Prompt Payment

OFFICE OF MANAGEMENT AND BUDGET

5 CFR Part 1315

RIN 0348-AB47

Prompt Payment

AGENCY: Office of Management and Budget, Executive Office of the

President.

ACTION: Final rule on, and codification of, Prompt Payment Act

regulations.

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SUMMARY: OMB is issuing final revisions to its rules on the Prompt

Payment Act, which have been found in Circular A-125. The revisions

address the increased use of electronic commercial financial systems;

promote the use of government credit cards and accelerated payment

methods; reflect new requirements of the Debt Collection Improvement

Act of 1996 and the recent repeal of the annual agency Prompt Payment

reporting requirement; clarify and simplify language; and announce a

toll-free number and internet website for Prompt Payment Act

information. Finally, in addition to revising the Prompt Payment rules,

OMB is also adopting them as codified regulations in the Code of

Federal Regulations. OMB's issuance of codified regulations has the

effect of superceding and rescinding Circular A-125 (``Prompt

Payment'').

DATES: Effective Date: The regulations are effective October 29, 1999.

ADDRESSES: 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.

FOR FURTHER INFORMATION CONTACT: Sally Phillips, Senior Financial

Program Specialist on (202) 874-7106; Matthew Helfrich, Financial

Program Specialist, (202) 874-6749; Martha Thomas-Mitchell, Financial

Program Specialist on (202) 874-6757; or Cynthia Johnson, Director,

Cash Management Policy and Planning Division on (202) 874-6590.

SUPPLEMENTARY INFORMATION:

I. Background

In 1982, Congress enacted the Prompt Payment Act (``Act''; Pub. L.

97-177) to require Federal agencies to pay their bills on a timely

basis, to pay interest penalties when payments are made late, and to

take discounts only when payments are made by the discount date. The

Act, as amended, is found at 31 U.S.C. Chapter 39.

To implement the Act, and pursuant to 31 U.S.C. 3903(a), OMB issued

Circular A-125 (``Prompt Payment'') in August 1982 (47 FR 37321, August

25, 1982). In response to changes to the Act that Congress made in the

Prompt Payment Act Amendments of 1988 (Pub. L. 100-496), OMB revised

Circular A-125 in December 1989 (54 FR 52700, December 21, 1989).

On June 17, 1998, OMB requested public comment on proposed

revisions to Circular A-125 (63 FR 33000). As the preamble to that

document explained (at 33000), the Circular is being updated to reflect

the increased use of electronic commerce in the Federal government and

in the private sector, including electronic financial systems and

electronic funds transfer. The value of electronic commerce as a means

of streamlining government and saving taxpayer dollars was emphasized

by President Clinton in his memorandum to agencies of October 26, 1993,

and by the National Performance Review, headed by Vice President Al

Gore, in its call for an ``all electronic Treasury.'' In addition, the

document explained (at 33001) that revisions to the Circular were being

proposed to reflect the Debt Collection Improvement Act of 1996

(``DCIA''; Pub. L. 104-134). Finally, the document indicated (at 33003)

that, upon the issuance of final revisions, the Circular's provisions

would be codified in the Code of Federal Regulations.

The current rule responds to the comments that were received on the

proposed revisions, issues final revisions to OMB's Prompt Payment

regulations, and codifies these regulations at a new part 1315 of title

5 of the Code of Federal Regulations. With the incorporation of the

Prompt Payment rules into 5 CFR part 1315, OMB is rescinding Circular

A-125.

As the next part of this preamble explains, OMB has made a number

of changes to the Prompt Payment rules in response to public and agency

comments on the proposal. In addition, one change has been made in

response to subsequent legislative action--the elimination of the

requirement for agencies to report annually on their Prompt Payment

activities. This requirement (found in Section 14 of the Circular) had

implemented the statutory reporting requirement in Section 3906 of the

Prompt Payment Act, but Congress repealed Section 3906 last fall, in

Section 1301(c) of the Federal Reports Elimination Act of 1998 (Pub. L.

105-362). As a result, agencies are no longer required to submit any

Prompt Payment statistics to the Financial Management Service.

Finally, in an effort to further reduce any delays relating to

payment, the Department of Treasury is establishing an interagency

group, including the Department of Defense and other agencies, to

examine any ongoing problems. The group will explore causes of any

identified delay and develop options for corrective action as

necessary.

As codified at Part 1315, the Prompt Payment rules generally follow

the organization of the proposal. However, the section on

``Definitions'' has been moved from near the end of the proposal

(Section 18) to near the beginning of the final rule (Section 1315.2).

Also, as noted above, the ``Reporting Requirements'' section (Section

16 of the proposal) has been deleted.

II. Comments on, and Changes to, the Proposed Rule

Comments were received from 21 entities: 15 Federal agencies, 5

vendors and organizations representing vendors, and one university.

Most of the comments addressed particular provisions in the proposed

Prompt Payment rules. These are discussed below on a section-by-section

basis, along with the changes that have been made to the proposed rule.

Other, more general, comments on the proposal are discussed at the end

of this part of the preamble.

A. Section 1315.1--Application (Proposed Section 1)

The Commodity Credit Corporation (CCC) commented that CCC payments

made to farm producers are not considered to be procurement payments

and as such CCC payments should not be covered in proposed Section

1.a., ``Application.'' A separate paragraph at final Sec. 1315.1(d) has

been added to indicate the scope of the coverage of the Prompt Payment

Act with respect to CCC payments (CCC payments are also addressed in

Sec. 1315.13).

In proposed Section 1.c, ``Utility payments,'' an agency commented

that the section should be revised to clarify that the referenced

``tariffs,'' which may override the Prompt Payment interest, are

utility tariffs only. This was the intent of the proposed section, as

with Section 2.b of the Circular, because the section addresses only

utility services. The section has been revised to make this point

clearer.

One agency, with worldwide operations, recommended that proposed

Section 1.c (``Utility payments'') should be amended to provide that,

when late payment rates for utility services are established by foreign

governments,

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such rates (in addition to the late payment rates established by state

or local governments) will take precedence over the rates that would

otherwise apply under this part. OMB agrees that foreign late payment

rates for utility services should be treated comparably to state or

local rates. In both situations, the Federal government should pay the

local rate that is generally charged to utility customers, rather than

the Prompt Payment Act rate. Final Sec. 1315.1(c) has been revised

accordingly.

Finally, the paragraph at final Sec. 1315.1(b)(2) has been amended

to include the word ``contingency'' when describing payments made

during military operations. This parallels the language in the

referenced provision at 10 U.S.C. 101(a)(13).

B. Section 1315.2--Definitions (Proposed Section 18)

An agency suggested that the definition of ``Acceptance'' be

revised to clarify that only an authorized government official may

accept goods or services. OMB agrees and has made the change at

Sec. 1315.2(b).

The definition of ``Applicable interest rate,'' at Sec. 1315.2(d)

has been revised to reflect the change in the ``Utility Payments'' in

Sec. 1315.1(c), which clarifies that utility tariffs take precedence

over the Prompt Payment interest rate when governmental authorities

(including foreign governments) regulate late payment rates.

Based on a comment from an agency, OMB has made a clarifying

revision to the definition of ``Banking information'' at

Sec. 1315.2(f), so that it refers to ``vendor financial institution's''

rather than ``their bank's'' in connection with the routing number of

the vendor's financial institution.

Several comments were received from agencies and from organizations

representing Federal vendors regarding the definition of ``Contract

financing payments,'' which in the final rule is found at

Sec. 1315.2(h). One commenter expressed the view that OMB should revise

the rules to expand the application of Prompt Payment Act interest

penalties to include contract financing payments. Contract financing

payments were not subject to interest penalties under the Circular and

the final rule retains this position. Under Circular A-125, the

obligation to pay interest penalties for late payments has been

conditioned upon the agency's acceptance of the supplies or services.

Contract financing payments, by contrast, are the ``authorized

disbursement of monies prior to acceptance of supplies or services.''

Circular A-125, section 1.f (54 FR 52707); see 54 FR 52701 (discussion

of contract financing payments). As part of its activities to examine

potential ongoing problems with payment delays, the Treasury

Department's interagency workgroup (discussed above) will assess the

agencies' practices with respect to contract financing payments.

The definition of ``Designated Agency Office'' at Sec. 1315.2(m)

has been revised, based on a comment, to make clear that the office

first designated to ``receive'' an invoice must also ``review'' it to

determine if it is proper.

An agency suggested that the definition of ``Electronic Funds

Transfer'' (EFT) include electronic transmission of payment data. In

light of the DCIA and requirement that federal payments be made

electronically, the definition of EFT at Sec. 1315.2(s) has been

modified to more closely reflect the definition found at 31 CFR part

208, Managing Federal Agency Disbursements. An agency responsible for

cleaning hazardous waste sites commented that the definition for

``Emergency Payment'' should be modified to include the release or

threatened release of hazardous substances as defined in Section 106 of

the Comprehensive Environmental Response Compensation and Liability Act

of 1980. OMB has made this change at Sec. 1315.2(t).

OMB has changed the FAR subpart reference in the definition of

``Fast Payment'' at Sec. 1315.2(v) to reflect new FAR numbering.

The term ``Government Credit Card'' has been changed to

``Governmentwide Commercial Purchase Cards,'' and the definition at

Sec. 1315.2(x) have been revised to reflect changes (that are discussed

below) to Sec. 1315.12, ``Payments to Governmentwide Commercial

Purchase Card Issuers.'' The definition was also revised to remove the

reference to the current simplified acquisition threshold of $100,000

(because the threshold may change periodically), and to describe the

types of payments for which the card may be used.

Several agencies requested definitions for ``rebate'' and

``settlement date.'' Definitions for these terms have been added, at

Sec. 1315.2(aa), (ee).

An agency suggested that the phrase ``contractual or

noncontractual'' in the definition of ``Utilities and Telephones'' be

removed since the Prompt Payment Act only applies to payments made as

the result of a contract. OMB agrees, and the phrase has been removed

from the definition at Sec. 1315.2(gg).

C. Section 1315.3--Responsibilities (Proposed Section 2)

The discussion on ``Internal control systems'' (Sec. 1315.3(b)) has

been modified to clarify that an agency's Quality Control program must

include Quality Control validation at least once annually.

D. Section 1315.4--Prompt Payment Standards and Required Notices to

Vendors (Proposed Section 3)

We received several comments concerning the use of non-paper

documentation. An agency requested that OMB revise the ``Required

documentation'' subsection to state that documentation stored in an

imaged format is an example of the electronic documentation that is

required. In the same vein, an agency commented that facsimiles should

be included among the ``computer-related media'' that, under the

``Receipt of invoice'' subsection, may be used in lieu of ``written''

or ``original'' paper documents. Finally, an agency, which said it has

experienced problems with non-paper media, recommended that OMB delete

the provision that allows computer-related media to be used.

