[Federal Register Volume 62, Number 51 (Monday, March 17, 1997)]
[Rules and Regulations]
[Pages 12705-12718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-6319]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 32 and 52

[FAC 90-46; FAR Case 91-091; Item X]
RIN 9000-AF61


Federal Acquisition Regulation; Prompt Payment

AGENCIES: Department of Defense (DOD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council have agreed on a final rule amending 
the Federal Acquisition Regulation (FAR) to incorporate changes 
required by the Prompt Payment Act Amendments of 1988. This regulatory 
action was not subject to Office of Management and Budget (OMB) review 
under Executive Order 12866, dated September 30, 1993, and is not a 
major rule under 5 U.S.C. 804.

EFFECTIVE DATE: May 16, 1997.

FOR FURTHER INFORMATION CONTACT: Mr. Jeremy Olson at (202) 501-3221 in 
reference to this FAR case. For general information, contact the FAR 
Secretariat, Room 4035, GS Building, Washington, DC 20405, (202) 501-
4755. Please cite FAC 90-46, FAR case 91-091.

SUPPLEMENTARY INFORMATION:

A. Background

    Federal Acquisition Circular (FAC) 84-45 contained a final rule 
which was published in the Federal Register at 54 FR 13332, March 31, 
1989, to incorporate changes required by the Prompt Payment Act 
Amendments of 1988 (Public Law 100-496). OMB implemented the statutory 
requirements by revising OMB Circular A-125, Prompt Payment. The OMB 
Circular was published as a final rule in the Federal Register on 
December 21, 1989, and became effective 30 days after publication. 
OMB's final guidance differed somewhat from earlier proposed coverage 
which served as the basis for the FAR changes published in FAC 84-45. 
This final rule amends the FAR to reflect the changes in the OMB 
circular.
    A proposed FAR rule to implement the guidance published in OMB 
Circular A-125 (Revised) was published in the Federal Register at 59 FR 
23776, May 6, 1994. Ten sources submitted public comments. These 
comments were considered in developing the final rule.

B. Regulatory Flexibility Act

    A Final Regulatory Flexibility Analysis (FRFA) has been performed. 
A copy of the FRFA may be obtained from the FAR Secretariat. The FRFA 
is summarized as follows:

    The need for, and the objectives of, the final rule, are to 
implement changes made in Office of Management and Budget (OMB) 
Circular A-125 (Revised), dated December 12, 1989, to comply with 
the Prompt Payment Act Amendments of 1988 (Public Law 100-496). The 
Prompt Payment Act, as amended, requires Executive departments and 
agencies to make payments on time, to pay interest penalties when 
payments are late, and to take discounts only when payments are made 
on or before the discount date. We did not receive any public 
comments in response to the Initial Regulatory Flexibility Analysis. 
This rule will apply to all small entities that are awarded 
Government contracts, except contracts with payment terms and late 
payment penalties established by other Governmental authority (e.g., 
tariffs). The rule will also apply to all small entities that enter 
into construction contracts with contractors holding prime Federal 
construction contracts. To date, no supporting data has been 
collected; therefore, there is no available estimate of the number 
of small businesses that will be subject to the rule. The Federal 
Procurement Data System Federal Procurement Report for Fiscal Year 
(FY) 1995 states that 203,241 awards and contract modifications 
valued at more than $25,000 were placed with small entities in FY 
1995. However, information is not available as to the number of 
small entities that received these awards, the number of small 
entities that receive awards not subject to this rule, or the number 
of small entities that enter into construction contracts with 
contractors holding prime Federal construction contracts. The 
corresponding information for actions valued at $25,000 or less is 
also not available. There are no significant alternatives that could 
accomplish the objectives of this rule.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose recordkeeping or information collection 
requirements, or collections of information from offerors, contractors, 
or members of the public which require the approval of the Office of 
Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 32 and 52

    Government procurement.


[[Page 12706]]


    Dated: March 7, 1997.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, 48 CFR Parts 32 and 52 are amended as set forth below:
    1. The authority citation for 48 CFR Parts 32 and 52 continues to 
read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 32--CONTRACT FINANCING

    2. Section 32.102 is amended by revising paragraph (d) to read as 
follows:


32.102  Description of contract financing methods.

* * * * *
    (d) Partial payments for accepted supplies and services that are 
only a part of the contract requirements are authorized under 41 U.S.C. 
255 and 10 U.S.C. 2307. Office of Management and Budget Circular A-125, 
Prompt Payment, requires agencies to pay for partial delivery of 
supplies or partial performance of services unless specifically 
prohibited by the contract. Although partial payments generally are 
treated as a method of payment and not as a method of contract 
financing, using partial payments can assist contractors to participate 
in Government contracts without, or with minimal, contract financing. 
When appropriate, contract statements of work and pricing arrangements 
shall be designed to permit acceptance and payment for discrete 
portions of the work, as soon as accepted (but see 32.903(f)(2)).
* * * * *
    3. Section 32.902 is amended by revising the definitions of 
``Day'', ``Designated billing office'', and ``Discount for prompt 
payment''; and by adding a definition of ``Invoice'' to read as 
follows:


32.902  Definitions.

* * * * *
    Day, as used in this subpart, means calendar day, including 
weekends and holidays, unless otherwise indicated. (However, see 
32.903(e)(3) concerning payments due on Saturdays, Sundays, and legal 
holidays.)
    Designated billing office, as used in this subpart, means the 
office or person (governmental or nongovernmental) designated in the 
contract where the contractor first submits invoices and contract 
financing requests. This might be the Government disbursing office, 
contract administration office, office accepting the supplies delivered 
or services performed by the contractor, contract audit office, or a 
nongovernmental agent. In some cases, different offices might be 
designated to receive invoices and contract financing requests.
* * * * *
    Discount for prompt payment means an invoice payment reduction 
voluntarily offered by the contractor, in conjunction with the clause 
at 52.232-8, Discounts for Prompt Payment, if payment is made by the 
Government prior to the due date. The due date is calculated from the 
date of the contractor's invoice. If the contractor has not placed a 
date on the invoice, the due date is calculated from the date the 
designated billing office receives a proper invoice, provided the 
agency annotates such invoice with the date of receipt at the time of 
receipt. When the discount date falls on a Saturday, Sunday, or legal 
holiday when Federal Government offices are closed and Government 
business is not expected to be conducted, payment may be made on the 
following business day and a discount may be taken.
* * * * *
    Invoice means a contractor's bill or written request for payment 
under the contract for supplies delivered or services performed.
* * * * *
    4. Sections 32.903, 32.904, and 32.905 are revised to read as 
follows:


