This chapter provides guidance on the Prompt Payment Act to Federal Agencies.

• All Executive Branch vendor payments, and payments to those defined as contractors or vendors (see Section 5020 Terms and Definitions), are subject to the PPA, except for:

  • contract financing payments (see Section 5020 Terms and Definitions),
  • emergency payments (Disaster Relief Act of 1974, 42 U.S.C. § 5121 et seq.),
  • military contingency operations payments (10 U.S.C. §101(a)(13)), and
  • the release or threatened release of hazardous substances payments (42 U.S.C. §9606).

  Some types of vendor payments are subject to the PPA but are also governed by additional statutory or regulatory requirements, as described in the remaining bullets below.

• Utility Payments - The payment due date and late payment interest penalty established by the utility companies in a published tariff applies to federal agencies unless there is a formal contract between the federal agency and the utility company specifying a different payment due date or late payment interest penalty. In the absence of a formal contract (or if the formal contract is silent on the subject), the parties are considered to have an implied contract (i.e., the federal agency is deemed to have implicitly agreed to pay according to the utility company's standard payment due dates and published tariff). In situations where either there is not a tariff or the contract does not govern the due date and the late payment interest, then the PPA due dates and interest provisions apply. 
• Commodity Credit Corporation (CCC) – Payments made by CCC for the procurement of property and services under the CCC Charter Act (15 U.S.C. § 714b(h)), and payments to farm producers under agreements entered into pursuant to the Agricultural Act of 1949 (7 U.S.C. § 1421 et seq.), are subject to the Prompt Payment Act (PPA). These provisions apply only to payments made by CCC, not to similar payments made by other federal entities. 
• The Tennessee Valley Authority (TVA) is subject to the PPA (31 U.S.C. §3901 et seq.) but is not covered by the PPA regulations (5 CFR 1315.1 et seq.). The TVA is solely responsible for handling how this chapter applies to its own contracts. 
• The Postmaster General is subject to the PPA (31 U.S.C. §3901 et seq.) but is not covered by the PPA regulations. The Postmaster General is responsible for issuing procurement regulations, solicitation provisions, and contract clauses for the United States Postal Service (USPS).

• 31 U.S.C. §3901, et seq.,
• 41U.S.C. §7109(b), and
• 5 CFR Part 1315.

The following terms are defined for the purposes of this TFM Chapter:

Accelerated Payment: A payment made prior to the due date.

Acceptance: An authorized government official’s acknowledgment that the goods received, or services rendered conform with the contract requirements. Acceptance also applies to partial deliveries.

Applicable Interest Rate: The interest rate established by the Secretary of the Treasury for interest payments under Section 12 of the Contract Disputes Act of 1978 (41 U.S.C. §611) in effect on the day after the due date, except where the interest penalty is prescribed by other governmental authority (e.g., utility tariffs). The rate established under the Contract Disputes Act is referred to as the “Renegotiation Board Interest Rate,” the “Contract Disputes Act Interest Rate,”' and the “Prompt Payment Act Interest Rate.” The Bureau of the Fiscal Service, Department of Treasury publishes the rate in the Federal Register semiannually, on or about January 1 and July 1.

Business Concern: A business concern means a person carrying on a trade or business or a nonprofit entity operating as a contractor.

Contract: An enforceable agreement which includes rental and lease agreements, purchase orders, delivery orders (including obligations under Federal Supply Schedule and other governmentwide contracts), requirements-type (open-ended) service contracts, and blanket purchases agreements between an agency and a vendor for the acquisition of goods or services and agreements entered under the Agricultural Act of 1949 (7 U.S.C. §1421 et seq.). Contracts must meet the requirements as defined in Section 4A-5035 - Required Documentation.

Contract Financing Payments: An authorized disbursement of monies prior to acceptance of goods or services. This includes advance payments, progress payments based on cost, progress payments (other than under construction contracts) based on a percentage or stage of completion, payments on performance-based contracts, and interim payments on cost-type contracts (other than under cost-reimbursement contracts for the acquisition of services). Contract financing payments do not include invoice payments, payments for partial deliveries, or lease and rental payments. Contract financing payments also do not include progress payments under construction contracts based on a percentage or stage of completion and interim payments under cost-reimbursement service contracts. For purposes of this part, interim payments under a cost-reimbursement service contract are treated as invoice payments and subject to the requirements of this part, except as otherwise provided (see, e.g., §§ 1315.4(d) and (e), and 1315.9(b)(1) and (c)).

Contracting Office: Any entity issuing a contract, purchase order, contract modification or termination.

Contractor: See Vendor

Current Value of Funds Rate (CVF): A percentage based on the current value of funds to the Department of the Treasury. The Secretary of the Treasury is responsible for computing and publishing the percentage rate that is used for cash discounts and rebate evaluation.

Day: A calendar day including weekend and holiday, unless otherwise indicated.