OMB agrees that an imaged format would be acceptable for electronic

documentation purposes. Similarly, facsimiles are one example of an

acceptable substitute for paper documents. OMB, though, does not

believe that it is necessary (or advisable, given the evolving nature

of electronic technology) for the rule to offer specific examples of

acceptable formats for electronic documentation. Any legible electronic

format may be used in lieu of paper documentation (to clarify this

point, the reference to ``computer-related media'' in the proposal has

been changed to ``any media'' in the final rule). OMB does not agree

with the recommendation to delete the provision on computer-related

media. In order to prevent delays in payment and subsequent late

payment interest penalties, this provision strongly encourages agencies

to use non-paper documentation with adequate internal controls to

prevent duplicate payments. Agencies not having internal controls which

are adequate for preventing duplication of payments are strongly

encouraged to adopt such controls and to use non-paper documentation

once those controls are in place.

Several agencies were critical of the proposed subsections on

``Receipt of invoice'' and ``Starting the payment period,'' which were

significantly revised versions of the Circular's provisions on those

subjects (Sections

[[Page 52582]]

1.n and 4.d of the Circular). The agencies stated that the proposed

revisions did not provide useful clarification to the discussion of

when an invoice is received for purposes of starting the payment period

in accordance with the Prompt Payment Act (31 U.S.C. 3901(a)(4)). Based

on these comments, the final rule makes only minor revisions to the

Circular's provisions on ``Receipt of invoice'' and ``Starting the

payment period''; the final rule's provisions are found at

Sec. 1315.4(b), (f). In response to an agency comment, the final rule

clarifies that an electronically-received invoice is deemed to be

received on the date the invoice is received unless it is received

after normal working hours, in which case the invoice is deemed to be

received the next business day.

OMB received a number of comments on the proposed subsection on

``Review of invoice.'' With respect to the requirement in Section

3.c(1) of the proposal for the agency to review the invoice to

determine if it is improper, an agency commented that the phrase

``appropriate office'' did not correctly capture the intention of the

1988 amendments to the Act that the office first designated to receive

an invoice must review it to determine if it is proper. In the final

rule, at Sec. 1315.4(c)(1), OMB has replaced the term ``appropriate

office'' with the term ``designated agency office'' and (as discussed

above) has revised the definition of that term in Sec. 1315.2(m) to

reflect the fact that this office is expected to review invoices.

A trade organization commented that the maximum time allowed an

agency to review an invoice and return an invoice as improper should be

reduced from seven days to three days. The seven-day period is

established by the Prompt Payment Act, which provides that (except in

the case of certain specified types of contracts, for which a different

maximum period is set) ``each invoice be reviewed as soon as

practicable after receipt'' and ``any invoice determined not to be such

a proper invoice suitable for payment shall be returned as soon as

practicable, but not later than 7 days, after receipt, specifying the

reasons that the invoice is not a proper invoice.'' 31 U.S.C.

3903(a)(7)(A), (B). The Circular has reiterated the Act's requirement,

by stating in Section 4.b(2), (3) that an invoice ``will be reviewed as

soon as practicable after receipt'' and, if determined to be improper,

``shall be returned as soon as practicable, but not later than seven

days'' after receipt. The proposed rule at Section 3.c(1), (2) also

stated that the invoice shall be reviewed and, if determined to be

improper, be returned within seven days after receipt. However, as

another trade organization noted, the proposal failed to specify that

the invoice shall be reviewed and (if determined to be improper)

returned ``as soon as practicable'' after receipt.

In accordance with the Act, and the pre-existing Circular, the

final rule states in Sec. 1315.4(c)(1), (2) that an agency shall review

the invoice ``as soon as practicable after receipt'' and shall return

an improper invoice ``as soon as practicable after receipt, but no

later than 7 days after receipt.'' In addition, as did the proposal,

the final rule provides that the agency ``will identify all defects

that prevent payment and specify all reasons why the invoice is not

proper and why is it being returned.'' As a result, if it is

``practicable'' for an agency to review and return an improper invoice

in three days, then--under the Act and the final rule--the agency is

required to return the invoice in three days. However, if it is not

``practicable'' for an agency to review and return an improper invoice

in three days, then the Act and the final rule provide that the agency

has additional time (up to seven days) in which to do so. Given the

statutory standard, we do not believe it would be appropriate for the

final rule to require an agency to return an improper invoice in less

than seven days where it would not be ``practicable'' for the agency to

do so.

An agency commented that the proposed provision at Section 3.c(2),

regarding the notification requirement when returning an improper

invoice, should be consistent with proposed Section 13.a.(3) which

stated that, for construction contracts, an agency need not return an

improper invoice if the agency notifies the vendor electronically that

the invoice is improper. Another agency, however, noted that the Prompt

Payment Act, at 31 U.S.C. 3903(a)(7)(B), provides that improper

invoices ``shall be returned.'' In the final rule, at

Sec. 1315.14(a)(3), OMB has dropped the language concerning electronic

notification of improper invoices for construction contracts. As a

result, that provision is consistent with the invoice-return

requirement at Sec. 1315.4(c)(2).

A trade organization commented that additional language should be

added which says that the number of days available to an agency to make

the payment is reduced by the number of days by which an agency exceeds

the time period during which it is required to return the improper

invoice. OMB does not believe that additional language is necessary.

The Circular in Section 4.b(4) has already provided for such a

reduction in the payment period. That language was in the proposed rule

at Section 3.g(3), and is found in the final rule at Sec. 1315.4(g)(4).

Two agencies commented on the provision on ``Acceptance'' in

Section 3.e of the proposal. As has the Circular (at Section 4.c), the

proposal required agencies to ensure that acceptance is ``executed as

promptly as possible,'' and that commercial items and services ``should

not be subject to extended acceptance periods.'' One agency commented

that a specific time period should be established (e.g., seven days)

within which acceptance is required to occur, unless a longer

acceptance period is agreed upon. OMB does not believe that a specific

time period should be set for acceptance, but rather that acceptance

should occur ``as promptly as possible.'' Therefore, the final rule at

Sec. 1315.4(e) retains the language from the Circular and the proposal

on this point. Another agency commented that the language in the

proposal that acceptance reports should be forwarded to the designated

agency office ``by the fifth working day after delivery'' should be

amended to say the fifth working day ``after acceptance'' (which would

parallel the language in the Circular at Section 4.c). OMB agrees with

the comment and has made the change.

With respect to the ``Payment date'' provision at Section 3.h of

the proposal, an agency commented that there would be no instance where

a payment would fall due ``after normal working hours.'' OMB agrees,

and the phrase has been deleted in Sec. 1315.4(h). Finally, the text of

the provision has been revised for clarity.

E. Section 1315.5--Accelerated Payment Methods (Proposed Section 4)

Two agencies questioned whether the Prompt Payment Act provides the

statutory latitude to permit payment by accelerated methods after the

matching of documents is completed. OMB believes that accelerated

payment methods are consistent with the Prompt Payment Act, and that

they further substantial policy interests. The Act, at 31 U.S.C.

3903(a)(8), provides that OMB shall prescribe regulations that ``permit

an agency to make payment up to 7 days prior to the required payment,

or earlier as determined by the agency to be necessary on a case-by-

case basis.'' OMB believes that, as the government moves steadily into

the electronic commerce mainstream, agencies are increasingly likely to

realize efficiencies and cost savings if agencies are allowed to pay

early when it benefits the government to do so. Therefore, agencies may

use the accelerated payment methods when they determine that such

earlier

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payments are necessary (as final Sec. 1315.4(j) provides). When making

these decisions, agencies should consider the cost of funds to the

government of paying early. Prompt Payment late payment interest

penalties apply if the payment is not made by the payment due date.

An agency questioned whether the matching requirements for the

accelerated payment methods would apply to payments made by agencies

which do not use a 100 percent prepayment examination process but

instead rely on statistical sampling in accordance with 31 U.S.C. 3521.

This agency was concerned that only those payments chosen for the

sample would be eligible for accelerated payments methods. OMB does not

intend for the accelerated payment methods to be available only for

those payments where 100 percent prepayment examinations are conducted,

but may also be used by agencies that rely on statistical sampling, if

such sampling reveals no unacceptable levels of problems encountered.

An agency recommended that the proposed provision on ``A single

invoice under $2,500'' clarify that payments of credit card invoices

under $2,500 may be made without verification that goods have been

received (see Treasury Financial Manual 4-4500, Government Purchase

Cards). OMB agrees and has made this change.

An agency commented that accelerated payments to small businesses,

under the proposed provision on ``Small Disadvantaged Business

Concern,'' should be mandated rather than simply authorized. However,

under 31 U.S.C. 3903(a)(8), an agency needs to determine that such

earlier payments are necessary. Thus, OMB does not agree that the rule

should mandate the use of the accelerated payment methods. Another

agency commented that accelerated payments should be made to all small

businesses rather than (as under the proposal) only to small

disadvantaged business concerns ``as defined in the FAR Part 19.001.''

OMB agrees that accelerated payments may be made to any small business

(as defined in FAR Part 19.001) if the agency determines that such

early payments are necessary. The final rule at Section 1315.b has been

revised accordingly.

F. Section 1315.6--Payment Without Evidence That Supplies Have Been

Received (Fast Payment) (Proposed Section 5)

Several agencies commented on proposed Section 5, ``Fast Payment''

(the title of this section has been changed in the final rule). Several

agencies commented that the FAR citation at Part 13 was no longer

subpart 13.3, but is now subpart 13.4. This change has been made. An

agency commented that proposed sections 5.b and 5.d (on ``FAR clause

52.213.1'' and ``Obligation documents'') were not within the scope of

this regulation and should be deleted. Based on the comments, OMB has

decided to retain much of the language from Section 12 of the existing

Circular (54 FR 52712). The conditions under which a fast payment

procedure is warranted and the requirements of a fast pay contract

remain unchanged.

G. Section 1315.7--Discounts (Proposed Section 6)

With respect to proposed Section 6.a (``Economically justified

discounts''), an agency commented that its first two sentences should

be combined for clarity. In addition, another agency commented that

agencies should be encouraged to include discount terms in the contract

at the time of award. This would provide agencies the opportunity to

include discount terms in their accounting systems, which could then be

automatically evaluated to determine if they are economically justified

and will give agencies enough time to evaluate and take the discount,

when indicated. This agency also commented that the term ``deadline''

in proposed 6.b (``Discounts taken after the deadline'') should be

replaced by the term ``discount date'' to more accurately reflect the

date by which agencies may take a discount. OMB agrees with these

comments and has revised the section accordingly.

