Wednesday, June 30, 2010

The Prompt Payment Act

Contractors are entitled to prompt payment on their properly submitted invoices, public vouchers and progress payment requests. If the Government does not make a payment within 30 calendar days of receipt, it is required by law and regulation to include interest in its remittance to the Contractor. In other words, Agencies must pay interest regardless of whether the business concert requested payment of interest. The Secretary of the Treasury sets the interest rate ever six months. From July 1 to December 31, 2010, the rate is 3 1/8 percent. If Agencies do not automatically calculate and include interest on late payments, contractors can pursue it on their own. The Treasury Department impractically suggests that contractors consult with legal counsel to pursue recovery. Obviously, the interest in question would need to be very significant before one could make a business case for retaining counsel in such a matter.

Under cost-reimbursable contracts, most contractors submit electronic copies of their billings (SF 1034s, 1035s, and supplementary data) through the Government’s WAWF (Wide Area Workflow) system. The billings are routed through a number of reviewers until it reaches the disbursement office. Typically, the first level of review is the Defense Contract Audit Agency (DCAA). The DCAA Contract Audit Manual acknowledges that Contractors are generally dependent upon prompt receipt of interim payments under cost-reimbursement type contracts to maintain a satisfactory financial position. Therefore, as an objective, interim vouchers will be reviewed and either approved and forwarded to the disbursing officer or returned to the contractor for correction as quickly as possible but not later than five working days after receipt.(see CAM 6-1008). If DCAA takes more than five days to reject a voucher, those extra days, are factored into the calculation of interest. Note, when the regulation gives seven days to approve or reject a payment request, it is referring to calendar days. DCAA’s five day criteria refers to work days.

At one time, payments under the WAWF system were being processed very quickly. We heard examples where payments were received within a week after submitting a payment request. However, someone in the Government figured out that this was not wise cash management and policies were implemented to stretch payments out to 30 days or so.

The regulation and associated guidance do not address payment requests that are improperly rejected by the Government. We know of several cases where DCAA improperly rejected payments requests. Once a payment request is rejected in the WAWF system, it cannot be “unrejected”. Contractors must resubmit the payment request. This adds additional days to the billing process, for which, in our opinion, contractors should be compensated. If contractors encounter this situation, we recommend they correspond with the Government disbursing office, state their case and request interest for the period caused by the improper rejection.

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