Delivery Ticket: A document supplied by the vendor at the time of delivery indicating the items delivered. The delivery ticket can serve as a proper invoice based on contractual agreement.

Designated Agency Office (DAO): The office designated by the purchase order, agreement, or contract that first receive and review invoices. This office can be contractually designated as the receiving entity and may be different from the office issuing the payment.

Discount: An invoice payment reduction offered by the vendor for early payment.

Discount Date: The date by which a specified invoice payment reduction, or a discount, can be taken.

Due Date: The date on which a federal payment should be made.

Emergency Payment: A payment made under an emergency such as: a hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, tsunami, earthquake, volcanic eruption, landslide, mud slide, snowstorm, drought, fire, explosion, or other catastrophe which requires Federal emergency assistance to supplement State and local efforts to save lives, property, and ensure public health and safety; and the release or threatened release of hazardous substances.

Evaluated Receipts: Contractually designated use of the acceptance document and contract as the basis for payment without requiring a separate invoice.

Fast Payment: A payment procedure under the Federal Acquisition Regulation (FAR) at Part 13.4 which allows payment under limited conditions to a vendor prior to the Government's verification that supplies have been received and accepted.

Federal Acquisition Regulation (FAR): The regulation (48 CFR chapter 1, et seq.) that governs most the acquisition by contract with appropriated funds of supplies or services by and for the use of the Federal Government. FAR 1.104 and FAR 2.101. Agencies may also issue agency regulations that implement or supplement the FAR. FAR 1.301.

Financial Institution or Banking Information: Information necessary to facilitate an EFT payment. This includes the account and routing numbers.

Governmentwide Commercial Purchase Cards (GCPC): A purchase card similar in nature to a commercial cred card, issued to authorized agency personnel to acquire and to pay for supplies and services. The GCPC is an internationally accepted purchase card available to all Federal agencies under a General Services Administration (GSA) contract for the purpose of making simplified acquisitions up to the threshold set by the Federal Acquisition Regulation (FAR), for travel expenses or payment, for purchases of fuel, or other purposes authorized by the contract.

Invoice: A bill, written document, or electronic transmission a vendor submits requesting payment for property received or services rendered. The term invoice can include receiving reports and delivery tickets when contractually designated as invoices.

Payment Date: The date on a check or an Electronic Fund Transfer (EFT) payment (settlement date).

Rebate: A monetary incentive offered to the government by Governmentwide Commercial Purchase Card issuers to pay purchase card invoices early.

Receiving Office: The entity which physically receives the goods or services and may be separate from the accepting entity.

Receiving Report: A written, or electronic document used as evidence of receipt of goods or services by a government official.

Recurring Payments: Payments for services of a recurring nature, such as rents, building maintenance, transportation services, parking, leases, and maintenance for equipment, pagers and cellular phones, etc., performed under agency-vendor agreements providing for payments of definite amounts at fixed periodic intervals.

Settlement date: The date on which an EFT payment is credited to the vendor's financial institution.

Taxpayer Identifying Number (TIN): The nine digit Employer Identifying Number or Social Security Number as defined in Section 6109 of the Internal Revenue Code of 1986 (26 U.S.C. 6109).

Utilities: Electricity, water, sewage services, telephone services, and natural gas. Utilities can be regulated, unregulated, or under contract.

Vendor: Any person, organization, or business concern engaged in a profession, trade, or business and any not-for-profit entity operating as a vendor (including State and local governments and foreign entities and foreign governments but excluding Federal agencies).

For additional terms and definitions related to this chapter, please view the TFX Glossary.

In 1982, Congress enacted the PPA (Public Law 97-177) requiring federal agencies to timely pay their bills, pay interest penalties when payments are late, and to take discounts only when payments are made by the discount date. The PPA, as amended, is found at 31 U.S.C. Chapter 39. 

The Secretary of the Treasury is authorized to compute and publish the PPA interest rate under the Contract Disputes Act, 41 U.S.C. §7109(b). The interest rate is published as a notice in the Federal Register and is also available on the the Bureau of the Fiscal Service website. The PPA applies to contractors and/or vendors that meet the definition of a “business concern” in 31 U.S.C. §3901(a)(2).

A business concern shall be paid and owed interest regardless of whether the business concern requests a penalty payment (31 U.S.C. §3902(c)(1)). Agencies must pay and calculate the interest penalty with the interest rate in effect when the invoice becomes late. The interest penalty shall be paid starting on the day after the required payment date and ending on the date on which payment is made (31 U.S.C. §3902(a)(b)).

