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Pentagon to Slow Payments to Prime Contractors to Increase Cash Reserve

Pentagon1Defense Department officials have decided to slow down payments for prime contractors to increase its cash reserve effective this week, reports Marcus Weisgerber at Defense News.

Notification on the changes will start in a few days and officials hope that the move will generate over $1 billion in available cash from spending accounts.

“The perfect storm” of combining sequestration and DoD’s reliance on a continuing budget resolution is the main driver for these changes, according to senior Pentagon officials.

One official said last Thursday that it was a hard decision to make but it is crucial in preventing DoD from having negative cash reserves.

The slow-down of prime contractor payments is part of the plan to restrain the quick pay initiative.

The DoD uses it to speed-up payment for small businesses and permits payment release upon verification of a bill. The initiative was expanded to prime contractors in July 2012 to benefit small business units.

However, the abolition of the quick pay initiative may be prevented if sequestration is stopped and a new appropriations bill is passed.

Pentagon officials hope that slowing down payments will not produce any damaging impact on contractors.

The DoD has previously deployed other solutions to generate savings such as slowing down contract awards, going on a hiring freeze and minimizing facility maintenance and official travels.

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