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MEMORANDUM: District of Columbia Policy Regarding Payments to Subcontractors

Wednesday, October 31, 2018
District CPO George Schutter issues letter to subcontractor community

MEMORANDUM

To: District Prime and General Contractors
From: George A. Schutter, III - Chief Procurement Officer (CPO)
Date: October 31, 2018
Subject: District of Columbia Policy Regarding Payments to Subcontractors

I have received several questions over the past few months on the role of the Office of Contracting and Procurement (OCP) in facilitating payments made to subcontractors. After consulting with procurement stakeholders both inside and outside of government, I wanted to take the opportunity to provide some information to the District’s valued contractors.
 
Under the legal principle of privity of contract, a contract confers rights and imposes liabilities only on the contracting parties. As such, the District is a third party and has no contractual rights with respect to a contract between a prime and its subcontractor. However, the Quick Payment Act requires all District contracts to contain language obligating a prime to pay its subcontractors within a particular timeframe. This requirement is set forth in D.C. Official Code § 2–221.02(d)(1), which reads as follows:
 
(d) Any contract awarded by a District agency shall include:
(1) A payment clause that obligates the contractor to take one of the 2 following actions within 7 days of receipt of any amount paid to the contractor by the District agency for work performed by any subcontractor under a contract:
(A) Pay the subcontractor for the proportionate share of the total payment received from the District agency that is attributable to the subcontractor for work performed under the contract; or
(B) Notify the District agency and the subcontractor, in writing, of the contractor’s intention to withhold all or part of the subcontractor’s payment with the reason for the nonpayment;
 
This section goes on to specify that a subcontractor is owed an interest penalty of 1.5 percent on amounts due to beginning on the day after the payment is due and ending on the date on which payment is made.
 
Thus, while the District cannot enforce a contract between a prime and its subcontractor per se, the District can and does enforce the terms of its contracts with prime contractors, including the obligation that a prime pay its subcontractors within seven days. Contractors are a vital and integral part of the supply base of the District’s residents. To facilitate good business in the District, we will ensure prompt payment is made for services rendered.
 
Thank you for attention to this matter. If you have any issue regarding subcontractor payments on District contracts or any questions regarding delayed payments to subcontractors please be sure to engage the appropriate Contracting Officer. If you do not know the appropriate Contracting Officer, please contact the OCP Ombudsman for assistance at [email protected] or by phone at (202) 724-4197.