The head of each agency is responsible for:

• Issuing internal procedures that include provisions for monitoring late payments and interest penalties incurred, as well as taking corrective action and handling inquiries. 
• Establishing internal control systems and ensuring that controls are maintained in accordance with the Office of Management and Budget’s (OMB) Federal Managers’ Financial Integrity Act of 1982 as codified in 31 U.S.C. §3512 and (Circular A-123, “Management Responsibility for Internal Control). The administrative activities required for payments to vendors under this chapter are subject to yearly quality control validation. Quality control processes are used to confirm that controls are effective, and processes are efficient. 
• Ensuring the use of a quality control program to quantify payment performance and corrective actions, aid cash management decisions, and estimate payment performance if actual data is unavailable. 
• Ensuring that financial management systems comply with TFM Volume I, Part 6, Chapter 9500. Agency financial systems shall provide standardized information and electronic data exchange to the central management agency. Systems shall provide complete, timely, reliable, useful, and consistent financial management information. Agency financial system payment capabilities should provide accurate and useful management reports on payments. 
• Ensuring that the Inspector General and internal auditors review payments performance and systems accuracy in accordance with the Chief Financial Officers (CFO) Act requirements. 
• Ensuring timely payments, and payment of interest penalties when payments cannot be made timely.

Agencies are required to ensure the following documentation is established to support invoice payments and interest penalties. 

• Payment Documentation, to include the following information from the contract:
  • Payment due date(s) as defined in subsection 5040.60;
  • If applicable, a notation in the contract whether partial payments are prohibited;
  • Construction contracts must specify payment due dates for approved progress payments or milestone payments for completed phases, increments, or segments of the project;
  • If applicable, a statement stating that the special payment provisions of the Packers and Stockyard Act of 1921 (7 U.S.C. §182(3)), or the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. §499a(b)(4)), or the Fish and Seafood Promotion Act of 1986 (16 U.S.C. §4003(3)) shall apply;
  • Where considered appropriate by the agency head, the specified acceptance period following delivery to inspect and/or test goods furnished or to evaluate services performed;
  • Name (where practicable), title, telephone number, and complete mailing address of the Designated Agency Office (DAO), and the vendor receiving the payments;
  • Reference to requirements under the PPA, including payment of interest penalties on late invoice payments (including progress payments under construction contracts);
  • Reference to requirements under the Debt Collection Improvement Act (Pub. L. 104-134, 110 Stat. 1321), including the requirement that electronic payments must be made except where the EFT requirement is waived under 31 CFR 208.4. Where electronic payment is required, the contract will stipulate that the financial institution’s information must be submitted no later than the first request for payment; and
  • If using Fast Payment, solicitations and contracts must include the FAR clause at 52.213-1, when applicable (see TFM section 5050.20).
• Invoices, which must contain the following information:
  • Name of vendor,
  • Invoice date,
  • Government contract number, or other authorization for delivery of goods or services,
  • Vendor invoice number, account number, and/or any other identifying number agreed to by contract,
  • Description (including, for example, contract line/subline number), price, and quantity of goods and services rendered,
  • Shipping and payment terms (unless mutually agreed that this information is only required in the contract),
  • Taxpayer Identifying Number (TIN), unless agency procedures provide otherwise,
  • Banking information, unless agency procedures provide otherwise, or except in situations where the EFT requirement is waived under 31 CFR 208.4,
  • Contact name (where practicable), title and telephone number, and
  • Other substantiating documentation or information required by the contract (e.g., evidence of shipment). 

• Receiving reports, delivery tickets, or evaluated receipts, which must contain the following information:

  • Name of vendor,
  • Contract or other authorization number,
  • Description of goods or services,
  • Quantities received, if applicable,
  • Date(s) goods were delivered, or services were provided,
  • Date(s) goods or services were accepted, and
  • Signature (or electronic alternative when supported by appropriate internal controls), printed name, telephone number, mailing address of the receiving official, and any additional information required by the agency.

  Delivery tickets used as an invoice must contain information required by agency procedures. The requirements in this item do not apply except as provided by agency procedures.

The Office of Management and Budget (OMB) Memorandum 15-19, Improving Government Efficiency and Saving Taxpayer Dollars Through Electronic Invoicing (July 17, 2015) directs agencies to manage invoices for federal procurements electronically. This means that Federal agencies must provide vendors with the option to submit their invoices electronically. 

5040.10—Determining Date of Receipt of Invoice 

To determine the payment due date and the date on which interest will begin to accrue if a payment is late, an invoice shall be considered to be received on the later of the following dates:

• For mailed invoices, the date the DAO actually receives a proper invoice, if the agency annotates the invoice with a receipt date at the time of receipt; 
• For electronic invoices, the date a readable transmission is received by the DAO, or the next business day if received after normal working hours; or
• The 7th day after the date on which the property is actually delivered or performance of the services is actually completed. However, if the agency indicates acceptance (see Section 5040.40) of the property or services before the 7th day, the acceptance date shall apply instead. If a longer acceptance period is specified in the contract, the date of actual acceptance or the date on which such longer acceptance period ends apply instead.

If none of the above applies, then an invoice shall be considered received by the agency:

• On the date placed on the invoice by the contractor, when the agency fails to annotate the invoice with a receipt date at the time of receipt (such invoice must be a proper invoice), or
• On the date of delivery, when the contract specifies that the delivery ticket may serve as an invoice.

