A new Small Business Administration rule implementing part of the Small Business Jobs Act of 2010 provides more protection for subcontractors in their dealings with primary contractors, according to a Washington Post report.

The rule, which goes into effect in mid-August, requires a prime contractor to notify the contracting agency if it decides not to use a small business subcontractor named in its proposal.  Prime contractors must also notify the agency if they make late payments or reduce payments to small business subcontractors.

The SBA said that subcontractors were not being paid on time and were often used to help prepare bids and then dropped when the contract was awarded, calling the tactic a “bait and switch” technique employed by prime contractors.

The SBA hopes that the new rule will encourage small businesses that have become wary of acting as subcontractors on large projects to reconsider because of the new protections put in place.  The rule also contains a provision that allows government officials to factor in how prime contractors treat their subs when bidding for other work.

If you’re a small or mid-size business owner, contact a Family Business Lawyer™today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.  Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.