[Federal Register Volume 63, Number 116 (Wednesday, June 17, 1998)]
[Proposed Rules]
[Pages 33000-33010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15397]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 63, No. 116 / Wednesday, June 17, 1998 / 
Proposed Rules  

[[Page 33000]]


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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: Proposed rule.

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SUMMARY: This document requests comment on proposed regulations which 
will revise and replace Office of Management and Budget (OMB) Circular 
No. A-125, ``Prompt Payment.'' This proposal is being made to reflect 
requirements of the Debt Collection Improvement Act of 1996 as well as 
an increasingly electronic commercial financial systems environment; to 
promote the use of government credit cards and accelerated payment 
methods; to clarify and simplify current language; and to announce a 
new toll-free number and internet website for Prompt Payment Act 
information. The prompt payment implementing regulations are provided 
in a uncodified format for comment purposes. These regulations will be 
codified at the final rule stage in 5 CFR Part 1315, unless pending 
legislation transfers the authority for issuing these regulations to 
the Department of the Treasury. In that case, they will be codified in 
Title 31 of the Code of Federal Regulations.

DATES: Comments must be received by August 17, 1998. The prompt payment 
regulations are proposed to be effective 30 days after final 
publication of the final rule. For payments under contracts or purchase 
orders solicited on or after July 26, 1996, the requirement to collect 
banking information, for purposes of making an EFT payment pursuant to 
31 U.S.C. 3332, as amended, is proposed to be effective 30 days after 
publication of the final rule. For payments under contracts or purchase 
orders solicited before July 26, 1996, the requirement to collect 
banking information is proposed to be effective January 2, 1999.

ADDRESSES: All comments should be addressed to Cynthia L. Johnson, 
Director, Cash Management Policy and Planning Division, Financial 
Management Service, U.S. Department of the Treasury, Room 420, 401 14th 
Street S.W., Washington, D.C. 20227.
    Copies of the current and proposed circulars and other information 
are available from the Prompt Pay website at http://www.fms.treas.gov/
prompt/index.html or from the Treasury Department, Financial Management 
Service website at the following address: http://www.fms.treas.gov/. 
Copies of the current and proposed circulars are also available from 
the Executive Office of the President's Publications Office, Room 2200 
New Executive Office Building, 725 17th Street NW, Washington, D.C. 
20503, phone (202) 395-7332, and via fax-on-demand at (202) 395-9068.

FOR FURTHER INFORMATION CONTACT: Martha Thomas-Mitchell, Financial 
Program Specialist on (202) 874-6757; Diana Shevlin, Financial Program 
Specialist on (202) 874-7032; Sally Phillips, Senior Financial Program 
Specialist on (202) 874-6749; or, Cynthia Johnson, Director, Cash 
Management Policy and Planning Division on (202) 874-6657.

SUPPLEMENTARY INFORMATION:

I. Introduction

    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).
    The increased use of electronic commerce, in the Federal government 
and in the private sector, including electronic financial systems and 
electronic funds transfer, require that Circular A-125 be updated in 
light of current practices. The use of electronic commerce is a 
priority in the current administration. In a memorandum to agencies 
dated October 26, 1993, President Clinton emphasized the need for and 
importance of electronic commerce as a means for streamlining 
government and saving taxpayer dollars. 3 CFR 791 (1993 Comp.). The 
National Performance Review (NPR), headed by Vice President Al Gore, 
recommended examining government practices to streamline regulations 
and processes and, in particular, called for an ``all electronic 
Treasury.'' The president's directive and the NPR recommendations 
resulted in the establishment of an inter-agency workgroup to revise 
the current circular to reflect the changing commercial environment 
while streamlining the Federal payment function through the increased 
use of electronic commerce. The Department of Treasury's Financial 
Management Service (``FMS'') led the revision effort on behalf of the 
Office of Management and Budget. (Under proposed legislation pending in 
Congress, responsibility for regulations and reporting under the Act 
would be transferred from OMB to the Treasury Department.)

II. Proposed Revisions to Circular A-125

    In this proposed revision to the circular, its provisions have been 
reorganized. For example, in most cases the requirements for certain 
types of payment have been consolidated in the section on that payment. 
Thus, whereas determining the payment due date for discounts and 
determining whether to take a discount are discussed separately in the 
current circular (see Sections 4.i. and 4.m.), they are found together 
in the proposed circular in Section 6 entitled ``Discounts.'' In 
addition, several provisions have been added to the revised circular. 
For example, the revised circular is expanded (see Section 5) to 
include options for making payments before 30 days if doing so is in 
the best interests of the government and promotes electronic payments. 
The circular has also been revised to clarify and simplify current 
language. Finally, the circular announces a new toll-free number, 1-
800-266-9667, for questions about Prompt Pay policy, reporting 
requirements and previous and current Prompt Pay interest rates. The 
circular

[[Page 33001]]

also announces a Prompt Pay website at http://www.fms.treas.gov/prompt/
index.html. The website will contain, among other things, rate 
information, frequently asked questions, copies of current circulars 
and links to other related websites. The website may also be accessed 
through FMS' website at http://www.fms.treas.gov/.
    The following describes how the Circular has been reorganized, and 
it explains the more significant changes and clarifications.