5040.20—Review of Invoice

The following procedures are to be used when reviewing invoices:

• The DAO will review each invoice, as soon as practicable, after receipt to determine whether the invoice is proper (see section 5035),
• An improper invoice shall be returned to the vendor as soon as practicable, but no later than 7 days after receipt (see subsection 5040.90). The agency shall identify all defects preventing payment, the reasons why the invoice is improper, and why it is being returned. The notification to the vendor shall also include a request for a “corrected invoice,” to be clearly marked as such, and
• Any media that produces tangible recordings of information in lieu of “written” or “original” paper document equivalents should be used to expedite the payment process, rather than prolonging the process by requiring the “original” documents. Agencies should ensure that adequate safeguards and controls are in place to ensure the integrity of the data and to prevent duplicate processing.

5040.30—Receipt of Goods and Services 

The agency must properly record the receipt at the time of delivery of goods or completion of services. This requirement does not apply to interim payments on cost-reimbursement service contracts except as otherwise required by agency regulations.

5040.40—Acceptance 

Agencies will ensure that acceptance is executed as promptly as possible. Commercial items and services should not be subject to extended acceptance periods. Acceptance reports will be forwarded to the designated agency office by the fifth working day after acceptance. Unless other arrangements are made, acceptance reports will be stamped or otherwise annotated with the receipt date in the designated agency office. This requirement does not apply to interim payments on cost-reimbursement service contracts except as otherwise required by agency regulations.

5040.50—Starting the Payment Period

The period available to an agency to make timely payment of an invoice without incurring interest penalties shall begin on the date of receipt of a proper invoice (see subsection 5040.10), except where no invoice is required (e.g., for some recurring payments), or when another payment due date is applicable, such as specified in subsection 5040.60, below.

5040.60—Determining the Payment Due Date 

Unless otherwise specified, the payment is due either:

• On the date(s) specified in the contract,
• In accordance with discount terms when discounts are offered and taken (see section 5060),
• In accordance with Accelerated Payment Methods (see subsection 5050.10), or
• 30 days after the start of the payment period, as described in Sections 5040.10 and 5040.50, if the due date is not specified in the contract, if discounts are not taken, and if accelerated payment methods are not used.

5040.70—Certain Commodity Payments 

For meat, and meat food products, as defined in the Packers and Stockyard Act of 1921 (7 U.S.C. §182(3)), including any edible fresh or frozen poultry meat, any perishable poultry meat food product, fresh eggs, any perishable egg product, fresh or frozen fish as defined in the Fish and Seafood Promotion Act of 1986 (16 U.S.C. §4003(3)), timely payment must be made no later than the 7th day after delivery. 

For perishable agricultural commodities, as defined in the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. §499a(b)(4)), timely payment must be made no later than the 10th day after delivery, unless another payment date is specified in the contract.

For dairy products (as defined in the Dairy Production Stabilization Act of 1983, 7 U.S.C. §4502(e)), and including, at a minimum, liquid milk, cheese, certain processed cheese products, butter, yogurt, ice cream, edible fats or oils, and food products prepared from edible fats or oils (including, at a minimum, mayonnaise, salad dressings and other similar products), timely payment for the amount due must be made no later than 10 days after the date a proper invoice is received by the agency. When questions arise about the coverage of a specific product, prevailing industry practices should be followed in specifying a contractual payment due date.

5040.80—Mixed Invoices for Commodities 

When an invoice is received for items with different payment periods, agencies:

• May pay the entire invoice on the due date, with the earliest due date, if it is in the best interest of the agency,
• May make split payments by the due date applicable to each category,
• Shall pay in accordance with the contractual payment provisions (which may not exceed the statutory mandated periods), and
• Shall not require vendors to submit multiple invoices for payment of individual orders by the agency.

5040.90—Notification of improper invoice

When an agency that fails to make notification of an improper invoice within 7 days (3 days for meat, meat food, fish and seafood products; and 5 days for perishable agricultural commodities, dairy products, edible fats or oils and food products prepared from edible fats or oils), the number of days allowed for payment of a “corrected” proper invoice is reduced by the number of days between the 7th day, or the 3rd or 5th day, as otherwise specified in subsection 5040.60, and the day the notification was transmitted to the vendor. Calculation of Interest penalties, if any, will be based on the adjusted due date reflecting the reduced number of days allowed for payment.

5040.100—Payment Date 

Payment will be considered to be made on the “settlement date” for an Electronic Funds Transfer (EFT) payment or, the date on the check for a check payment. Payments falling due on a weekend or federal holiday may be made on the following business day without incurring late payment interest penalties. Guidelines on how prompt payment interests are calculated over a weekend, or a federal holiday can be retrieved from our Prompt Payment website.