H. Section 1315.8--Rebates (Proposed Section 7)

An agency commented that a rebate formula would be useful to

agencies in implementing this section. OMB agrees and has included a

rebate formulate in the final rule, at Sec. 1315.17 (``Formulas''). The

``Rebates'' section has been revised to clarify that the payment due

date may be calculated using the rebate formula provided, unless the

payment due date has been determined in the contract.

I. Section 1315.9--Required Documentation (Proposed Section 8)

An agency making payments overseas to foreign landlords said that

late payment interest penalties should not be required when routine

lease contract renewal payments cannot be made because a foreign

landlord no longer lives in the area where the leased property is

located. OMB agrees that Prompt Payment interest penalties are not

required to be paid if the vendor does not submit a corrected

remittance address as required by final Sec. 1315.9(a)(6).

The language in Sec. 1315.9(a)(8), regarding banking information

required by the Debt Collection Improvement Act, has been reworded to

parallel the language in Sec. 1315.9(a)(7), regarding interest

penalties under the Prompt Payment Act. The requirements of these

subsections are unchanged.

Two agencies commented that proposed Section 8.a(8), requiring that

banking information be submitted no later than the first request for

payment, is inconsistent with the proposed Federal Acquisition

Regulation (FAR Case 91-118) which required the submission of banking

information no later than 15 days before the submission of the first

request for payment. One of the agencies commented that coordination on

this point was required to ensure consistency. This issue has been

resolved by the publication of the final FAR rule on March 4, 1999 (64

FR 10530, 10538). Unlike the proposed FAR rule, the final FAR rule does

not require receipt of EFT information 15 days prior to the invoice.

An agency requested clarification on whether purchase orders used

as invoices would be in compliance with proposed Section 8.b(4) if an

invoice number was not provided on the purchase order. An agency

commenting on proposed Section 8.b(6) stated that the rule should not

require payment and shipping terms on an invoice, but rather these

terms should be specified either by agency policy or on individual

orders or contracts. The requirements of this section are intended to

allow an agency to require the information it needs to make a timely

payment. The final rule at Sec. 1315.9(b)(4), (6) provides agencies

with discretion as to whether to require this information; as these

provisions state, the contract may specify which information is

required.

Several comments were received concerning the proposed rule's

treatment in Section 8.b(7)-(8) of the collection of banking

information and Taxpayer Identifying Numbers (TINs). Subsequent to the

issuance of the proposal, the Treasury Department issued regulations on

the Debt Collection Improvement Act of 1996 (DCIA) that are found in 31

CFR Part 208 (63 FR 51490, September 25, 1998). The DCIA regulations

require the collection of banking information in order to make an

electronic funds transfer (EFT) payment as required by the DCIA unless

the payment is waived under 31 CFR Part 208. The regulations also

require the collection of the TIN,

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which the DCIA requires for debt collection and under the Internal

Revenue Code for vendor income reporting. See 31 U.S.C. 7701(c); 26

U.S.C. 6109. The Treasury Department requires each agency to prepare a

TIN implementation plan to document agency strategies for achieving

compliance with the TIN provisions of the DCIA, and to identify

barriers to collecting and providing TINs. See Treasury Financial

Manual, TFM Bulletin 99-02.

The proposed rule in Section 8.b(7)-(8) required the collection of

banking information and TINs on the invoice unless previously collected

by the agency. Several agencies interpreted these provisions to mean

that an agency could not require that this information be on the

invoice if the information had already been provided. These agencies

commented that they would need to require the information on the

invoice even if it had been previously provided. One agency commented

that payment offices are not always notified in a timely manner when

financial institutions merge and when vendors change financial

institutions. Another agency commented that it requires the flexibility

to require TINs on every invoice because many companies have multiple

branches or subsidiaries, which often have their own individual TINs.

According to the agency, if the vendor is not required to provide the

TIN on each invoice, then the agency is forced to make a determination

as to which TIN is associated with the invoice. OMB recognizes that

some agencies need the flexibility to require banking information and

TINs on invoices in addition to collecting the information sooner in

the payment process. The final rule has been revised at

Sec. 1315.9(b)(7)-(8) to state that banking information and TINs are

required on the invoice unless agency procedures provide otherwise.

An agency requested clarification that payments to vendors may be

withheld pending submission of a proper invoice that includes banking

information. The agency requested the clarification because a June 25,

1998 press release issued by Treasury stated that no payments would be

withheld as a result of the DCIA EFT requirement. OMB has been informed

by Treasury that the payments referred to in the press release are

payments to individuals (such as recipients of Federal salary, wage,

benefit or retirement payments), not payments to vendors. The final

rule at Sec. 1315.9(b)(8) requires a vendor to provide banking

information, as part of a proper invoice, so that an electronic payment

can be made. The invoice is not deemed proper unless the banking

information is provided to the agency by the time the invoice is

submitted. The payment period does not begin, and thus agencies are not

required to pay late payment interest penalties, until after the

banking information has been received.

Two agencies that make payments overseas commented that proposed

Section 8.b(7) should be amended to specifically exclude the

requirement that TINs be provided for overseas payments, in the case of

overseas vendors who do not have a TIN. The DCIA does not provide

agencies the authority to waive the requirements to collect the TIN for

purposes of offsetting Federal payments to collect debt owed the

government. However, the Treasury Department acknowledges that there

are some situations where it may not be possible to collect a TIN.

Treasury has proposed a TIN implementation report from each agency to

identify those situations where the TIN cannot be collected. (See

Treasury Financial Manual, TFM Bulletin 99-02.)

One agency suggested that the regulation emphasize that the

collection of TINs is required for 1099 tax reporting purposes and that

agencies must have systems which can distinguish between payments for

services and payment for products because only payments for services

are required to be reported to the Internal Revenue Service (IRS). OMB

believes this discussion is beyond the scope of the regulation and

defers such discussion to IRS regulations.

An agency commented that proposed Sections 8.c.(3), (5), and (6)

should include references to services, since receiving reports can

apply to services as well as goods. OMB agrees and has made the change

at Sec. 1315.9(c)(3), (5), and (6) of the final rule. The same agency

commented that proposed language at 8.c.(8) incorrectly referenced

Section 8.c(1)-(7) rather than Section 8.b. OMB agrees, and has

corrected the reference in Sec. 1315.9(c)(8) so that it refers to

Sec. 1315.9(b). Also, this provision has been revised so that the

additional information required for a delivery ticket (when it is used

as an invoice) will be set forth in agency procedures, which may (but

are not required to) include the information in Sec. 1315.9(b).

J. Section 1315.10--Late Payment Interest Penalties (Proposed Section

9)

A trade organization commented that language should be included in

this section, which would state that the number of days available to an

agency to make a payment is reduced by the number of days that the

notification of an improper invoice is late. As explained above, this

language is already found in Sec. 1315.4(g)(4) (``Notification of

Improper Invoice''), which discusses how to calculate the payment due

dates when a notification of an improper invoice is late.

The language in final Sec. 1315.10(a)(1) has been revised to

clarify that the time period during which interest will accrue begins

on the day after the payment due date and ends on the payment date, and

interest will accrue at the rate in effect on the day after the payment

due date.

An agency commented that proposed Section 9.a.(3) should be amended

to say that interest will accrue on the ``unpaid amount'' instead of

``the unpaid principle and accrued interest'' because the latter

language assumes that the principal amount has not been paid and such

is not necessarily the case. The agency also commented that this

paragraph be placed after proposed 9.a.(4). Two agencies commented that

the word ``capitalized'' in proposed 9.a.(4) should be replaced with

``compounded'' because compounded is a more easily understood term and

reflects the same meaning. OMB agrees with these comments and the

changes are made in Sec. 1315.10(a).

Several agencies requested clarification on proposed Section 9.a(6)

regarding the date through which interest accrues on discounts

improperly taken. The final rule at Sec. 1315.10(a)(6) has been revised

to clarify that interest is calculated beginning on the date after the

discount date through the date of payment of the discount erroneously

taken.

An agency commented that the one dollar threshold in proposed

9.a.(7) should be increased. The one dollar threshold is specified in

the Prompt Payment Act, 31 U.S.C. 3902(c)(1), and is therefore retained

in the final rule at Sec. 1315.10(a)(7).

Proposed 9.a(8) addressed when interest penalties would begin to

accrue when a vendor has supplied the agency with incorrect banking

information. Several agencies expressed the concern that an agency

would not know that the vendor had supplied incorrect banking

information until the agency's payment is rejected. As a result, it

would be very difficult and in some cases impossible for the agency to

return the invoice as improper (due to the incorrect banking

information) within the seven days that is allowed for returning an

improper invoice. In response to these comments, the final rule at

Sec. 1315.10(a)(8) provides that, if the vendor has supplied incorrect

banking information, interest will not accrue until seven days after

the agency receives correct information.

[[Page 52585]]

This is intended to give agencies adequate time to prepare and initiate

a payment using the correct information, and is similar to the

provision at Section 7.a(10) of the Circular.

An agency commented that interest should be calculated based on a

365-day year, rather than the 360-day year in proposed Section 9.a(9).

The 360-day year, which has been used in Section 7.a(11) of the

Circular, is a standard business practice, and it is used in other

calculations such as the calculation for the rebate formula and the

discount formula used to determine when to take discounts. Accordingly,

the final rule at Sec. 1315.10(a)(9) retains the 360-day year.

Two agencies commented that the phrase ``except when title of the

goods passes to the government'' in proposed Section 9.b(1) should be

deleted because its purpose was unclear. The exception was intended to

address the situation where, under the Fast Payment procedure, the

passing of title substitutes for acceptance for purposes of determining

whether late payment interest penalties may be paid. Language has been

added in final Sec. 1315.10(b)(1) to clarify that, in these

circumstances, interest may be paid only after the government receives

title for goods.

An agency requested clarification on whether the delay of the

passage of an appropriations bill is an example of ``the temporary

unavailability of funds'' under proposed Section 9.b(4). That is indeed

the situation addressed by this provision, which has been found in

Section 7.b(3) of the Circular. The provision is taken from the Prompt

Payment Act, at 31 U.S.C. 3902(d). Under the Act, the fact that an

appropriation has not yet been enacted from which payments to vendors

can be made does not relieve the agency of the obligation to pay

interest for late payments.