32.903  Policy.

    (a) All solicitations and contracts subject to this subpart shall 
specify payment procedures, payment due dates, and interest penalties 
for late invoice payment.
    (b) The Government shall not make invoice and contract financing 
payments earlier than 7 days prior to the due dates specified in the 
contract unless the agency head, or designee, determines to make 
earlier payment on a case-by-case basis (see 32.908 for required 
clauses).
    (c) Payment will be based on receipt of a proper invoice or 
contract financing request and satisfactory contract performance.
    (d) Agency procedures shall ensure that, when specifying due dates, 
full consideration is given to the time reasonably required by 
Government officials to fulfill their administrative responsibilities 
under the contract.
    (e)(1) Checks shall be mailed on the same day they are dated.
    (2) For payments made by electronic funds transfer, the date 
specified by the Government (see 32.902 for definition of ``specified 
payment date'') for settlement of the payment at a Federal Reserve Bank 
shall be on or before the established due date.
    (3) When the due date falls on a Saturday, Sunday, or legal holiday 
when Federal Government offices are closed and Government business is 
not expected to be conducted, payment may be made on the following 
business day without incurring a late payment interest penalty.
    (f)(1) Contracting officers shall, where the nature of the work 
permits, write contract statements of work and pricing arrangements 
that allow contractors to deliver, and receive invoice payments for, 
discrete portions of the work as soon as completed and found acceptable 
by the Government (see 32.102(d)).
    (2) Unless specifically prohibited by the contract, the contractor 
is entitled to payment for accepted partial deliveries of supplies or 
partial performance of services that comply with all applicable 
contract requirements and for which prices can be calculated from the 
contract terms.
    (3) Under some types of contracts, such as many cost-reimbursement 
contracts, partial payments cannot be made because the invoice price 
cannot be determined until after settlement of total contract costs and 
other contract-wide final arrangements. However, interim payments or 
contract financing payments may be made in accordance with the terms of 
the contract.
    (g) Discounts for prompt payment offered by the contractor shall be 
taken only when payments are made within the discount period specified 
by the contractor.
    (h) Agencies shall pay an interest penalty, without request from 
the contractor, for late invoice payments or improperly taken discounts 
for prompt payment. The temporary unavailability of funds to make a 
timely payment does not relieve an agency from the obligation to pay 
interest penalties or the additional interest penalties discussed in 
paragraph (i) of this section and paragraph (g) of 32.907-1.
    (i) For contracts awarded after October 1, 1989, if the interest 
penalty is not paid within 10 days after it is due and the contractor 
makes a written demand for payment within 40 days after payment of the 
principal amount due, agencies shall pay an additional penalty amount, 
which shall be calculated in accordance with 32.907-1(g).
    (j) If the contractor has assigned a contractor identifier (such as 
an invoice number) to an invoice or financing request, each payment or 
remittance advice shall use the contractor identifier (in addition to 
any Government or contract information) in describing any payment made.

[[Page 12707]]

    (k) For payments made by electronic funds transfer, the specified 
payment date, included in the Government's order to pay the contractor, 
is the date of payment for prompt payment purposes, whether or not the 
Federal Reserve System actually makes the payment by that date, and 
whether or not the contractor's financial agent credits the 
contractor's account on that date. However, a specified payment date 
must be a valid date under the rules of the Federal Reserve System. For 
example, if the Federal Reserve System requires 2 days' notice before a 
specified payment date to process a transaction, release of a payment 
transaction instruction to the Federal Reserve Bank 1 day before the 
specified payment date could not constitute a valid date under the 
rules of the Federal Reserve System.


32.904  Responsibilities.

    (a) Agency heads--
    (1) Shall establish the policies and procedures necessary to 
implement this subpart;
    (2) May prescribe additional standards for establishing due dates 
on invoice payments (see 32.905) and contract financing payments (see 
32.906) necessary to support agency programs and foster prompt payment 
to contractors;
    (3) May adopt different payment procedures in order to accommodate 
unique circumstances, provided that such procedures are consistent with 
the policies set forth in this subpart; and
    (4) Shall inform contractors of points of contact within their 
cognizant payment offices to enable contractors to obtain status of 
invoices.
    (b) Contracting officers, in drafting solicitations and contracts, 
shall identify for each contract line item number, subline item number, 
or exhibit line item number--
    (1) Which of the applicable Prompt Payment clauses applies to each 
item when the solicitation or contract contains items that will be 
subject to different payment terms; and
    (2) The applicable Prompt Payment food category (e.g., which item 
numbers are meat or meat food products, which are perishable 
agricultural commodities), when the solicitation or contract contains 
multiple payment terms for various classes of foods and edible 
products.


