New rule of interest to late-paying agencies

Federal agencies will have to pay interest if they make late payments to service contractors under an interim rule issued by the Office of Management and Budget last week. The new rule, issued under Section 1010 of the National Defense Authorization Act for 2001, requires agencies to pay an interest penalty if they fail to make payment on service contracts within 30 days of receiving an invoice. Under the Prompt Payment Act of 1982, agencies must pay interest if they are more than 30 days late in paying for completed projects. Section 1010 extends this penalty to cost-reimbursement service contracts in which agencies make a series of interim payments to contractors. "You might have a contractor who services 15 to 20 computers at an agency, but only works on two or three [computers] in a given month. This rule requires agencies to make interim payments on these kind of service contracts on time," said Matthew Helfrich, a financial program specialist at the Treasury Department. The rule was prompted in part by complaints from contractors who testified before Congress this fall. According to Helfrich, the contractors said late payments have not only hurt them financially, but have led some vendors to overcharge agencies to compensate for late payment. Other firms have been discouraged from doing business with the government altogether. The rule took effect on Dec. 15. OMB will accept comments on the interim rule until Feb. 13.