A. Proposed Revisions Implementing the Debt Collection Improvement Act

    On April 26, 1996, the president signed into law the Debt 
Collection Improvement Act of 1996 (``DCIA''; Pub. L. 104-134) 
requiring that, in the first phase, all new Federal payments, including 
vendor payments, be made electronically on or after July 26, 1996. 
Treasury Department regulations implementing this phase of the DCIA (31 
CFR 208, Management of Federal Agency Disbursements, Interim Rule) 
define a new Federal vendor payment as one which must be paid by EFT if 
``the payment is made under a contract or purchase order resulting from 
a solicitation issued on or after July 26, 1996.'' All vendor payments 
must be made electronically after January 1, 1999. Treasury Department 
regulations implementing this phase of the DCIA are scheduled to be 
published in the summer of 1998.
    The revised circular (Section 8.b(8)) requires the collection of 
banking information in order to make an EFT payment as required by the 
DCIA unless the payment is waived under 31 C.F.R. Part 208. The 
circular (Section 8.b.(7)) also requires the collection of the Taxpayer 
Identifying Number (TIN). The TIN is required under DCIA 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.

B. Other Proposed Revisions

    1. The ``Definitions'' section (Section 1 of the current circular) 
has been moved to the end of the regulation (Section 18). In addition, 
the term ``contractor'' has been replaced with the term ``vendor,'' and 
the terms ``paying office'' and ``billing office'' have been changed to 
``designated agency office.''
    2. The ``Application'' section (Section 2 of the current circular) 
has been redesignated Section 1. The section includes one additional 
exception to the Prompt Payment Act requirements. This exception is for 
payments related to certain specified emergencies and military 
operations (Section 1.b(2)).
    3. The ``Responsibilities'' section (Section 3 of the current 
circular) has been redesignated Section 2. Specific guidance on 
establishing a quality control program (Section 3.e. of the current 
circular) has been replaced with general guidance on implementing a 
quality control process (Section 2.b.). Quality Control (QC) systems 
are required by OMB Circular A-123, ``Management Accountability and 
Control.''
    In addition, Section 2.c of the revised circular provides standards 
for agencies' financial management systems to ensure that they are in 
compliance with OMB Circular A-127, ``Financial Management Systems.''
    4. The ``Standards for Prompt Payment'' section (Section 4 of the 
current circular) has been redesignated Section 3 and retitled ``Prompt 
Payment Standards and Required Notice to Vendors.'' Several changes 
have been made to this section.
    The revised circular (Section 3.b) clarifies when an invoice is 
deemed to be received for invoices that are mailed or received 
electronically, or when a delivery ticket serves as the invoice.
    The revised circular (Section 3.c(3)) provides that agencies may 
use computer-related media in place of paper documents to expedite 
payment transactions, as long as there are adequate safeguards and 
controls to ensure the integrity of the data.
    ``Starting the Payment Period'' (Section 3.f.) has been reorganized 
to include all discussion related to calculating the start of the 
payment period. Section 3.f. combines the discussions found in the 
current circular ``Receipt of invoice'' (Section 1.n.) and ``Starting 
the Payment Period'' (Section 4.d.). This provision also includes the 
addition of an acceptance document or delivery ticket as the basis for 
starting the payment period.
    ``Determining the payment due date'' (Section 3.g(1)) has been 
expanded to include payments due when discounts are taken and when 
accelerated payment methods are used.
    ``Mixed invoices for commodities'' (Section 3.g(2)D) now includes 
the provision that the entire invoice may be paid on the due date for 
the commodity with the earliest due date, if it is considered in the 
best interests of the agency.
    Guidance on notification for an improper invoice (Section 4.b(3) of 
the current circular) has been moved to the section on ``Review of 
Invoice'' (Section 3.c(2)).
    5. Section 4 of the proposed regulation, ``Accelerated Payment 
Methods,'' has been added. It includes a provision which allows 
agencies to make payments for invoices under $2,500 after matching 
documents. This section also provides for early payment for small, 
disadvantaged businesses, and for payments related to emergencies and 
disasters, as well as for military deployments.
    6. Section 5 of the proposed regulation, ``Fast Payment,'' replaces 
Section 12 of the current circular. The section on ``Fast Payment'' 
requires that payment be made within 15 days of receipt of a proper 
invoice without evidence that goods or services have been received. 
References to Federal Acquisition Regulation (FAR) clauses for Fast 
Payment are included.
    7. Section 6 of the proposed regulation, ``Discounts,'' has been 
added and consolidates the requirements related to discounts. The 
reference to the discount formula found in the Treasury Financial 
Manual has been updated.
    8. Section 7 of the proposed regulation, ``Rebates,'' has been 
added to the circular. The section instructs agencies to determine 
credit card payment dates based on an analysis of the total costs and 
total benefits to the Federal government as a whole. 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 also factor in the benefits, 
from streamlining or other efficiencies, to the agency of paying early. 
Treasury will publish a rebate formula in the Treasury Financial Manual 
(TFM) which can be used to determine when a credit card invoice should 
be paid. The Current Value of Funds rate is available by the toll-free 
number and internet website listed above.
    9. The ``Required Documentation'' section (Section 5 of the current 
circular) has been redesignated Section 8.
    Agencies are required (Section 8.a.(8)) to stipulate that banking 
information must be submitted no later than the first request for 
payment in order to make payments electronically as required by the 
Debt Collection Improvement Act of 1996, except in situations addressed 
in the waiver provisions for 31 CFR Part 208. Agencies will use the 
appropriate

[[Page 33002]]