32.905  Invoice payments.

    (a) General. Except as prescribed in paragraphs (b), (c), and (d) 
of this section, the due date for making an invoice payment by the 
designated payment office shall be as follows:
    (1) The 30<SUP>th day after the designated billing office has 
received a proper invoice from the contractor (except as provided in 
paragraph (a)(2) of this section); or the 30<SUP>th day after 
Government acceptance of supplies delivered or services performed by 
the contractor, whichever is later.
    (i) On a final invoice where the payment amount is subject to 
contract settlement actions, acceptance shall be deemed to have 
occurred on the effective date of the contract settlement.
    (ii) For the sole purpose of computing an interest penalty that 
might be due the contractor, Government acceptance shall be deemed to 
have occurred constructively on the 7<SUP>th day after the contractor 
has delivered supplies or performed services in accordance with the 
terms and conditions of the contract, unless there is a disagreement 
over quantity, quality, or contractor compliance with a contract 
requirement. In the event that actual acceptance occurs within the 
constructive acceptance period, the determination of an interest 
penalty shall be based on the actual date of acceptance. The 
constructive acceptance requirement does not, however, compel 
Government officials to accept supplies or services, perform contract 
administration functions, or make payment prior to fulfilling their 
responsibilities. Except in the case of a contract for the purchase of 
a commercial item as defined in 2.101, including a brand-name 
commercial item for authorized resale (e.g., commissary items), the 
contracting officer may specify a longer period for constructive 
acceptance in the solicitation and resulting contract, if required to 
afford the Government a reasonable opportunity to inspect and test the 
supplies furnished or to evaluate the services performed. The contract 
file shall indicate the justification for extending the constructive 
acceptance period beyond 7 days. Extended acceptance periods shall not 
be a routine agency practice but shall be used only when necessary to 
permit proper Government inspection and testing of the supplies 
delivered or services performed.
    (iii) If the contract does not require submission of an invoice for 
payment (e.g., periodic lease payments), the due date will be as 
specified in the contract.
    (2) If the designated billing office fails to annotate the invoice 
with the actual date of receipt at the time of receipt, the invoice 
payment due date shall be the 30<SUP>th day after the date of the 
contractor's invoice, provided a proper invoice is received and there 
is no disagreement over quantity, quality, or contractor compliance 
with contract requirements.
    (b) Architect-engineer contracts. The due date for making payments 
on contracts that contain the clause at 52.232-10, Payments Under 
Fixed-Price Architect-Engineer Contracts, shall be as follows:
    (1) The due date for work or services completed by the contractor 
shall be the later of the following two events:
    (i) The 30<SUP>th day after the designated billing office has 
received a proper invoice from the contractor.
    (ii) The 30<SUP>th day after Government acceptance of the work or 
services completed by the contractor. On a final invoice where the 
payment amount is subject to contract settlement actions (e.g., release 
of claims), acceptance shall be deemed to have occurred on the 
effective date of the settlement. For the sole purpose of computing an 
interest penalty that might be due the contractor, Government 
acceptance shall be deemed to have occurred constructively on the 
7<SUP>th day after the contractor has completed the work or services in 
accordance with the terms and conditions of the contract (see also 
paragraph (b)(4) of this section). In the event that actual acceptance 
occurs within the constructive acceptance period, the determination of 
an interest penalty shall be based on the actual date of acceptance.
    (2) The due date for progress payments shall be the 30<SUP>th day 
after Government approval of contractor estimates of work or services 
accomplished. For the sole purpose of computing an interest penalty 
that might be due the contractor, Government approval shall be deemed 
to have occurred constructively on the 7th day after contractor 
estimates have been received by the designated billing office (see also 
paragraph (b)(4) of this section). In the event that actual approval 
occurs within the constructive approval period, the determination of an 
interest penalty shall be based on the actual date of approval.
    (3) If the designated billing office fails to annotate the invoice 
or payment request with the actual date of receipt at the time of 
receipt, the payment due date shall be the 30<SUP>th day after the date 
of the contractor's invoice or payment request, provided a proper 
invoice or payment request is received and there is no disagreement 
over quantity, quality, or contractor compliance with contract 
requirements.
    (4) The constructive acceptance and constructive approval 
requirements described in paragraphs (b)(1) and (b)(2) of this section 
are conditioned upon receipt of a proper payment request and no 
disagreement over quantity, quality, contractor compliance with 
contract

[[Page 12708]]

requirements, or the requested progress payment amount. These 
requirements do not compel Government officials to accept work or 
services, approve contractor estimates, perform contract administration 
functions, or make payment prior to fulfilling their responsibilities. 
The contracting officer may specify a longer period for constructive 
acceptance or constructive approval, if required to afford the 
Government a reasonable opportunity to inspect and test the supplies 
furnished or to evaluate the services performed.
    (c) Construction contracts. (1) The due date for making payments on 
construction contracts shall be as follows:
    (i) The due date for making progress payments based on contracting 
officer approval of the estimated amount and value of work or services 
performed, including payments for reaching milestones in any project, 
shall be 14 days after receipt of a proper payment request by the 
designated billing office. If the designated billing office fails to 
annotate the payment request with the actual date of receipt at the 
time of receipt, the payment due date shall be deemed to be the 
14<SUP>th day after the date of the contractor's payment request, 
provided a proper payment request is received and there is no 
disagreement over quantity, quality, or contractor compliance with 
contract requirements. The contracting officer may specify a longer 
period in the solicitation and resulting contract if required to afford 
the Government a reasonable opportunity to adequately inspect the work 
and to determine the adequacy of the contractor's performance under the 
contract. The contract file shall indicate the justification for 
extending the due date beyond 14 days. The contracting officer or a 
representative shall not approve progress payment requests unless the 
certification and substantiation of amounts requested are provided as 
required by the clause at 52.232-5, Payments Under Fixed-Price 
Construction Contracts.
    (ii) The due date for payment of any amounts retained by the 
contracting officer in accordance with the clause at 52.232-5, Payments 
Under Fixed-Price Construction Contracts, shall be as specified in the 
contract or, if not specified, 30 days after approval by the 
contracting officer for release to the contractor. This release of 
retained amounts shall be based on the contracting officer's 
determination that satisfactory progress has been made.
    (iii) The due date for final payments based on completion and 
acceptance of all work (including any retained amounts), and payments 
for partial deliveries that have been accepted by the Government (e.g., 
each separate building, public work, or other division of the contract 
for which the price is stated separately in the contract) shall be as 
follows:
    (A) Either the 30<SUP>th day after receipt by the designated 
billing office of a proper invoice from the contractor, or the 
30<SUP>th day after Government acceptance of the work or services 
completed by the contractor, whichever is later. If the designated 
billing office fails to annotate the invoice with the actual date of 
receipt at the time of receipt, the invoice payment due date shall be 
deemed to be the 30<SUP>th day after the date of the contractor's 
invoice, provided a proper invoice is received and there is no 
disagreement over quantity, quality, or contractor compliance with 
contract requirements.
    (B) On a final invoice where the payment amount is subject to 
contract settlement actions (e.g., release of contractor claims), 
acceptance shall be deemed to have occurred on the effective date of 
the contract settlement.
    (iv) For the sole purpose of computing an interest penalty that 
might be due the contractor for payments described in paragraph 
(c)(1)(iii)(A) of this section, Government acceptance or approval shall 
be deemed to have occurred constructively on the 7<SUP>th day after the 
contractor has completed the work or services in accordance with the 
terms and conditions of the contract (see also paragraph (c)(1)(v) of 
this section). In the event that actual acceptance occurs within the 
constructive acceptance period, the determination of an interest 
penalty shall be based on the actual date of acceptance.
    (v) The constructive acceptance and constructive approval 
requirements described in paragraph (c)(1)(iv) of this section are 
conditioned upon receipt of a proper payment request and no 
disagreement over quantity, quality, contractor compliance with 
contract requirements, or the requested amount. These requirements do 
not compel Government officials to accept work or services, approve 
contractor estimates, perform contract administration functions, or 
make payment prior to fulfilling their responsibilities. The 
contracting officer may specify a longer period for constructive 
acceptance or constructive approval in the solicitation and resulting 
contract, if required to afford the Government a reasonable opportunity 
to adequately inspect the work and to determine the adequacy of the 
contractor's performance under the contract.
    (2) Construction contracts contain special provisions concerning 
contractor payments to subcontractors, along with special contractor 
certification requirements. The Office of Management and Budget has 
determined that these certifications are not to be construed as final 
acceptance of the subcontractor's performance. The certification in 
52.232-5(c) implements this determination; however, certificates are 
still acceptable if the contractor deletes paragraph (c)(4) of 52.232-5 
from the certificate.
    (3)(i) Paragraph (d) of the clause at 52.232-5, Payments under 
Fixed-Price Construction Contracts, and paragraph (e)(6) of the clause 
at 52.232-27, Prompt Payment for Construction Contracts, provide for 
the contractor to pay interest on unearned amounts in certain 
circumstances. This interest shall be recovered from subsequent 
payments to the contractor. Therefore, normally no demand for payment 
shall be made. Contracting officers shall--
    (A) Compute the amount in accordance with the clause;
    (B) Provide the contractor with a final decision; and
    (C) Notify the payment office of the amount to be withheld.
    (ii) The payment office shall be responsible for making the 
deduction of interest. Amounts collected in accordance with these 
provisions shall revert to the Treasury of the United States.
    (d) Food and specified items. Due dates for payments of contractor 
invoices for meat, meat food products, or fish; perishable agricultural 
commodities; and dairy products, edible fats or oils, and food products 
prepared from edible fats or oils are as follows:
    (1) For meat or meat food products, as defined in section 2(a)(3) 
of the Packers and Stockyard Act of 1921 (7 U.S.C. 182(3)), and as 
further defined in Public Law 98-181, including any edible fresh or 
frozen poultry meat, any perishable poultry meat food product, fresh 
eggs, and any perishable egg product, as close as possible to, but not 
later than, the 7<SUP>th day after product delivery.
    (2) For fresh or frozen fish, as defined in section 204(3) of the 
Fish and Seafood Promotion Act of 1986 (16 U.S.C. 4003(3)), as close as 
possible to, but not later than, the 7<SUP>th day after product 
delivery.
    (3) For perishable agricultural commodities, as defined in section 
1(4) of the Perishable Agricultural Commodities Act of 1930 (7 U.S.C. 
499a(4)), as close as possible to, but not later than, the 10<SUP>th 
day after product delivery, unless another date is specified in the 
contract.
    (4) For dairy products (as defined in section 111(e) of the Dairy 
Production