5040.110— Late Payments

Vendors shall be entitled to interest penalties on any payments made after the payment due date, and such late payments will automatically accrue interest at the Prompt Payment Act interest rate.

5040.120 —Timely Payments

Agencies shall make payments no more than 7 days prior to the due date, but as close to the due date as possible, unless the agency head or designee determine, on a case-by-case basis for specific payments, earlier payment is necessary. This authority must be cautiously used. Agencies shall assess the benefits of making an early payment versus the good stewardship inherent in effective cash management practices. Agencies may use the “Accelerated Payment Methods” when determining whether earlier payment is necessary.

5040.130—Payments for Partial Deliveries 

Agencies shall pay for partial delivery of supplies or performance of services after acceptance unless the contract specifically prohibit it. If required by the contract, payment is contingent upon submission of a proper invoice.

Receiving reports, delivery tickets, and evaluated receipts should include the vendor’s name, the contract or other authorization number, a description of the goods or services, the quantities received (if applicable), the date(s) goods were delivered, or services provided, the date(s) goods or services were accepted, a signature (or electronic alternative when supported by appropriate internal controls), the printed name, the telephone number, the mailing address of the receiving official, and any additional information the agency requires.

If a delivery ticket is used as an invoice, it must contain the information required by the agency. The requirements in section 5035 do not apply when a delivery ticket is used as an invoice, except as otherwise provided by agency procedures.

5050.10—Accelerated Payment 

Accelerated payment means a payment made prior to the due date. Agencies may pay small businesses early after getting a proper invoice, if it is in the best interest of the government and in the following instances:

• A single invoice under $2,500 may be paid as soon as the contract, the proper invoice, and the receipt and acceptance documents are matched, except where:
  • statutory authority prescribes otherwise, or
  • contractually stipulated (e.g., governmentwide commercial purchase card). 
• Agencies may pay a small business (as defined in FAR 48 CFR 19.001) as quickly as possible when all the proper documentation, including acceptance, is received in the payment office before the payment due date. Such payments are not subject to payment restrictions stated elsewhere in 5 CFR § 1315.5; or 
• Payments related to emergencies and disasters (as defined in the Robert T. Stafford Disaster Relief Act and Emergency Assistance, (42 U.S.C. §5121 et seq.); payments related to the release or threatened release of hazardous substances (as defined in the Comprehensive Environmental Response Compensation and Liability Act of 1980 (42 U.S.C. §9606); and payments made under a military contingency (as defined in 10 U.S.C. §101(a)(13)) may be made as soon as the contract, the proper invoice, the receipt and acceptance documents or any other agreement are matched.

5050.20—Payment Without Evidence (Fast Payment)

Payment may be made without evidence that supplies have been received in limited situations. Instead, a contractor certifying that supplies have been shipped may be used as the basis for authorizing payment. Payment may be made within 15 days after the receipt date of the invoice. This payment procedure may be employed only when all the following conditions are present:

• Individual orders do not exceed $45,000 (except on a case-by-case basis where agency heads permit a higher amount).
• Deliveries of supplies are to occur where there is both a geographical separation and a lack of adequate communications facilities between the government receiving and disbursing activities; making it impracticable to make timely payments based on evidence of government acceptance.
• Title to supplies will vest in the government upon delivery to a post office or common carrier for mailing or shipment to destination or upon receipt by the government if the shipment is other than the Postal Service or a common carrier.
• The contractor agrees to replace, repair, or correct supplies not received at the destination, damaged in transit, or not conforming to purchase requirements.
• The purchasing instrument is a firm-fixed-price contract, a purchase order, or a delivery order for supplies.
• A system is in place to ensure:
  • Documentation of evidence of contractor performance under fast payment purchases,
  • Timely feedback to the contracting officer in case of contractor deficiencies, and
  • Identification of suppliers that have a current history of abusing the fast payment procedure.

Agencies shall promptly inspect and accept supplies acquired under Section 5050.20. Agencies shall ensure that receiving reports and payment documents are matched and steps are taken to correct discrepancies.

Agencies shall also ensure that specific internal controls are in place to ensure that supplies paid for are received.

Federal Acquisition Regulations (FAR), 48 CFR part 13, subpart 13.4 “Fast Payment Procedure,” requires the use of the contract clause found in the FAR at 52.213-1, when applicable, for use when using this fast payment procedure.

5050.30—Payments to Governmentwide Commercial Purchase Card Issuers 

The following are the standards for payments to government-wide commercial purchase card issuers:

• Payment date--Individual purchase card invoices at or below the micro-purchase threshold may be paid at any time, but no later than 30 days after the receipt of a proper invoice. Matching documents are not required before payment. The payment due date for invoices shall be determined in accordance with Rebates (refer Section 5065). TFM Volume I, Part 4, Chapter 4500, subsection 4535.10 permits payment of the bill in full prior to verification that goods or services were received.
• Disputed line items--Disputed line items do not render the entire invoice an improper invoice for compliance with this chapter. Any undisputed items must be paid in accordance with the payment date of this section.

