On September 14th, 2011, OMB released a memorandum to the federal agencies that requires them to cut the time to pay small businesses in half, from 30 to 15 days. Great news for small federal contractors! Prior to this new OMB directive, under the Prompt Payment Act of 1982, agencies were required to make payments within 30 days of receipt of invoices from small businesses.
This initiative will substantially enhance the cash-flow position of small businesses, thereby contributing to economic growth. Considering that the Federal government does over $100 billion in business with small businesses each year, reducing the payment time from 30 to 15 days can have a stimulating effect on the economy. The accelerated payment requirement will not affect interest penalties for late payments by the agencies. These late payments penalties, however, will come into effect when agencies do not make payment within 30 days, not 15 days. The accelerated 15-day payment requirement is expected to go into effect early in 2012.
DOD’s Proposed SDB Rule – DOD’s proposed SDB Rule flared up in the media recently when a fringe small business organization (ASBL – American Small Business League) claimed that it would: “…destroy millions of jobs and minority businesses from coast to coast.” Not to worry. DOD’s proposed SDB rule change was a minor administrative adjustment related to the Rothe case which found the SDB program unconstitutional, and the termination of the SDB program as a result of the expiration of DOD’s congressional authorization for the program. The issue is a bit complex, but the bottom line is this: The 5% goal for SDB prime contracts and subcontracts is still in place, and DOD is still required to meet the 5% SDB goal.
Veterans Jobs Bill & Repeal of 3% Withholding Tax– President Obama recently signed a bi-partisan bill that will cut taxes and provide incentives to companies that hire veterans. The bill, H.R. 674, passed the Senate and the House without a single dissenting vote. The essence of the bill is to extend tax credits to businesses that hire unemployed veterans. The bill additionally authorizes certain benefits to help soldiers move into the civilian workforce. This legislation is a key element of the President’s proposed jobs bill, the American Jobs Act.
H.R. 674 also repealed the onerous and ill-conceived 3% Withholding law. In 2005, Congress enacted the 3% withholding requirement, which mandated that local, state and federal governments withhold 3% of payments to contractors/vendors for products and services worth more than $10,000. That meant that contractors would only receive 97% of the amount due to them from affected government entities. The remaining 3% would be remitted to the IRS to cover the companies’ tax liabilities.
The provision was based, in part, on a 2004 GAO study that revealed widespread tax non-compliance among federal contractors. The study found that over 27,000 contractors owed over $3 billion in federal taxes as of September 2002.
In many cases, the 3% to be withheld represented the typical profit margins of small companies, and would have adversely affected their cash flow. Many companies would actually have had to borrow in order to finance materials, meet payroll, pay subcontractors, etc.
The USHCC and 150 other business organizations came together to pressure Congress to repeal the withholding law. The bi-partisan repeal of 3% repeal came about after intense pressure from this national coalition of pro-business organizations who jointly advocated for repeal of the 3% withholding law. The coalition included: US Chamber of Commerce, American Truckers Assn, Associated Builders and Contractors, Aerospace Industries Assn, Air Conditioning Contractors of America, American Bankers Assn, American Institutes of Architects, Construction Contractors Assn, Independent Electrical Contractors and Mechanical Contractors Assn of America, National Assn of Government Contractors, NFIB, and over 100 others.
Sequestration – This odd word will be coming up in political circles more and more after the failure of the Congressional “Super Committee” to reach agreement on deficit reduction. Basically, “sequestration” requires that budget cuts of $1.2 trillion automatically go into effect. By prior agreement, half of the budget cuts would come from defense, and the other half would come from domestic programs.
Some leaders in Washington have suggested that, if the Super Committee cannot not reach an agreement, the Congress should turn to the deficit proposals developed by the “Gang of Six” or by the earlier Simpson-Bowles Committee. The Gang of Six proposed nearly $4 trillion in budget cuts over ten years. Simpson-Bowles called for $3.7 trillion in budget cuts over 10 years. Stay tuned… the odd term “sequestration” will likely loom very large in public debate between now and the new year!