DoD, GSA, and NASA issued a final rule amending the Federal Acquisition Regulation (FAR) to require compound interest calculations be applied to Government overpayments as a result of defective cost or pricing data.
On September 14, 2009, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a decision regarding the method of interest calculation on Cost Accounting Standards (CAS) cost impacts (see GATES v. Raytheon Co., 584 F.3d 1062 (Fed. Cir. 2009)). The interest on CAS cost impacts is set by reference in the enabling statute to 26 U.S.C. 6621. The CAFC ruled that the citation led to calculation of the interest using daily compounding.
The Truth in Negotiation Act (TINA) also references 26 U.S.C. 6621 for interest calculation. (See 41 U.S.C. 3507 and 10 U.S.C. 2306a) and so FAR needed to be modified so as to require compounding of interest on Government overpayments as a result of defective cost or pricing data.
This new rule replaces the term ``simple interest'' as the requirement for calculating interest for Truth in Negotiations Act cost impacts with the phrase ``Interest compounded daily as required by 26 U.S.C. 6622.'' Thus, compound interest calculations will be applied to Government overpayments as a result of defective cost or pricing data.
This could have a significant impact on contractors with TINA violations. Often, these issues take years to resolve and if the Government ultimately prevails, the difference between simple and compounded interest could be significant.