5050.40—Commodity Credit Corporation Payments 

As provided in section 5010, certain provisions of this chapter apply to payments relating to the procurement of property and services made by the Commodity Credit Corporation (CCC) and payments to which producers on a farm are entitled under the terms of an agreement entered into pursuant to the Agricultural Act of 1949. Such payments shall be subject to the following provisions:

• The payments shall be made as close as possible to the required payment date or loan closing date.
• An interest penalty shall be paid to vendors or producers if the payment has not been made by the required payment or loan closing date. The interest penalty shall be paid:
  • On the amount of payment or loan due.
  • For the period beginning on the first day beginning after the required payment or loan closing date and, except as determined appropriate by the CCC consistent with applicable law, ending on the date the amount is paid or loaned; and
  • Out of funds available under 15 U.S.C. § 714f of the CCC Charter Act.
• For CCC payments, provisions relating to the Contract Disputes Act of 1978 (41 U.S.C. § 601 et seq.) in subsections 5050.20 and 5055.10 do not apply.
• The CCC may allow claims for such periods of time as are consistent with authorities applicable to its operations.

5050.50—Progress Payments Under Construction Contracts

The following standards are to be used when making Progress Payments under construction contracts:

• A request for progress payment may be approved if the application meets the requirements specified in Required Documentation below.
• The certification by the prime vendor (see below) is not to be construed as final acceptance of the subcontractor's performance.
• A defective payment request shall be returned to the vendor within 7 days after receipt, with a statement identifying the defect(s).
• A vendor is obligated to pay interest to the government on unearned amounts in its possession from:
  • The 8th day after receipt of funds from the agency until the date the vendor notifies the agency that the performance deficiency has been corrected, or the date the vendor reduces the amount of any subsequent payment request by an amount equal to the unearned amount in its possession, when the vendor discovers that all or a portion of a payment received from the agency constitutes a payment for the vendor's performance that fails to conform to the specifications, terms, and conditions of its contract with the agency, under 31 U.S.C. §3905(a); or 
  • The 8th day after the receipt of funds from the agency until the date the performance deficiency of a subcontractor is corrected, or the date the vendor reduces the amount of any subsequent payment request by an amount equal to the unearned amount in its possession, when the vendor discovers that all or a portion of a payment received from the agency would constitute a payment for the subcontractor's performance that fails to conform to the subcontract agreement and may be withheld, under 31 U.S.C. §3905(e).
• Interest payments on unearned amounts to the government under 31 U.S.C. §3905(a)(2) or §3905(e)(6), shall:
  • Be computed on the basis of the average bond equivalent rates of 91-day Treasury bills auctioned at the most recent auction of such bills prior to the date the vendor received the unearned amount.
  • Be deducted from the next available payment to the vendor, and
  • Revert to the Treasury.

Required Documentation for Progress Payments Under Construction Contracts

Substantiation of the amount(s) requested shall include:

• An itemization of the amounts requested related to the various elements of work specified in the contract,
• A listing of the amount included for work performed by each subcontractor under the contract,
• A listing of the total amount for each subcontract under the contract,
• A listing of the amounts previously paid to each subcontractor under the contract, and
• Additional supporting data and detail in a form required by the contracting officer.

Certification by the prime vendor is required, to the best of the vendor's knowledge and belief, that:

• The amounts requested are only for performance in accordance with the specifications, terms, and conditions of the contract,
• Payments to subcontractors and suppliers have been made from previous payments received under the contract, and timely payments will be made from the proceeds of the payment covered by the certification, in accordance with their subcontract agreements and the requirements of 31 U.S.C. chapter 39, and
• The application does not include any amounts which the prime vendor intends to withhold or retain from a subcontractor or supplier, in accordance with the terms and conditions of their subcontract.

Agencies will pay interest on:

• A progress payment request (including a monthly percentage-of- completion progress payment or milestone payments for completed phases, increments, or segments of any project) that is approved as payable by the agency pursuant to 5 CFR 1315.14(b) and remains unpaid for:
  • A period of more than 14 days after receipt of the payment request by the designated agency office; or
  • A longer period specified in the solicitation and/or contract, if required, to afford the government a practicable opportunity to adequately inspect the work and to determine the adequacy of the vendor's performance under the contract.
• Any amounts that the agency has retained pursuant to a prime contract clause providing for retaining a percentage of progress payments otherwise due to a vendor and that are approved for release to the vendor, if such retained amounts are not paid to the vendor by a date specified in the contract, or, in the absence of such a specified date, by the 30th day after final acceptance.
• Final payments, based on completion and acceptance of all work (including any retained amounts), and payments for partial performances that have been accepted by the agency, if such payments are made after the later of:
  • The 30th day after the date on which the designated agency office receives a proper invoice, or
  • The 30th day after agency acceptance of the completed work or services. Acceptance shall be deemed to have occurred on the effective date of contract settlement on a final invoice where the payment amount is subject to contract settlement actions. 
• When formal acceptance is not documented, interest penalties are computed based on a deemed acceptance date, which is the 7th day after completion of the work or services in accordance with the contract.

