The Office of Management and Budget has issued a new directive prohibiting government agencies from withholding a portion of payments due on federal construction contracts unless the contracting officer finds the project's progress is unsatisfactory.
According to Stephen Hilton, an aide to Sen. John C. Danforth (R-Mo.), agencies had been routinely withholding--"retaining," in contracting terms--up to 10 percent of interim payments until the project was complete.
In practice, an OMB procurement official said, prime contractors on such projects as military barracks or Veterans Administration hospitals would then withhold a portion of payments due to subcontractors, and so on. The smallest contractors, he said, waited months or years for full payment.
Under the new policy, agencies must determine how much to withhold on a case-by-case basis if a project has problems, instead of retaining a predetermined percentage.
The new directive, signed May 6 by Donald E. Sowle, administrator of OMB's Office of Federal Procurement Policy, will go into effect July 6. Danforth and Sen. Lowell P. Weicker Jr. (R-Conn.) have sponsored legislation to accomplish the same end, but Hilton said last week that the bill will be put on hold while the new OMB policy is put into effect.