K. Section 1315.11--Additional Penalties (Proposed Section 10)

An agency commented that proposed Section 10.a should be amended to

say that a vendor shall be entitled to interest ``of $1.00 or more,''

so as to clarify that interest under $1.00 need not be paid. The agency

commented that proposed Section 10.c should be similarly amended by

adding that no additional penalty is owed if the amount of the interest

penalty is less than $1.00. An agency recommended that proposed Section

10.a(3)B be amended to include the situation where a postmark is

illegible (in addition to where there is no postmark), while another

agency commented that the proposed language on confirmation of postmark

should be moved to the beginning of Section 10.a(3). This agency

commented that proposed Section 10.a(3)B should clarify that the ``date

of receipt'' refers to receipt of the principal amount. The agency also

commented that the proposed Section 10.d was confusing and would be

clarified by replacing ``if paid separately'' with language that states

that penalty determinations are made separately for each invoice when

payments are consolidated. OMB agrees with these comments, and the

changes are made in Sec. 1315.11.

L. Section 1315.12--Payments to Governmentwide Commercial Purchase Card

Issuers (Proposed Section 11)

Two agencies commented that the requirements of proposed Section 11

(``Payments Under Government Credit Card.'') were inconsistent with the

requirements of proposed Section 7 (``Rebates''). OMB agrees that the

requirements for determining credit card invoice payment dates in these

proposed sections were not consistent. In the final rule, Sec. 1315.12

has been revised to instruct agencies to determine payment due dates in

accordance with Sec. 1315.8.

Two agencies commented that this section should reference the

rebate formula and should replace the reference to the discount

formula. A reference to the rebate formula has been added to this

section. Several agencies commented that the terms used in the

regulation for the credit card program should be the same as those used

in the FAR. OMB has changed the reference to Governmentwide Commercial

Purchase Card which is the term used in the FAR and has changed the

title of the section to ``Payments to Governmentwide Commercial

Purchase Card Issuers'' to reflect the new term and to reflect the new

program's use of multiple card issuers.

Two agencies requested clarification on whether the accelerated

payment due dates for purchase card invoices under $2500 applied to

individual invoices or to consolidated invoices. One of the agencies

also requested clarification on whether purchase card invoices referred

to invoices from vendors which would be paid by purchase card or

invoices from purchase card issuers. A purchase card invoice means a

single invoice submitted by a purchase card issuer for reimbursement of

funds already paid to the vendor by the card issuer. Any single invoice

under $2500 may be paid in accordance with this section, however a

consolidated invoice may only be paid in accordance with this section

and Sec. 1315.5, ``Accelerated Payment Methods'' if the total amount of

the consolidated invoice is under $2500.

Two agencies sought clarification on whether matching documents was

required for purchase card invoice payments under $2500. OMB has added

language to clarify that matching documentation under this payment

method is not required to be performed before payment.

M. Section 1315.13--Commodity Credit Corporation Payments (Proposed

Section 12)

Based on comments from the Commodity Credit Corporation (CCC),

proposed Section 12 (``Payments to Farm Producers'') has been modified

to clarify payment standards and to include language which insures that

the CCC may still exercise or implement, under authorities applicable

directly to the Corporation, whatever discretion or obligation it may

possess to deal with lawful claims, including, if appropriate, payment

of interest penalties beyond the time provided elsewhere in the

regulation. The title of the section has been modified to more

accurately reflect the scope of CCC payments covered by the Prompt

Payment Act.

N. Section 1315.14--Payments Under Construction Contracts (Proposed

Section 13)

As discussed above, OMB agrees with the agency comment that the

language in proposed Section 13.a.(3), which stated that it is not

necessary for an agency to return an improper invoice when it notifies

the vendor electronically that the invoice is improper, was

inconsistent with the return requirement in proposed Section 3.c(2) and

in the Prompt Payment Act at 31 U.S.C. 3903(a)(7)(B). The language has

therefore been deleted.

O. Section 1315.15--Grant Recipients (Proposed Section 14)

No comments were received on this section. The final rule contains

the proposed text.

P. Section 1315.16--Relationship to Other Laws (Proposed Section 15)

An agency commented that proposed Section 15.a.(2) ``Relationship

to Other Laws'' should include language which clarifies that once a

claim is filed under the Contract Disputes Act, Prompt Payment interest

penalties will never accrue on the disputed amount after the date the

claim was filed. OMB agrees and has added clarifying language.

[[Page 52586]]

Q. Proposed Section 16--Reporting Requirements

As explained above, Congress in Section 1301(c) of the Federal

Reports Elimination Act of 1998 repealed the Prompt Payment Act's

reporting requirements at 31 U.S.C. 3906. Accordingly, the final rule

does not adopt the reporting requirements in proposed Section 16.

R. Section 1315.17--Formulas

As explained above, an agency suggested that a formula be provided

for calculating rebates, and one is provided in this section. An agency

also commented that the Prompt Payment internet website should include

formulas for computing interest penalties. Formulas for computing

monthly compounded interest and daily simple interest have been added

to this section and to the website. In addition, the website now

includes a spreadsheet which can be used to determine when to pay a

purchase card invoice. This section also includes a formula for

manually calculating when to pay a credit card invoice so as to either

maximize savings or minimize costs.

S. Section 1315.18--Inquiries (Proposed Section 17)

A trade association representing construction subcontractors

commented that the Prompt Payment website should include a link to the

Prompt Payment Act of 1988 and to the Federal Acquisition Regulation

Prompt Payment clause. The Financial Management Service has added both

links to the Prompt Payment website. The address for the website is

www.fms.treas.gov/prompt/index.html.

T. Section 1315.19--Regulatory References to OMB Circular A-125 (New

Section)

This section was added to make clear that regulatory references to

OMB Circular A-125 shall be construed as referring to the Part until

revised to reflect this codification. This would include references to

A-125 contained in the FAR. (During the coming months, additional

technical conforming changes will be made to FAR provisions and clauses

as necessary.)

U. Interagency Payments

At the end of Part II of the Supplementary Information section of

the proposed rule's preamble, OMB sought comment on how the Federal

government should address the problem of Federal agencies making late

payments to other Federal agencies. Six agencies commented that

Treasury's Online Payments and Collections system (OPAC) or Treasury's

Electronic Data Interchange Payments and Collections system (EDIPAC)

should be required to be used by all Federal agencies for interagency

payments. One agency commented that the availability of interagency

payment mechanisms such as OPAC/EDIPAC, credit cards and other programs

would assist agencies in improving interagency payment efficiency.

Another agency commented that Interagency Agreements could include

terms which provide for billing in advance. This agency commented

further that agencies should have a limit of one year to bill, because

some agencies have taken much longer than a year to bill. Two agencies

commented that Prompt Payment late payment interest penalties should be

applied to interagency payments. Three agencies commented that there

should be no application of Prompt Payment penalties for interagency

payments. One agency commented that Prompt Payment was not the

appropriate context for discussing interagency payments.

The Prompt Payment Act does not provide for the application to

interagency payments of the Prompt Payment rules, in particular the

interest penalties. However, in light of the electronic fund transfer

(EFT) requirements of the Debt Collection Improvement Act and the costs

that agencies incur to collect overdue amounts from other agencies, OMB

strongly encourages agencies to choose an electronic payment method for

making interagency payments. OMB also strongly encourages agencies to

include advance billing and other payment terms in Interagency

Agreements to facilitate timely payments. Agencies wishing to know more

about available electronic payment methods for interagency payments

should contact the Department of Treasury, Financial Management

Service, Card Technology Division, (202) 874-6550.

III. Regulatory Flexibility Act, Unfunded Mandates Reform Act,

Congressional Review Act, and Executive Orders 12866 and 12875

This final rule will not have a significant economic effect on a

substantial number of small entities; the regulations implement the

Prompt Payment Act, which requires Federal agencies to pay their bills

on a timely basis, to pay interest penalties when payments are made

late, and to take discounts only when payments are made by the discount

date. For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L.

104-4), as well as Executive Orders 12866 and 12875, the final rule

will not significantly or uniquely affect small governments, and will

not result in increased expenditures by State, local, and tribal

governments, or by the private sector, of $100 million or more.

Finally, the final rule is not a ``major rule'' under 5 U.S.C. Chapter

8; the rule will not have any of the effects set forth in 5 U.S.C.

804(2).

IV. Paperwork Reduction Act

The collections of information necessary for carrying out the

Prompt Pay Act have previously been reviewed and approved by the Office

of Management and Budget (OMB) under section 3507(d) of the Paperwork

Reduction Act of 1995 (44 U.S.C. Chapter 35) as follows: The collection

of banking information required to make payments electronically has

been approved by OMB under Control Number 1510-0066. The collection of

Taxpayer Identification Numbers (TINs) for contracts governed by the

Federal Acquisition Regulation for commercial and non-commercial

contracts has been approved by OMB under Control Numbers 9000-0097 and

9000-0136, respectively. Collections covered under these three control

numbers are part of the implementation of the Debt Collection

Improvement Act of 1996 (the DCIA). The DCIA requires that all Federal

payments be made electronically after January 1, 1999 and that TINs be

collected for the purposes of collecting debt owed the Federal

government. Collections in this rule relating to the submission and

payment of invoices are approved under OMB Control Numbers 9000-0070

and 0102, which govern the submission of adequate documentation to

support contractor requests for payment.

List of Subjects in 5 CFR Part 1315

Administrative practice and procedure, Government contracts,

Penalties, Reporting and recordkeeping requirements.

Dated: September 15, 1999.

Jacob J. Lew,

Director.

Authority and Issuance

For reasons set out in the preamble, OMB adds part 1315 to 5 CFR

chapter III to read as follows:

PART 1315--PROMPT PAYMENT

Sec.

1315.1 Application.

1315.2 Definitions.

1315.3 Responsibilities.

1315.4 Prompt payment standards and required notices to vendors.

1315.5 Accelerated payment methods.

[[Page 52587]]

1315.6 Payment without evidence that supplies have been received

(Fast Payment).

1315.7 Discounts.

1315.8 Rebates.

1315.9 Required documentation.

1315.10 Late payment interest penalties.

1315.11 Additional penalties.

1315.12 Payments to governmentwide commercial purchase card

issuers.

1315.13 Commodity Credit Corporation payments.

1315.14 Payments under construction contracts.

1315.15 Grant recipients.

1315.16 Relationship to other laws.

1315.17 Formulas.

1315.18 Inquiries.

1315.19 Regulatory references to OMB Circular A-125.

Authority: 31 U.S.C. chapter 39.

Sec. 1315.1 Application.

(a) Procurement contracts. This part applies to contracts for the

procurement of goods or services awarded by:

(1) All Executive branch agencies except:

(i) The Tennessee Valley Authority, which is subject to the Prompt

Payment Act (31 U.S.C. chapter 39), but is not covered by this part;

and

(ii) Agencies specifically exempted under 5 U.S.C. 551(1); and

(2) The United States Postal Service. The Postmaster General is

responsible for issuing implementing procurement regulations,

solicitation provisions, and contract clauses for the United States

Postal Service.