Federal Acquisition Regulation electronic funds transfer contract 
clause.
    In order for an invoice to be a proper invoice, banking information 
and TINs are required to be collected on the invoice unless previously 
collected in another manner (Section 8.b(7)-(8)). This requirement 
ensures that payment will be made by EFT, unless waived by the 
Secretary of the Treasury in 31 CFR 208. This requirement also ensures 
compliance with collecting TINs. This requirement gives agencies 
flexibility in determining how banking information and TINs will be 
collected. Agencies are encouraged to collect this information at the 
earliest possible date, including as a condition of awarding a 
contract. The Central Contractor Registry (CCR) requires this 
information as a condition of awarding a contract. The CCR is a 
mandatory contractor enrollment system for the Department of Defense. 
Although not mandatory for civilian agencies, some civilian agencies 
are voluntarily using the CCR.
    10. Section 6 of the current circular, ``Required notices to 
vendors,'' has been removed. The notice of interest penalties is 
discussed in Section 9, ``Late payment interest penalties.'' The notice 
of defective invoice is discussed in Section 3.c, ``Review of 
Invoice.''
    11. The ``Late Payment Interest Penalties'' section (Section 7 of 
the current circular) has been redesignated Section 9. Several changes 
have been made to this section.
    Agencies are exempt from paying late interest penalties if banking 
information supplied by the vendor is incorrect and/or incomplete 
(Section 9.a(8)).
    In the notice to vendors on late payment interest penalties, the 
contract number is optional (Section 9.b(3)). However, the invoice 
number or other agreed upon transaction reference number is required to 
assist the vendor in reconciling the payment.
    Interest penalties are not required 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 (Section 
9.c(4)).
    12. The ``Additional Penalties'' section (Section 8 of the current 
circular) has been redesignated Section 10. The maximum allowable 
additional penalty is $5,000 (Section 10.b).
    13. Section 11 of the proposed regulation, ``Payments under 
Government Credit Card,'' has been added and allows agencies to pay 
credit card invoices under $2,500 without matching documents and 
without applying the discount formula in I TFM 6-8040.40. Undisputed 
items must be paid on time.
    14. Section 9 of the current circular, ``Interest Penalties Due 
Farm Producers,'' has been redesignated Section 12 and retitled 
``Payment to Farm Producers.'' The section has been reorganized to 
follow the same format as other sections. The list of loan and closing 
dates for payments made under various agricultural programs has been 
removed because these programs periodically change. Accordingly, 
Section 12 refers the reader to the current Farm Bill (7 U.S.C. 1421 et 
seq.) which lists loan and closing dates for payments made under 
current Farm Bill programs.
    15. Section 10 of the current circular, ``Interest Penalties under 
Construction Contracts,'' has been redesignated Section 13 and retitled 
``Payments under Construction Contracts.'' The section has been 
reorganized to follow the same format as other sections. In addition, 
the discussion in current circular 5.d. related to required 
documentation for construction contracts is moved to this section.
    16. Section 11 of the current circular, ``Grant Recipients,'' has 
been redesignated Section 14.
    17. As noted above, Section 12 of the current circular, ``Payment 
without evidence that supplies have been received,'' has been replaced 
by Section 5.
    18. The ``Relationship to other laws'' section (Section 13 of the 
current circular) has been redesignated Section 15.
    19. The ``Reporting Requirements'' section (Section 14 of the 
current circular) has been redesignated Section 16, and its reporting 
requirements have been reduced. Information concerning the relative 
frequency and frequency distribution of penalties (see Section 14.b(3)-
(4) of the current circular) is no longer required. An ``other'' 
category has been added to the provision requiring reasons why interest 
penalties were incurred (Section 16.a(2)E).
    20. The ``Inquiries'' section (Section 16 of the current circular) 
has been redesignated Section 17. As noted above, this section 
announces a new toll-free number, 1-800-266-9667, for questions about 
Prompt Pay policy, reporting requirements and previous and current 
Prompt Pay interest rates. This section also announces a Prompt Pay 
website at http://www.fms.treas.gov/prompt/index.html. The website will 
contain, among other things, rate information, frequently asked 
questions, copies of current circulars and links to other related 
websites. The website may also be accessed through FMS'' website at 
http://www.fms.treas.gov/.
    21. As noted above, the ``Definitions'' section has been moved from 
Section 1 of the current circular to Section 18 of the proposed 
regulation.
    22. The ``Effective Dates'' section (Section 15 of the current 
circular) has been redesignated Section 19. Except as otherwise 
provided in Section 19, the proposed regulation is effective 30 days 
after final publication.
    Finally, OMB seeks comment on how the Federal government can 
address the problem of one Federal agency making a late payment to 
another Federal agency for goods or services. Interagency payments have 
historically been problematic for the Federal government because some 
Federal agencies make late payments to other Federal agencies for goods 
and services, and because there is not one standard method available to 
make these payments. These late payments sometimes result in costs to 
agencies in collecting overdue amounts. OMB seeks comment on the nature 
and magnitude of this problem, and requests recommendations on how the 
problem could be addressed (e.g., through a provision in the 
interagency agreements themselves, the application of some existing 
provision of law, or the enactment of new legal remedies).

Regulatory Flexibility Act, Unfunded Mandates Reform Act, and Executive 
Orders 12866 and 12875

    Pursuant to 31 U.S.C. 3903(a), the provisions of the proposed 
revision and replacement of Circular A-125 constitute regulations. For 
purposes of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the 
proposed regulations 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 No. 12866 and 12875, the proposed 
regulations 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.
    OMB requests comments on the proposed revisions discussed above, as 
well on all other parts of the revised circular.