Agencies must meet the following requirements in paying interest penalties:

• Interest may be paid only if acceptance has occurred or when title 
• passes to the government in a fast payment contract. The title passing to the government constitutes acceptance for determining when interest may be paid.
• Late payment interest penalties shall be paid regardless of the vendor’s request for penalty payment. Agencies may notify the recipient of the amount of the interest penalty, the number of days late and the rate used in the addenda to the ACH payment.
• The invoice number or other agreed upon transaction reference number assigned by the vendor should be included in the notice to assist the vendor in reconciling the payment. It is optional as to whether an agency includes the contract number in the notice to the vendor. Providing notification in an ACH addenda record provides sufficient notice in writing and it shall be considered to be made on the “date shown” on the addenda record. 
• Temporary unavailability of funds does not relieve agencies from paying interest penalties or the additional penalties required under subsection 5055.30.
• Agencies shall pay any late payment interest penalties (including any required additional penalties) from the funds available to the administration of the program for which the penalty was incurred. The PPA does not authorize appropriations of additional amounts to pay penalties. 

5055.10—Application and Calculation of Late Payment Interest Penalties 

Agencies are to use the following procedures when calculating interest owed on late payments:

• Start accruing interest on the day after the payment due date and through the payment date, using the interest rate in effect when the invoice becomes late. Adjustments must be made by agencies when there are interest accrual calculation errors. 
• Add unpaid interest penalties to the principal at the end of any 30-day period and accrue subsequent interest penalties on that amount until paid, for up to one year.
• Accrue Interest on all unpaid amounts until payments are made, except in cases where interest penalties cease to accrue as described below. 
• Stop accruing interest penalties under the PPA after a claim for such penalties is filed under the Contract Disputes Act of 1978 (41 U.S.C. §601 et seq.) or after more than one year has passed.
• Pay interest on any discount amount that was improperly taken after the discount date, accruing from the day after specified discount date until the date the erroneously taken discount amount is paid.
• Delay the start of interest accrual until 7 days after the correct financial institution information is received when the vendor has provided incorrect information, provided the vendor is notified of the error within 7 days of the agency being informed of it.
• Base all interest calculations on a 360-day year.
• Obtain the applicable interest rate by calling the Department of Treasury's Bureau of the Fiscal Service (BFS) Prompt Payment help line at 1-800-266-9667 or by visiting their Prompt Payment website. 

5055.20—Penalties Not Due

Interest penalties are not due when any of the following apply:

• A payment is delayed due to a dispute between the agency and vendor over the amount of the payment or compliance with contract terms. Disputed claims, and any applicable interest that may be payable, with respect to the period during which the dispute is being settled, will be resolved in accordance with the provisions in the Contract Disputes Act of 1978, (41 U.S.C. § 601 et seq.), except for the required interest payments under 31 U.S.C. § 3902(h)(2).
• Payments are made solely for financing purposes or in advance, except for required interest payment under 31 U.S.C. § 3902(h)(2).
• Amounts due are temporarily withheld in accordance with the contract. 
• An EFT payment is not credited to the vendor's account by the payment due date because of a failure to do so by the Federal Reserve or the vendor's financial institution.
• The interest penalty is less than $1.00.

5055.30—Additional Penalties

A vendor shall be entitled to an additional penalty payment when the vendor is owed a late payment interest penalty by the agency of $1.00 or more, if the vendor:

• Receives a payment dated after the payment due date which does not include the interest penalty due to the vendor,
• Is not paid the interest penalty within 10 days after the actual payment date, and
• Makes a written request that the agency pay an additional penalty. The written request must be postmarked, received by facsimile or electronic mail by the 40th day after the payment was made. If there is no postmark or if it is illegible, the request will be valid if it is received and annotated with the receipt date by the agency by the 40th day. The written request must include the following:
  • Specific assertion that late payment interest is due for a specific invoice, and request payment of all overdue late payment interest penalty and additional penalty as may be required, and
  • A copy of the invoice on which late payment interest was due but not paid, a statement that the principal has been received, and the date of receipt of the principle.

5055.30a—Maximum Penalty

An additional penalty shall be equal to one hundred (100) percent of the original late payment interest penalty but must not exceed $5,000.

5055.30b—Minimum Penalty

Regardless of the amount of the late payment interest penalty, the additional penalty paid shall not be less than $25. If a payment is late and the interest penalty is at least $1.00, the vendor will receive the actual interest amount owed, plus an additional penalty of $25.00 to help cover administrative costs. If the interest penalty is less than $1.00, no additional penalty is paid, only the interest (if any) is owed.

