Making the Feds pay on time

Nation's Business, Jan, 1986

Making The Feds Pay On Time

When Congress passed the Prompt Pay Act in 1982, businesses, particularly small firms, breathed a collective sigh of relief. The law requires any federal agency that hires a private contractor to pay its bills within a certain time or face interest penalties.

"Before the law was passed, we were damn frustrated trying to get the government to pay its bills,' says Henry March, president of Jasper Ewing & Sons, Inc., a small audio-visual dealership in New Orleans. "We were just being run around in circles. At least now, the government knows that if it doesn't pay up on time--either by the specified contract date or within 30 days after receiving the goods or invoice, it's going to have to pay interest, and is going to have auditors breathing down its neck wondering why payment was late.' The interest rate is set by the Treasury Department every six months.

The law's results are impressive: 99 percent on-time payments versus 60 percent before enactment.

Business is now getting tough with state governments. Forty-one states and the District of Columbia have prompt pay laws, but in states without them, "small companies still are being paid three to four months later than the contract date specified,' says Kenton Pattie, director of the Coalition for State Prompt Pay.

"For minority and women-owned businesses in particular, this has entailed going to the bank with their accounts receivable sheets on a monthly basis just to borrow enough cash to pay their employees' salaries.'

Legislatures are considering prompt pay laws in Alaska, Illinois, Nebraska, Vermont, Massachusetts, New Jersey, Pennsylvania and Wisconsin.

But there are still some rough spots--both on the state and federal levels.

Pattie says there are agencies in some states that are thwarting prompt pay laws.

"We're working to win adoption of amendments such as automatic payment of interest and prompt pay by local governments that buy goods and services with state funds,' he says.

The most notorious federal culprit is the U.S. Navy. Pattie describes a typical case: "A small company receives a Navy contract for generators that have to be delivered to Biloxi, Miss., Norfolk, Va., and San Diego. The firm diligently gets the order out. When the Navy receives the generators, they have to be tested. This can take anywhere from two to three months. Then all the paper work has to be sent to a central accounting office which may be in an entirely different city. The next step is to match everything up--contract, purchase order and invoice. Only after this is done does the Navy start counting the 30 days it has before incurring interest penalties.'

Pattie says that Congress may be "revisiting' the Prompt Pay Act this year to see what progress has been made and what improvements still are necessary. "Small business should not have to absorb the costs of government inefficiency,' he maintains.

Photo: With the Prompt Pay Act now in force, audio-visual dealer Henry March finds the federal government paying its bills on time.