32.907
Interest penalties
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.