Federal Prompt Payment Act – Resolving Government Invoice Problems

Resolve Invoice Problems With the Government in a Cost -Effective Way

What is the Prompt Payment Act?

The Federal Prompt Payment Act (PPA), 31 USC 3901-3905 is a federal law in the United States that was enacted to ensure that government contractors are paid promptly for their services and goods provided to the government. Under this act, government agencies are required to make payments to contractors within a certain timeframe, typically within 30 days of receiving a proper invoice or acceptance of the goods or services. If the payment is not made within the specified timeframe, the government agency may be liable to pay interest penalties to the contractor. See also FAR 52-232-27.

The Prompt Payment Act has a significant impact on government contractors. Firstly, it helps contractors maintain a healthy cash flow by ensuring timely payment for their work. This is especially important for small businesses that heavily rely on government contracts for their revenue. Secondly, the act provides a level of certainty and predictability in the payment process, allowing contractors to better manage their financial obligations and plan for future projects. By reducing the risk of delayed payments, the Prompt Payment Act promotes a more efficient and competitive contracting environment, encouraging businesses to work with the government.

The  Act ensures that federal agencies pay vendors for their invoices on time. However, not all government invoices are paid on time. This not only creates a hardship; it also impacts the contractor’s ability to perform other contracts and meet other financial obligations.

Prompt payment is sometimes entitled as a matter of law. However, the government may sometimes seek to exclude payment, or interest, by inserting facts in trying to delay the payment clock. There are some general rules that you should be aware of:

• The Agency is only required to pay for acceptable goods and services;
• If you do not send a proper invoice, the PPA does not apply.
• Make sure that your government invoice has accurate information.
• Follow up to make sure that the government has accepted your invoice.

Does the Federal Prompt Payment Act Apply to Subcontractors on a Federal Government Contract?

Yes, the Federal Prompt Payment Act, and FAR 52-232-27 also apply to subcontractors on federal contracts. The act recognizes that subcontractors play a vital role in government contracting and ensures that they are afforded similar protections as prime contractors. In fact, prime contractors are required to include prompt payment clauses in their subcontracts, ensuring that subcontractors are paid promptly for the work they perform or the goods they supply.

The prime contractor is responsible for making timely payments to subcontractors in accordance with the terms agreed upon in the subcontract. If the prime contractor fails to make the payment within the specified timeframe, the subcontractor has the right to seek interest penalties from the prime contractor. This ensures that the subcontractors are not unduly affected by delays in payment and helps maintain a healthy cash flow throughout the subcontracting chain.

It’s important for subcontractors to familiarize themselves with the FAR 52-232-27 provisions in their subcontract agreements and be aware of their rights and remedies under the Prompt Payment Act to ensure they receive timely payment for their services or goods provided on federal contracts.

When Do You Accrue Government Prompt Pay Act Interest Rate? 

Interest rules assess late interest penalties against agencies that pay vendors after a payment due date.

OMB regulations show as a general rule that the Prompt Payment Act interest penalty begins to accrue 30 days after the later of the date of actual receipt of the government invoice if annotated or seven days after delivery of the supplies ordered, or the invoice date if not annotated, absent certain circumstances and exceptions.

• Watch for agencies that attempt to delay payment based on the COR’s actual acceptance.
• Inspection delays extending beyond the prescribed seven days do not postpone accrual of interest penalty where there are no disagreements about quantity, quality or contractor compliance with contractual requirements.
• There may be different stands for commercial products.
• Federal PPA rules provide that if the interest is not paid automatically by the government if the statutory conditions are met, then the contractor may file a claim for the interest under the CDA.

Actual acceptance date is relevant to the extent that it occurs before the end of the “constructive acceptance” period of seven days for your contract.

This rate was established under the Contract Disputes Act and is referred to as the “Renegotiation Board Interest Rate,” the “Contract Disputes Act Interest Rate,” and the “Prompt Payment Act Interest Rate.”

