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Barry McVay's FEDERAL CONTRACTS DISPATCH

DATE: December 15, 2000

FROM: Barry McVay, CPCM

SUBJECT: Office of Management and Budget; Penalties for Late Payments Under Cost-Reimbursement Service Contracts

SOURCE: Federal Register, December 14, 2000, Vol. 65, No. 241, page 78403

AGENCIES: Office of Management and Budget (OMB)

ACTION: Interim Final Rule

SYNOPSIS: OMB is revising its Prompt Payment Act (PPA) regulations to implement Section 1010 of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398). Section 1010, Interest Penalties for Late Payment of Interim Payments Due Under Government Service Contracts, requires agencies to pay an interest penalty whenever they make an interim payment under a cost-reimbursement contract for services more than 30 days after the agency receives a proper invoice for payment from the contractor.

EDITOR'S NOTE: OMB's regulations on the PPA are in Title 5 of the Code of Federal Regulations (CFR), Part 1315, Prompt Payment. Copies of the regulation and other information are available from the Prompt Payment web site at http://www.fms.treas.gov/prompt/index.html. Copies are also available from the Financial Management Service, Cash Management Policy and Planning Division, 401 14th Street, SW, Washington, DC 20227.

The current PPA interest rate is 7.25% for the period beginning July 1, 2000, through December 31, 2000. For more on the PPA interest rate (also called the "Renegotiation Board interest rate"), see the June 30, 2000, FEDERAL CONTRACTS DISPATCH "Renegotiation Board Interest Rate, Prompt Payment Interest Rate, Contract Disputes Act."

For more on prompt payment, see Federal Acquisition Regulation (FAR) Subpart 32.9, Prompt Payment.

DATES: This interim final rule is effective December 15, 2000, and it will apply to all interim payment requests received under cost-reimbursement service contracts awarded on or after that date. Agencies may, at their discretion, apply this rule to interim payment requests received under cost-reimbursement service contracts awarded before December 15, 2000, but no interest penalty shall accrue for any delay in payment that occurs prior to December 15, 2000.

Comments on this interim final rule must be received by February 13, 2001.

ADDRESSES: Send comments to the Cynthia L. Johnson, Director, Cash Management Policy and Planning Division, Financial Management Service, U.S. Department of the Treasury, Room 420, 401 14th Street SW, Washington, DC 20227.

FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial Program Specialist, 202-874-7106; Matthew Helfrich, Financial Program Specialist, 202-874-6749; Martha Thomas-Mitchell, Financial Program Specialist, 202-874-6757; or Cynthia L. Johnson, Director, Cash Management Policy and Planning Division, 202-874-6590.

SUPPLEMENTAL INFORMATION: In 1982, Congress enacted the PPA to require federal agencies to pay their bills in a timely manner, to pay interest penalties when payments are made late, and to take discounts only when payments are made by the discount date. Congress amended the PPA in 1988. OMB has codified the provisions of the PPA in 5 CFR Part 1315.

Interim payments under cost-reimbursement service contracts had not been subject to PPA interest penalties. However, Section 1010 of Public Law 106-398 provides that "the head of an agency acquiring services from a business concern under a cost reimbursement contract requiring interim payments who does not pay the concern a required interim payment by the date that is 30 days after the date of the receipt of a proper invoice shall pay an interest penalty to the concern on the amount of the payment due." Therefore, OMB is amending its PPA regulations by adding Section 1315.20, Application of Section 1010 of the National Defense Authorization Act for Fiscal Year 2001. Because Section 1010 goes into effect December 15, 2000, the provisions of Section 1315.20 apply to interim payment requests received under cost-reimbursement service contracts awarded on or after December 15, 2000. Agencies may apply Section 1315.20 provisions to interim payment requests received under cost-reimbursement service contracts awarded before December 15, 2000, but may not pay interest for any interest for any delay in payment that occurred before December 15, 2000.

Various conforming revisions are also being made to other sections in 5 CFR Part 1315:

Because Public Law 106-398 was signed into law on October 30, 2000, and Section 1010 goes into effect December 15, 2000, OMB decided to issue an interim final rule because it would have been impracticable to solicit comments prior to its issuance. However, OMB did consult with the Department of Defense, the Department of the Treasury, the General Services Administration, and other agencies during the development of the interim final rule. OMB is requesting comments on the interim final rule and will consider all comments received in its development of the final rule.

FOR FURTHER INFORMATION CONTACT: Barry McVay at 703-451-5953 or by e-mail to BarryMcVay@FedGovContracts.com.

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