Memorandum for Acquisition Officers From the President

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Many NACM members who are government contractors report problems with the modification and ratification of federal government contracts. The Federal Acquisition Regulation (FAR) does not provide the federal contracting officer or the federal contractor a time limit by which a modification or ratification must be completed and approved. NACM is concerned about the non-regulated amount of time it takes for a ratification to be made by a federal contracting officer. A ratification is a contract that is drafted and approved after the services have been provided or goods have been received. After the contractor has acknowledged the appropriate approval from the government receiver, the amount of time of the ratification is not monitored. This can be a hardship on businesses. A regulated time period for ratifications would benefit the government agency as well as the government contractor. In 1988, Congress passed the Federal Prompt Pay Act that requires the government to pay its bills on time or incur interest penalties. Since the enactment of this law, many of the payment problems that government contractors previously experienced have been resolved. However, many subcontractors have reported shortcomings in the law since key provisions of the Act do not extend to them. Other loopholes and oversights in the administration of the Act still plague government contractors and subcontractors and should be addressed by Congress.

Update on the Repeal of the Tax Increase Prevention and Reconciliation Act

On May 17, 2006, President Bush signed H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005 into law (Public Law 109-222). This law includes a provision (Section 511) that will impose a 3% withholding tax on the value of most contracts for goods and services sold by businesses to federal and state governments as well as local political with contracting expenditures of $100 million or more. Section 511 states that the withholding will begin January 1, 2012. NACM's position on the withholding tax is:

  1. This 3% withholding tax will adversely impact businesses, which do not have the administrative or financial capacity to withstand this new taxing mechanism.
  2. It is inherently unfair and potentially financially debilitating because it is not a progressive tax. It will place a proportionately higher financial burden on all businesses engaging in commerce with the government. It places an undue burden on the already-squeezed cash flows of many small- and medium-sized businesses.
  3. It may force those who currently do business with federal, state and larger local governments to cease doing business with them. Such a result will lead to less competition for government business, driving up prices that the government has to pay for goods and services. This could ultimately lead to having to impose higher taxes on all taxpayers.
  4. The new taxing measure could further weaken the U.S. economy, which depends a great deal on new jobs and economic growth created by business, including small- and medium-sized businesses that are responsible for the majority of new job creation.

NACM and the Government Withholding Relief Coalition (GWRC) has been working together to get legislative support for S. 2821, the Withholding Tax Relief Act of 2006. This important legislation would repeal Section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222). The Withholding Tax Relief Act of 2006 was tabled and no further action was taken by legislators.

NACM and the Government Withholding Relief Coalition have not given up on the repeal. We have continued to work on our members' behalf. On May 19, 2010, a letter from GWRC was sent to President Barack Obama urging the repeal of Section 511. Click here to view a copy of the letter.

NACM and GWRC have also been working on a number of legislative and regulatory developments that together address issues with tax compliance and transparency by companies receiving government payments.

NACM-GBG will update all members as information becomes available. For more information on GWRC go to

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