Agencies may have to pay more for late contractor invoices due to Trump payment system overhaul

Agencies could be on the hook for interest on late payments to government contractors, as President Donald Trump seeks to overhaul the contractor payment system. 

On Feb. 26, the president signed an executive order requiring agencies in conjunction with the Department of Government Efficiency to build centralized technological systems to record all payments issued under their contracts and grants, as well as a justification for each such payment, to increase oversight of government contracting. 

Since then — the Professional Services Council, a trade association for federal contractors — has reported that there’s been a slowdown, and cessation in some cases, of disbursements. While this hurts businesses, it also could ding agencies that must then pay interest on the late invoices under the Prompt Payment Act. 

The interest rate under such law for the first six months of 2025 is 4.625%. 

“The scope is growing, so this, I think, might be an unintended consequence of pausing payments and revamping and having a centralized technological system to handle it,” Stephanie Sanok Kostro, PSC executive vice president for policy, said during a press roundtable on March 27. 

This issue also affects late payments for contractors of the U.S. Agency for International Development, an agency that Trump is seeking to eliminate. A federal judge in March ordered the administration to pay out nearly $2 billion in foreign assistance contracts. 

“The meat of the issue here is the simple contract principle that if the government doesn't pay for the services that it accepted, that's a breach of contract,” said David Dixon, a partner in government contracts and disputes at Pillsbury law firm. He also pointed out that there already are systems to track contract spending: the Federal Procurement Data System and usaspending.gov. 

He said that it’s unusual for the government to miss a payment. 

“There aren't many cases out there of the government not making payments on time. But in this case, it's not that they're not making them on time. They haven't made them since the Trump administration came into office,” Dixon said. “There are folks that haven't been paid for their November invoices now, and we're talking about contractors that primarily work with the federal government, and so they've had to do layoffs.”

The attorney also said there’s a question of whether the Trump administration is ready to face a large number of breach of contract claims or if officials will retaliate against contractors for bringing the claims. 

PSC President and CEO David Berteau said the late payment issue might cause businesses to reevaluate whether they want to work with the government or charge more money. 

“Historically, the basis of the deal has been a risk-reward trade-off in which a government invoice is considered by the financial system to be essentially as good as cash, because the U.S. government does pay its bills and has historically,” he said. “The implicit part of that is the return will be less because the risk is less. Well, if the government doesn't pay its invoices, this changes the risk calculus. It may, in fact, end up having to affect what the return calculus looks like as well.”

Dixon expressed a similar sentiment. 

“In some instances, I'm watching good companies just be very much hurt by the actions of the administration. You have to ask: was it necessary? I don't know if it's necessary or not. I'm not inside the organization,” he said. “But I think that the government needs to be concerned that companies might not want to work with the government.”