Friday, July 8, 2011

Interest Penalty for Late Payment

A Governmental Agency that has acquired property or services through contracting from a business concern and has failed to pay for the complete delivery of property or service by the required payment date must pay the business an interest penalty. The Government misses due dates from time to time. When it does, contractors are entitled to interest. Sometimes, the Government paying office calculates the interest and adds it to the amount remitted. But, not always. Contractors need to implement cash management polices and procedures to ensure timely receipt of monies owed it by the Government.

There are several statutes that require the Government to pay this interest penalty; 31 USC 3902(a), the Contracts Disputes Act of 1978, Public Law 95-563, and the Prompt Payment Act of 1982 are some of those.

The interest rate is established by the Secretary of the Treasury and changes every six months. The rate in effect now through the end of the years is 2.5 percent. (July 1 - December 31, 2011).

The interest period is calculated for the period beginning on the day after the required payment date and ending on the date on which payment is made.

Sometimes contractors submit vouchers or payment requests that are rejected by the auditor, contracting officer, or paying office for various reasons. This could be because of mathematical inaccuracies, incorrect billing rates, amounts in excess of contract funding limitations, etc. The contractor must correct the deficiency and resubmit the payment request. For interest penalty calculations, the "clock" begins when an adequate payment request (not the initial request) has been received by the Government paying office.

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