U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
|Payments Under the Prompt Payment Act|
||August 2, 1991
- Payment Standards
- Determining Due Dates
- Interest Rates
- Time Discounts
- Allowable Early Payments
- Partial Payments
- Accounting for Interest Penalties and Additional Interest Penalty for Late Payment
- Calculation of Interest Penalties
- Additional Penalties
- Grant Recipients
- Reporting of Prompt Payment Statistics (RCS Number HFS2 0-48
- PURPOSE. To prescribe the policies and procedures to be followed
in paying for property and services acquired under Federal contracts pursuant
to the Prompt Payment Act of 1982, as amended, and promulgated by the Office
of Management and Budget (OMB) Circular No. A-125, Prompt Payment, and its Revisions.
This Order restates and expands certain segments of the Circular's provisions
which impact on financial management.
- CANCELLATION. FHWA Order 2770.2, Payments Under the Prompt Payment Act dated April 2, 1985, is canceled.
- The Prompt Payment Act, Public Law 97-177, dated May 21, 1982, as amended by Public Law 100-496, dated October 17, 1988.
- OMB Revised Circular No. A-125, Prompt Payment, dated December 12, 1989.
- Treasury Financial Manual (TFM), Volume 1, Part 4, Chapter 2000, "Check Issue Disbursing Procedures."
- Treasury Financial Manual (TFM), Volume 1, Part 4, Chapter 2500, "Treasury Financial Communications System Payment."
- Treasury Financial Manual (TFM), Volume 1, Part 6, Chapter 8000, "Cash Management."
- Department of Transportation (DOT) Order 2700.13B, Cash Management, dated May 28, 1985.
- BACKGROUND. The Prompt Payment Act (the Act), originally enacted
as P.L. 97-177 on May 21, 1982, was amended on October 17, 1988, as P.L. 100-496.
OMB Circular A-125, Prompt Payment, was issued August 19, 1982, and Revised
December 12, 1989. The Act, as amended (Chapter 39 of Title 31, United States
Code (U.S.C.), requires Federal agencies to make payments on time, to pay interest
penalties when payments are late, and to take discounts only when payments are
made on or before the discount date. These regulations provide for timely payment,
better relationships with contractors, improved competition for Government business,
and reduced costs to the Government for property and services.
- POLICY. The Federal Highway Administration (FHWA) will make payments
as prescribed in the Prompt Payment Act and the OMB Circular A-125 as close
to, but not later than the due date, or if appropriate, the discount date. Payments
will be based on receipt of proper invoices or progress payment requests, and
the satisfactory performance of contract terms. Discounts may be taken
only when payments are made on or before the discount date. If a discount is
taken after the discount date, or payment is late, interest penalties must be
paid. Checks must be mailed and electronic transfers made on the payment date.
Agencies must pay interest penalties automatically, without contractors having
to request them, and must absorb the cost of interest penalty payments into
funds available for the administration or operation of the program for which
the penalty was incurred. Temporary unavailability of funds does not relieve
the FHWA of the obligation to pay interest penalties. Under specified circumstances,
the FHWA is required to pay an additional penalty.
- The FHWA Headquarters Office of Fiscal Services (OFS) is responsible
for establishing internal control procedures to monitor, evaluate, and report on payment performance.
- The Office of Fiscal Services, Finance Division (HFS20), is responsible
for monitoring the prompt payment practices of all FHWA payment centers in
order to promote compliance with this Order as well as Treasury regulations
and other controlling directives. Program guidance and assistance will be
provided by the Finance Division (HFS-24) to regional and divisional personnel
as needed. The Finance Division (HFS-22) will review and report to the Office
of the Secretary the results of prompt payment practices as reported by payment offices.
- The Federal Lands Highway Program Administrator (FLHPA) is responsible
for the establishment and maintenance of effective prompt payment procedures
within each Federal Lands Highway (FLH) division office. To the extent deemed
necessary, guidelines for uniform prompt payment practices may be issued to
subordinate organizations encompassing or supplementing the procedural elements
discussed in this Order.
