New Bill Mandates 50% Upfront Payment for Small Businesses Facing Federal Contract Changes

When you’re running a small construction business, cash flow is everything. Nothing kills a budget faster than the government changing the scope of work on a federal contract after the ink is already dry. That unexpected change means extra costs, and waiting months for the agency to approve an “equitable adjustment” can bankrupt you.

The Immediate Fix for Scope Creep

The Small Business Payment for Performance Act of 2025 is designed to fix this exact problem. Simply put, if a federal agency tells a small business to change the terms of an existing construction contract—say, adding a new structural requirement or altering materials—the small business can submit a request for an “equitable adjustment,” estimating the extra money needed to cover the changes. The key change here, found in Section 2, is that once that request is submitted, the agency must hand over an interim partial payment equal to at least 50 percent of the estimated extra cost. This isn’t the final settlement, but it’s immediate cash to keep the project moving and the payroll covered while the agency calculates the final amount. For a small contractor, this is huge; it means they don't have to finance the government's last-minute changes out of their own pocket and hope to be reimbursed later.

Protecting the Subcontractors

This bill understands that in construction, the money has to flow all the way down the line. A significant provision in Section 2 addresses subcontractors, who are often the ones who feel the pinch most when payments are delayed. If the small business prime contractor receives that 50% interim payment, they are legally required to pass the corresponding share of that money down to their first-tier subcontractors. Those subcontractors, in turn, must pass it down to their own subs. This creates a mandatory pass-through mechanism, ensuring that the guys actually doing the work get paid quickly for the extra materials and labor caused by the government’s change order. It’s a direct attempt to stabilize the entire supply chain on federal projects.

What’s the Catch?

While this is a clear win for small businesses and subcontractors, it does introduce a couple of administrative hurdles. First, the 50% payment is based on the small business’s estimate of the extra cost. While the agency will eventually perform a final audit, this upfront payment shifts the immediate financial risk onto the government. Federal contracting agencies will have to manage this new, mandatory upfront cash outlay, which could strain their immediate budgets. Second, while the bill mandates passing the money down, the exact mechanism for calculating the “appropriate share” for lower-tier subcontractors is left somewhat vague. This lack of detail could lead to disputes between prime contractors and subs over who gets what portion of the interim payment.

Overall, the Act is a straightforward piece of legislation aimed at making the federal contracting process fairer and less financially crippling for small businesses. The Administrator of the Small Business Administration is tasked with putting these new rules into effect by October 1, 2027, or sooner, meaning this change is coming soon to a federal construction site near you.