Overview
Subpart 32.9 implements Office of Management and Budget (OMB) regulations to ensure that the Federal Government makes timely payments to contractors for delivered supplies and services. It establishes standardized payment cycles, defines the criteria for a "proper invoice," and mandates the automatic payment of interest penalties when the government fails to meet established deadlines.
Key Rules
- Standard Payment Cycle: For most contracts, the payment due date is the 30th day after the designated billing office receives a "proper invoice" or the government accepts the supplies/services, whichever is later.
- Constructive Acceptance: To prevent the government from delaying payment by withholding formal acceptance, "constructive acceptance" is deemed to occur on the 7th day after delivery or performance for the purpose of calculating interest penalties.
- The "Proper Invoice" Requirement: To start the payment clock, an invoice must contain specific data, including the contractor's name, invoice date, contract number, description of items, shipping/payment terms, Taxpayer Identification Number (TIN), and Electronic Funds Transfer (EFT) info.
- Defective Invoice Notification: If an invoice is improper, the government must notify the contractor within 7 days of receipt (3–5 days for food products). Failure to notify timely can result in the government having to adjust the "clock" in the contractor's favor.
- Specialized Timelines:
- Meat/Fish: 7 days.
- Perishable Agriculture: 10 days.
- Construction Progress Payments: 14 days.
- Interest Penalties: Interest must be paid automatically by the payment office if payment is late, provided there is no disagreement over quantity or quality. If the government fails to pay the interest penalty itself, the contractor may be entitled to an additional "triple penalty" upon written demand.
Responsibilities
- Agency Heads: Responsible for establishing internal policies, authorizing accelerated payments, and ensuring contractors have points of contact for invoice status.
- Contracting Officers (COs):
- Must identify specific Prompt Payment clauses in solicitations.
- Must justify and document in the contract file any extension of the constructive acceptance period beyond 7 days.
- Should encourage the use of partial delivery payments to improve contractor cash flow.
- Receiving Officials: Must forward receiving reports or authorization documentation to the payment office by the 5th working day after acceptance.
- Designated Billing/Payment Offices: Must annotate the actual date of receipt on invoices immediately to ensure accurate interest calculations.
- Contractors: Responsible for submitting accurate, "proper" invoices and maintaining updated EFT and TIN information in government systems.
Practical Implications
- Cash Flow Management: For contractors, especially small businesses, understanding the "Constructive Acceptance" rule is vital. It prevents the government from sitting on a shipment for 30 days before "accepting" it and starting the 30-day payment clock.
- Administrative Precision: The 7-day window for the government to return a "defective invoice" is a hard deadline. If a CO or billing office returns an invoice on day 10 for a missing TIN, the contractor may be able to claim interest because the government’s rejection was untimely.
- Food and Construction Nuances: Vendors in the food industry or construction sector benefit from significantly shorter payment windows (7–14 days) compared to the standard 30-day commercial window, reflecting the high-frequency/low-margin nature of those industries.
- Discounts vs. Interest: The government will generally take a prompt payment discount (e.g., 2%/10 net 30) only if payment is actually made within the discount period. If the government takes a discount late, it owes the contractor the discount amount plus an interest penalty.