- Federal Lands Highway Division Engineers are responsible for establishing
operating procedures in accordance with prompt payment policies outlined herein.
- The FHWA will publish a designated agency contact to provide information
and assistance to contractors for determining the payment status of their
claims. The FHWA contact is also listed in the annual Prompt Pay Report that
is submitted to OST and OMB.
- DEFINITIONS. For the purposes of this Order, the following definitions shall apply:
- Acceptance - acknowledgement by the FHWA that the property
and services received conform with all of the requirements of the contract.
- Contract - any enforceable agreement, including rental and lease agreements,
purchase orders, delivery orders (including obligations under Federal Supply
Schedule contracts), requirements-type (open-ended) service contracts, and
blanket purchase agreements between the FHWA and a contractor for the acquisition
of property or services.
- Contract financing payments - authorized disbursement of monies
prior to acceptance of supplies or services including advance payments, progress
payments based on cost, progress payments (other than under construction contracts
or architect-engineer contracts) based on a percentage or stage of completion,
and interim payments on cost-type contracts. Contract financing payments do
not include invoice payments or payments for partial deliveries.
- Contractor - any person, organization, or business concern engaged
in a profession, trade, or business and any not-for-profit entity operating
as a contractor (includingState and Local governments but excluding Federal entities).
- Constructive Acceptance of Goods or Services - goods or services
will be considered accepted based upon either the earlier of the actual date
of receipt, or the seventh calendar day after the goods are delivered, or
performance of the services has been completed, unless a longer acceptance
period is specified in the contract.
- Receipt of Invoice - receipt of invoice will occur when a proper
invoice is received by the designated billing office and the invoice is date
stamped upon receipt. If the FHWA should fail to date stamp the invoice upon
receipt, the invoice date will become the date of receipt.
- Designated Payment Office - the place named in the contract for forwarding invoices for payment.
- Discount. Date - the date by which a specified invoice payment reduction, or discount, can be taken.
- Due Date - the date on which Federal payment should be made. Determination
of such dates is discussed in paragraph 9 of this Order.
- Payment Date - the date on which a check for payment is dated
or the date of an electronic fund transfer (EFT) payment.
- Prompt Payment Interest Rate - interest rate established by the
Secretary of the Treasury for interest payments under Section 12 of the Contract
Disputes Act of 1978 (41 U.S.C. 611) which is in effect on the day after the
due date, except where the interest penalty is prescribed by other governmental
authority (e.g., tariffs). This rate is also referred to as the "Renegotiation
Board Interest Rate", and is to be used in computing the interest penalty
for late payments under the Prompt Payment Act.
- Proper Invoice - a bill or written request for payment provided
by a contractor for property or services rendered. A proper invoice must meet
the requirements of paragraph 8b of this Order.
- Receiving Report - written evidence of acceptance of property
or services by a FHWA official. Receiving reports must meet the requirements
of paragraph 8c of this Order.
- Treasury Current Value of Funds Rate - the interest rate to be
used in assessing interest charges for outstanding debts on claims owed the
Government, and as a comparison point in evaluating the cost-effectiveness
of a cash discount. This rate is discussed in paragraph 10b of this Order.
- PAYMENT STANDARDS. Payment will be made as close to, but not later
than, the due date, as required by I TFM 6-8040.20. To establish adequate documentation
to assess basis for payment, the following information must be included in contracts,
invoices, and receiving reports.
(1) A contract should include the following payment provisions:
(a) payment due date(s),
(b) a notation that partial payments are prohibited in the contract, if applicable,
(c) separate payment dates if partial payment is required,
(d) a stated inspection period following delivery, where
necessary, for FHWA acceptance of property or services,
(e) name, title, telephone number, and complete mailing
address of contractor's officials, and of the designated payment office, and
(f) reference to requirements under the Prompt Payment
Act including the payment of interest penalties on late invoice payments.