[[Page 33003]]

List of Subjects in 5 CFR Part 1315

    Administrative practice and procedure, Government contracts, 
Penalties.
Jacob J. Lew,
Acting Director.

    OMB proposes that Circular A-125 be revised to read as follows:

Attachment--OMB Circular No. A-125

(Revised)

To: The Heads of Executive Departments and Establishments
Subject: Prompt Payment

    Purpose. Circular A-125 (2nd Revision) prescribes policy for the 
Executive departments and agencies in paying for goods and services 
pursuant to the Prompt Payment Act of 1982 as amended. It is the intent 
of this Circular and implementing regulations that the Federal 
Government pay commercial obligations accurately and timely using 
financial cash management tools.
    Background. The Prompt Payment Act was enacted as P.L. 97-177 on 
May 21, 1982, and amended on October 17, 1988, as P.L. 100-496. The 
Prompt Payment Act (the Act), as amended, requires Executive 
departments and agencies to pay commercial obligations within specific 
discrete time periods and to pay interest penalties when those time 
constraints are not met. Circular A-125 also provides policy direction 
for payment of entitlements due under the current Farm Bill.
    Policy. Agencies are to maintain payment practices consistent with 
this Circular and the implementing procedures attached to the Circular. 
Agencies must make payments for commercial obligations on properly 
submitted invoices on payment due dates set by the attached 
implementing procedures. Unless otherwise specified in this Circular or 
agency regulations, payments cannot be made until proper invoices have 
been received for goods or services that have been received and 
accepted by the agency and contract terms have been satisfactorily 
performed or fulfilled. Payments under certain accelerated payment 
methods may be made before the specified due date. Payments made later 
than the payment due date or later than the discount due date if a 
discount is taken, may be subject to interest penalties and possibly 
additional penalties. Valid interest penalties will be paid by the 
agency automatically and additional penalties will be paid after 
receiving a written request from the vendor. These penalties will be 
paid from funds available for the administration of the program for 
which the penalty was incurred. Agency implementation must be 
consistent with sound cash management practices, related Treasury 
regulations (Treasury Financial Manual, I TFM 6-8000, section 8040), 
and the Federal Acquisition Regulation (48 CFR subpart 32.9 and FAR 
Clause 52.232) or appropriate agency regulations.
    The Debt Collection Improvement Act of 1996 requires all Federal 
agencies to make payments electronically after January 1, 1999, except 
for Internal Revenue Service tax refunds and except as waived in 31 CFR 
Part 208. The Act also requires the collection of the Taxpayer 
Identifying Number (TIN) for purposes of debt collection. This circular 
requires that banking information for purposes of making electronic 
payments and the TIN be on an invoice unless this information has been 
previously provided to the agency through other procedures.
    Requirements and Responsibilities. The specific requirements and 
responsibilities of Executive departments and agencies are set forth in 
the implementing regulations.
    Inquiries. Questions about this circular and inquiries about 
payments practices or concerning problems of Executive agencies should 
be directed to the Financial Management Service, Department of the 
Treasury, Telephone: 1-800-266-9667. The circular, agency guidance, 
answers to frequently asked questions and other general information is 
available on the Internet at http://www.fms.treas.gov/prompt/
index.html. It is also available in printed form upon request to the 
above telephone number.
    Effective date. Unless otherwise specified, this circular is 
effective 30 days after final publication.
    Sunset Review Date. Three years from the date of issuance of this 
circular, there will be an independent policy review to ascertain its 
effectiveness.
Jacob J. Lew,
Acting Director.

    Note: The following prompt payment implementing regulations are 
provided in a uncodified format for comment purposes. These 
regulations will be codified at the final rule stage in 5 CFR Part 
1315, unless pending legislation transfers the authority for issuing 
these regulations to the Department of the Treasury. In that case, 
they will be codified in Title 31 of the Code of Federal 
Regulations.

Prompt Payment Implementing Regulations

Table of Contents

1. Application
2. Responsibilities
3. Prompt Payment Standards and Required Notices to Vendors
4. Accelerated Payment Methods
5. Fast Payment
6. Discounts
7. Rebates
8. Required Documentation
9. Late Payment Interest Penalties
10. Additional Penalties
11. Payments Under Government Credit Card
12. Payments to Farm Producers
13. Payments Under Construction Contracts
14. Grant Recipients
15. Relationship to Other Laws
16. Reporting Requirements
17. Inquiries
18. Definitions
19. Effective Dates

1. Application

    a. Procurement contracts. This regulation applies to contracts for 
the procurement of goods or services awarded by:
    (1) All Executive branch agencies except:
    A. The Tennessee Valley Authority, which is subject to the Prompt 
Payment Act, but is not covered by this regulation, and
    B. Agencies specifically exempted under 5 U.S.C. 551(1).
    (2) The United States Postal Service, except for the reporting 
requirements. The Postmaster General is responsible for issuing 
implementing procurement regulations, solicitation provisions, and 
contract clauses for the United States Postal Service, and
    (3) The Commodity Credit Corporation pursuant to:
    A. Section 4(h) of the Act of June 29, 1948 (15 U.S.C. 714b(h)) 
relating to the procurement of property and services, and
    B. Payments to producers on a farm under the current Farm Bill (7 
U.S.C. 1421 et seq.).
    b. Vendor payments. All Executive branch vendor payments and 
payments to those defined as contractors or vendors (see section 18.j.) 
are subject to the Prompt Payment Act with the following exceptions:
    (1) Contract Financing Payments, as defined in section 18.h.; and
    (2) Payments related to emergencies (as defined in the Disaster 
Relief Act of 1974, P.L. 93-288, as amended (42 U.S.C. 5121 et seq.)) 
and military operations (as defined in 10 U.S.C. 101(a)(13)).
    c. Utility payments. All utility payments, including payments for 
telephone service, are subject to the Act except those under 1.b.(2). 
Where state or local authorities regulate late payment rates, those 
rates (e.g., tariffs) shall take precedence; however, any interest paid 
is reportable. In the absence of state or local prescribed late charges 
or terms, agencies will apply this regulation.

