🇺🇸United States

Delayed Subcontractor Payments in Progress Payment Chains

1 verified sources

Definition

Prime contractors often delay payments to subcontractors until they receive government progress payments, resulting in 60-90 day delays for subs despite monthly invoicing. Subcontractors rarely complain to avoid jeopardizing future work. This disrupts cash flow for 60-70% of defense contract work performed by subcontractors.

Key Findings

  • Financial Impact: $Billions annually in subcontractor financing gaps
  • Frequency: Monthly
  • Root Cause: Primes pass government payment delays downstream without offering financing to subs

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Defense and Space Manufacturing.

Affected Stakeholders

Subcontractor CFOs, Prime Contractor Accounts Payable, Small Business Owners

Deep Analysis (Premium)

Financial Impact

$1-3B+ annually (project delays cascade; cost growth 5-10% per contract; contractors leave; security delays impact capability) • $1-3M annually in financing charges (subcontractors factoring invoices at 2-4% discount; prime contractor credit lines for float) • $1-3M annually per DHS contract (financing gap costs + compliance audit findings for non-compliant configurations + potential security vulnerabilities from delayed patches)

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Current Workarounds

Accounting holds funds pending government clearance; holds are tracked in legacy accounting system; subs contacted ad-hoc with 'payment pending' messages • DCAA maintains separate spreadsheets correlating contractor payment delays to subcontractor financial stress indicators; manual review of contractor credit card advances and personal loan evidence in audit workpapers • DoD export control officers manually verify subcontractor ITAR status by direct phone calls; paper-based supplier questionnaires; email follow-ups; manual database cross-referencing against OFAC/denied party lists

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

Small Business Exclusion from Cost-Based Progress Payments

Unrecoverable bid/proposal costs without compliant systems

Slow Progress Payment Processing and Verification Delays

80% liquidation rate on invoices causing underpayments (e.g., $16K held on $20K invoice)

Failure to Properly Flow-Down Mandatory FAR/DFARS Clauses Leading to Audit Failures

$Millions in settlement liabilities annually across DoD supply chain

Excessive Administrative Burden from 'Kitchen Sink' Flow-Down Practices

$Significant increase in supply chain management overhead

Logistical Bottlenecks in CMMC/NIST Flow-Down Verification and Enforcement

$Lost productivity from delayed subcontract fulfillment

Proposal Quality Defects Driving Rework and Lost Awards

$200k–$2M per major proposal in additional re‑write, SME review, and audit support labor; tens of millions in lost margin when proposals are downgraded or excluded

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