EXECUTIVE OFFICE OF THE PRESIDENT WASHINGTON, D.C. 20503 OFFICE OF FEDERAL PROCUREMENT POLICY FOR RELEASE ON DELIVERY Expected at Tuesday, June 21, 1977 STATEMENT OF LESTER A. FETTIG ADMINISTRATOR FOR FEDERAL PROCUREMENT POLICY BEFORE THE UNITED STATES SENATE COMMITTEE ON SMALL BUSINESS Mr. Chairman and Members of the Committee I am pleased to appear before this Committee as the recently confirmed Administrator for Federal Procurement Policy to discuss issues of mutual interest. In particular, I understand you are interested in my views on whether or not there is a problem relating to the timely payment of invoices on Government contracts to small business firms; and, if there is a problem, how it can best be resolved. I am both aware and gratified that the Office of Federal Procurement Policy (OFPP) has enjoyed a close working relationship with the Congress on small business matters. It is my intent that this relationship be continued in the future. I share your desire to advance the interests of small business firms and will work with you to achieve goals in this area. I believe it to be appropriate in discussing this subject to divide my remarks into three areas; problem identification corollary considerations, and possible solutions. Problem identification: Much attention has been devoted for many years to the timely if not fast payment of Govern ment contract obligations. Buying offices that are well managed often view as a matter of pride their ability to match receiving reports and contractor invoices for the purpose of disbursing within a few days payments against these accounts. It may be that as a general rule the average time for payment by the Government is less than the commercial average. This is particularly true for the large dollar progress payments for major systems which are frequently paid on a weekly basis. Less definitive studies now available to me indicate that in many cases time for payment of small dollar purchases is less than thirty days. In dealing with the large volume of purchase actions throughout the Federal Government (now estimated to be 16 million), the problem of course is not with the average, but with those that deviate from the norm. They are the problem cases which deserve careful management attention. Last year the matter of slow payment on some Government contracts was brought to the attention of my office. We investigated those cases and discussed the problem with a number of agencies. We found that data was not immediately available to indicate the extent of the problem. However, we did find that the General Accounting Office had begun a study of the matter. As a result, my office issued a policy letter to all agencies in August 1976 emphasizing the importance of prompt payment of invoices and requesting the agencies to insure that their buying offices fulfilled this requirement. While I would like to think that our action has resulted in a reduction of cases involving slow payments, I acknowledge that to some undefined degree a problem still exists. For this reason, the GAO report will be of great value to my office in assessing the problem and in determining what the best corrective action might be. It is my understanding that the GAO study is comprehensive. It will analyze data provided by both contractors and payment centers. We have been told that GAO expects to have a draft report on this matter in August of this year. Corollary considerations: In examining this problem, two associated areas need to be considered. The first is administrative. Some problems of apparent slow payment result from deficiencies in contract performance which preclude preparation of receiving reports or in the preparation of invoices which prevent final payment by Government disbursing offices. Stated simply, the Government cannot pay if the contractor has failed to fulfill all requirements that have been spelled. out in his contract. The Commission on Federal Paperwork recently recommended methods for simplifying contractor invoices and Government receiving reports. Improvements in these administrative areas should eliminate some problems which result in slow payments. The second consideration involves prudent cash management. The flow of funds through disbursing offices has a significant impact on the cost of money borrowed by the Treasury Department. For example, it has been estimated that for every day that is gained in the payment cycle on a procurement base of $70 billion, $14 million a year is saved at an interest rate of 7 1/2 percent. Therefore, Treasury's cash flow is affected by the speed of payments against contract obligations. In its Circular No. 1084, the Department of Treasury addresses this issue directly by requiring Government Departments and agencies to conduct their activities involving the Government's cash so as to maximize the amount of cash available to preclude unnecessary borrowing. The Circular specifies, however, this payment should be made when due. Possible solution: I am very sensitive to the slow payment problem. I am most particularly concerned when it involves small business firms since in many instances these firms are not capable financially to carry large amounts in their receivable accounts. I propose to issue a regulation governing payment of invoices and emphasize the need that enforcement be monitored in all agencies. Other solutions to this problem may become apparent after we examine the GAO study. I assure you that the Office of Federal Procurement Policy will act to insure to the extent possible that small firm Government contractors are paid on a timely basis. Mr. Chairman, this concludes my prepared remarks. I will be pleased to respond to questions that you may have. |