[[Page 33004]]

2. Responsibilities

    Each agency head is responsible for the following:
    a. Issuing internal procedures. Issuing procedures will include 
provisions for monitoring the causes of late payments and any interest 
penalties incurred, taking necessary corrective action, reporting in 
accordance with section 16, 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.'' 
Administrative activities required for payments to vendors under this 
regulation are subject to Quality Control (QC) validation. QC processes 
will be used to confirm that controls are effective and that processes 
are efficient. Each agency head is responsible for establishing a QC 
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.
    c. Financial management systems. Ensuring that financial management 
systems comply with OMB Circular A-127, ``Financial Management 
Systems.'' 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, and produce accurate and timely reports as 
required by the Prompt Payment Act.
    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.

3. 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 section 8.
    b. Receipt of invoice. For the purposes of determining a payment 
due date and the date on which interest will begin to accrue, an 
invoice shall be deemed to be received:
    (1) For invoices that are mailed, on:
    A. The date a proper invoice is actually received and annotated by 
the contractually designated office, or;
    B. The date placed on the invoice by the vendor, when the agency 
fails to annotate the invoice with a receipt date at the time of 
receipt (such invoice must be a proper invoice);
    (2) For invoices electronically transmitted, at the time the 
transmission is received by the designated agency office; and,
    (3) On the date of delivery, when contractually stipulated 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 appropriate office within 
7 days after receipt to determine whether the invoice is a proper 
invoice as defined in section 8.b. of this regulation;
    (2) When an invoice is determined improper, the agency shall return 
the invoice to the vendor within 7 days of receipt (refer also 3.g.(3) 
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) Computer-related media which produce tangible recordings of 
information in lieu of ``written'' or ``original'' paper document 
equivalents should be used by agencies to expedite payment 
transactions, as long as there are adequate safeguards and controls to 
ensure the integrity of the data, rather than delaying processes by 
requiring ``original'' paper documents.
    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 delivery. 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 later of:
    (1) Date of receipt (as defined in 3.b.(1)) of a proper invoice (as 
defined in section 8.b.), except where no invoice is required (e.g. 
recurring payments (see definition at section 18.cc.); or,
    (2) Date of receipt and acceptance of goods or services. In this 
case, the payment period starts when either:
    A. The agency has actually accepted the goods or services but no 
later than the seventh day after the receipt of goods or services, or;
    B. When a longer acceptance period is contractually stipulated, the 
agency has actually accepted the goods or services but no later than 
the last day of the extended acceptance period;
    (3) Date of delivery where an agency has contractually designated 
the use of the acceptance document or delivery ticket as the basis for 
payment.
    g. Determining the payment due date.
    (1) Unless otherwise specified, the payment is due either:
    A. 30 days after the start of the payment period as specified in 
section 3.f.;
    B. On the date(s) specified in the contract;
    C. In accordance with discount terms when discounts are offered and 
taken (see section 6), or;
    D. In accordance with Accelerated Payment Methods (see section 4).
    (2) Certain commodity payments.
    A. 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.
    B. For perishable agricultural commodities, as defined in Section 
1(4) of the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 
499a(4)), payment will be made no later than the 10th day after 
delivery, unless another payment date is specified in the contract.
    C. 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

[[Page 33005]]

arise about the coverage of a specific product, prevailing industry 
practices should be followed in specifying a contractual payment due 
date.
    D. 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. That payment is to be considered as on time for 
reporting purposes;
    ii. May make split payments by the due date applicable to each 
category;
    iii. Should pay in accordance with the contractual payment 
provisions (which may not exceed the statutory mandated periods 
specified in section 3.g.(2), and;
    iv. Will not require vendors to submit multiple invoices for 
payment of individual orders by the agency.
    (3) Notification of Improper Invoice.
    When an agency fails to make notification of an improper invoice 
within seven days according to 3.c.(2) of these guidelines (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 as specified 
above in this paragraph, 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. On a weekend, federal holiday, 
or after normal working hours, payments falling due 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 
in sections 9 through 13 of this regulation.
    j. Timely payment. Unless using an accelerated payment method (see 
section 4), 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.
    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. Payment is 
contingent upon submission of a proper invoice if required by the 
contract.

4. 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 notwithstanding statutory authority to do otherwise. These 
payments are to be considered on time for Prompt Pay reporting 
purposes. Vendors shall be entitled to interest penalties if invoice 
payments are made after the payment due date.
    b. Small Disadvantaged Business Concern (as defined in the FAR 
subpart 19.001). Agencies may pay small, disadvantaged business 
concerns 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 to be considered on time for Prompt 
Pay reporting purposes, and are not subject to payment restrictions 
stated elsewhere in this regulation. Vendors shall be entitled to 
interest penalties if invoice payments are made after the payment due 
date.
    c. Payments related to emergencies and disasters (as defined in the 
Robert T. Stafford Disaster Relief Act and Emergency Assistance, P.L. 
93-288, as amended (42 U.S.C. 5 121 et seq.)) and military deployment. 
Payments may be made as soon as the contract, proper invoice, receipt 
and acceptance documents or any other agreement are matched. These 
payments are to be considered on time for Prompt Pay reporting 
purposes. Vendors shall be entitled to interest penalties if invoice 
payments are made after the payment due date.

