support a major government project for a month or longer will most assuredly be detrimental to their short and long range outlooks. Without doubt, any slowdown or reductions in payments will most assuredly have a negative impact on Redstone clients as well. Therefore, we urge all of our readers to contact their elected leaders and demand they take prompt action with regards to sequestration and upcoming budget battles. Our nation’s defense depends on it.