How does the Prompt Payment Act work?

The following topic was raised by a contractor: Our company has several government contracts. In general, the government pays our invoices within a reasonable time. However, an agency sometimes returns invoices for very minor clerical errors, delaying payment significantly. What are the government's obligations to pay invoices promptly? Must an invoice be perfect in every way before the government must pay?

Congress has imposed on agencies an obligation to pay every "proper invoice" within 30 days after its receipt. Under the Prompt Payment Act, an agency that fails to pay within the required time will be liable for interest on the delinquent payment. Furthermore, while the invoice must be "proper" in order to trigger the Prompt Payment Act requirements, an agency may not impose unreasonable requirements on its submission.

The Prompt Payment Act is found in 31 U.S.C. Section 3901, et seq. Regulations to implement the act are found in Federal Acquisition Regulation (FAR) Subpart 32.9. Under these provisions, payment must be made within 30 days after receipt of a proper invoice from the contractor or another such date as specified in the contract.

Interest begins to accrue the day after the required payment date and ends only when the government makes payment. Moreover, the government must pay all required interest automatically. The contractor is not required to file a claim for the interest.

To be considered proper, an invoice must include the following:

* The name and address of the contractor.

* The invoice date.

* The applicable contract and line item numbers.

* The description, quantity, unit of measure, unit price and extended price of the supplies delivered or the services performed.

* The shipping and payment terms.

* The name and address of the contracting official to whom payment is to be sent.

* The name, title, phone number and mailing address of the person to be notified in the event of a defective invoice.

* Any other information or documentation required by the contract.

In addition, most contracts include special provisions regarding invoicing and payment provisions. See FAR 32.903 ("All solicitations and contracts subject to this subpart shall specify payment procedures, payment due dates and interest penalties for late invoice payment.").

To be considered proper, the invoice must comply with these special terms as well. Accordingly, the question of whether an invoice is proper may require an interpretation of the contract as a whole. But an agency may not impose unusual requirements that are not specified in the contract.

Only when there is a legitimate dispute as to the amount due may the government delay payment. Interest on amounts invoiced may be excused only when "there was a present basis for delaying the payment related to an objectively discernible dispute." Mere review and rejection does not place the amount of the invoice in dispute, and an agency does not get extra time to review or approve complex invoices.

Any decision to reject an invoice may be reviewed under the Contract Disputes Act. Furthermore, if a court or board of contract appeals finds the rejection to have been improper, the contractor will be entitled to interest from the time when payment originally should have been made.

Under these and similar precedents, a contractor has a legitimate expectation that its invoices will be paid without undue delay, and an agency may not impose unreasonable requirements as a condition of payment.

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Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn, Washington, D.C. Readers are encouraged to submit topics by e-mail to carl@carl.com, or by voice mail to (703) 876-5151, extension 2965. His column can be read on FCW's home page at http://www.fcw.com.