5. Fast Payment

    Payment shall be made within 15 days of receipt of a proper invoice 
without evidence that goods or services have been received. The 
following standards shall be followed:
    a. Criteria. The criteria in using this procedure are defined in 
Federal Acquisition Regulations (FAR) Part 13, Subpart 13.3 ``Fast 
Payment Procedure'' and in the 1988 Amendment to the Prompt Pay Act, 
Section 11(b)(1);
    b. FAR clause 52.213.1. Payments must be supported by valid 
contracts having proper FAR clause 52.213.1, Fast Payment Procedure;
    c. Invoice requirements. Invoices paid under ``Fast Payment'' 
procedures must meet the requirements of an invoice as outlined in 
section 8.b. of this regulation, and be properly identified on the 
invoices and in the agency financial system for subsequent statistical 
sampling to ensure that goods are received;
    d. Obligating documents. Invoices must be properly matched with the 
obligating documents prior to authorizing the payment;
    e. Certification. A vendor's certification that goods have been 
shipped may be used as a basis for authorizing the payment;
    f. Internal controls. Agencies must establish a system to ensure 
internal controls are in place to validate that goods are received and 
accepted;
    g. Receiving reports. Unless otherwise specified in agency 
procedures, the contracting office shall ensure that receiving reports 
and payment documents are matched and that steps are taken to correct 
discrepancies and collect any amounts owed for non-performance, and;
    h. Inspection and Acceptance. Unless otherwise specified in agency 
procedures, the receiving entity shall promptly inspect and accept 
goods acquired under these procedures and notify the purchasing office 
of the acceptance as quickly as possible.

6. Discounts

    Agencies shall follow these guidelines 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 payment is made within 
the specified discount period. Discounts will be taken whenever 
economically justified (see I TFM 6-8040.40) but only after acceptance 
has occurred. These payments will be considered on time for reporting 
purposes.
    b. Discounts taken after the deadline. If an agency takes the 
discount after the deadline and does not repay it before the payment 
due date, the agency shall pay an interest penalty on any amount 
remaining unpaid as prescribed in section 9.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

[[Page 33006]]

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.

7. Rebates

    Agencies shall determine credit card payment dates based on an 
analysis of the total costs and total benefits to the Federal 
government as a whole. 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 also factor in the benefits, from streamlining or other 
efficiencies, to the agency of paying early.

8. Required Documentation

    Agencies are required to ensure the following payment documentation 
is established to support payment of invoices and interest penalties:
    a. For a contract:
    (1) Payment due date(s) as defined in 3.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 per formed 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 invoice payments 
(including progress payments under construction contracts);
    (8) Stipulation that banking information must be submitted no later 
than the first request for payment as required by the Debt Collection 
Improvement Act of 1996, except in situations addressed in the waiver 
provisions for 31 CFR Part 208. Agencies will use the appropriate 
Federal Acquisition Regulation contract clause;
    (9) If using Fast Payment, the proper FAR clause stipulating Fast 
Payment is required.
    b. For a proper invoice:
    (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;
    (5) Description, 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 Identification Number (TIN), unless otherwise 
previously provided to the agency in accordance with agency procedures;
    (8) Banking Information, unless otherwise previously provided to 
the agency in accordance with agency procedures, or except in 
situations addressed in waiver provisions included in 31 CFR Part 208;
    (9) Contact name (where practicable), title and telephone number;
    (10) Other substantiating documentation or information required by 
the contract.
    c. For receiving reports, delivery tickets, and evaluated receipts:
    (1) Name of vendor;
    (2) Contract or other authorization number;
    (3) Description of goods;
    (4) Quantities received, if applicable;
    (5) Date(s) goods were delivered;
    (6) Date(s) goods 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, and;
    (8) All requirements under section 8.c. (1)-(7), when a delivery 
ticket is used as an invoice.

9. 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 and will accrue daily from the day 
after the payment due date at the interest rate applicable on the day 
after the due date (refer also to 3.g. Determining the payment due 
date);
    (2) Adjustments will be made for errors in calculating interest;
    (3) When an interest penalty is owed and not paid, interest will 
accrue on the unpaid principal and accrued interest until paid, except 
as described in paragraph (5) below;
    (4) For up to one year, interest penalties remaining unpaid at the 
end of any 30 day period will be capitalized (i.e., added to the 
principal), and subsequent interest penalty amounts will be computed 
and accrue on the total of principal plus capitalized interest until 
paid;
    (5) Interest penalties under the Prompt Payment Act will not 
continue to accrue:
    A. After the filing of a claim for such penalties under the 
Contract Disputes Act of 1978 (41 U.S.C. 601 et seq.), or;
    B. For more than one year.
    (6) When an agency takes a discount after the discount date and 
does not repay it before the payment due date, the interest payment 
will be calculated on the amount of the discount taken, for the period 
beginning the day after the prompt payment due date through the payment 
date;
    (7) Interest penalties of less than one dollar need not be paid;
    (8) If the banking information supplied by the vendor is incorrect 
and/or incomplete, the invoice received will be returned as an improper 
invoice and the agency is exempt from the accrual of interest as 
defined in section 3.c (2) until such information is received or until 
a proper invoice is submitted;
    (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) voice 
information system 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 except 
when title of the goods passes to the government;
    (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. Agencies should pay interest 
together with the underlying principal payment;
    (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

[[Page 33007]]

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 section 10, and;
    (5) Agencies shall pay any late payment interest penalties 
(including any additional penalties required under section 10) under 
this regulation 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.