[[Page 12709]]

Stabilization Act of 1983 (7 U.S.C. 4502(e)), edible fats or oils, and 
food products prepared from edible fats or oils, as close as possible 
to, but not later than, the 10<SUP>th day after the date on which a 
proper invoice has been received. Liquid milk, cheese, certain 
processed cheese products, butter, yogurt, ice cream, mayonnaise, salad 
dressings, and other similar products, fall within this classification. 
Nothing in the Act limits this classification to refrigerated products. 
When questions arise regarding the proper classification of a specific 
product, prevailing industry practices should be followed in specifying 
a contract payment due date. The burden of proof that a classification 
of a specific product is, in fact, prevailing industry practice is upon 
the contractor making the representation.
    (e) Content of invoices. A proper invoice must include the items 
listed in paragraphs (e)(1) through (e)(8) of this section. If the 
invoice does not comply with these requirements, it shall be returned 
within 7 days after the date the designated billing office received the 
invoice (3 days on contracts for meat, meat food products, or fish; 5 
days on contracts for perishable agricultural commodities, dairy 
products, edible fats or oils, and food products prepared from edible 
fats or oils), with a statement of the reasons why it is not a proper 
invoice. If such notice is not timely, then an adjusted due date for 
the purpose of determining an interest penalty, if any, will be 
established in accordance with 32.907-1(b):
    (1) Name and address of the contractor.
    (2) Invoice date. (Contractors are encouraged to date invoices as 
close as possible to the date of mailing or transmission.)
    (3) Contract number or other authorization for supplies delivered 
or services performed (including order number and contract line item 
number).
    (4) Description, quantity, unit of measure, unit price, and 
extended price of supplies delivered or services performed.
    (5) Shipping and payment terms (e.g., shipment number and date of 
shipment, prompt payment discount terms). Bill of lading number and 
weight of shipment will be shown for shipments on Government bills of 
lading.
    (6) Name and address of contractor official to whom payment is to 
be sent (must be the same as that in the contract or in a proper notice 
of assignment).
    (7) Name (where practicable), title, phone number, and mailing 
address of person to be notified in the event of a defective invoice.
    (8) Any other information or documentation required by the contract 
(such as evidence of shipment).
    (9) While not required, contractors are strongly encouraged to 
assign an identification number to each invoice.
    (f) Authorization to pay. All invoice payments shall be supported 
by a receiving report or any other Government documentation authorizing 
payment. The agency receiving official should forward the receiving 
report or other Government documentation to the designated payment 
office by the 5<SUP>th working day after Government acceptance or 
approval, unless other arrangements have been made. This period of time 
does not extend the due dates prescribed in this section. Acceptance 
should be completed as expeditiously as possible. The receiving report 
or other Government documentation authorizing payment shall, as a 
minimum, include the following:
    (1) Contract number or other authorization for supplies delivered 
or services performed.
    (2) Description of supplies delivered or services performed.
    (3) Quantities of supplies received and accepted or services 
performed, if applicable.
    (4) Date supplies delivered or services performed.
    (5) Date supplies or services were accepted by the designated 
Government official (or progress payment request was approved if being 
made under the clause at 52.232-5, Payments Under Fixed-Price 
Construction Contracts, or the clause at 52.232-10, Payments Under 
Fixed-Price Architect-Engineer Contracts).
    (6) Signature, or when permitted by agency regulations, electronic 
equivalent, printed name, title, mailing address, and telephone number 
of the designated Government official responsible for acceptance or 
approval functions.
    (7) If the contract provides for the use of Government certified 
invoices in lieu of a separate receiving report, the Government 
certified invoice also must contain the information described in 
paragraphs (f)(1) through (f)(6) of this section.
    (g) Discounts. When a discount for prompt payment is to be taken, 
payment will be made as close as possible to, but not later than, the 
end of the discount period. Payment terms are specified in the clause 
at 52.232-8, Discounts for Prompt Payment.
    (h) Billing office. The designated billing office shall immediately 
annotate each invoice with the actual date it receives the invoice.
    (i) Payment office. The designated payment office shall annotate 
each invoice and receiving report with the date a proper invoice or 
receiving report was received by the designated payment office.
    (j) Multiple payment rates. Contractors may be encouraged, but 
cannot be required, to submit separate invoices for products with 
different payment due dates under the same contract or order. When an 
invoice is received that contains items with different payment periods 
(a mixed invoice), the payment office shall comply with all contractual 
and statutory payment provisions. In dealing with mixed invoices the 
payment office may, subject to agency policy--
    (1) Pay all items at the later of the due dates, provided 
applicable interest penalties also are paid;
    (2) Pay all items at the earlier of the due dates; or
    (3) Split invoice payments, making payment by the due date 
applicable to each payment class.
    5. Section 32.906 is amended by revising the first sentence of 
paragraph (a) to read as follows:


32.906  Contract financing payments.

    (a) Unless otherwise prescribed in policies and procedures issued 
by the agency head, or designee, the due date for making contract 
financing payments by the designated payment office will be the 
30<SUP>th day after the designated billing office has received a proper 
request. * * *
* * * * *
    6. Section 32.907-1 is amended by revising paragraphs (a), (b), 
(d), and (g) to read as follows:


32.907-1  Late invoice payment.

