The overwhelming legal precedent on this question is that it does not. The requirements of the Federal Prompt Payment Act are found in FAR clauses 52.232-25 through 232-27. In short, these clauses set out invoicing and payment terms and provide for an interest penalty for late payments. However, FAR 52.232-27, Prompt Payment for Construction Contracts, prescribes additional terms to account for the prime contractor/subcontractor relationships prevalent in construction contracting.
FAR 52.232-27 mandates that prime contractors include similar requirements in their subcontracts and that their subcontractors flow down the same. Specifically, FAR 52.232-27 obligates the prime contractor to pay its subcontractors for satisfactory performance not later than seven days from receipt of payment from the government and provides for an interest penalty in the event payments are late. The clause also recognizes that it does not preclude the parties from negotiating payment terms in their subcontract that allow withholding of payment so long as doing so is in accordance with the subcontract agreement. In the event of a payment withholding, procedures to notify the government are then triggered.
Routinely, subcontractors who have not been paid on federal construction contracts attempt to include violation of the Federal Prompt Pay Act as a cause of action against the prime, claiming failure to pay within seven days of being paid. They also routinely lose this issue and the claim is summarily dismissed.
Courts recognize that while the Federal Prompt Pay Act confers rights and duties on federal contractors and subcontracts, it does not grant either an explicit or implied private cause of action in favor of unpaid subcontractors. Federal courts that have taken up this issue have consistently found that the Federal Prompt Payment Act does not provide a subcontractor with a private right of action against a prime contractor. Claims of violations of FAR 52.232-27 belong to the federal government; any non-conformity with the Federal Prompt Pay Act by the prime is for the federal government to pursue, not the subcontractor. A subcontractor’s recourse is via the subcontract agreement through a breach of contract for nonpayment claim. FAR 52.232-27 does not create an independent cause of action.
When pursuing litigation for non-payment, claimants want to include any and all avenues of redress in their complaint against a respondent. However, proper evaluation of the viability of each claim pleaded may lead to a decision to abandon the cause of action. As in the case of Federal Prompt Payment Act claims, a plaintiff will certainly be met with a motion to dismiss that is going to be almost impossible to overcome (perhaps unless there is a feasible flow-down or incorporation argument). Thus, a subcontractor will want to perform an analysis and evaluation of whether to expend resources on defending a Federal Prompt Payment Act cause of action in light of the courts’ interpretations of whether it creates a private right of action in a commercial dispute.
Our government contracts posts are published by Attorney Kristi Morgan Aronica. She serves as litigation counsel to prime contractors and subcontractors in the government contracts market throughout Texas and nationally.