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U.S. House Small Business Committee Marks Up Construction Coalition Legislation on Change Orders

Friday, June 16, 2017  
  U.S. House Small Business Committee Marks Up Construction Coalition Legislation on Change Orders 

The House Committee on Small Business marked up H.R. 2594, which is the Small Business Payment for Performance Act of 2017. The legislation contains provisions on change orders from the federal Construction Industry Procurement Coalition’s bill in 2017.

H.R. 2594 would permit small businesses performing a federal construction project to request an equitable adjustment (REA) of the contract price for a unilateral change order from the federal contracting agency. The bill also provides that the federal contracting agencies must make a payment of at least 50% of the cost of the work performed as a result of the change order upon receipt of the REA and a proper invoice. The committee added a “flow down” provision that requires each small business receiving a payment under a REA to pay subcontractors and suppliers the portion that represents their costs from the change order. First tier subcontractors and suppliers must do the same.

The Coalition’s bill contains provisions that would require federal agencies to disclose their policy on payment for change orders upfront when the contract is being let so that bidders can take into consideration the timelines of the agency’s payments in preparing their bids. After discussions with the committee members, however, the bill instead requires two studies of its impact.

The bill provides that each federal agency that awards a construction contract to a small business must annually report to the Small Business Administration (SBA) regarding all contract modifications and associated REAs, but only if the change order was not finalized within 60 days. The agencies would have to identify the type of small business involved in each incident reported. The federal agencies also would have to notify the SBA when a REA is included in the contract file of a construction contract. This was an important amendment from the Democratic minority on the committee. This will gather not only information on the federal agencies’ payment practices, but also on the demographics of the small businesses being affected by agency practices on change orders.

The second report requires the SBA to submit an annual report to Congress that summarizes the reports received from the federal agencies and any concerns that they have about the process.

While the bill does not require federal agencies to disclose their practice on making payments on unilateral change orders, the agencies would be required to give the contractor advance notice of a payment under a REA so that small businesses would at least know that payment is coming within a certain timeframe. This is intended to help small contractors better manage their cash flow.

The House Small Business Committee has operated in a bipartisan manner and H.R. 2594 and all the amendments offered were approved with unanimous votes.

Members should visit Government Relations / General Info (Members) for more information.

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