    (a) An interest penalty shall be paid automatically by the 
designated payment office, without request from the contractor, when 
all of the following conditions, if applicable, have been met:
    (1) A proper invoice was received by the designated billing office.
    (2) A receiving report or other Government documentation 
authorizing payment was processed, and there was no disagreement over 
quantity, quality, or contractor compliance with any contract 
requirement.
    (3) In the case of a final invoice, the payment amount is not 
subject to further contract settlement actions between the Government 
and the contractor.
    (4) The designated payment office paid the contractor after the due 
date.
    (b) The interest penalty computation shall not include--
    (1) The time taken by the Government to notify the contractor of a 
defective

[[Page 12710]]

invoice, unless it exceeds the periods prescribed in 32.905(e);
    (2) The time taken by the contractor to correct the invoice. If the 
designated billing office failed to notify the contractor of a 
defective invoice within the periods prescribed in 32.905(e), the due 
date on the corrected invoice will be adjusted by subtracting from such 
date the number of days taken beyond the prescribed notification of 
defects period. Any interest penalty owed the contractor will be based 
on this adjusted due date; and
    (3) The period between the date of an attempted electronic funds 
transfer and the date the contractor furnishes correct electronic funds 
transfer data; provided the Government notifies the contractor of the 
defective data within 7 days after the Government receives notice that 
the transfer could not be completed because of defective data.
* * * * *
    (d) The interest penalty shall be at the rate established by the 
Secretary of the Treasury under section 12 of the Contract Disputes Act 
of 1978 (41 U.S.C. 611) that 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 in effect on the day 
after the due date shall remain fixed during the period for which an 
interest penalty is calculated. This rate is referred to as the 
``Renegotiation Board Interest Rate,'' and it is published in the 
Federal Register semiannually on or about January 1 and July 1. 
Information concerning this interest rate can be obtained from the 
Department of the Treasury, Financial Management Service, Washington, 
DC 20227, telephone (202) 874-6995. Interest calculations shall be 
based upon a 360-day year. The interest penalty shall accrue daily on 
the invoice principal payment amount approved by the Government until 
the payment date of such approved principal amount; and will be 
compounded in 30-day increments inclusive from the first day after the 
due date through the payment date. That is, interest accrued at the end 
of any 30-day period will be added to the approved invoice principal 
payment amount and will be subject to interest penalties if not paid in 
the succeeding 30-day period. The interest penalty amount, the interest 
rate, and the period for which the interest penalty was computed, will 
be stated separately by the designated payment office on the check, in 
accompanying remittance advice, or, for an electronic funds transfer, 
by an appropriate electronic or other remittance advice. Adjustments 
will be made by the designated payment office for errors in calculating 
interest penalties.
* * * * *
    (g)(1) For contracts awarded on or after October 1, 1989, a penalty 
amount (calculated in accordance with subparagraph (g)(3) of this 
section) shall be paid, in addition to the interest penalty amount, 
only if the contractor--
    (i) Is owed an interest penalty of $1 or more;
    (ii) Is not paid the interest penalty within 10 days after the date 
the invoice amount is paid; and
    (iii) Makes a written demand to the designated payment office for 
additional penalty payment in accordance with paragraph (g)(2) of this 
section, postmarked not later than 40 days after the date the invoice 
amount is paid.
    (2)(i) Contractors shall support written demands for additional 
penalty payments with the following data. No additional data shall be 
required. Contractors shall--
    (A) Specifically assert that late payment interest is due under a 
specific invoice, and request payment of all overdue late payment 
interest penalty and such additional penalty as may be required;
    (B) Attach a copy of the invoice on which the unpaid late payment 
interest was due; and
    (C) State that payment of the principal has been received, 
including the date of receipt.
    (ii) Demands must be postmarked on or before the 40<SUP>th day 
after payment was made, except that--
    (A) If the postmark is illegible or nonexistent, the demand must 
have been received and annotated with the date of receipt by the 
designated payment office on or before the 40<SUP>th day after payment 
was made; or
    (B) If the postmark is illegible or nonexistent and the designated 
payment office fails to make the required annotation, the demand's 
validity will be determined by the date the contractor has placed on 
the demand; provided such date is no later than the 40th day after 
payment was made.
    (3)(i) The additional penalty shall be equal to 100 percent of any 
original late payment interest penalty that is due on or after January 
22, 1990, except--
    (A) For additional penalties due on or before January 22, 1992, 
such penalties shall not exceed $2,500;
    (B) After January 22, 1992, the additional penalty shall not exceed 
$5,000;
    (C) The additional penalty shall never be less than $25; and
    (D) No additional penalty is owed if the amount of the underlying 
interest penalty is less than $1.
    (ii) If the interest penalty ceases to accrue in accordance with 
the limits stated in paragraphs (e)(1) and (e)(2) of this section, the 
amount of the additional penalty shall be calculated on the amount of 
interest penalty that would have accrued in the absence of these 
limits, but shall not exceed the limits specified in paragraph 
(g)(3)(i) of this subsection.
    (iii) For determining the maximum and minimum additional penalties, 
the test shall be the interest penalty due on each separate payment 
made for each separate contract. The maximum and minimum additional 
penalty shall not be based upon individual invoices unless the invoices 
are paid separately. Where payments are consolidated for disbursing 
purposes, the maximum and minimum additional penalty determination 
shall be made separately for each contract therein.
    (iv) The additional penalty does not apply to payments regulated by 
other Government regulations (e.g., payments under utility contracts 
subject to tariffs and regulation).
    7. Section 32.908 is revised to read as follows:


Sec. 32.908  Contract clauses.