(2) Contract financing payments are not subject to the provisions
of the Prompt Pay Act. See paragraph 7(c) of this Order for a definition
of contract financing payments.
- Proper Invoice
(1) A proper invoice should include:
(a) name of contractor and invoice date,
(b) contract number, or other authorization for delivery
of property or services (assignment of an invoice number by the contractor is recommended),
(c) description, price, and quantity of property, or services actually delivered or rendered,
(d) shipping and payment terms,
(e) other substantiating documentation or information as required by the contract, and
(f) name (where practicable), title, phone number, and
complete mailing address of responsible official to whom payment is to be sent.
(2) If the contract/purchase order directs that the invoice be
sent to the Finance Division, immediate steps should be taken upon its receipt
to secure the related receiving report from the office for which the goods
or services were ordered.
(3) If the invoice is directed to a location other than the Finance
Division, that office should date stamp it upon receipt, take immediate
action to affix the related receiving report, and forward the complete assembly
to the payment office to ensure compliance with the Prompt Payment Act.
- Receiving Reports
(1) A receiving report should include:
(a) contract or other authorization number,
(b) product or service description,
(c) quantities received, if applicable,
(d) date(s) property or services are delivered and actually accepted, and
(e) signature (or electronic alternative when supported
by appropriate internal controls), printed name, title, phone number,
and mailing address/office code of the receiving official.
(2) Receiving offices will date stamp and ensure that receipt
and acceptance reports are executed as promptly as possible and forwarded
in time to be received by the designated payment office within five days
after acceptance, unless other arrangements are made. Designated payment
offices will stamp receiving report with the date received in that office
and note the payment due date.
- Payment of more than $10,000. The FHWA will use the Federal On-Line
Exchange (FOX) for making Treasury disbursed vendor payments in excess of
$10,000. To facilitate these payments, the information outlined in the Treasury
Financial Manual (I Oll 4-2575.20c), will be obtained from qualifying contractors
and provided to the FHWA Finance Division (HFS-24).
- Payments. Payments will be mailed or transmitted on the same day
for which the check is dated. Payment due dates that fall on Saturdays, Sundays,
and legal holidays, when Federal government offices are closed and government
business is not expected to be conducted, may be made on the following business
day without incurring late payment interest penalties.
- DETERMINING DUE DATES. The FHWA should ensure that payment due dates
are specified in contracts, purchase orders, and other procurement documents
for the purchase of goods and services. If a due date has not been specified,
the due date will be 30 days after receipt of invoice or constructive acceptance
of goods or services received (whichever occurs later).
- Invoices that contain a single due date. For the purpose of determining
a payment due date and the date upon which any late payment interest penalty
shall begin to accrue, the FHWA is deemed to have received an invoice on the later of:
(1) The date a proper invoice is actually received and date stamped
by the designated payment office. If the receiving office fails to date
stamp the invoice at the time of receipt the invoice shall be deemed to
have been received on the date placed on the invoice by the contractor, or
(2) The seventh day (constructive.acceptance) after the date
on which the property is actually delivered or performance of the services
is actually completed, unless theFHWA office has accepted the property or
service before the seventh day. The contract may specify a longer acceptance
period, as determined by the contracting officer in order to afford the
FHWA an opportunity to inspect and test the property furnished, or evaluate
the service performed.
- When an invoice is received which contains items with different payment periods, the FHWA:
(1) Should pay in accordance with the contractual payment provisions,
(2) Must pay interest if payment is made so that some items are paid for after their due dates,
(3) May split payments, making payment by the due date applicable to each category,
(4) May not require contractors to submit multiple invoices for
payment of individual orders by the agency, and
(5) May encourage but may not require contractors to submit separate
invoices for categories of products with different payment periods.