Many government contractors are still having problems with agencies paying their invoices on time. Especially with government construction contracts, businesses suffer because they need payment to continue business operations. A Late payment does not help the situation much.  A Clear understanding of your rights starts by knowing the underlying basics of the Federal Prompt Payment Statute

Underlying Legal Basics About Government Invoices: The Federal Prompt Payment Statute provides for automatic government interest payments when the Government is late in making a payment for certain goods or services. The relevant section of the Act is  31 USC 3907, “Relationship to other laws.” (Despite its title, the only other law addressed in 31 USC 3907  is the Contract Disputes Act (CDA)

The Act does not apply when there is a dispute about payment.  As a federal contractor, the agency has a right to dispute your government invoice. Therefore, until that dispute is resolved, there is no need to pay.

The government is only required to pay for work accurately performed in compliance with the terms and conditions of the contract. Therefore, if there is a dispute, then prompt payment does not kick in. 

• Improper claims documentation also creates another problem that includes CDA claims certification.
• An agency may hold an invoice for 30 days before forwarding it to its payment center.

The payment center, in turn, may decide that the invoice was received, for purposes of measuring prompt payment, only when it arrived at the payment center and then hold it for another 30 days before making what it considers to be prompt payment.

• This type of internal agency practices ultimately impacts the contractor for obvious reasons.
• Automatic payment systems sometimes are not correctly programmed to calculate interest.

Subsection (c) is critical to how you go ahead. If you are not clear, you want to engage services of a government contracts lawyer. This section of the statute states:

“Except as provided in section 3904 of this title, this chapter does not need an interest penalty on a payment that is not made because of a dispute between the head of an agency and a business concern over the amount of payment or compliance with the contract. A claim related to the dispute, and interest payable for the period during which the dispute is being resolved is subject to the Contract Disputes Act of 1978. 31 U.S.C. § 3907(c).”

• Anytime the government rejects the amount of your invoice, there is a dispute.
• Prompt payment will apply when there is no such dispute and the government simply is not paying the invoice on time.

Courts’ Interpretation of the Federal Prompt Payment Act 31 USC 3901-3909 

Cases interpreting the Federal Prompt Payment Act contain a very little discussion of what makes up a “dispute” under the Act. However, the case outcomes show that interest is available only when Government payment of invoices are inadvertently late, and not when the Government refuses to pay or questions its underlying liability.

Sample case: In Gutz v. U.S., 45 Fed. Cl. 291 (1999), the court granted Prompt Payment interest rate on only one part of the Government’s debt. The Gutz plaintiffs signed a settlement agreement with the U.S. Soil Conservation Service (“SCS”) for repayment of amounts the agency wrongfully withheld in 1993 and 1994. The SCS paid only the 1994 amount and was not paid on time. The SCS claimed that the 1993 amount was not included in the terms of the settlement agreement.

The court found the Government’s argument wholly unsupported by the language of the agreement and ordered payment of the 1993 amount. However, the court did not award PPA interest on the 1993 payment because that payment was “in dispute.”

This is an important distinction when filing a government contract claims appeal case. Many corporate attorneys that are not familiar with the nuances of government contract law miss this point when deciding to file an appeal.

Federal Prompt Payment Act Subcontractors Application

Many situations arise when the prime contractor does not promptly pay the subcontractor on time. What is the remedy to subcontractors? It depends on the specific facts of the case. There are some cases that suggest that once the prime contractor has been paid for accepted work, then it must also promptly pay the subcontractor. 

Prompt Payment Act in construction contracts also are frequent problems that arise between the parties. At the end of the day, prime contractors in federal government construction or service contract projects should pay the subcontractor on time. Although the federal Prompt Payment Act was designed to first deal with the government’s payment to the prime contractor, the subcontractor arguably has some rights also.

 Common problems still facing contractors today include the issue of when did the agency receive the invoice and when did they send it for payment. 

See list of prompt payment questions from the Treasury Department

Learn about government interest payments for CDA claims.

For help with government interest rate payments and other issues under the Federal Government Prompt Payment Act, call our government contract attorneys at 1-866-601-5518.