(b) Vendor payments. All Executive branch vendor payments and

payments to those defined as contractors or vendors (see

Sec. 1315.2(hh)) are subject to the Prompt Payment Act with the

following exceptions:

(1) Contract Financing Payments, as defined in Sec. 1315.2(h); and

(2) Payments related to emergencies (as defined in the Disaster

Relief Act of 1974, Public Law 93-288, as amended (42 U.S.C. 5121 et

seq.)); military contingency operations (as defined in 10 U.S.C. 101

(a)(13)); and the release or threatened release of hazardous substances

(as defined in 4 U.S.C. 9606, Section 106).

(c) Utility payments. All utility payments, including payments for

telephone service, are subject to the Act except those under paragraph

(b)(2) of this section. Where state, local or foreign authorities

impose generally-applicable late payment rates for utility payments,

those rates shall take precedence. In the absence of such rates, this

part will apply.

(d) Commodity Credit Corporation payments. Payments made pursuant

to Section 4(h) of the Act of June 29, 1948 (15 U.S.C. 714b(h)) (``CCC

Charter Act'') relating to the procurement of property and services,

and payments to which producers on a farm are entitled under the terms

of an agreement entered into under the Agricultural Act of 1949 (7

U.S.C. 1421 et seq.) are subject to this part.

Sec. 1315.2 Definitions.

(a) Accelerated Payment means a payment made prior to the due date

(see discussion in Sec. 1315.5).

(b) Acceptance means an acknowledgment by an authorized Government

official that goods received and services rendered conform with the

contract requirements. Acceptance also applies to partial deliveries.

(c) Agency includes, as defined in 5 U.S.C. 551(1), each authority

of the United States Government, whether or not it is within or subject

to review by another agency, excluding the Congress, the United States

courts, governments of territories or possessions, the District of

Columbia government, courts martial, military commissions, and military

authority exercised in the field in time of war or in occupied

territory. Agency also includes any entity that is operated exclusively

as an instrumentality of such an agency for the purpose of

administering one or more programs of that agency, and that is so

identified for this purpose by the head of such agency. The term agency

includes military post and base exchanges and commissaries.

(d) Applicable interest rate means the 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., utility tariffs). The

rate established under the Contract Disputes Act is referred to as the

``Renegotiation Board Interest Rate,'' the ``Contract Disputes Act

Interest Rate,'' and the ``Prompt Payment Act Interest Rate,'' and is

published semiannually by the Fiscal Service, Department of Treasury,

in the Federal Register on or about January 1 and July 1.

(e) Automated Clearing House (ACH) means a network that performs

interbank clearing of electronic debit and credit entries for

participating financial institutions.

(f) Banking Information means information necessary to facilitate

an EFT payment, including the vendor's bank account number, and the

vendor financial institution's routing number.

(g) Contract means 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 purchases agreements

between an agency and a vendor for the acquisition of goods or services

and agreements entered into under the Agricultural Act of 1949 (7

U.S.C. 1421 et seq.). Contracts must meet the requirements of

Sec. 1315.9(a).

(h) Contract Financing Payments means an authorized disbursement of

monies prior to acceptance of goods or services including advance

payments, progress payments based on cost, progress payments (other

than under construction contracts) based on a percentage or stage of

completion, payments on performance-based contracts and interim

payments on cost-type contracts. Contract financing payments do not

include invoice payments, payments for partial deliveries, or lease and

rental payments.

(i) Contracting Office means any entity issuing a contract or

purchase order or issuing a contract modification or termination.

(j) Contractor (see Vendor).

(k) Day means a calendar day including weekend and holiday, unless

otherwise indicated.

(l) Delivery Ticket means a vendor document supplied at the time of

delivery which indicates the items delivered, can serve as a proper

invoice based on contractual agreement.

(m) Designated Agency Office means the office designated by the

purchase order, agreement, or contract to first receive and review

invoices. This office can be contractually designated as the receiving

entity. This office may be different from the office issuing the

payment.

(n) Discount means an invoice payment reduction offered by the

vendor for early payment.

(o) Discount date means the date by which a specified invoice

payment reduction, or a discount, can be taken.

(p) Due date means the date on which Federal payment should be

made. Determination of such dates is discussed in Sec. 1315.4(g).

(q) Electronic Commerce means the end to end electronic exchange of

business information using electronic data interchange, electronic

mail, electronic bulletin boards, electronic funds transfer (EFT) and

similar technologies.

(r) Electronic Data Interchange means the computer to computer

exchange of routine business information in a standard format. The

standard formats are developed and maintained by the Accredited

Standards Committee of the American National Standards Institute,

[[Page 52588]]

11 West 42d Street, New York, NY 10036.

(s) Electronic Funds Transfer (EFT) means any transfer of funds,

other than a transaction originated by cash, check, or similar paper

instrument, that is initiated through an electronic terminal,

telephone, computer, or magnetic tape, for the purpose of ordering,

instructing, or authorizing a financial institution to debit or credit

an account. The term includes, but is not limited to, Automated

Clearing House and Fedwire transfers.

(t) Emergency Payment means a payment made under an emergency

defined as a hurricane, tornado, storm, flood, high water, wind-driven

water, tidal wave, tsunami, earthquake, volcanic eruption, landslide,

mud slide, snowstorm, drought, fire, explosion, or other catastrophe

which requires Federal emergency assistance to supplement State and

local efforts to save lives and property, and ensure public health and

safety; and the release or threatened release of hazardous substances.

(u) Evaluated Receipts means contractually designated use of the

acceptance document and the contract as the basis for payment without

requiring a separate invoice.

(v) Fast Payment means a payment procedure under the Federal

Acquisition Regulation at Part 13.4 which allows payment under limited

conditions to a vendor prior to the Government's verification that

supplies have been received and accepted.

(w) Federal Acquisition Regulation (FAR) means the regulation (48

CFR chapter 1) that governs most Federal acquisition and related

payment issues. Agencies may also have supplements prescribing unique

agency policies.

(x) Governmentwide Commercial Purchase Cards means internationally-

accepted purchase cards available to all Federal agencies under a

General Services Administration contract for the purpose of making

simplified acquisitions of up to the threshold set by the Federal

Acquisition Regulation or for travel expenses or payment, for purchases

of fuel, or other purposes as authorized by the contract.

(y) Invoice means a bill, written document or electronic

transmission, provided by a vendor requesting payment for property

received or services rendered. A proper invoice must meet the

requirements of Sec. 1315.9(b). The term invoice can include receiving

reports and delivery tickets when contractually designated as invoices.

(z) Payment Date means the date on which a check for payment is

dated or the date of an electronic fund transfer (EFT) payment

(settlement date).

(aa) Rebate means a monetary incentive offered to the Government by

Governmentwide commercial purchase card issuers to pay purchase card

invoices early.

(bb) Receiving Office means the entity which physically receives

the goods or services, and may be separate from the accepting entity.

(cc) Receiving Report means written or electronic evidence of

receipt of goods or services by a Government official. Receiving

reports must meet the requirements of Sec. 1315.9(c).

(dd) Recurring Payments means payments for services of a recurring

nature, such as rents, building maintenance, transportation services,

parking, leases, and maintenance for equipment, pagers and cellular

phones, etc., which are performed under agency-vendor agreements

providing for payments of definite amounts at fixed periodic intervals.

(ee) Settlement Date means the date on which an EFT payment is

credited to the vendor's financial institution.

(ff) Taxpayer Identifying Number (TIN) means the nine digit

Employer Identifying Number or Social Security Number as defined in

Section 6109 of the Internal Revenue Code of 1986 (26 U.S.C. 6109).

(gg) Utilities and Telephones means electricity, water, sewage

services, telephone services, and natural gas. Utilities can be

regulated, unregulated, or under contract.

(hh) Vendor means any person, organization, or business concern

engaged in a profession, trade, or business and any not-for-profit

entity operating as a vendor (including State and local governments and

foreign entities and foreign governments, but excluding Federal

entities).

Sec. 1315.3 Responsibilities.

Each agency head is responsible for the following:

(a) Issuing internal procedures. Ensuring that internal procedures

will include provisions for monitoring the causes of late payments and

any interest penalties incurred, taking necessary corrective action,

and handling inquiries.

(b) Internal control systems. Ensuring that effective internal

control systems are established and maintained as required by OMB

Circular A-123, ``Management Accountability and Control.'' 1

Administrative activities required for payments to vendors under this

part are subject to periodic quality control validation to be conducted

no less frequently than once annually. Quality control processes will

be used to confirm that controls are effective and that processes are

efficient. Each agency head is responsible for establishing a quality

control program in order to quantify payment performance and qualify

corrective actions, aid cash management decision making, and estimate

payment performance if actual data is unavailable.

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\1\ For availability of OMB circulars, see 5 CFR 1310.3.

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(c) Financial management systems. Ensuring that financial

management systems comply with OMB Circular A-127, ``Financial

Management Systems.'' 2 Agency financial systems shall

provide standardized information and electronic data exchange to the

central management agency. Systems shall provide complete, timely,

reliable, useful and consistent financial management information.

Payment capabilities should provide accurate and useful management

reports on payments.

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\2\ See footnote 1 in Sec. 1315.3(b).

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(d) Reviews. Ensuring that Inspectors General and internal auditors

review payments performance and systems accuracy, consistent with the

Chief Financial Officers (CFO) Act requirements.

(e) Timely payments and interest penalties. Ensuring timely

payments and payment of interest penalties where required.

Sec. 1315.4 Prompt payment standards and required notices to vendors.

Agency business practices shall conform to the following standards:

(a) Required documentation. Agencies will maintain paper or

electronic documentation as required in Sec. 1315.9.

(b) Receipt of invoice. For the purposes of determining a payment

due date and the date on which interest will begin to accrue if a

payment is late, an invoice shall be deemed to be received:

(1) On the later of:

(i) For invoices that are mailed, the date a proper invoice is

actually received by the designated agency office if the agency

annotates the invoice with date of receipt at the time of receipt. For

invoices electronically transmitted, the date a readable transmission

is received by the designated agency office, or the next business day

if received after normal working hours; or

(ii) The seventh day after the date on which the property is

actually delivered or performance of the services is actually

completed; unless--

(A) The agency has actually accepted the property or services

before the

[[Page 52589]]

seventh day in which case the acceptance date shall substitute for the

seventh day after the delivery date; or

(B) A longer acceptance period is specified in the contract, in

which case the date of actual acceptance or the date on which such

longer acceptance period ends shall substitute for the seventh day

after the delivery date;

(2) On the date placed on the invoice by the contractor, when the

agency fails to annotate the invoice with date of receipt of the

invoice at the time of receipt (such invoice must be a proper invoice);

or

(3) On the date of delivery, when the contract specifies that the

delivery ticket may serve as an invoice.