    (a) The contracting officer shall insert the clause at 52.232-26, 
Prompt Payment for Fixed-Price Architect-Engineer Contracts, in 
solicitations and contracts that contain the clause at 52.232-10, 
Payments Under Fixed-Price Architect-Engineer Contracts.
    (1) As authorized in 32.905(b)(4), the contracting officer may 
modify the date in paragraph (a)(4)(i) of the clause to specify a 
period longer than 7 days for constructive acceptance or constructive 
approval, if required to afford the Government a practicable 
opportunity to inspect and test the supplies furnished or evaluate the 
services performed.
    (2) If applicable, as authorized in 32.906(a) and only as permitted 
by agency policies and procedures, the contracting officer may insert 
in paragraph (b) of the clause a period shorter than 30 days (but not 
less than 7 days) for making contract financing payments.
    (b) The contracting officer shall insert the clause at 52.232-27, 
Prompt Payment for Construction Contracts, in all solicitations and 
contracts for construction (see part 36).
    (1) As authorized in 32.905(c)(1)(i), the contracting officer may 
modify the date in paragraph (a)(1)(i)(A) of the clause to specify a 
period longer than 14

[[Page 12711]]

days if required to afford the Government a reasonable opportunity to 
adequately inspect the work and to determine the adequacy of the 
Contractor's performance under the contract.
    (2) As authorized in 32.905(c)(1)(v), the contracting officer may 
modify the date in paragraph (a)(4)(i) of the clause to specify a 
period longer than 7 days for constructive acceptance or constructive 
approval if required to afford the Government a reasonable opportunity 
to inspect and test the supplies furnished or evaluate the services 
performed.
    (3) If applicable, as authorized in 32.906(a) and only as permitted 
by agency policies and procedures, the contracting officer may insert 
in paragraph (b) of the clause a period shorter than 30 days (but not 
less than 7 days) for making contract financing payments.
    (c) The contracting officer shall insert the clause at 52.232-25, 
Prompt Payment, in all other solicitations and contracts (including 
contracts at or below the simplified acquisition threshold), except 
where the clause at 52.212-4, Contract Terms and Conditions--Commercial 
Items, applies, and except as indicated in 32.901.
    (1) As authorized in 32.905(a)(1)(ii), the contracting officer may 
modify the date in paragraph (a)(5)(i) of the clause to specify a 
period longer than 7 days for constructive acceptance, if required to 
afford the Government a reasonable opportunity to inspect and test the 
supplies furnished or to evaluate the services performed, except in the 
case of a contract for the purchase of a commercial item as defined in 
2.101, including a brand-name commercial item for authorized resale 
(e.g., commissary items).
    (2) As authorized in 32.906(a) and only as permitted by agency 
policies and procedures, the contracting officer may insert in 
paragraph (b) of the clause a period shorter than 30 days (but not less 
than 7 days) for making contract financing payments.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    8. Section 52.212-4 is amended by revising the clause date and the 
undesignated paragraph following paragraph (g)(8) to read as follows:


52.212-4  Contract Terms and Conditions--Commercial Items.

* * * * *

CONTRACT TERMS AND CONDITIONS--COMMERCIAL ITEMS (MAY 1997)

* * * * *
    (g) * * *
    Invoices will be handled in accordance with the Prompt Payment 
Act (31 U.S.C. 3903) and Office of Management and Budget (OMB) 
Circular A-125, Prompt Payment. Contractors are encouraged to assign 
an identification number to each invoice.
* * * * *
    9. Section 52.232-5 is amended by-- (a) Revising the clause date, 
and paragraphs (a), (b), and (c);
    (b) By adding a paragraph heading at the beginning of the 
introductory text of paragraph (d) and revising paragraph (d)(2);
    (c) Adding paragraph headings to paragraph (e), the introductory 
text of paragraph (f), paragraph (g), and the introductory text of 
paragraph (h) and paragraph (i); and
    (d) Adding paragraph (j).
    The revised and added text reads as follows:


52.232-5  Payments under Fixed-Price Construction Contracts.

* * * * *

PAYMENTS UNDER FIXED-PRICE CONSTRUCTION CONTRACTS (MAY 1997)

     (a) Payment of price. The Government shall pay the Contractor 
the contract price as provided in this contract.
    (b) Progress payments. The Government shall make progress 
payments monthly as the work proceeds, or at more frequent intervals 
as determined by the Contracting Officer, on estimates of work 
accomplished which meets the standards of quality established under 
the contract, as approved by the Contracting Officer.
    (1) The Contractor's request for progress payments shall include 
the following substantiation:
    (i) An itemization of the amounts requested, related to the 
various elements of work required by the contract covered by the 
payment requested.
    (ii) A listing of the amount included for work performed by each 
subcontractor under the contract.
    (iii) A listing of the total amount of each subcontract under 
the contract.
    (iv) A listing of the amounts previously paid to each such 
subcontractor under the contract.
    (v) Additional supporting data in a form and detail required by 
the Contracting Officer.
    (2) In the preparation of estimates, the Contracting Officer may 
authorize material delivered on the site and preparatory work done 
to be taken into consideration. Material delivered to the Contractor 
at locations other than the site also may be taken into 
consideration if--
    (i) Consideration is specifically authorized by this contract; 
and
    (ii) The Contractor furnishes satisfactory evidence that it has 
acquired title to such material and that the material will be used 
to perform this contract.
    (c) Contractor certification. Along with each request for 
progress payments, the Contractor shall furnish the following 
certification, or payment shall not be made: (However, if the 
Contractor elects to delete paragraph (c)(4) from the certification, 
the certification is still acceptable.)
    I hereby certify, to the best of my knowledge and belief, that--
    (1) The amounts requested are only for performance in accordance 
with the specifications, terms, and conditions of the contract;
    (2) 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 this 
certification, in accordance with subcontract agreements and the 
requirements of chapter 39 of Title 31, United States Code;
    (3) This request for progress payments does not include any 
amounts which the prime contractor intends to withhold or retain 
from a subcontractor or supplier in accordance with the terms and 
conditions of the subcontract; and
    (4) This certification is not to be construed as final 
acceptance of a subcontractor's performance.

