[Federal Register Volume 67, Number 250 (Monday, December 30, 2002)]
[Rules and Regulations]
[Pages 79515-79516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32821]



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 Rules and Regulations
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  Federal Register / Vol. 67, No. 250 / Monday, December 30, 2002 / 
Rules and Regulations  

[[Page 79515]]



OFFICE OF MANAGEMENT AND BUDGET

5 CFR Part 1315


Prompt Payment

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

ACTION: Final rule.

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SUMMARY: The Office of Management and Budget (OMB) is issuing a final 
revision to its rules on the Prompt Payment Act (PPA) to implement 
section 1010 of the National Defense Authorization Act for Fiscal Year 
2001, as amended by section 1007 of the National Defense Authorization 
Act for Fiscal Year 2002. Section 1010 requires agencies to pay an 
interest penalty whenever they make an interim payment under a cost-
reimbursement contract for services more than 30 days after the agency 
receives a proper invoice for payment from the contractor. Section 1007 
states that the requirements of section 1010 apply to interim payments 
that are due on or after December 15, 2000 under any cost-reimbursement 
service contract regardless of when the contract was awarded.

DATES: Effective Date: This final rule is effective December 30, 2002. 
Applicable Dates: This final rule shall apply to all interim payment 
requests that are due on or after December 15, 2000 and received under 
cost-reimbursement service contracts awarded before, on, or after 
December 15, 2000. However, no interest penalty shall accrue under this 
rule for any delay in payment that occurred prior to December 15, 2000.

FOR FURTHER INFORMATION CONTACT: Martha Thomas-Mitchell, Financial 
Program Specialist, Financial Management Service, Department of the 
Treasury, on (202) 874-6757; Mathew Blum, Office of Federal Procurement 
Policy, OMB, on 202-395-4953; or Dana James, Office of Federal 
Financial Management, OMB, on 202-395-7480.

SUPPLEMENTARY INFORMATION:

I. Background

    Contractors who are awarded cost-reimbursement contracts are 
generally authorized to seek reimbursement, including reimbursement 
during the course of the contract (``interim payments''), for the 
allowable costs they incur in the performance of the contract. In the 
National Defense Authorization Act for Fiscal Year 2001, Public Law 
106-398, 114 Stat. 1654, Congress imposed a new statutory requirement 
on agencies to pay an interest penalty on interim payments that are 
made late under cost-reimbursement service contracts. This requirement 
is set forth in section 1010 of the Act--``Interest Penalties for Late 
Payment of Interim Payments Due Under Government Service Contracts.''
    Under section 1010(a), ``an agency acquiring services from a 
business concern under a cost reimbursement contract requiring interim 
payments who does not pay the concern a required interim payment by the 
date that is 30 days after the date of the receipt of a proper invoice 
shall pay an interest penalty to the concern on the amount of the 
payment due.'' Interest is to be computed as provided in the Prompt 
Payment Act (PPA, 31 U.S.C. 3901, 3902(a)). Section 1010(b) directs OMB 
to ``prescribe regulations to carry out this section,'' which shall be 
prescribed as part of OMB's regulations implementing the PPA. (OMB's 
PPA regulations may be found at 5 CFR Part 1315.) Section 1010(c) 
states that ``[t]he provisions of chapter 39 of title 31, United States 
Code [i.e., the PPA], shall apply to this section in the same manner as 
if this section were enacted as part of such chapter.'' Finally, 
section 1010(d) provides that ``Subsection (a) shall take effect on 
December 15, 2000. No interest shall accrue by reason of that 
subsection for any period before that date.''
    On December 15, 2000, OMB published an interim final rule to 
implement section 1010 (65 FR 78403). The rule requires agencies to pay 
an interest penalty whenever they make an interim payment under a cost-
reimbursement contract for services more than 30 days after the agency 
receives a proper invoice for payment from the contractor. The rule 
mandated application of the requirements of section 1010 to contracts 
awarded on or after December 15, 2000. The rule authorized agencies, at 
their discretion, to apply these requirements to interim payment 
requests received under cost-reimbursement service contracts awarded 
prior to December 15, 2000.
    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council issued an interim rule amending the Federal 
Acquisition Regulation (FAR) to implement the changes in OMB's PPA 
regulations. See 66 FR 53485 (October 22, 2001). The FAR amendments add 
new policy and a contract clause to provide for penalty payments under 
covered contracts.
    Three public comments were received in response to OMB's interim 
final rule. The comments focused on the rule's applicability. Each of 
the commenters stated that the rule failed to fully implement section 
1010 because it did not require application of its requirements to 
interim payment requests received under cost-reimbursement service 
contracts awarded prior to December 15, 2000. The commenters asserted 
that Congress intended for all cost-reimbursement contracts for 
services requiring interim payment to be covered by the requirements of 
section 1010.
    Subsequent to receipt of these public comments, Congress took 
action to clarify the application of section 1010, effectively removing 
the discretion that OMB afforded in its interim rule regarding 
application of section 1010 to contracts awarded prior to December 15, 
2000. In particular, section 1007 of the National Defense Authorization 
Act for Fiscal Year 2002, Public Law 107-107, 115 Stat. 1012, enacted 
on December 28, 2001, states that the requirements of section 1010 
apply with respect to ``interim payment that are due on or after 
[December 15, 2000] under contracts entered into before, on, or after 
that date.'' Accordingly, this final rule amends section 1315.20 of 
OMB's PPA's regulations, which address the application of section 1010, 
to incorporate the clarification made by section 1007. With the 
exception of the amendments made to section 1315.20, this final rule 
adopts the interim final rule without change.
    Agencies are authorized to issue modifications to contracts, as 
necessary,