(c) Review of invoice. Agencies will use the following procedures

in reviewing invoices:

(1) Each invoice will be reviewed by the designated agency office

as soon as practicable after receipt to determine whether the invoice

is a proper invoice as defined in Sec. 1315.9(b);

(2) When an invoice is determined to be improper, the agency shall

return the invoice to the vendor as soon as practicable after receipt,

but no later than 7 days after receipt (refer also to paragraph (g)(4)

of this section regarding vendor notification and determining the

payment due date.) The agency will identify all defects that prevent

payment and specify all reasons why the invoice is not proper and why

it is being returned. This notification to the vendor shall include a

request for a corrected invoice, to be clearly marked as such;

(3) Any media which produce tangible recordings of information in

lieu of ``written'' or ``original'' paper document equivalents should

be used by agencies to expedite the payment process, rather than

delaying the process by requiring ``original'' paper documents.

Agencies should ensure adequate safeguards and controls to ensure the

integrity of the data and to prevent duplicate processing.

(d) Receipt of goods and services. Agencies will ensure that

receipt is properly recorded at the time of delivery of goods or

completion of services.

(e) Acceptance. Agencies will ensure that acceptance is executed as

promptly as possible. Commercial items and services should not be

subject to extended acceptance periods. Acceptance reports will be

forwarded to the designated agency office by the fifth working day

after acceptance. Unless other arrangements are made, acceptance

reports will be stamped or otherwise annotated with the receipt date in

the designated agency office.

(f) Starting the payment period. The period available to an agency

to make timely payment of an invoice without incurring an interest

penalty shall begin on the date of receipt of a proper invoice (see

paragraph (b) of this section) except where no invoice is required

(e.g., for some recurring payments as defined in Sec. 1315.2(dd)).

(g) Determining the payment due date. (1) Unless otherwise

specified, the payment is due either:

(i) On the date(s) specified in the contract;

(ii) In accordance with discount terms when discounts are offered

and taken (see Sec. 1315.7);

(iii) In accordance with Accelerated Payment Methods (see

Sec. 1315.5); or

(iv) 30 days after the start of the payment period as specified in

paragraph (f) of this section, if not specified in the contract, if

discounts are not taken, and if accelerated payment methods are not

used.

(2) Certain commodity payments. (i) For meat, meat food products,

as defined in Section 2(a)(3) of the Packers and Stockyard Act of 1921

(7 U.S.C. 182(3)), including any edible fresh or frozen poultry meat,

any perishable poultry meat food product, fresh eggs, any perishable

egg product, fresh or frozen fish as defined in the Fish and Seafood

Promotion Act of 1986 (16 U.S.C. 4003(3)), payment will be made no

later than the seventh day after delivery.

(ii) For perishable agricultural commodities, as defined in Section

1(4) of the Perishable Agricultural Commodities Act of 1930 (7 U.S.C.

499 a(4)), payment will be made no later than the 10th day after

delivery, unless another payment date is specified in the contract.

(iii) For dairy products (as defined in Section 111(e) of the Dairy

Production Stabilization Act of 1983, 7 U.S.C. 4502(e)), and including,

at a minimum, liquid milk, cheese, certain processed cheese products,

butter, yogurt, and ice cream, edible fats or oils, and food products

prepared from edible fats or oils (including, at a minimum, mayonnaise,

salad dressings and other similar products), payment will be made no

later than 10 days after the date on which a proper invoice, for the

amount due, has been received by the agency acquiring the above listed

products. Nothing in the Act permits limitation to refrigerated

products. When questions arise about the coverage of a specific

product, prevailing industry practices should be followed in specifying

a contractual payment due date.

(3) Mixed invoices for commodities. When an invoice is received for

items with different payment periods, agencies:

(i) May pay the entire invoice on the due date for the commodity

with the earliest due date, if it is considered in the best interests

of the agency;

(ii) May make split payments by the due date applicable to each

category;

(iii) Shall pay in accordance with the contractual payment

provisions (which may not exceed the statutory mandated periods

specified in paragraph (g)(2) of this section); and

(iv) Shall not require vendors to submit multiple invoices for

payment of individual orders by the agency.

(4) Notification of improper invoice. When an agency fails to make

notification of an improper invoice within seven days according to

paragraph (c)(2) of this section (three days for meat and meat food,

fish and seafood products; and five days for perishable agricultural

commodities, dairy products, edible fats or oils and food products

prepared from edible fats or oils), the number of days allowed for

payment of the corrected proper invoice will be reduced by the number

of days between the seventh day (or the third or fifth day, as

otherwise specified in this paragraph (g)(4)) and the day notification

was transmitted to the vendor. Calculation of interest penalties, if

any, will be based on an adjusted due date reflecting the reduced

number of days allowable for payment;

(h) Payment date. Payment will be considered to be made on the

settlement date for an electronic funds transfer (EFT) payment or the

date of the check for a check payment. Payments falling due on a

weekend or federal holiday may be made on the following business day

without incurring late payment interest penalties.

(i) Late payment. When payments are made after the due date,

interest will be paid automatically in accordance with the procedures

provided in this part.

(j) Timely payment. An agency shall make payments no more than

seven days prior to the payment due date, but as close to the due date

as possible, unless the agency head or designee has determined, on a

case-by-case basis for specific payments, that earlier payment is

necessary. This authority must be used cautiously, weighing the

benefits of making a payment early against the good stewardship

inherent in effective cash management practices. An agency may use the

``accelerated payment methods'' in Sec. 1315.5 when it determines that

such earlier payment is necessary.

(k) Payments for partial deliveries. Agencies shall pay for partial

delivery of supplies or partial performance of services after

acceptance, unless specifically prohibited by the contract.

[[Page 52590]]

Payment is contingent upon submission of a proper invoice if required

by the contract.

Sec. 1315.5 Accelerated payment methods.

(a) A single invoice under $2,500. Payments may be made as soon as

the contract, proper invoice , receipt and acceptance documents are

matched except where statutory authority prescribes otherwise and

except where otherwise contractually stipulated (e.g., governmentwide

commercial purchase card.) Vendors shall be entitled to interest

penalties if invoice payments are made after the payment due date.

(b) Small Business (as defined in FAR 19.001 (48 CFR 19.001)).

Agencies may pay a small business as quickly as possible, when all

proper documentation, including acceptance, is received in the payment

office and before the payment due date. Such payments are not subject

to payment restrictions stated elsewhere in this part. Vendors shall be

entitled to interest penalties if invoice payments are made after the

payment due date.

(c) Emergency payments. Payments related to emergencies and

disasters (as defined in the Robert T. Stafford Disaster Relief Act and

Emergency Assistance, Pub. L. 93-288, as amended (42 U.S.C. 5 121 et

seq.); payments related to the release or threatened release of

hazardous substances (as defined in the Comprehensive Environmental

Response Compensation and Liability Act of 1980, Pub. L. 96-510, 42

U.S.C. 9606); and payments made under a military contingency (as

defined in 10 U.S.C. 101(a)(13)) may be made as soon as the contract,

proper invoice, receipt and acceptance documents or any other agreement

are matched. Vendors shall be entitled to interest penalties if invoice

payments are made after the payment due date.

Sec. 1315.6 Payment without evidence that supplies have been received

(Fast Payment).

(a) In limited situations, payment may be made without evidence

that supplies have been received. Instead, a contractor certification

that supplies have been shipped may be used as the basis for

authorizing payment. Payment may be made within 15 days after the date

of receipt of the invoice. This payment procedure may be employed only

when all of the following conditions are present:

(1) Individual orders do not exceed $25,000 (except where agency

heads permits a higher amount on a case-by-case basis);

(2) Deliveries of supplies are to occur where there is both a

geographical separation and a lack of adequate communications

facilities between Government receiving and disbursing activities that

make it impracticable to make timely payments based on evidence of

Federal acceptance;

(3) Title to supplies will vest in the Government upon delivery to

a post office or common carrier for mailing or shipment to destination

or upon receipt by the Government if the shipment is by means other

than the Postal Service or a common carrier; and

(4) The contractor agrees to replace, repair, or correct supplies

not received at destination, damaged in transit, or not conforming to

purchase requirements.

(b) Agencies shall promptly inspect and accept supplies acquired

under these procedures and shall ensure that receiving reports and

payment documents are matched and steps are taken to correct

discrepancies.

(c) Agencies shall ensure that specific internal controls are in

place to assure that supplies paid for are received.

(d) As authorized by the 1988 Amendment to the Prompt Payment Act

(Section 11(b)(1)(C)), a contract clause at 48 CFR 52.213-1 is provided

in the Federal Acquisition Regulations (FAR) at 48 CFR part 13, subpart

13.4 ``Fast Payment Procedure,'' for use when using this fast payment

procedure.

Sec. 1315.7 Discounts.

Agencies shall follow these procedures in taking discounts and

determining the payment due dates when discounts are taken:

(a) Economically justified discounts. If an agency is offered a

discount by a vendor, whether stipulated in the contract or offered on

an invoice, an agency may take the discount if economically justified

(see discount formula in Treasury Financial Manual (TFM) 6-8040.40)

3 but only after acceptance has occurred. Agencies are

encouraged to include discount terms in a contract to give agencies

adequate time to take the discount if it is determined to be

economically justified.

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\3\ The Treasury Financial Manual is available by calling the

Prompt Payment Hotline at 800-266-9667 or the Prompt Payment web

site at http://www.fms.treas.gov/prompt/index.html.

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(b) Discounts taken after the discount date. If an agency takes the

discount after the deadline, the agency shall pay an interest penalty

on any amount remaining unpaid as prescribed in Sec. 1315.10(a)(6).

(c) Payment date. When a discount is taken, payment will be made as

close as possible to, but no later than, the discount date.

(d) Start date. The period for taking the discount is calculated

from the date placed on the proper invoice by the vendor. If there is

no invoice date on the invoice by the vendor, the discount period will

begin on the date a proper invoice is actually received and date

stamped or otherwise annotated by the designated agency office.

Sec. 1315.8 Rebates.

Agencies shall determine governmentwide commercial purchase card

payment dates based on an analysis of the total costs and total

benefits to the Federal government as a whole, unless specified in a

contract. When calculating costs and benefits, agencies are expected to

include the cost to the government of paying early. This cost is the

interest the government would have earned, at the Current Value of

Funds rate, for each day that payment was not made. Agencies may factor

in benefits gained from paying early due to, for example, streamlining

the payment process or other efficiencies. A rebate formula is provided

in Sec. 1315.17 and at the Prompt Payment website at www.fms.treas.gov/

prompt/index.html.

Sec. 1315.9 Required documentation.