----------------------------------------------------------------------
(Name)
----------------------------------------------------------------------
(Title)
----------------------------------------------------------------------
(Date)

    (d) Refund of unearned amounts. * * *
* * * * *
    (2) Be obligated to pay the Government an amount (computed by 
the Contracting Officer in the manner provided in paragraph (j) of 
this clause) equal to interest on the unearned amount from the 8th 
day after the date of receipt of the unearned amount until--
* * * * *
    (e) Retainage. * * *
* * * * *
    (f) Title, liability, and reservation of rights. * * *
* * * * *
    (g) Reimbursement for bond premiums. * * *
* * * * *
    (h) Final payment. * * *
* * * * *
    (i) Limitation because of undefinitized work. * * *
* * * * *
    (j) Interest computation on unearned amounts. In accordance with 
31 U.S.C. 3903(c)(1), the amount payable under subparagraph (d)(2) 
of this clause shall be--
    (1) Computed at the rate of average bond equivalent rates of 91-
day Treasury bills auctioned at the most recent auction of such 
bills prior to the date the Contractor receives the unearned amount; 
and
    (2) Deducted from the next available payment to the Contractor.

(End of clause)

    11. Section 52.232-8 is amended by revising the clause date and 
paragraph (b) to read as follows:

[[Page 12712]]

52.232-8  Discounts for Prompt Payment.

* * * * *

DISCOUNTS FOR PROMPT PAYMENT (MAY 1997)

* * * * *
    (b) In connection with any discount offered for prompt payment, 
time shall be computed from the date of the invoice. If the 
Contractor has not placed a date on the invoice, the due date shall 
be calculated from the date the designated billing office receives a 
proper invoice, provided the agency annotates such invoice with the 
date of receipt at the time of receipt. For the purpose of computing 
the discount earned, payment shall be considered to have been made 
on the date that appears on the payment check or, for an electronic 
funds transfer, the specified payment date. When the discount date 
falls on a Saturday, Sunday, or legal holiday when Federal 
Government offices are closed and Government business is not 
expected to be conducted, payment may be made on the following 
business day.

(End of clause)

    12. Sections 52.232-25, 52.232-26, and 52.232-27 are revised to 
read as follows:


52.232-25  Prompt Payment.

    As prescribed in 32.908(c), insert the following clause:

PROMPT PAYMENT (MAY 1997)

    Notwithstanding any other payment clause in this contract, the 
Government will make invoice payments and contract financing 
payments under the terms and conditions specified in this clause. 
Payment shall be considered as being made on the day a check is 
dated or the date of an electronic funds transfer. Definitions of 
pertinent terms are set forth in section 32.902 of the Federal 
Acquisition Regulation. All days referred to in this clause are 
calendar days, unless otherwise specified. (However, see 
subparagraph (a)(4) of this clause concerning payments due on 
Saturdays, Sundays, and legal holidays.)
    (a) Invoice payments (1) Due Date. (i) Except as indicated in 
subparagraph (a)(2) and paragraph (c) of this clause, the due date 
for making invoice payments by the designated payment office shall 
be the later of the following two events:
    (A) The 30th day after the designated billing office has 
received a proper invoice from the Contractor (except as provided in 
subdivision (a)(1)(ii) of this clause).
    (B) The 30th day after Government acceptance of supplies 
delivered or services performed by the Contractor. On a final 
invoice where the payment amount is subject to contract settlement 
actions, acceptance shall be deemed to have occurred on the 
effective date of the contract settlement.
    (ii) If the designated billing office fails to annotate the 
invoice with the actual date of receipt at the time of receipt, the 
invoice payment due date shall be the 30th day after the date of the 
Contractor's invoice; provided a proper invoice is received and 
there is no disagreement over quantity, quality, or Contractor 
compliance with contract requirements.
    (2) Certain food products and other payments. (i) Due dates on 
Contractor invoices for meat, meat food products, or fish; 
perishable agricultural commodities; and dairy products, edible fats 
or oils, and food products prepared from edible fats or oils are--
    (A) For meat or meat food products, as defined in section 
2(a)(3) of the Packers and Stockyard Act of 1921 (7 U.S.C. 182(3)), 
and as further defined in Pub. L. 98-181, including any edible fresh 
or frozen poultry meat, any perishable poultry meat food product, 
fresh eggs, and any perishable egg product, as close as possible to, 
but not later than, the 7th day after product delivery.
    (B) For fresh or frozen fish, as defined in section 204(3) of 
the Fish and Seafood Promotion Act of 1986 (16 U.S.C. 4003(3)), as 
close as possible to, but not later than, the 7th day after product 
delivery.
    (C) For perishable agricultural commodities, as defined in 
section 1(4) of the Perishable Agricultural Commodities Act of 1930 
(7 U.S.C. 499a(4)), as close as possible to, but not later than, the 
10th day after product delivery, unless another date is specified in 
the contract.
    (D) For dairy products, as defined in section 111(e) of the 
Dairy Production Stabilization Act of 1983 (7 U.S.C. 4502(e)), 
edible fats or oils, and food products prepared from edible fats or 
oils, as close as possible to, but not later than, the 10th day 
after the date on which a proper invoice has been received. Liquid 
milk, cheese, certain processed cheese products, butter, yogurt, ice 
cream, mayonnaise, salad dressings, and other similar products, fall 
within this classification. Nothing in the Act limits this 
classification to refrigerated products. When questions arise 
regarding the proper classification of a specific product, 
prevailing industry practices will be followed in specifying a 
contract payment due date. The burden of proof that a classification 
of a specific product is, in fact, prevailing industry practice is 
upon the Contractor making the representation.
    (ii) If the contract does not require submission of an invoice 
for payment (e.g., periodic lease payments), the due date will be as 
specified in the contract.
    (3) Contractor's invoice. The Contractor shall prepare and 
submit invoices to the designated billing office specified in the 
contract. A proper invoice must include the items listed in 
paragraph (a)(3)(i) through (a)(3)(viii) of this clause. If the 
invoice does not comply with these requirements, it shall be 
returned within 7 days after the date the designated billing office 
received the invoice (3 days for meat, meat food products, or fish; 
5 days for perishable agricultural commodities, edible fats or oils, 
and food products prepared from edible fats or oils), with a 
statement of the reasons why it is not a proper invoice. Untimely 
notification will be taken into account in computing any interest 
penalty owed the Contractor in the manner described in subparagraph 
(a)(5) of this clause.
    (i) Name and address of the Contractor.
    (ii) Invoice date. (The Contractor is encouraged to date 
invoices as close as possible to the date of the mailing or 
transmission.)
    (iii) Contract number or other authorization for supplies 
delivered or services performed (including order number and contract 
line item number).
    (iv) Description, quantity, unit of measure, unit price, and 
extended price of supplies delivered or services performed.
    (v) Shipping and payment terms (e.g., shipment number and date 
of shipment, prompt payment discount terms). Bill of lading number 
and weight of shipment will be shown for shipments on Government 
bills of lading.
    (vi) Name and address of Contractor official to whom payment is 
to be sent (must be the same as that in the contract or in a proper 
notice of assignment).
    (vii) Name (where practicable), title, phone number, and mailing 
address of person to be notified in the event of a defective 
invoice.
    (viii) Any other information or documentation required by the 
contract (such as evidence of shipment).
    (ix) While not required, the Contractor is strongly encouraged 
to assign an identification number to each invoice.
    (4) Interest penalty. An interest penalty shall be paid 
automatically by the designated payment office, without request from 
the Contractor, if payment is not made by the due date and the 
conditions listed in paragraphs (a)(4)(i) through (a)(4)(iii) of 
this clause are met, if applicable. However, when the due date falls 
on a Saturday, Sunday, or legal holiday when Federal Government 
offices are closed and Government business is not expected to be 
conducted, payment may be made on the following business day without 
incurring a late payment interest penalty.
    (i) A proper invoice was received by the designated billing 
office.
    (ii) A receiving report or other Government documentation 
authorizing payment was processed, and there was no disagreement 
over quantity, quality, or Contractor compliance with any contract 
term or condition.
    (iii) In the case of a final invoice for any balance of funds 
due the Contractor for supplies delivered or services performed, the 
amount was not subject to further contract settlement actions 
between the Government and the Contractor.
    (5) Computing penalty amount. The interest penalty shall be at 
the rate established by the Secretary of the Treasury under section 
12 of the Contract Disputes Act of 1978 (41 U.S.C. 611) that is in 
effect on the day after the due date, except where the interest 
penalty is prescribed by other governmental authority (e.g., 
tariffs). This rate is referred to as the ``Renegotiation Board 
Interest Rate,'' and it is published in the Federal Register 
semiannually on or about January 1 and July 1. The interest penalty 
shall accrue daily on the invoice principal payment amount approved 
by the Government until the payment date of such approved principal 
amount; and will be compounded in 30-day increments inclusive from 
the first day after the due date through the payment date. That is, 
interest accrued at the end of any 30-day period will be added to 
the approved invoice principal payment amount and will be subject to 
interest