[[Page 79516]]

to conform them to the revisions made by this final rule. However, as 
required by Section 1010(d), no interest penalty shall accrue under 
this rule for any delay in payment that occurred prior to December 15, 
2000.
    Neither section 1010 nor this final rule is intended to modify 
current agency practices or policies regarding dates for payment for 
interim payments on cost-reimbursement service contracts, other than to 
require--in accordance with section 1010(a)--that PPA interest 
penalties be paid on interim payments that are made more than 30 days 
after the agency receives a proper invoice. In particular, section 1010 
leaves unaffected existing agency policies that call for these interim 
payments to be made well in advance of 30 days. For example, it is the 
policy of the Department of Defense to generally pay contractors 14 
days or less after being billed for reimbursements on cost-
reimbursement contracts. See subpart 232.906 of the Department of 
Defense Supplement to the Federal Acquisition Regulation (DFARS), 48 
CFR Chapter 2.

II. 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 section 
1010 of the National Defense Authorization Act for Fiscal Year 2001, as 
amended by section 1007 of the National Defense Authorization Act for 
Fiscal Year 2002. Section 1010 requires Federal agencies to pay an 
interest penalty whenever they make interim payments on cost-
reimbursement service contracts more than 30 days after they receive a 
proper invoice. For purposes of the Unfunded Mandates Reform Act of 
1995 (Public Law 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).

III. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply to this final rule 
because the rule's changes do not impose new recordkeeping requirements 
or collections of information from offerors, contractors, or members of 
the public that require approval under 44 U.S.C. 3501, et seq. The 
information a contractor must submit in order to receive an interim 
payment under a cost-reimbursement service contract is addressed at 
section 1315.9(b)(2) of the revised PPA regulations. Section 
1315.9(b)(2) states that an interim payment request must correctly 
include all the information required by the contract or by agency 
procedures.

List of Subjects in 5 CFR Part 1315

    Administrative practice and procedure, Government contracts, 
Penalties, Reporting and recordkeeping requirements.

Mitchell E. Daniels, Jr.,
Director.

Authority and Issuance

    For reasons set out in the preamble, the interim rule amending 5 
CFR Part 1315 published at 65 FR 78403, December 15, 2000, is adopted 
as final with the following change:

PART 1315--PROMPT PAYMENT

    1. The authority citation for part 1315 is revised to read as 
follows:

    Authority: 31 U.S.C. chapter 39; Section 1010 of Public Law 106-
398, 114 Stat. 1654; Section 1007 of Public Law 107-107, 115 Stat. 
1012.

    2. Section 1315.20 is revised to read as follows:


Sec.  1315.20  Application of Section 1010 of the National Defense 
Authorization Act for Fiscal Year 2001.

    Section 1010 of the National Defense Authorization Act for Fiscal 
Year 2001 (Public Law 106-398, 114 Stat. 1654), as amended by section 
1007 of the National Defense Authorization Act for Fiscal Year 2002 
(Public Law 107-107, 115 Stat. 1012), requires an agency to pay an 
interest penalty whenever the agency makes an interim payment under a 
cost-reimbursement contract for services more than 30 days after the 
date the agency receives a proper invoice for payment from the 
contractor. This part implements Section 1010, as amended, and is 
applicable in the following manner:
    (a) This part shall apply to all interim payment requests that are 
due on or after December 15, 2000 under cost-reimbursement service 
contracts awarded before, on, or after December 15, 2000.
    (b) No interest penalty shall accrue under this part for any delay 
in payment that occurred prior to December 15, 2000.
    (c) Agencies are authorized to issue modifications to contracts, as 
necessary, to conform them to the provisions in this part implementing 
Section 1010, as amended.

[FR Doc. 02-32821 Filed 12-27-02; 8:45 am]
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