Editorial · July 10, 2019
Prompt Payment Act: Federal Late Payment Rules
The Prompt Payment Act tells federal agencies how fast they must pay the businesses that sell to them. If an agency pays late, the law says it owes interest. This guide explains the main rules in plain words, so a small contractor knows what to expect and what to ask for.
What the law requires
The Prompt Payment Act is found at 31 U.S.C. chapter 39. It covers an agency that buys property or services from a business. If the agency does not pay for a delivered item by the required payment date, it must pay an interest penalty on the amount due. The Office of Management and Budget wrote the working rules. They sit in 5 CFR Part 1315, and the contract clause that carries them into most federal contracts is FAR 52.232-25.
The interest rate is not set by each agency. The statute says the rate is the one the Secretary of the Treasury publishes in the Federal Register, and the rate in effect when the agency accrues the penalty applies. OMB's rule also says a vendor can learn the current rate by calling the Treasury Prompt Payment help line.
Sources: 31 U.S.C. 3902 (Cornell Legal Information Institute); 5 CFR Part 1315 (Cornell Legal Information Institute); FAR 52.232-25 (acquisition.gov).
When the clock starts
The payment period starts when the agency receives a proper invoice. A proper invoice has the information the rule lists, and an agency may send back one that does not. If it does, the agency must return it as soon as it can, and no later than 7 days after it arrives. The return notice must list every defect and ask for a corrected invoice.
There is one more detail. An invoice is treated as received on the later of two dates. One is the day the agency actually gets it. The other is the seventh day after delivery or finished work, unless the agency accepted the work sooner. A contract can also set a longer acceptance period, and then that period applies.
Sources: 5 CFR 1315.4 (Cornell Legal Information Institute).
How many days the agency has
The default is simple. If the contract names no date, no discount is taken and no faster method is used, payment is due 30 days after the payment period starts. For interim payments on cost-reimbursement service contracts, the due date is 30 days after a proper invoice arrives.
Some goods get a shorter clock. The rule sets these limits:
- Meat, poultry, eggs, and fresh or frozen fish: payment by the seventh day after delivery.
- Perishable farm products: payment by the 10th day after delivery, unless the contract names another date.
- Dairy products and edible fats or oils: payment within 10 days after a proper invoice is received.
If one invoice mixes items with different clocks, the agency may pay all of it by the earliest date, or it may split the payments. It may not make the vendor send a separate invoice for each order.
Sources: 5 CFR 1315.4 (Cornell Legal Information Institute).
How late interest works
Interest runs from the day after the due date through the day the agency pays. The agency uses the rate in effect on the day after the due date, and the math uses a 360 day year. Interest is paid without a request, and the payment must come with a notice. The notice states the amount, how many days late the payment was, and the rate used.
Unpaid interest does not sit still. If it stays unpaid at the end of any 30 day period, it is added to the principal for up to one year, and new interest builds on the larger amount. Interest stops building after one year, and it also stops once the vendor files a claim under the Contract Disputes Act. An interest penalty under one dollar need not be paid.
Money trouble inside the agency is not an excuse. The statute says a temporary lack of funds does not remove the duty to pay interest. The agency pays the penalty out of the funds for the program that caused it.
Sources: 31 U.S.C. 3902 (Cornell Legal Information Institute); 5 CFR 1315.10 (Cornell Legal Information Institute).
The extra penalty and how to ask for it
A vendor can ask for an added penalty in one case. The agency paid the principal late, left out the interest owed, and still has not paid that interest 10 days after the payment date. Then the vendor may make a written request. It must be postmarked, faxed or emailed by the 40th day after the payment was made.
The request must say that late interest is due on a named invoice. It must also include a copy of that invoice and say when the principal was received. The added penalty equals 100 percent of the original interest, up to $5,000. It is never less than $25, but nothing extra is owed if the interest itself is under one dollar. Each invoice is judged on its own.
Sources: 31 U.S.C. 3902 (Cornell Legal Information Institute); 5 CFR 1315.11 (Cornell Legal Information Institute).
Practical steps for a contractor
Good records make these rules easy to use. Keep the delivery date, the acceptance date and the date the agency received each invoice. Write the contract number and a clear description on every invoice, so the agency has no reason to send it back. If the agency returns an invoice, note the day it came back, because a late return can shorten the time the agency has to pay the corrected one.
When a payment arrives, check the date against your own count of days. If it is late and no interest notice came with it, write down the day you were paid. That date starts your 10 day and 40 day limits for an added penalty. The rules reach only federal agencies. A grant recipient may agree to pay interest to its own vendors, but the statute says that duty is not an obligation of the United States.
This article is general information only. For a specific contract, read its payment clause and ask the contracting officer.
Sources: 5 CFR 1315.4 (Cornell Legal Information Institute); 31 U.S.C. 3902 (Cornell Legal Information Institute).
Sources
- 31 U.S.C. 3902, Interest penalties: law.cornell.edu/uscode/text/31/3902
- 5 CFR Part 1315, Prompt Payment: law.cornell.edu/cfr/text/5/part-1315
- FAR 52.232-25, Prompt Payment: acquisition.gov/content/52232-25-prompt-payment