Overview
This section describes the government's preference for prime contractors to provide financial support to weak subcontractors through progress payments rather than relying on government-backed loan guarantees.
Key Rules
- Priority of Funding: When a subcontractor is financially weak compared to the prime contractor, the government aims to have the prime contractor provide progress payments first.
- Agency Responsibility: Agencies must attempt to arrange for prime-led progress payments to reduce or eliminate the necessity of a loan guarantee.
- Risk Allocation: By providing progress payments instead of a guarantee, the prime contractor assumes the financial risk associated with its choice of subcontractor.
Practical Implications
- Prime contractors should expect the government to scrutinize their subcontracting financial arrangements and may be pressured to use their own liquidity to support subcontractors.
- This policy shifts the burden of financial due diligence and potential loss from the taxpayer to the prime contractor, incentivizing more careful subcontractor selection.