Aron C. Beezley and Winni Zhang | GovCon Source
For federal subcontractors, a prime contractor’s failure to pay or consistent pattern of late payments can quickly become a serious cash-flow problem. However, federal subcontractors typically have several avenues for recovering amounts owed. The right strategy depends heavily on the type of federal contract, the subcontract, whether the government has already paid the prime contractor, and whether the project is subject to a federal payment bond.
The following steps can help a subcontractor protect its rights.
STEP 1: Review the Subcontract Terms
The first step is to review the subcontract and related purchase orders, modifications, invoices, and correspondence. Key terms to identify:
- What are the payment terms?
- Are there “pay-if-paid” or “pay-when-paid” provisions?
- In the event of a late payment, does the contract explicitly state what the penalties are or whether interest on the late payment will be paid by the prime contractor?Has your company satisfied the requirements for submitting invoices and supporting documentation?
- Is the prime contractor permitted to retain a percentage or portion of the payment pending completion of the project?
- The dispute and notice provisions.
- Does the contract mandate arbitration in the event of a dispute? If so, what forum?
- Is there a choice of forum clause that mandates litigation in a specific court or state?
- Is there a choice of law clause that outlines what state laws apply to the contract?
- If so, what are the statutes of limitations for contractual claims in that state?
- Upon being terminated, what rights do the subcontractor and prime contractor have?
- What FAR clauses flow down to the subcontractor from the prime contract?
STEP 2: Determine Whether the Prime Has Been Paid
One of the most important factual questions is whether the federal government has already paid the prime contractor for the work at issue. For federal contracts other than those for commercial products or commercial services, a subcontractor or supplier can ask the contracting officer whether the prime has submitted requests for progress or other payments and whether final payment has been made. The answer can materially affect the subcontractor’s strategy.
For example, if the prime has received payment from the government but is withholding the subcontractor’s money, the subcontractor may have a particularly strong contractual and regulatory basis for demanding payment. If the government has not yet paid the prime because of a legitimate dispute over the prime’s performance, the analysis can be different.
Importantly, the government’s failure to pay the prime does not automatically excuse the prime from paying its subcontractor. Whether it does depends on the subcontract’s payment language and applicable law.
STEP 3: Put Any Claim in Writing Within 90 days from the Subcontractor’s Last Work
A subcontractor should send a written claim that identifies:
- The subcontract and task or purchase order;
- The invoices at issue;
- The amounts owed;
- The dates the invoices were submitted;
- The date payment became due;
- The work or deliverables supporting the invoices;
- Confirmation that the work was completed and accepted, if applicable;
- Any applicable contractual or statutory interest; and
- A deadline for payment.
The demand should also request that the prime identify, in writing, any specific basis for withholding payment.
That last point can be particularly important. Under the federal construction prompt-payment clause, a prime contractor that withholds a subcontractor’s payment must provide written notice identifying the amount withheld, the specific causes for the withholding, and the remedial action required to obtain payment. A clear written record can become critical if the dispute later proceeds to arbitration, litigation, a payment-bond claim, or an administrative complaint.
STEP 4: If It Is a Federal Construction Contract, Check for a Miller Act Payment Bond
Federal construction subcontractors should immediately determine whether the Miller Act applies. Under FAR 28.102-1(a) and 40 U.S.C. § 3131, federal construction, alteration, or repair contracts exceeding $150,000 requires the prime contractor to furnish a payment bond protecting persons supplying labor and material for the project. That payment bond can provide an important alternative source of recovery when the prime does not pay.
The Miller Act has strict timing requirements. A person covered by the payment bond who has not been paid in full within 90 days after performing the last labor or furnishing the last material for which the claim is made may bring an action on the payment bond. A claimant without a direct contractual relationship with the prime contractor generally must provide written notice to the prime within 90 days of the last labor or materials supplied. An action on the bond generally must be brought within one year after the claimant’s last labor or material was supplied. These deadlines make procrastination particularly dangerous.
A subcontractor should therefore identify the payment-bond surety and obtain a copy of the bond as early as possible. Federal law provides a mechanism for a person who supplied labor or material and has not been paid to request a certified copy of the payment bond and the underlying contract from the contracting agency.
Do not assume that sending an ordinary invoice or demand letter automatically satisfies Miller Act notice requirements. The statutory requirements should be reviewed carefully with counsel, particularly for lower-tier subcontractors and suppliers.
STEP 5: Understand the Federal Prompt Payment Rules
Federal construction contracts contain specific prompt-payment requirements that can benefit subcontractors. FAR 52.232-27 generally requires the prime contractor to include subcontract provisions requiring payment to a subcontractor for satisfactory performance within seven days after the prime receives the corresponding payment from the government. The required subcontract provisions also call for an interest penalty when the subcontractor is not paid in accordance with the required payment terms.
The clause also establishes procedures for withholding payments. If a prime contractor withholds payment because of a subcontractor performance issue, the contractor must provide specified written notices and notify the contracting officer as required by the clause.
These rules are particularly relevant to federal construction subcontractors, but they should not be treated as a universal federal “30-day payment” rule for every type of subcontract. The payment provisions applicable to a particular subcontract must be examined carefully.
STEP 6: Small-Business Subcontractors Should Look for Additional Protections
Small-business subcontractors may have additional federal contracting protections. FAR 52.232-40, for example, requires accelerated payments to small business subcontractors within 15 days after the prime receives an accelerated payment from the government, to the maximum extent practicable and subject to the clause’s requirements. The clause expressly applies to subcontracts for commercial products and commercial services as well.
