Alternative Payment Protections
Contractors must provide and maintain payment protection equal to 100% of the contract price to safeguard suppliers and subcontractors against nonpayment on certain federal construction contracts.
Overview
FAR 52.228-13, Alternative Payment Protections, requires contractors to provide a payment protection instrument (such as a payment bond, escrow agreement, or other approved method) equal to 100% of the contract price for certain federal construction contracts. This clause ensures that suppliers of labor and materials are protected against nonpayment. The payment protection must be submitted within a specified number of days after contract award and must cover the entire contract performance period plus an additional year. The contracting officer has the authority to access the payment protection funds if a written allegation of nonpayment is made, except in cases where escrow agreements or payment bonds are used, as these have their own procedures. If a tripartite escrow agreement is used, only suppliers who have signed the agreement may be utilized by the contractor.
Key Rules
- Submission of Payment Protection
- Contractors must submit an approved payment protection instrument covering 100% of the contract price within a specified timeframe after award.
- Coverage Period
- The payment protection must remain valid for the contract period plus one additional year.
- Access to Funds
- The contracting officer can access payment protection funds upon written allegation of nonpayment, except for escrow agreements and payment bonds.
- Tripartite Escrow Agreements
- Only suppliers who are parties to the escrow agreement may be used when this method is chosen.
Responsibilities
- Contracting Officers: Ensure contractors submit appropriate payment protections, enforce coverage requirements, and manage access to funds in case of nonpayment allegations.
- Contractors: Obtain and submit the required payment protection, ensure it covers the full contract value and period, and use only approved suppliers under escrow agreements.
- Agencies: Oversee compliance and resolve disputes regarding payment protection claims.
Practical Implications
- This clause protects subcontractors and suppliers from nonpayment, reducing financial risk in federal construction projects.
- Contractors must plan for the cost and administrative requirements of securing payment protection.
- Failure to comply can result in payment delays, contract termination, or legal disputes.