10. Additional Penalties

    a. Vendor entitlements . A vendor shall be entitled to an 
additional penalty payment when the vendor is owed a late payment 
interest penalty by an agency, 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, no later than 40 days after the 
payment date, that the agency pay such an additional penalty. The 
vendor request must include the following:
    A. 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;
    B. 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. No additional data are required;
    Confirmation that the request is postmarked. To be valid the 
request must be postmarked, received by facsimile, or by electronic 
mail, by the 40th day after payment was made. If there is no postmark, 
the request will be valid if it is received and annotated with the date 
of receipt by the agency by the 40th day.
    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.
    d. Penalty basis. The penalty is based on individual invoices if 
paid separately.
    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.

11. Payments Under Government Credit Card

    Payment standards under government credit cards:
    a. Payment date. All credit 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. The payment due date for 
invoices over $2,500 shall be 30 days after receipt of a proper invoice 
or the date specified in the contract unless it benefits the agency and 
the government (applying discount formula in I TFM 6-8040.40) to take a 
rebate offered for early payment. I TFM 4-4535.10 permits payment of 
the bill in full prior to verification that goods or services were 
received.
    b. Disputed line items. Disputed line items do not render the 
entire invoice an improper invoice for compliance with this circular. 
Any undisputed items must be paid in accordance with section 11.a.

12. Payments to Farm Producers

    In case of a payment to which producers on a farm are entitled 
under the terms of an agreement entered into under the current Farm 
Bill (7 U.S.C. 1421 et seq.):
    a. Payment Standards. Payments to farm producers under such 
agreements shall be made as close as possible to the required payment 
or loan closing date.
    b. Interest penalties. An interest penalty shall be paid to the 
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 ending on the date the amount 
is paid or loaned, and;
    (3) Out of funds available under section 8 of the Act of June 29, 
1948 (15 U.S.C. 714f).
    c. Contract Disputes Act of 1978. Provisions relating to the 
Contract Disputes Act of 1978 (41 U.S.C. 601 et seq.) in section 
9.a.(5)A and section 16a. do not apply.

13. 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 the section b below;
    (2) The certification by the prime vendor as defined in section 
13.b.(2) 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), or if the notification is done 
electronically, it is not necessary to return the improper invoice;
    (4) A vendor is obligated to pay interest to the Government on 
unearned amounts in its possession from:
    A. 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;
    B. 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

[[Page 33008]]

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:
    A. 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;
    B. Be deducted from the next available payment to the vendor, and;
    C. Revert to the Treasury.
    b. Required Documentation:
    (1) Substantiation of the amount(s) requested shall include:
    A. An itemization of the amounts requested related to the various 
elements of work specified in the contract;
    B. A listing of the amount included for work performed by each 
subcontractor under the contract;
    C. A listing of the total amount for each subcontract under the 
contract;
    D. A listing of the amounts previously paid to each subcontractor 
under the contract, and;
    E. 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:
    A. The amounts requested are only for performance in accordance 
with the specifications, terms, and conditions of the contract;
    B. 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 
Chapter 39, title 31, U.S.C., and;
    C. 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. Agencies will pay interest on:
    (1) 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 section b. above, 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.
    (2) 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;
    (3) 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. 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.

14. 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.

15. 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 section 9 of this regulation) not paid under this 
regulation may be filed under section 6 of the Contract Disputes Act.
    (2) An interest penalty under this regulation does not continue to 
accrue after a claim for a penalty is filed under the Contract Disputes 
Act or for more than one year. This does not prevent an interest 
penalty from accruing under section 13 of the Contract Disputes Act 
after a penalty stops accruing under this regulation. Such penalty may 
accrue on an unpaid contract payment and on the unpaid penalty under 
this regulation.
    (3) This regulation 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.

16. Reporting Requirements

    a. Content. Agency reports shall contain the following information 
for the prior fiscal year:
    (1) Invoices subject to the Prompt Payment Act:
    A. Dollar amount of invoices
    B. Number of invoices
    (2) Invoices paid after due date:
    A. Dollar amount of invoices
    B. Number of invoices
    C. Percent of Invoices paid late. The percentage of invoices paid 
late is computed in the following manner: [(2)B/(1)B]
    D. Dollar amount of late payment interest and other penalties paid
    E. Reasons why interest or other late payment penalties were 
incurred. Rank from highest to lowest, according to frequency of 
occurrence.
    i. Delay in agency's receipt of:
    a. Receiving report
    b. Purchase order or contract
    c. Other
    ii. Delay or error by designated agency office in:
    a. Taking discount
    b. Notifying vendor of improper invoice
    c. Computer or other system processing
    d. Other
    F. Interest and other late payment penalties which were due but not 
paid:
    i. Interest amount
    ii. Number
    (3) Invoices paid eight days or more before due date, except where 
cash discounts were taken, an accelerated

[[Page 33009]]

payment method was used, or payments were made early to earn rebates; 
or invoices where early payment is determined on a case-by-case basis 
to be necessary:
    A. Dollar amount of invoices
    B. Number of invoices
    C. Percent of early payments made [(3)B/(1)B]
    (4) Progress Made. Describe specific achievements and problems 
during the fiscal year in implementing the provisions of the Prompt 
Payment Act and OMB Circular A-125. Include a description of any agency 
experience in determining the most appropriate timing for release of 
payment authorization so that invoices are paid as close as possible to 
the due date without exceeding it.
    b. Certification. Agency annual reports to FMS must be certified by 
the agency Chief Financial Officer (or equivalent).
    c. Submission. Federal agencies subject to the Chief Financial 
Officers Act of 1990 and the United States Information Agency are 
required to submit an annual Prompt Payment Report to the Commissioner, 
Financial Management Service (FMS), Department of the Treasury, by the 
60th day after the end of each fiscal year.

