32.907 Interest penalties
Source: FAR 32.907 on acquisition.gov
FAR 32.907 ensures contractors are compensated with interest penalties for late government payments, provided all requirements are met and no disputes exist.
Overview
FAR 32.907 establishes the rules for interest penalties when the Government fails to make timely payments to contractors. It outlines when interest penalties are automatically due, how improperly taken discounts are handled, the process for additional penalty payments if interest is not paid promptly, and exceptions related to payment disputes. The section also clarifies how interest is computed and states that lack of funds does not excuse late payment penalties.
Key Rules
- Automatic Interest Penalties for Late Payment
- The Government must automatically pay interest penalties if payment is late, provided a proper invoice was received, there are no disputes, and all required documentation is in order.
- Improperly Taken Discounts
- If the Government takes a prompt payment discount improperly, it must pay interest on the amount of the discount for the period after the discount period ends until payment is made.
- Additional Penalty for Failure to Pay Interest
- If the Government fails to pay the interest penalty within 10 days of invoice payment, and the contractor makes a timely written demand, an additional penalty is due.
- Exceptions for Disagreements
- No interest penalties are paid if payment is delayed due to disputes over payment amount, contract compliance, or amounts withheld per contract terms.
- Interest Calculation and Funds Availability
- Interest is calculated per OMB regulations, and agencies cannot avoid penalties due to temporary lack of funds.
Responsibilities
- Contracting Officers: Ensure timely processing of invoices and payments, and resolve disputes promptly.
- Contractors: Submit proper invoices, monitor payment timeliness, and follow procedures for claiming additional penalties if interest is not paid.
- Agencies: Automatically pay interest penalties, calculate interest per regulations, and cannot use lack of funds as an excuse for late payments.
Practical Implications
- This section protects contractors from financial harm due to late government payments and incentivizes agencies to pay on time. Contractors should track invoice submissions and payments closely, and be prepared to submit written demands for additional penalties if interest is not paid. Disputes must be resolved through the contract's Disputes clause, and contractors should be aware that interest is not paid during unresolved disagreements.
(a) Late payment. The designated payment office will pay an interest penalty automatically, without request from the contractor, when all of the following conditions, if applicable, have been met:
(1) The designated billing office received a proper invoice.
(2) The Government processed a receiving report or other Government documentation authorizing payment, and there was no disagreement over quantity, quality, or contractor compliance with any contract requirement.
(3) In the case of a final invoice, the payment amount is not subject to further contract settlement actions between the Government and the contractor.
(4) The designated payment office paid the contractor after the due date.
(5) In the case of interim payments on cost-reimbursement contracts for services, when payment is made more than 30 days after the designated billing office receives a proper invoice.
(b) Improperly taken discount. The designated payment office will pay an interest penalty automatically, without request from the contractor, if the Government takes a discount for prompt payment improperly. The interest penalty is calculated on the amount of discount taken for the period beginning with the firstday after the end of the discount period through the date when the contractor is paid.
(c) Failure to pay interest.
(1) The designated payment office will pay a penalty amount, in addition to the interest penalty amount, only if-
(i) The Government owes an interest penalty of $1 or more;
(ii) The designated payment office does not pay the interest penalty within 10 days after the date the invoice amount is paid; and
(iii) The contractor makes a written demand to the designated payment office for additional penalty payment in accordance with paragraph (c)(2) of this section, postmarked not later than 40 days after the date the invoice amount is paid.
(2)
(i) Contractors must support written demands for additional penalty payments with the following data. The Government must not request additional data. Contractors must-
(A) Specifically assert that late payment interest is due under a specific invoice, and request payment of all overdue late payment interest penalty and such additional penalty as may be required;
(B) Attach a copy of the invoice on which the unpaid late payment interest is due; and
(C) State that payment of the principal has been received, including the date of receipt.
(3) If there is no postmark or the postmark is illegible-
(i) The designated payment office that receives the demand will annotate it with the date of receipt, provided the demand is received on or before the 40 thday after payment was made; or
(ii) If the designated payment office fails to make the required annotation, the Government will determine the demand’s validity based on the date the contractor has placed on the demand; provided such date is no later than the 40 thday after payment was made.
(d) Disagreements.
(1) The payment office will not pay interest penalties if payment delays are due to disagreement between the Government and contractor concerning-
(i) The payment amount;
(ii) Contract compliance; or
(iii) Amounts temporarily withheld or retained in accordance with the terms of the contract.
(2) The Government and the contractor must resolve claims involving disputes, and any interest that may be payable in accordance with the Disputes clause.
(e) Computation of interest penalties. The Government will compute interest penalties in accordance with OMB prompt payment regulations at 5 CFR Part 1315.
(f) Unavailability of funds. The temporary unavailability of funds to make a timely payment does not relieve an agency from the obligation to pay interest penalties.