Agencies are required to ensure the following payment documentation

is established to support payment of invoices and interest penalties:

(a) The following information from the contract is required as

payment documentation:

(1) Payment due date(s) as defined in Sec. 1315.4(g);

(2) A notation in the contract that partial payments are

prohibited, if applicable;

(3) For construction contracts, specific payment due dates for

approved progress payments or milestone payments for completed phases,

increments, or segments of the project;

(4) If applicable, a statement that the special payment provisions

of the Packers and Stockyard Act of 1921 (7 U.S.C. 182(3)), or the

Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 499a(4)), or

Fish and Seafood Promotion Act of 1986 (16 U.S.C. 4003(3)) shall apply;

(5) Where considered appropriate by the agency head, the specified

acceptance period following delivery to inspect and/or test goods

furnished or to evaluate services performed is stated;

(6) Name (where practicable), title, telephone number, and complete

mailing address of officials of the Government's designated agency

office, and of the vendor receiving the payments;

(7) Reference to requirements under the Prompt Payment Act,

including the payment of interest penalties on late

[[Page 52591]]

invoice payments (including progress payments under construction

contracts);

(8) Reference to requirements under the Debt Collection Improvement

Act (Pub. L. 104-134, 110 Stat. 1321), including the requirement that

payments must be made electronically except in situations where the EFT

requirement is waived under 31 CFR 208.4. Where electronic payment is

required, the contract will stipulate that banking information must be

submitted no later than the first request for payment;

(9) If using Fast Payment, the proper FAR clause stipulating Fast

Payment is required.

(b) The following correct information constitutes a proper invoice

and is required as payment documentation:

(1) Name of vendor;

(2) Invoice date;

(3) Government contract number, or other authorization for delivery

of goods or services;

(4) Vendor invoice number, account number, and/or any other

identifying number agreed to by contract;

(5) Description (including, for example, contract line/subline

number), price, and quantity of goods and services rendered;

(6) Shipping and payment terms (unless mutually agreed that this

information is only required in the contract);

(7) Taxpayer Identifying Number (TIN), unless agency procedures

provide otherwise;

(8) Banking information, unless agency procedures provide

otherwise, or except in situations where the EFT requirement is waived

under 31 CFR 208.4;

(9) Contact name (where practicable), title and telephone number;

(10) Other substantiating documentation or information required by

the contract.

(c) The following information from receiving reports, delivery

tickets, and evaluated receipts is required as payment documentation:

(1) Name of vendor;

(2) Contract or other authorization number;

(3) Description of goods or services;

(4) Quantities received, if applicable;

(5) Date(s) goods were delivered or services were provided;

(6) Date(s) goods or services were accepted;

(7) Signature (or electronic alternative when supported by

appropriate internal controls), printed name, telephone number, mailing

address of the receiving official, and any additional information

required by the agency.

(d) When a delivery ticket is used as an invoice, it must contain

information required by agency procedures. The requirements in

paragraph (b) of this section do not apply except as provided by agency

procedures.

Sec. 1315.10 Late payment interest penalties.

(a) Application and calculation. Agencies will use the following

procedures in calculating interest due on late payments:

(1) Interest will be calculated from the day after the payment due

date through the payment date at the interest rate in effect on the day

after the payment due date;

(2) Adjustments will be made for errors in calculating interest;

(3) For up to one year, interest penalties remaining unpaid at the

end of any 30 day period will be added to the principal and subsequent

interest penalties will accrue on that amount until paid;

(4) When an interest penalty is owed and not paid, interest will

accrue on the unpaid amount until paid, except as described in

paragraph (a)(5) of this section;

(5) Interest penalties under the Prompt Payment Act will not

continue to accrue:

(i) After the filing of a claim for such penalties under the

Contract Disputes Act of 1978 (41 U.S.C. 601 et seq.); or

(ii) For more than one year;

(6) When an agency takes a discount after the discount date,

interest will be paid on the amount of the discount taken. Interest

will be calculated for the period beginning the day after the specified

discount date through the date of payment of the discount erroneously

taken;

(7) Interest penalties of less than one dollar need not be paid;

(8) If the banking information supplied by the vendor is incorrect,

interest under this regulation will not accrue until seven days after

such correct information is received (provided that the vendor has been

given notice of the incorrect banking information within seven days

after the agency is notified that the information is incorrect);

(9) Interest calculations are to be based on a 360 day year; and

(10) The applicable interest rate may be obtained by calling the

Department of Treasury's Financial Management Service (FMS) Prompt

Payment help line at 1-800-266-9667.

(b) Payment. Agencies will meet the following requirements in

paying interest penalties:

(1) Interest may be paid only after acceptance has occurred or when

title passes to the government in a fast payment contract when title

passing to the government constitutes acceptance for purposes of

determining when interest may be paid;

(2) Late payment interest penalties shall be paid without regard to

whether the vendor has requested payment of such penalty, and shall be

accompanied by a notice stating the amount of the interest penalty, the

number of days late and the rate used;

(3) The invoice number or other agreed upon transaction reference

number assigned by the vendor should be included in the notice to

assist the vendor in reconciling the payment. Additionally, it is

optional as to whether or not an agency includes the contract number in

the notice to the vendor;

(4) The temporary unavailability of funds does not relieve an

agency from the obligation to pay these interest penalties or the

additional penalties required under Sec. 1315.11; and

(5) Agencies shall pay any late payment interest penalties

(including any additional penalties required under Sec. 1315.11) under

this part from the funds available for the administration of the

program for which the penalty was incurred. The Prompt Payment Act does

not authorize the appropriation of additional amounts to pay penalties.

(c) Penalties not due. Interest penalties are not required:

(1) When payment is delayed because of a dispute between a Federal

agency and a vendor over the amount of the payment or other issues

concerning compliance with the terms of a contract. Claims concerning

disputes, and any interest that may be payable with respect to the

period, while the dispute is being settled, will be resolved in

accordance with the provisions in the Contract Disputes Act of 1978,

(41 U.S.C. 601 et seq.), except for interest payments required under 31

U.S.C. 3902(h)(2);

(2) When payments are made solely for financing purposes or in

advance, except for interest payment required under 31 U.S.C.

3902(h)(2);

(3) For a period when amounts are withheld temporarily in

accordance with the contract;

(4) When an EFT payment is not credited to the vendor's account by

the payment due date because of the failure of the Federal Reserve or

the vendor's bank to do so; or

(5) When the interest penalty is less than $1.00.

Sec. 1315.11 Additional penalties.

(a) Vendor entitlements. A vendor shall be entitled to an

additional penalty payment when the vendor is owed a late

[[Page 52592]]

payment interest penalty by an agency of $1.00 or more, if it:

(1) Receives a payment dated after the payment due date which does

not include the interest penalty also due to the vendor;

(2) Is not paid the interest penalty by the agency within 10 days

after the actual payment date; and

(3) Makes a written request that the agency pay such an additional

penalty. Such request must be postmarked, received by facsimile, or by

electronic mail, by the 40th day after payment was made. If there is no

postmark or if it is illegible, the request will be valid if it is

received and annotated with the date of receipt by the agency by the

40th day. The written request must include the following:

(i) Specific assertion that late payment interest is due for a

specific invoice, and request payment of all overdue late payment

interest penalty and such additional penalty as may be required; and

(ii) A copy of the invoice on which late payment interest was due

but not paid and a statement that the principal has been received, and

the date of receipt of the principle.

(b) Maximum penalty. The additional penalty shall be equal to one

hundred (100) percent of the original late payment interest penalty but

must not exceed $5,000.

(c) Minimum penalty. Regardless of the amount of the late payment

interest penalty, the additional penalty paid shall not be less than

$25. No additional penalty is owed, however, if the amount of the

interest penalty is less than $1.00.

(d) Penalty basis. The penalty is based on individual invoices.

Where payments are consolidated for disbursing purposes, the penalty

determinations shall be made separately for each invoice therein.

(e) Utility payments. The additional penalty does not apply to the

payment of utility bills where late payment penalties for these bills

are determined through the tariff rate-setting process.

Sec. 1315.12 Payments to governmentwide commercial purchase card

issuers.

Standards for payments to government wide commercial purchase card

issuers follow:

(a) Payment date. All individual purchase card invoices under

$2,500 may be paid at any time, but not later than 30 days after the

receipt of a proper invoice. Matching documents is not required before

payment. The payment due date for invoices in the amount of $2,500 or

more shall be determined in accordance with Sec. 1315.8. I TFM 4-

4535.10 4 permits payment of the bill in full prior to

verification that goods or services were received.

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\4\ See footnote 3 in Sec. 1315.7(a).

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(b) Disputed line items. Disputed line items do not render the

entire invoice an improper invoice for compliance with this proposed

regulation. Any undisputed items must be paid in accordance with

paragraph (a) of this section.

Sec. 1315.13 Commodity Credit Corporation payments.

As provided in Sec. 1315.1(d), the provisions of this part apply to

payments relating to the procurement of property and services made by

the Commodity Credit Corporation (CCC) pursuant to Section 4(h) of the

Act of June 29, 1948 (15 U.S.C. 714b(h)) (``CCC Charter Act'') and

payments to which producers on a farm are entitled under the terms of

an agreement entered into pursuant to the Agricultural Act of 1949 (7

U.S.C. 1421 et seq.) (``1949 Act''.) Such payments shall be subject to

the following provisions:

(a) Payment standards. Payments to producers on a farm under

agreements entered into under the 1949 Act and payments to vendors

providing property and services under the CCC Charter Act, shall be

made as close as possible to the required payment date or loan closing

date.

(b) Interest penalties. An interest penalty shall be paid to

vendors or producers if the payment has not been made by the required

payment or loan closing date. The interest penalty shall be paid:

(1) On the amount of payment or loan due;

(2) For the period beginning on the first day beginning after the

required payment or loan closing date and, except as determined

appropriate by the CCC consistent with applicable law, ending on the

date the amount is paid or loaned; and

(3) Out of funds available under Section 8 of the CCC Charter Act

(15 U.S.C. 714f).

(c) Contract Disputes Act of 1978. Insofar as covered CCC payments

are concerned, provisions relating to the Contract Disputes Act of 1978

(41 U.S.C. 601 et seq.) in Sec. 1315.10(a)(5)(i) and Sec. 1315.6(a) do

not apply.

(d) Extended periods for payment. Notwithstanding other provisions

of this part, the CCC may allow claims for such periods of time as are

consistent with authorities applicable to its operations.

Sec. 1315.14 Payments under construction contracts.