There is also a separate FAR provision concerning payments to small-business subcontractors. FAR 52.242-5 defines an “untimely payment” as one more than 90 days past due under the subcontract, when the government has paid the prime for the relevant supplies or services, and requires certain reporting to the contracting officer.
These provisions do not necessarily give the subcontractor a direct claim against the United States for the unpaid amount. But they can provide leverage and may trigger additional scrutiny of the prime contractor’s payment practices.
STEP 7: Consider Notifying the Contracting Officer
A subcontractor should not assume that the contracting officer is powerless when a prime contractor fails to pay. Under FAR 32.112-1, when a subcontractor asserts nonpayment, the contracting officer may determine whether the prime contractor has complied with applicable payment requirements and whether the prime’s certification accompanying a payment request to the government was accurate. If the contracting officer finds noncompliance, the officer may encourage the prime to make timely payment and, when authorized by the applicable payment clauses, may reduce or suspend progress payments.
Small businesses can also contact the agency’s small business specialist or Office of Small and Disadvantaged Business Utilization representative for assistance with payment issues.
The subcontractor should nevertheless understand the limits of this approach. A dispute between a prime and subcontractor generally remains a dispute between those private parties. The federal government is not automatically responsible for the prime’s contractual debt. The federal construction prompt-payment clause expressly states that prime-subcontractor payment disputes do not make the government a party to the dispute.
STEP 8: Preserve Evidence Before the Dispute Escalates
A subcontractor facing nonpayment should preserve more than its unpaid invoices. Relevant records may include:
- The executed subcontract and amendments;
- The prime contract provisions incorporated into the subcontract;
- Purchase orders and task orders;
- Invoices and proof of submission;
- Timesheets and payroll records;
- Delivery tickets;
- Daily reports;
- Inspection and acceptance records;
- Emails and other communications with the prime;
- Change orders and requests for equitable adjustment;
- Payment applications;
- Evidence of government acceptance;
- Evidence that the prime received payment;
- Notices of withholding or alleged deficiencies;
- The payment bond and surety information; and
- Records showing the last date labor or materials were furnished.
For a potential Miller Act claim, documenting the precise dates on which labor or materials were last furnished can be especially important because statutory deadlines run from those dates.
STEP 9: Be Careful Before Stopping Work
When a prime stops paying, the subcontractor may understandably want to suspend performance. That decision should be made carefully. Stopping work without first reviewing the subcontract can create a separate breach-of-contract dispute, expose the subcontractor to termination, or complicate an otherwise strong payment claim. On the other hand, continuing indefinitely without payment can create substantial financial exposure.
The subcontract may contain specific notice-and-cure provisions or expressly authorize suspension under certain circumstances. Counsel should review those provisions before a subcontractor takes the potentially significant step of stopping performance.
STEP 10: Escalate Strategically If the Prime Still Refuses to Pay
If a written demand does not resolve the problem, the subcontractor should evaluate the available remedies rather than simply sending increasingly aggressive collection emails. Depending on the circumstances, potential remedies may include:
- A contractual claim against the prime;
- Arbitration;
- Litigation;
- A Miller Act payment-bond claim;
- A claim against a surety;
- Recovery of contractual or statutory interest;
- A request for assistance from the contracting officer;
- Remedies arising from a subcontracting plan or other federal-contract requirements; and
- Other remedies available under applicable state law.
The appropriate remedy depends on the subcontract, the prime contract, the type of federal procurement, the claimant’s tier in the contracting chain, and the facts surrounding the nonpayment.
STEP 11: A Practical Approach to Federal Subcontractor Nonpayment
When a federal subcontractor is not being paid, the best approach is usually to act promptly but methodically:
- First, identify exactly what is owed. Reconcile invoices, payment applications, retainage, approved changes, and credits.
- Second, determine why payment has not been made. Is the prime waiting for government payment? Is the prime disputing performance? Is there a documentation problem? Or has the prime simply failed to pay despite receiving the government’s money?
- Third, review the subcontract and prime contract flow-down provisions. The payment terms and dispute provisions may control the immediate next step.
- Fourth, identify federal payment protections. For construction work, investigate the Miller Act payment bond immediately. For other federal contracts, determine which FAR payment provisions actually apply.
- Fifth, document the demand. Put the prime on clear written notice of the amount due and the contractual and statutory basis for payment.
- Sixth, consider notifying the contracting officer. Federal acquisition rules provide mechanisms for subcontractors to assert nonpayment and, in appropriate circumstances, permit the contracting officer to investigate the prime’s compliance.
- Finally, protect the deadlines. A subcontractor should not allow negotiations with the prime to consume a statutory notice or filing period — particularly under the Miller Act.
Conclusion
A federal subcontractor should not simply accept “the government hasn’t paid us yet” as an answer to a delinquent invoice. Federal contracting rules can impose payment obligations on prime contractors, and construction subcontractors may have an additional source of recovery through a Miller Act payment bond.
At the same time, federal subcontractor payment disputes are highly dependent on the particular contract and facts. A subcontractor should distinguish between its contractual rights against the prime, statutory rights against a payment-bond surety, and the limited circumstances in which the federal government may become involved.
Most importantly, do not wait until the payment problem becomes an emergency to investigate the available remedies. Payment-bond and other statutory deadlines can run while the parties are still exchanging emails and promising that payment is “coming soon.”
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 801.641.8304, or email experts@adviseandconsult.net.
Republished with permission. The article, “When a Federal Prime Contractor Does Not Pay: 11 Steps to Protect Subcontractors” was originally published on GovCon Source by Bradley Arant Boult Cummings LLP. Copyright 2026.