Prompt Payment Clause
Third Party Procurement
Frequently Asked Questions
Q = Question; A = Answer
Q. Is a prompt payment clause required in all contracts, including A&E contracts?
A. Grantees are required to include a prompt payment clause in all DOT-assisted contracts, including A&E contracts. The clause requires prime contractors to pay subcontractors for satisfactory performance of their contracts no later than 30 days from receipt of each payment from the grantee. This requirement comes from the Disadvantaged Business Enterprise rule found at 49 CFR § 26.29. The Best Practices Procurement Manual covers this requirement in Chapter 7, Section 7.2.4 - Prompt Payment Mechanisms. (Revised: August 31, 2009)
Q. I know that there are regulations and required clauses that require third party general contractors to pay their subcontractors in a timely manner, but are there any requirements for the grantee to pay the prime in a timely manner? Background: Some construction contracts I have seen require the Prime Contractor to show documentation that they have paid their subcontractor before ANY payment is released to this Prime Contractor. Is this prohibited?
A. FTA requirements regarding prompt payments to contractors and subcontractors may be found in the USDOT DBE rule at 49 CFR Part 26, specifically §26.29 — What Prompt Payment Mechanisms Must Recipients Have? This section of 49 CFR Part 26 is discussed in the FTA Best Practices Procurement Manual (BPPM), Section 7.2.4 - Prompt Payment Mechanisms, which may be found online.
As you will see, FTA does not require grantees to pay their prime contractors within a certain period of time. However, FTA's prompt payment policies are clear in their objective that all contractors be paid in a timely manner, and 30 days would seem to be a necessary commitment for grantees to make for payments to their prime contractors in as much as the prompt payment requirements for primes themselves is not less often than 30 days for payments to subcontractors.
The BPPM also notes that 49 CFR §26.29 suggests (but does not require) that grantees consider a provision in their prime contracts providing that primes will not be paid for work performed by a subcontractor until the prime ensures that the subcontractor is paid.
The CTA prompt payment clause included in the BPPM is an example of how one agency addresses the requirement, and it does go beyond the FTA suggestion in that it requires primes to make timely payments to subcontractors for completed work as a condition of being paid by CTA. FTA allows agencies broad discretion in structuring their contract payment conditions in order to achieve the agency's prompt payment objectives. (Posted: March, 2012)