Being subject to the Federal Prompt Payment Act, 31 USC 3901-3905 (the “PPA” or “Act”) for government construction projects puts business owners in a financial strain when the government does not pay invoices on time.
The Act was enacted to facilitate early payment to contractors when work is timely performed and in agreement with contract terms. Under the Act, construction companies are entitled to interest on the late payment and, under certain conditions, is subject to statutory penalties from the government agency.
The PPA also requires the general contractor to make payment to its subcontractors and vendors within seven days of receipt of payment from the government. Subcontractors and suppliers must also incorporate the prompt payment provisions into their contracts with lower-tier subcontractors and suppliers.
Federal Prompt Pay Act — Construction Primes to Subcontractors
When construction companies send invoices to the government, they certify that they have paid all the subcontractors and suppliers the amounts previously paid to the contractor. See information about equitable subrogation and Miller Act claims.
- Primes must pay subcontractors the full amounts invoiced for their respective scope of work.
- Under the Federal Prompt Payment Act, failure to pay subcontractors can lead to a fraud claims by the government.
Prompt Pay Act Deadlines: When a correct invoice is submitted to the government, prompt pay for the construction contract should occur within seven days of acceptance of the invoice. A common defense when appealing the contracting officer’s denial of interest payments occurs when the government claims that your work was not performed in compliance with the expressed contract terms. Read more about construction delays.
- Construction contractors should always immediately follow up to see if their invoices are in line with the completeness and performance acceptability requirements
Government Contractor Responsibility: When you submit an invoice for payment, the Federal Prompt Payment Act in construction contracts puts the burden on business owners to follow up, send a legally acceptable invoice. As stated earlier, follow-up emails and correspondence is a critical way of nudging the government contracting agency to take a position as to the acceptability of work and completeness of the invoice.
- Disagreements about performance do not drive interest in the Prompt Pay Act.
- The government has a reasonable amount of time to inspect performance in construction contracts and services contracts.
Improperly Submitted Payment Invoices: Under 5 CFR 15.1315.4(c)-(g) and (i) (2010), When an invoice is determined to be improper, under the Prompt Payment Act, the government must return the invoice to contractors as soon as practicable after receipt, but no later than 7 days after receipt. See information about Construction Defect Claims.
- The agency will name all defects that prevent payment and specify all reasons why the invoice is not proper and why it is being returned.
- The notification to the vendor shall include a request for a corrected invoice, to be clearly marked as such.
The prompt payment act regulations at 5 CFR 1315.10(c) does not mandate that the Agency pay PPA interest penalties if there are delays, contract compliance disputes. If these situations exist, government contracting agencies can withhold payment until disputes are resolved. Read additional information about the Miller Act Pay When Paid Clause.
For questions or representation in Prompt Pay Act construction contracts disputes, call our government contract claims and dispute lawyers at 1-866-601-5518. Free Initial Consultation.