Wednesday, February 25, 2015

What is the Prompt Payment Act (PPA)?

The Prompt Payment Act (PPA) has been around for more than 30 years. It was enacted back in 1982 amid frequent and vociferous complaining by Government contractors (and vendors, in general) that the Government wasn't paying their bills on time and as a result, disrupted contractors cash flows causing financial hardships. GAO stepped in and determined that the contractors complaints were well founded. In fact, GAO found that the Government's delays in paying its vendors were not isolated incidences but occurred frequently and consistently.

The PPA requires that whenever an agency fails to pay for goods and services by the required payment date, that agency must automatically pay interest on the amount owed. This applies as well to interim payments under cost-reimbursable contracts if payment is not made within 30 days after receipt of a "proper" invoice.

A proper invoice is one that includes all of the information required by FAR 32.905(b). For cost-reimbursement contracts, a proper invoice for purposes of 32.905(b) includes all of the information required by the contract. Well, that's not too helpful so one has to go to the contract's billing instructions for that kind of detail.

The Government has only seven days to determine whether an invoice is "proper". If it takes more than seven days and the invoice/voucher is rejected, those additional days are taken away from the 30 days in which the Government must pay before accruing interest.

Back in the day, when invoices were paper, there were often disputes as to when the invoice/voucher was received. That is no longer an issue with the on-line payments systems such as iRAPT (formerly WAWF).

The interest penalty is paid automatically. Contractors do not need to make requests. However, if the payment office fails to pay interest within 10 days of paying a late invoice, the contractor can make a written request for a penalty in addition to the interest. The written request must be made within 40 days of the actual payment date.

Interest is not paid under some circumstances including:

  1. When payment is delayed because of a dispute between the Government and the contractor over the amount of payment or other issues concerning compliance with the terms and conditions of the contract.
  2. For progress payments
  3. When amounts are withheld temporarily in accordance with the contract
  4. When an electronic funds transfer is not timely through no fault of the Agency.
  5. When the interest penalty is less than one dollar.

Although interest payments should be automatic, we are aware of a few cases where the Government did not add interest to delinquent payments. Once the contractors inquired concerning the interest, the Government paid up. It is important that contractors know their rights and monitor payments to ensure they receive interest, when warranted.

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