- INTEREST RATES
- The Prompt Payment Interest Rate is determined by the Secretary of the
Treasury and published in the Federal Register semiannually, about January
1 and July 1. The Office of Fiscal Services, Finance Division (HFS-22), will
furnish, by memorandum to each Regional office and the Federal Lands Highway
Program Administrator, the current interest rate to be used in computing interest
penalties on late payments.
- The Treasury Current Value of Funds rate, to be used for evaluating discounts
offered, is calculated by the Treasury Department for each fiscal quarter
and may be published in the Federal Register quarterly, or at least
annually. This rate is used to determine if a discount offered should be taken.
- TIME DISCOUNTS. The FHWA payment offices will accept an offer for
a discount from a contractor for property and services received, provided that
the amount due is paid on or before the discount date shown on the contractor's
invoice. Discounts may be taken whenever economically justified, and only after
acceptance has occurred. See Attachments 1 and 2 for procedures used to determine
if a discount offered is advantageous to the Federal Government.
- ALLOWABLE EARLY PAYMENTS.Payments may be made up to seven calendar
days prior to the due date and be considered a timely payment. When discounts
are taken, payment must be made by the discount date shown on the invoice.
- PARTIAL PAYMENTS. The FHWA shall make partial payments for partial
deliveries or other contract performance, provided the contract allows periodic
payments. If an invoice for partial payment is required by the contract, payment
is contingent upon the submission and receipt of a proper invoice.
- ACCOUNTING FOR INTEREST PENALTIES AND ADDITIONAL INTEREST PENALTY
FOR LATE PAYMENT. Accruals and payments for goods and services shall
be coded on an FHWA-371, Code Card, using the accounting data on the purchase
order or contract except for the amount of the interest penalty. Interest penalties
are operating costs and shall be charged to the appropriate general ledger account.
Such costs will be absorbed within funds available for the administration or
operation of the program for which the penalty was incurred. Interest penalty
amounts shall be charged to sub-object class 88. Additional penalty amounts
incurred for failure to include interest on late payments will be charged to
sub-object class 89. Interest penalties paid shall not be capitalized (see FHWA
Order 2700.2, FHWA Accounting Policy and Procedures Handbook, Volume 4, Chapter 3).
- CALCULATION OF INTEREST PENALTIES. When a proper invoice is paid
after the due date, an interest penalty is owed, and it will be included with
the payment. Interest penalties of less than one dollar will not be paid. The
interest penalty amount is to be computed beginning with the day after the due
date through the payment date, and the amount will be separately stated on the
check or accompanying remittance advice. The following items must be considered, if applicable:
- Adjustments will be made for errors in calculating interest, if requested
by the contractor. Interest penalties remaining unpaid for any 30-day period
will be added to the principal, and thereafter, interest penalties will accrue
monthly on the total amount of the principal plus previously accrued interest.
- Any improperly taken discount or discount taken after the discount date,
not repaid before the payment due date, requires the interest penalty amount
to be calculated to include the amount of the discount taken, for the period
beginning the day after the payment due date to the actual payment date.
- When a contractor is not notified of a defective invoice within 7 calendar
days of receipt the payment due date for the corrected invoice will be reduced
by the number of days which lapse between the seventh day and
the day on which notification was transmitted to the contractor. Subsequent
payment and the calculation of penalties, if any, will be based on the adjusted
due date, reflecting the reduced number of days allowable for payment.
- Interest penalties will not continue to accrue when a dispute arises
between the FHWA and a contractor, and a claim for penalty has been filed
under the Contract Disputes Act of 1978, or the statutory limitation of one
year for accruing a late interest penalty has elapsed.
- When the transmission of a payment to a contractor via electronic funds
transfer is attempted, but not made, based upon incorrect or incomplete information
provided by the contractor, the FHWA is exempted from payment of interest
penalties for the period between the date of the attempted transmission and
the date on which the contractor supplies correct information to the payment
office. The interest penalty will be suspended provided the contractor was
given notice of the defective information within seven days after the agency
was notified of the defective information.