17. Inquiries

    a. Regulation. Inquiries concerning this regulation may be directed 
in writing to the Department of the Treasury, Financial Management 
Service (FMS), Cash Management Directorate, 401 14th Street, S.W. 
Washington, D.C. 20227, or by calling 1-800-266-9667.
    b. Applicable interest rate. The rate is published 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 Pay 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. 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.

18. Definitions

    For the purposes of this regulation, the following definitions 
apply:
    a. Accelerated Payment--a payment made prior to the due date and 
considered on time for prompt payment reporting purposes (see 
discussion in section 4).
    b. Acceptance--an acknowledgment by the Government that goods 
received and services rendered conform with the contract requirements. 
Acceptance also applies to partial deliveries.
    c. Agency--as defined in Section 551(1) of Title 5, United States 
Code, includes 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 
(1) that is operated exclusively as an instrumentality of such an 
agency for the purpose of administering one or more programs of that 
agency, and (2) 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--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., 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 
in the Federal Register on or about January 1 and July 1.
    e. Automated Clearing House (ACH)--a network that performs 
interbank clearing of electronic debit and credit entries for 
participating financial institutions.
    f. Banking Information--information necessary to facilitate an EFT 
payment, including the vendor's bank account number, and their bank's 
routing number.
    g. Contract--any enforceable agreement, including rental and lease 
agreements, purchase orders, delivery orders (including obligations 
under Federal Supply Schedule contracts), requirements-type (open-
ended) service contracts, and blanket 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 Section 8.a. of 
this regulation.
    h. Contract Financing Payments--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--any entity issuing a contract or purchase 
order or issuing a contract modification or termination.
    j. Contractor (see Vendor).
    k. Day--a calendar day including weekend and holiday, unless 
otherwise indicated.
    l. Delivery Ticket--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--the office designated by the purchase 
order, agreement, or contract to first receive invoices. This office 
can be contractually designated as the receiving entity. This office 
may be different from the office actually issuing the payment.
    n. Discount--an invoice payment reduction offered by the vendor for 
early payment.
    o. Discount date--the date by which a specified invoice payment 
reduction, or a discount, can be taken.
    p. Due date--the date on which Federal payment should be made. 
Determination of such dates is discussed in Section 3.g. of this 
regulation.
    q. Electronic Commerce (EC)--the end to end electronic exchange of 
business information using electronic data interchange (EDI), 
electronic mail, electronic bulletin boards, electronic funds transfer 
(EFT) and similar technologies.
    r. Electronic Data Interchange (EDI)--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 (ASC) of the American National Standards Institute.
    s. Electronic Funds Transfer--A system using electronic means to 
transfer payment data and funds from an originator to a recipient's 
account at a receiving financial institution.

[[Page 33010]]

    t. Emergency Payment--emergency includes 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.
    u. Evaluated Receipts--contractually designated use of the 
acceptance document and the contract as the basis for payment without 
requiring a separate invoice.
    v. Fast Payment--under the Federal Acquisition Regulation (FAR) 
13.3, the Fast Payment procedure 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)--the regulation that 
governs most Federal acquisition and related payment issues. Agencies 
may also have supplements prescribing unique agency policies.
    x. Government Credit Card--internationally accepted credit card 
available to all Federal agencies under a General Services 
Administration contract for the purpose of making simplified 
acquisitions of up to $100,000.
    y. Invoice--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 
section 8.b of this regulation. The term invoice can include receiving 
reports and delivery tickets contractually designated as invoices.
    z. Payment Date--the date on which a check for payment is dated or 
the date of an electronic fund transfer (EFT) payment (settlement 
date).
    aa. Receiving Office--the entity which physically receives the 
goods or services, may be separate from the accepting entity.
    bb. Receiving Report--written or electronic evidence of receipt of 
goods or services by a Government official. Receiving reports must meet 
the requirements of section 5.g. of this regulation.
    cc. Recurring Payments--Fixed Amounts--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.
    dd. Taxpayer Identification Number (TIN)--nine digit Employer 
Identification Number or Social Security Number as defined in section 
6109 of the Internal Revenue Code of 1986 (26 U.S.C. 6109).
    ee. Utilities and Telephones--contractual or non-contractual 
purchase of electricity, water, sewage services, telephone services, 
and natural gas. Utilities can be regulated, unregulated, or under 
contract.
    ff. Vendor--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).

19. Effective Dates

    This regulation will be effective 30 days after final publication. 
For payments under contracts or purchase orders solicited on or after 
July 26, 1996, the requirement to collect banking information, for 
purposes of making an EFT payment pursuant to 31 U.S.C. 3332, as 
amended, will be effective 30 days after final publication. For 
payments under contracts or purchase orders solicited before July 26, 
1996, the requirement to collect banking information is effective 
January 2, 1999.

[FR Doc. 98-15397 Filed 6-16-98; 8:45 am]
BILLING CODE 3110-01-P