Paid Cost Rule (Eliminated 2000)
The "Paid Cost Rule" stipulated that large businesses must pay suppliers before those costs could be included in billings to the federal government. The rule was applicable to any payments the Government made that were based on costs. The rule was eliminated in May 26, 2000, and it affected the following FAR contract clauses.
- FAR 52.216-7 Allowable Cost and Payment
- (b) Reimbursing costs.
- (ii) When the Contractor is not delinquent in paying costs of contract performance in the ordinary course of business, costs incurred, but not necessarily paid, for --
- (A) Supplies and services purchased directly for the contract and associated financing payments to subcontractors, provided payments determined due will be made
- (1) In accordance with the terms and conditions of a subcontract or invoice; and
- (2) Ordinarily within 30 days of the submission of the Contractor’s payment request to the Government;
- FAR 52.232-16 Incentive Price Revision - Firm Target
- FAR 52.232-7 Payments under Time-and-Materials and Labor-Hour Contracts
While the Paid Cost Rule was eliminated, a prime contractor does need to have appropriate terms and conditions included in it's contract and/or Accounting process to allow for the timely payment of subcontractors. Language normally seen is:
The contractor shall certify in writing that subcontract costs on any previous invoices have been paid prior to submission of the current invoice, or
The contractor shall certify in writing that subcontract costs are timely paid in accordance with terms and conditions of the subcontractor agreement, and payments are not delayed, but paid within the subcontract billing cycle.