Faster Federal Contract Payments - A Win for Everyone

by Shauna Weatherly, President | Founder, FedSubK

The General Services Administration (GSA) recently "righted" what I believe to have been a "wrong" for a long time. But no one is talking about it...until now.

A little history...

The Governmentwide Purchase Card (GPC), or "P-Card" for short, as traditionally been used by Federal agencies, organizations, committees, boards, Native American Tribal Governments, and some cost reimbursement contractors (when authorized by the agency) to make low dollar, low risk purchases called micro-purchases on the open market (see FAR 2.101 Definitions). The dollars that flow through the P-Card (i.e., spend) earn Federal agencies cash back (i.e., refunds) not that different from what you or I earn on our credit cards.

At the highest levels of some agencies, refunds are used to manage the agency P-Card program, such as at VA and DoD, the top two using agencies. But refunds at the lowest level are used to buy much needed equipment and training when overhead dollars are not available. As a branch chief, I've used the refunds received from the small buys made by the cardholders I oversaw to buy equipment and training for official use when our overhead budget ran dry. You can see how refunds could add up and could be a huge help when budgets are tight for those types of things, right?

Getting back to the GSA...

The GSA Multiple Award Schedule (MAS) solicitation has had in it the FAR clause 52.232-36, Payment by Third Party, for a very long time as one of the potential methods of payment. This clause allows the Government to pay for products and services ordered using the P-Card, should it choose and as authorized in FAR Subpart 13.301(c). That FAR subpart states that the P-Card can be used for payment when the Contractor agrees to accept the card. When you signed your GSA Schedule contract you agreed to take payments via the P-Card. Did you realize that?

Had you been paid by the P-Card -- which the Government could decide to do at any time during performance of any order -- you would have been required to accept it AND that would have included accepting the payment processing fees that go along with receipt of that payment. The GSA Schedules contracts had no mechanism by which GSA Schedule holders could have recouped those fees.

As the Project Lead and COR on the current GSA SmartPay 3 contracts from 2016 to 2022, I argued against GSA's position that agencies could / should start making the push to pay with the P-Card unless Contractors were notified and given the opportunity to include processing fees in their prices. I was told, "Shauna, we have the unilateral right to do it. They signed the contracts." Well, I didn't think any agency should have the unilateral right to play "gotcha" and impact your bottom line. Especially the bottom line of small businesses.

Since retiring, I've spoken to financial networks, banks, and Federal agency personnel for the past 20 months (including my own former supervisor) about the need to right this wrong before the Government starts to utilize the P-Cards as a payment mechanism on contracts over the micro-purchase threshold under that FAR clause. And thankfully, Visa has given me a platform to do that. I've been able to provide some guidance and insight as to what needs to happen before such a push should take place -- but now as a small business myself and small business advocate.

Fast forward to August 8, 2024 --

GSA issued Refresh 22 and in the solicitation and the associated mass mod to existing Schedule holders. GSA has now added terms that allow offerors and contractors to include payment processing fees in its contract rates.

Provision FSS-SCP-001 Instructions Applicable to All Offerors reads in paragraph (i)(3)(ii)(F) that by submission of an offer the offeror understands and agrees to accept payment by the P-Card. No change from before except that NOW the instructions also state that this serves as notification that prices must include all costs associated with acceptance of the P-Card (e.g., payment processing fees) and that Schedule contractors cannot impose a surcharge at the order level for payment by the P-Card. It ends by saying that the P-Card may be used as a payment mechanism for all orders, regardless of the dollar amount.

That's Government-ese for "consider yourself warned".

Why would the Government want to expand its P-Card spend from micro-purchases by adding contract payments? That thing I mentioned before...refunds. Cash bank. Free money. Many agencies are already piloting the use of the P-Card for making contract payments for recurring services to expand spend and increase refunds. That use is only going to expand as those pilots are proven successful.

In order to add these processing fees to a quote under your GSA Schedule, you must submit an eMod if you --

(1) want to accept payments by the card to speed up your cash flow, and/or

(2) your agency customers are looking to use the card to pay you.

Again, you CANNOT add the payment processing fees or surcharges at the order level. It MUST be at the Schedule Contract level.

Now, I know you may also be worried that including these fees will raise your ceiling rates and impact your competitive advantage, but there are ways around that. FIRST, ask the CO/KO at the ordering agencies you work with NOW if they plan to make payment with the P-Card. Let them know that understanding the payment method they choose to use impacts the discounts you may be able to offer for their work.

? If they don't plan to pay by P-Card and you've included fees on your schedule, offer discounted rates in your quotes to that agency equivalent to the payment processing fees.

? If they do plan to pay by P-Card, well, you're covered. Nothing comes out of your bottom line. I highly recommend Schedule holders take advantage of this opportunity.

The Government is also looking at expanding the use of P-Cards for contract payments outside from under the umbrella of the GSA Schedule, through inclusion of FAR clause 52.232-36 Payment by Third Party in other contracts at the agency and organization level.

How do you find out if it is the Government's plan to make payments by P-Card? When the RFQ or RFP is issued. Ask and know the payment method before you submit your pricing because the Government is not likely going to reopen negotiations with you so you can absorb those payment processing fees later. And the Government folks know they need to avoid any sneak attack and start payment with the P-Card in the middle of a contract (or they should much as I've been shouting it from the rooftops around them over these last several years).

But...

It's also time to think about the business decisions surrounding the acceptance of the P-Card as a payment mechanism and what that looks like for your business and pricing. Don't negatively impact your bottom line by (1) not knowing the payment clause in your contract, and/or (2) not preparing for alternate payment methods as part of your pricing structure.

Now wait, wait. You said there was something in it for me. Where is my win?

While Government use of the P-Card can streamline the payment process for them and they get refunds, the wins in accepting the P-Card for payment for you as a Contractor are also HUGE!

You get payment faster, not waiting for a 30-day payment cycle (or more based on DoD payment times as called out in the Defense Contract Finance Study in April 2023). Faster payments build cash reserves faster, which gives you access to more affordable credit. These things combined help accelerate growth opportunities for your business and can expand your access to more opportunities in the Federal marketplace. I call those BIG WINS, particularly for small businesses.

Contractor, Federal agency, Contracting Officer, Financial Network, or Bank...reach out and let's start this conversation. GSA figured it out and agencies can now start using it on those contracts, which makes a GSA Schedule contract a good investment for a small businesses when it otherwise makes sense in your marketing strategy.

We need to attract more small businesses to the Federal marketplace! This is one way -- one incentive -- where if we all work together it can be a WIN for everyone.

Learn more about FedSubK and our Founder, Shauna Weatherly, at fedsubk.com.

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