5055.30c—Penalty Basis

The penalty is based on individual invoices. Where payments are consolidated for disbursing purposes, the penalty determinations shall be made separately for each invoice therein.

5055.30d—Utility Payments

The additional penalty does not apply to utility bills. Late payment penalties for these bills are determined through the tariff rate-setting process.

Agencies payment systems should include procedures that will routinely take advantage of discounts. Discounts are to be taken when the discount terms applied in the conversion formula result in an effective annual interest rate equal to, or greater than the Current Value of Funds Rate (CVF). The discount period is calculated from the date the contractor placed on a proper invoice to the discount date. For undated invoices, the discount period will begin on the date the designated billing office receives and annotate a date on a proper invoice.

The following procedures are to be followed when taking discounts, and determining the payment due dates when discounts are taken:

• Economically Justified - If a vendor offers the agency a discount, whether stipulated in the contract or offered on an invoice, the agency may take the discount if economically justified, but only after the acceptance of a proper invoice or another instrument used in place of an invoice. Agencies are encouraged to include discount terms in a contract that will give them adequate time to take the discount if it is economically justified.
• Start Date- The period for taking a discount is calculated from the date placed on a proper invoice by the vendor. If the vendor does not place a date on the invoice, the discount period will begin on the date a proper invoice is received and date stamped or otherwise annotated by the DAO.
• Payment Date - Discounted payment must be scheduled for issuance as close as possible to, but no later than, the last day of the discount period. 
• Discount Taken After Discount Date - If an agency takes the discount after the deadline, the agency shall pay interest penalties on any amount remaining unpaid (see subsection 5055.10). 
• Prompt Payments to Earn Discounts (TFM Volume I, Part 4A, Chapter 2000) - When a discount has been offered for prompt payment, federal agencies should make every effort to process the invoice within the discount period, if the discount is cost effective to the government. Process the invoice according to the specific terms on which the discount has been offered by the contractor or supplier. Federal agencies should take discounts only on those invoices that can be paid within the specified discount period and that are cost effective to the government. For effective cash management, federal agencies should submit the voucher covering the payment as near to the last day of the prompt payment period as possible. Prompt Payment Act conditions are met if a check payment is dated and mailed/received within the period, not whether the check is received by the recipient during the period. PPA conditions are met for ACH and Fedwire payments if the settlement date for the payment is within the prompt pay period. 

The Governmentwide Commercial Purchase Card payment dates are determined based on an analysis of the total costs and total benefits to the federal government, unless specified in a contract. When calculating costs and benefits, agencies are to include the cost to the government, if paying early. This cost is the interest the government would have earned, at the CVF, each day payment was not made. Agencies may factor in benefits gained from paying early due to, for example, streamlining the payment process or other efficiencies. A rebate formula is provided in Formulas section and on the Prompt Payment website.

Rebate Formula - Credit card payment dates shall be determined based on an analysis of the total benefits to the federal government. Specifically, when the daily basis points are offered the card issuer should compare it with the corresponding daily basis points of the government's CVF rate. When paying early as possible, the government will maximize savings if the basis points offered are greater than the daily basis points of the government funds. The government will minimize costs when paying by the Prompt Payment due date or the date specified in the contract if the basis points offered are less than the daily basis points of the government funds.

An example rebate spreadsheet that automatically calculates the net savings to the government and whether the agency should pay early or late is available for use on the Prompt Payment website.

Recipients of federal assistance may pay interest penalties if their contracts with contractors require it. However, the United States will not be responsible for those interest penalty obligations. Federal funds may not be used to pay such penalties, and interest penalties cannot be counted towards matching requirements for federally assisted programs.

5080.10—Contract Disputes Act of 1978, (41 U.S.C. §605)

A claim for interest penalty not paid under the PPA may be filed under the Contract Disputes Act (CDA). This includes additional penalties for non-payment of interest if the vendor has complied with the section 5035). This part does not require payment for interest penalties because of a dispute between the head of an agency and a vendor over the amount of payment or compliance with the contract. A claim related to such a dispute and interest payable for the period during which the dispute is being resolved is subject to the Contract Disputes Act.

5080.20—Small Business Act (15 U.S.C. §644(k))

The Small Business Act requires agencies with an Office of Small and Disadvantaged Business Utilization to assist small business concerns in obtaining payments, late payment interest penalties, additional penalties, or information due to the concerns.

5080.30—Federal Acquisition Regulation (FAR)

Under FAR 33.206, contractor claims shall be submitted, in writing to the contracting officer, for a decision within 6 years after accrual of a claim, unless the contracting parties agree to a shorter time period. The interest penalty under the PPA will not continue to accrue for more than one year.

Direct inquiries concerning this chapter to: 

Department of the Treasury
Bureau of the Fiscal Service
Office of the Assistant Commissioner, Payments
3201 Pennsy Drive, Building E 
Landover, MD 20785
202-874-9428