- ADDITIONAL PENALTIES
- A contractor shall be entitled to an additional penalty payment when the contractor:
(1) Is owed a late payment interest penalty by the FHWA,
(2) Receives a payment after the payment due date which does not include the interest penalty,
(3) Is not paid the interest penalty by the FHWA within 10 days
after the date on which payment is made, and
(4) Makes a written request, not later than 40 days after the
date on which such payment is made, that the FHWA pay an additional penalty.
The contractor request must specifically assert that late payment interest
is due under a specific invoice, and request payment of all overdue interest
penalties as required. Attached to the contractor request shall be a copy
of the invoice on which late payment interest was due but unpaid, certification
that payment for the principal has been received, and the date payment was
received. The request must be postmarked by the 40th day after payment was
made. If there is no postmark, the request will be valid if it is received
and date stamped in the paying office by the 40th day. If the agency fails
to annotate the request, the request will be valid if the contractor's date
of mailing is by the 40th day.
- The additional penalty shall be equal to one hundred percent (100%) of the original late payment interest penalty.
- Beginning January 10, 1990, the additional penalty shall not be greater
than $2,500 for a 2- year period. After January 10, 1992, the additional penalty
shall not exceed $5,000. No additional penalty of less than $25 will be paid.
When the late payment interest penalty ceases to accrue at the end of one
year or a claim is filed under the Contracts Disputes Act of 1978, the additional
penalty shall continue to accrue indefinitely.
- For the purpose of determining the maximum and minimum penalty, the test
shall be the interest due on each separate payment made for each separate
contract. The penalty shall not be based on individual invoices unless the
invoices are paid by separate payment. Where payments are consolidated for
disbursing purposes, the penalty determination shall be made separately for
each contract therein.
- GRANT RECIPIENTS. Recipients of Federal assistance may pay interest
penalties if so specified in their contracts with business concerns. However,
obligations to pay such interest penalties will not be obligations of the FHWA.
Federal funds may not be used for this purpose, nor may interest penalties be
used to meet matching requirements of Federally-assisted programs.
- REPORTING OF PROMPT PAYMENT STATISTICS (RCS Number HFS-20-48). The
FHWA will report annually to the OST by November 15th. Therefore, FHWA field
payment offices should submit their prompt pay data to HFS-22 within fifteen
days after the end of each fiscal year.
George S. Moore, Jr.
PROCEDURES FOR DETERMINING WHEN TO TAKE A DISCOUNT
Use the appropriate chart on Attachment 2.
- If the invoice must be paid in 20 days, use Chart I.
- If the invoice must be paid in 25 days, use Chart II.
- If the invoice must be paid in 30 days, use Chart III.
- Determine the discount (percentage) and the discount period of the discount
terms. For example, in 2/10 net 30, 2 is the discount (percentage) and 10 days is the discount period.
- In the left column of the Effective Annual Rate (EAR) Chart, find the discount
(percentage) of the offered discount. Follow that row to the column that corresponds
with the discount period of the offered discount. That number is the EAR of the discount.
- Compare the EAR with Treasury's Current Value of Funds Rate (CVFR). If the
EAR is greater than or equal to the CVFR, take the discount. If the EAR is less
than the CVFR, don't take the discount.
Example 1: Discount Not Taken
Discount offered is .5/10, net 30
Treasury's CVFR is 14.26%
Use Chart III, 30-day net
Find .5% in left column
Follow the row to the 10-day column
Since EAR is less that CVFR, do not take the discount.
Example 2: Discount Taken
Discount offered is 1/10, net 25
Treasury's CVFR is 14.26%
Use Chart II, 25-day net EFFECTIVE ANNUAL RATE (EAR) CHARTS
Find 1% in left column
Follow the row to the 10-day column
Since EAR is greater than CVFR, take the discount.
Chart I, 20 day net
Chart II, 25 day net
Chart III, 30 day net