Overview
FAR 32.907 establishes the requirements for the Government to automatically pay interest penalties to contractors for late payments or improperly taken discounts. It also defines the specific conditions and procedures under which a contractor may demand additional penalties if the Government fails to pay required interest on time.
Key Rules
- Automatic Interest Payment: The Government must pay interest automatically (without a contractor request) if a proper invoice was received, the goods/services were accepted without disagreement, and payment was made after the due date.
- Improper Discounts: If the Government takes a prompt payment discount after the discount period has expired, it must automatically pay an interest penalty on the amount of the discount taken.
- Additional Penalty for Non-Payment of Interest: If the Government owes at least $1.00 in interest and fails to pay it within 10 days of paying the primary invoice, the contractor can demand an additional penalty.
- Contractor Demand Requirements: To receive the additional penalty, the contractor must submit a written demand postmarked within 40 days of the invoice payment, including a copy of the invoice and the date the principal payment was received.
- Exclusion for Disputes: Interest penalties do not accrue when payment delays are caused by disagreements over quantity, quality, contract compliance, or amounts withheld under the contract terms.
- Funding Status: The Government is not relieved of its obligation to pay interest penalties even if funds are temporarily unavailable.
Practical Implications
- Contractors should monitor their payment cycles closely because while standard interest is automatic, the "penalty-on-interest" is waived if the contractor fails to submit a formal written demand within the strict 40-day window.
- To avoid payment delays and the loss of interest, contractors must ensure all invoices meet the "proper invoice" criteria, as interest only begins to accrue once a compliant invoice is received by the designated billing office.