Thursday, July 9, 2015

Prompt Payment Act Interest Rate Rises

The Department of Treasury, Bureau of Fiscal Service just announced the Prompt Payment Act interest rate for the second half of calendar year 2015. It will increase from 2.125 percent to 2.375 percent. This is the highest the rate has been since 2011 but no where near where it peaked in 1982 at 15.5 percent.

 This is the Treasury Rate that is used to compute FCCM (Facilities Capital Cost of Money). It's also used to calculate the Government's liability when they are late in paying contractors. An agency that has acquired property or service from a business concern and has failed to pay for the complete delivery of property or service by the required payment date (generally within 30 days) shall pay the business concern an interest penalty. Also, the Contract Disputes Act of 1978 and the Prompt Payment Act provide for the calculation of interest due on claims at the rate established by the Secretary of the Treasury.

The Secretary of the Treasury has the authority to specify the rate by which the interest shall be computed for interest payments under section 12 of the Contract Disputes Act of 1978 and under the Prompt Payment Act. Under the Prompt Payment Act, if an interest penalty is owed to a business concern, the penalty shall be paid regardless of whether the business concern requested payment of such penalty. Agencies must pay the interest penalty calculated with the interest rate, which is in effect at the time the agency accrues the obligation to pay a late payment interest penalty. The interest penalty shall be paid for the period beginning on the day after the required payment date and ending on the date on which payment is made.

Contractors who submit public vouchers or progress payments requests are entitled to interest if the Government doesn't pay them in a timely manner. Late payments don't happen often but when they do, the "paying office" usually adds the interest penalty automatically.

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