32.907
Interest penalties
FAR 32.907 ensures contractors are automatically compensated with interest for late government payments and provides a clear process for claiming additional penalties if interest is not paid on time.
Overview
FAR 32.907 outlines the requirements for the automatic payment of interest penalties by the Government when payments to contractors are late or when discounts for prompt payment are improperly taken. The regulation ensures that contractors are compensated for payment delays without needing to request interest, provided certain conditions are met. It also details the process for contractors to claim additional penalties if the Government fails to pay the required interest within a specified timeframe, and clarifies exceptions and calculation methods for interest penalties.
Key Rules
- Automatic Interest Penalties for Late Payment
- The Government must pay interest penalties automatically if a proper invoice is received, there are no disputes, and payment is made after the due date.
- Improperly Taken Discounts
- Interest penalties are owed if the Government takes a prompt payment discount improperly, calculated from the end of the discount period to the payment date.
- Additional Penalty for Failure to Pay Interest
- If the Government fails to pay interest penalties of $1 or more within 10 days of invoice payment, contractors may demand an additional penalty by submitting a written request within 40 days.
- Disagreements and Disputes
- No interest penalties are paid if payment delays are due to disputes over payment amount, contract compliance, or amounts withheld per contract terms; such disputes are resolved under the Disputes clause.
- Interest Calculation and Fund Availability
- Interest is calculated per OMB regulations (5 CFR Part 1315), and lack of funds does not excuse the Government from paying interest penalties.
Responsibilities
- Contracting Officers: Ensure timely payment, proper invoice processing, and compliance with interest penalty rules.
- Contractors: Submit proper invoices, monitor payments, and follow procedures for claiming additional penalties if interest is not paid.
- Agencies: Oversee payment processes, calculate and pay interest penalties, and resolve disputes per contract terms.
Practical Implications
- This section protects contractors from financial harm due to late payments and incentivizes agencies to pay promptly.
- Contractors should track invoice submissions and payment dates to ensure interest penalties are paid when due.
- Failure to follow the outlined procedures may result in lost interest or penalties, so documentation and timely communication are critical.