Department of Defense Set to Withhold Contract Payments


Notwithstanding recent amendments to its earlier proposed rule, the Department of Defense (DoD) is poised to begin withholding payments under cost reimbursable and time and materials contracts whenever it finds contractors’ business systems deficient. This proposed rule represents a significant change in the contracting environment for companies performing work for DoD.

As originally proposed, the Defense Federal Acquisition Regulations Supplement (DFARS) rule would have allowed contracting officers to withhold 10%, 50% or even 100% of contractor payments when the contracting officer decides that a contractor’s “business systems” are “deficient.”

Amendments now lower the amounts that can be withheld, but even as amended the proposed rule would impose new compliance requirements that are difficult to understand on their face. Without clear criteria in the proposed rule, contractors face potentially substantial compliance costs in addition to severe monetary penalties for noncompliance.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Womble Carlyle Sandridge & Rice, LLP | Attorney Advertising

Written by:


Womble Carlyle Sandridge & Rice, LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.