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Panoptic Enterprises' FEDERAL CONTRACTS DISPATCH

DATE: December 27, 2002

SUBJECT: Office of Management and Budget; Prompt Payment

SOURCE: Federal Register, December 30, 2002, Vol. 67, No. 250, page 79515

AGENCIES: Office of Management and Budget (OMB)

ACTION: Final Rule

SYNOPSIS: OMB is revising its Prompt Payment Act regulations to implement Section 1010 of the National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398), as amended by Section 1007 of the National Defense Authorization Act for Fiscal Year 2002 (Public Law 107-107). Section 1010 of Public Law 106-698 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. Section 1007 of Public Law 107-107 states that the requirements of Section 1010 apply to interim payments that are due on or after December 15, 2000 (the date Section 1010 went into effect) under any cost-reimbursement service contract regardless of when the contract was awarded.

EDITOR'S NOTE: For more on OMB's implementation of Section 1010, see the December 15, 2000, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget; Penalties for Late Payments Under Cost-Reimbursement Service Contracts." For more on the implementation of Section 1010 in the Federal Acquisition Regulation, see the October 5, 2001, FEDERAL CONTRACTS DISPATCH "Federal Acquisition Circular (FAC) 2001-01, Miscellaneous Amendments."

For more on the acquisition-related provisions of Public Law 106-698, see the November 8, 2000, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act of Fiscal Year 2001." For more on the acquisition-related provisions of Public Law 107-107, see the January 2, 2002, FEDERAL CONTRACTS DISPATCH "Enactment of the National Defense Authorization Act for Fiscal Year 2002."

DATES: This final rule is effective December 30, 2002, and shall apply to all interim payment requests that are due on or after December 15, 2000, and received under cost-reimbursement service contracts awarded before, on, or after December 15, 2000. However, no interest penalty shall accrue under this rule for any delay in payment that occurred prior to December 15, 2000.

FOR FURTHER INFORMATION CONTACT: Martha Thomas-Mitchell, Financial Program Specialist, Financial Management Service, Department of the Treasury, 202-874-6757; Mathew Blum, Office of Federal Procurement Policy, OMB, 202-395-4953; or Dana James, Office of Federal Financial Management, OMB, 202-395-7480.

SUPPLEMENTARY INFORMATION: Contractors awarded cost-reimbursement contracts are authorized to seek reimbursement, including reimbursement during the course of the contract ("interim payments"), for the allowable costs they incur in the performance of the contract. In Public Law 106-698, paragraph (a) of Section 1010, Interest Penalties for Late Payment of Interim Payments Due Under Government Service Contracts, imposed a new statutory requirement on agencies to pay an interest penalty on interim payments that are made late under cost-reimbursement service contracts: "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." Interest is to be computed as provided in the Prompt Payment Act. Section 1010(b) directs OMB to "prescribe regulations to carry out this section" (OMB's regulations on the PPA are in Title 5 of the Code of Federal Regulations (CFR), Part 1315, Prompt Payment). Finally, Section 1010(d) states that "subsection (a) shall take effect on December 15, 2000. No interest shall accrue by reason of that subsection for any period before that date."

On December 15, 2000, OMB published an interim final rule to implement Section 1010. The rule 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. In addition, it required application of the Section 1010 requirements to contracts awarded on or after December 15, 2000. However, the rule authorized agencies, at their discretion, to apply these requirements to interim payment requests received under cost-reimbursement service contracts awarded prior to December 15, 2000. Federal Acquisition Circular 2001-01 included changes to the FAR implementing OMB's interim final rule.

Three respondents submitted comments on OMB's interim final rule, and all stated that the rule failed to fully implement Section 1010 because it did not require application of its requirements to interim payment requests received under cost-reimbursement service contracts awarded prior to December 15, 2000. The respondents asserted that Congress intended for all cost-reimbursement contracts for services requiring interim payment to be covered by the requirements of Section 1010.

Subsequent to receipt of these public comments, Congress took action to clarify the application of Section 1010. Section 1007 of Public Law 107-107 states that the requirements of Section 1010 apply with respect to "interim payment that are due on or after [December 15, 2000] under contracts entered into before, on, or after that date." Therefore, this final rule amends OMB's regulations at Section 1315.20, Application of Section 1010 of the National Defense Authorization Act for Fiscal Year 2001, to incorporate the clarification made by Section 1007. With the exception of the amendments made to Section 1315.20, this final rule adopts the interim final rule without change. In addition, paragraph (c) of the revised Section 1315.20 states, "Agencies are authorized to issue modifications to contracts, as necessary, to conform them to the provisions in this part implementing Section 1010, as amended."

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

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