(a) Payment standards. Agencies shall follow these standards when

making progress payments under construction contracts:

(1) An agency may approve a request for progress payment if the

application meets the requirements specified in paragraph (b) of this

section;

(2) The certification by the prime vendor as defined in paragraph

(b)(2) of this section is not to be construed as final acceptance of

the subcontractor's performance;

(3) The agency shall return any such payment request which is

defective to the vendor within seven days after receipt, with a

statement identifying the defect(s);

(4) A vendor is obligated to pay interest to the Government on

unearned amounts in its possession from:

(i) The eighth day after receipt of funds from the agency until the

date the vendor notifies the agency that the performance deficiency has

been corrected, or the date the vendor reduces the amount of any

subsequent payment request by an amount equal to the unearned amount in

its possession, when the vendor discovers that all or a portion of a

payment received from the agency constitutes a payment for the vendor's

performance that fails to conform to the specifications, terms, and

conditions of its contract with the agency, under 31 U.S.C. 3905(a); or

(ii) The eighth day after the receipt of funds from the agency

until the date the performance deficiency of a subcontractor is

corrected, or the date the vendor reduces the amount of any subsequent

payment request by an amount equal to the unearned amount in its

possession, when the vendor discovers that all or a portion of a

payment received from the agency would constitute a payment for the

subcontractor's performance that fails to conform to the subcontract

agreement and may be withheld, under 31 U.S.C. 3905(e);

(5) Interest payment on unearned amounts to the government under 31

U.S.C. 3905(a)(2) or 3905(e)(6), shall:

(i) Be computed on the basis of the average bond equivalent rates

of 91-day Treasury bills auctioned at the most recent auction of such

bills prior to the date the vendor received the unearned amount;

(ii) Be deducted from the next available payment to the vendor; and

(iii) Revert to the Treasury.

(b) Required Documentation. (1) Substantiation of the amount(s)

requested shall include:

[[Page 52593]]

(i) An itemization of the amounts requested related to the various

elements of work specified in the contract;

(ii) A listing of the amount included for work performed by each

subcontractor under the contract;

(iii) A listing of the total amount for each subcontract under the

contract;

(iv) A listing of the amounts previously paid to each subcontractor

under the contract; and

(v) Additional supporting data and detail in a form required by the

contracting officer.

(2) Certification by the prime vendor is required, to the best of

the vendor's knowledge and belief, that:

(i) The amounts requested are only for performance in accordance

with the specifications, terms, and conditions of the contract;

(ii) Payments to subcontractors and suppliers have been made from

previous payments received under the contract, and timely payments will

be made from the proceeds of the payment covered by the certification,

in accordance with their subcontract agreements and the requirements of

31 U.S.C. chapter 39; and

(iii) The application does not include any amounts which the prime

vendor intends to withhold or retain from a subcontractor or supplier,

in accordance with the terms and conditions of their subcontract.

(c) Interest penalties. (1) Agencies will pay interest on:

(i) A progress payment request (including a monthly percentage-of-

completion progress payment or milestone payments for completed phases,

increments, or segments of any project) that is approved as payable by

the agency pursuant to paragraph (b) of this section, and remains

unpaid for:

(A) A period of more than 14 days after receipt of the payment

request by the designated agency office; or

(B) A longer period specified in the solicitation and/or contract

if required, to afford the Government a practicable opportunity to

adequately inspect the work and to determine the adequacy of the

vendor's performance under the contract;

(ii) Any amounts that the agency has retained pursuant to a prime

contract clause providing for retaining a percentage of progress

payments otherwise due to a vendor and that are approved for release to

the vendor, if such retained amounts are not paid to the vendor by a

date specified in the contract, or, in the absence of such a specified

date, by the 30th day after final acceptance;

(iii) Final payments, based on completion and acceptance of all

work (including any retained amounts), and payments for partial

performances that have been accepted by the agency, if such payments

are made after the later of:

(A) The 30th day after the date on which the designated agency

office receives a proper invoice; or

(B) The 30th day after agency acceptance of the completed work or

services. Acceptance shall be deemed to have occurred on the effective

date of contract settlement on a final invoice where the payment amount

is subject to contract settlement actions.

(2) For the purpose of computing interest penalties, acceptance

shall be deemed to have occurred on the seventh day after work or

services have been completed in accordance with the terms of the

contract.

Sec. 1315.15 Grant recipients.

Recipients of Federal assistance may pay interest penalties if so

specified in their contracts with contractors. However, obligations to

pay such interest penalties will not be obligations of the United

States. Federal funds may not be used for this purpose, nor may

interest penalties be used to meet matching requirements of federally

assisted programs.

Sec. 1315.16 Relationship to other laws.

(a) Contract Disputes Act of 1978 (41 U.S.C. 605). (1) A claim for

an interest penalty (including the additional penalty for non-payment

of interest if the vendor has complied with the requirements of

Sec. 1315.9) not paid under this part may be filed under Section 6 of

the Contract Disputes Act.

(2) An interest penalty under this part does not continue to accrue

after a claim for a penalty is filed under the Contract Disputes Act or

for more than one year. Once a claim is filed under the Contract

Disputes Act interest penalties under this part will never accrue on

the amounts of the claim, for any period after the date the claim was

filed. This does not prevent an interest penalty from accruing under

Section 13 of the Contract Disputes Act after a penalty stops accruing

under this part. Such penalty may accrue on an unpaid contract payment

and on the unpaid penalty under this part.

(3) This part does not require an interest penalty on a payment

that is not made because of a dispute between the head of an agency and

a vendor over the amount of payment or compliance with the contract. A

claim related to such a dispute and interest payable for the period

during which the dispute is being resolved is subject to the Contract

Disputes Act.

(b) Small Business Act (15 U.S.C. 644(k)). This Act has been

amended to require that any agency with an Office of Small and

Disadvantaged Business Utilization must assist small business concerns

to obtain payments, late payment interest penalties, additional

penalties, or information due to the concerns.

Sec. 1315.17 Formulas.

(a) Rebate formula. (1) Agencies shall determine credit card

payment dates based on an analysis of the total benefits to the Federal

government as a whole. Specifically, agencies should compare daily

basis points offered by the card issuer with the corresponding daily

basis points of the government's Current Value of Funds (CVF) rate. If

the basis points offered by the card issuer are greater than the daily

basis points of the government'' funds, the government will maximize

savings by paying on the earliest possible date. If the basis points

offered by the card issuer are less than the daily basis points of the

government'' funds, the government will minimize costs by paying on the

Prompt Payment due date or the date specified in the contract.

(2) Agencies may use a rebate spreadsheet which automatically

calculates the net savings to the government and whether the agency

should pay early or late. The only variables required for input to this

spreadsheet are the CVF rate, the Maximum Discount Rate, that is, the

rate from which daily basis points offered by the card issuer are

derived, and the amount of debt. This spreadsheet is available for use

on the prompt payment website at www.fms.treas.gov/prompt/index/.html.

(3) If agencies chose not to use the spreadsheet, the following may

be used to determine whether to pay early or late. To calculate whether

to pay early or late, agencies must first determine the respective

basis points. To obtain Daily Basis Points offered by card issuer,

refer to the agency's contract with the card issuer. Use the following

formula to calculate the average daily basis points of the CVF rate:

(CVF/360) * 100

(4) For example: The daily basis points offered to agency X by card

issuer Y are 1.5 basis points. That is, for every day the agency delays

paying the card issuer the agency loses 1.5 basis points in savings. At

a CVF of 5 percent, the daily basis points of the Current Value of

Funds Rate are 1.4 basis points. That is, every day the agency delays

paying,

[[Page 52594]]

the government earns 1.4 basis points. The basis points were calculated

using the formula:

(CVF/360) * 100

(5/360) * 100 = 1.4

(5) Because 1.5 is greater than 1.4, the agency should pay as early

as possible. If the basis points offered by the card issuer are less

than the daily basis points of the government'' funds (if for instance

the rebate equaled 1.3 basis points and the CVF was still 1.4 basis

points or if the rebate equaled 1.5 but the CVF equaled 1.6), the

government will minimize costs by paying as late as possible, but by

the payment due date.

(b) Daily simple interest formula. (1) To calculate daily simple

interest the following formula may be used:

P(r/360*d)

Where:

P is the amount of principle or invoice amount;

r equals the Prompt Payment interest rate; and

d equals the numbers of days for which interest is being calculated.

(2) For example, if a payment is due on April 1 and the payment is

not made until April 11, a simple interest calculation will determine

the amount of interest owed the vendor for the late payment. Using the

formula above, at an invoice amount of $1,500 paid 10 days late and an

interest rate of 6.5%, the amount of interest owed is calculated as

follows:

$1,500 (.065/360*10) = $2.71

(c) Monthly compounding interest formula. (1) To calculate interest

as required in Sec. 1315.10(a)(3), the following formula may be used:

P(1+r/12) n*(1+(r/360*d))-P

Where:

P equals the principle or invoice amount;

r equals the interest rate;

n equals the number of months; and

d equals the number of days for which interest is being calculated.

(2) The first part of the equation calculates compounded monthly

interest. The second part of the equation calculates simple interest on

any additional days beyond a monthly increment.

(3) For example, if the amount owed is $1,500, the payment due date

is April 1, the agency does not pay until June 15 and the applicable

interest rate is 6 percent, interest is calculated as follows:

$ 1,500(1+.06/12)\2\ *(1+(0.06/360*15))-$1,500 = $18.83

Sec. 1315.18 Inquiries.

(a) Regulation. Inquiries concerning this part may be directed in

writing to the Department of the Treasury, Financial Management Service

(FMS), Cash Management Policy and Planning Division, 401 14th Street,

S.W. Washington, D.C. 20227, (202) 874-6590, or by calling the Prompt

Payment help line at 1-800-266-9667, by emailing questions to FMS at

[email protected], or by completing a Prompt Payment

inquiry form available at www.fms.treas.gov/prompt/inquiries.html.

(b) Applicable interest rate. The rate is published by the Fiscal

Service, Department of the Treasury, semiannually in the Federal

Register on or about January 1 and July 1. The rate also may be

obtained from the Department of Treasury's Financial Management Service

(FMS) at 1-800-266-9667. This information is also available at the FMS

Prompt Payment Web Site at http://www.fms.treas.gov/prompt/index.html.

(c) Agency payments. Questions concerning delinquent payments

should be directed to the designated agency office, or the office

responsible for issuing the payment if different from the designated

agency office. Questions about disagreements over payment amount or

timing should be directed to the contracting officer for resolution.

Small business concerns may obtain additional assistance on payment

issues by contacting the agency's Office of Small and Disadvantaged

Business Utilization.

Sec. 1315.19 Regulatory references to OMB Circular A-125.

This part supercedes OMB Circular A-125 (``Prompt Payment''). Until

revised to reflect the codification in this part, regulatory references

to Circular A-125 shall be construed as referring to this part.

[FR Doc. 99-24713 Filed 9-28-99; 8:45 am]

BILLING CODE 3110-01-P