[[Page 12713]]

penalties if not paid in the succeeding 30-day period. If the 
designated billing office failed to notify the Contractor of a 
defective invoice within the periods prescribed in subparagraph 
(a)(3) of this clause, the due date on the corrected invoice will be 
adjusted by subtracting from such date the number of days taken 
beyond the prescribed notification of defects period. Any interest 
penalty owed the Contractor will be based on this adjusted due date. 
Adjustments will be made by the designated payment office for errors 
in calculating interest penalties.
    (i) For the sole purpose of computing an interest penalty that 
might be due the Contractor, Government acceptance shall be deemed 
to have occurred constructively on the 7th day (unless otherwise 
specified in this contract) after the Contractor delivered the 
supplies or performed the services in accordance with the terms and 
conditions of the contract, unless there is a disagreement over 
quantity, quality, or Contractor compliance with a contract 
provision. In the event that actual acceptance occurs within the 
constructive acceptance period, the determination of an interest 
penalty shall be based on the actual date of acceptance. The 
constructive acceptance requirement does not, however, compel 
Government officials to accept supplies or services, perform 
contract administration functions, or make payment prior to 
fulfilling their responsibilities.
    (ii) The following periods of time will not be included in the 
determination of an interest penalty:
    (A) The period taken to notify the Contractor of defects in 
invoices submitted to the Government, but this may not exceed 7 days 
(3 days for meat, meat food products, or fish; 5 days for perishable 
agricultural commodities, dairy products, edible fats or oils, and 
food products prepared from edible fats or oils).
    (B) The period between the defects notice and resubmission of 
the corrected invoice by the Contractor.
    (C) For incorrect electronic funds transfer (EFT) information, 
in accordance with the EFT clause of this contract.
    (iii) Interest penalties will not continue to accrue after the 
filing of a claim for such penalties under the clause at 52.233-1, 
Disputes, or for more than 1 year. Interest penalties of less than 
$1 need not be paid.
    (iv) Interest penalties are not required on payment delays due 
to disagreement between the Government and the Contractor over the 
payment amount or other issues involving contract compliance or on 
amounts temporarily withheld or retained in accordance with the 
terms of the contract. Claims involving disputes, and any interest 
that may be payable, will be resolved in accordance with the clause 
at 52.233-1, Disputes.
    (6) Prompt payment discounts. An interest penalty also shall be 
paid automatically by the designated payment office, without request 
from the Contractor, if a discount for prompt payment is taken 
improperly. The interest penalty will be calculated as described in 
subparagraph (a)(5) of this clause on the amount of discount taken 
for the period beginning with the first day after the end of the 
discount period through the date when the Contractor is paid.
    (7) Additional interest penalty. (i) If this contract was 
awarded on or after October 1, 1989, a penalty amount, calculated in 
accordance with paragraph (a)(7)(iii) of this clause, shall be paid 
in addition to the interest penalty amount if the Contractor--
    (A) Is owed an interest penalty of $1 or more;
    (B) Is not paid the interest penalty within 10 days after the 
date the invoice amount is paid; and
    (C) Makes a written demand to the designated payment office for 
additional penalty payment, in accordance with paragraph (a)(7)(ii) 
of this clause, postmarked not later than 40 days after the invoice 
amount is paid.
    (ii)(A) Contractors shall support written demands for additional 
penalty payments with the following data. No additional data shall 
be required. Contractors shall--
    (1) Specifically assert that late payment interest is due under 
a specific invoice, and request payment of all overdue late payment 
interest penalty and such additional penalty as may be required;
    (2) Attach a copy of the invoice on which the unpaid late 
payment interest was due; and
    (3) State that payment of the principal has been received, 
including the date of receipt.
    (B) Demands must be postmarked on or before the 40th day after 
payment was made, except that--
    (1) If the postmark is illegible or nonexistent, the demand must 
have been received and annotated with the date of receipt by the 
designated payment office on or before the 40th day after payment 
was made; or
    (2) If the postmark is illegible or nonexistent and the 
designated payment office fails to make the required annotation, the 
demand's validity will be determined by the date the Contractor has 
placed on the demand; provided such date is no later than the 40th 
day after payment was made.
    (iii)(A) The additional penalty shall be equal to 100 percent of 
any original late payment interest penalty that is due on or after 
January 22, 1990, except--
    (1) For additional penalties due on or before January 22, 1992, 
such penalties shall not exceed $2,500;
    (2) After January 22, 1992, the additional penalty shall not 
exceed $5,000;
    (3) The additional penalty shall never be less than $25; and
    (4) No additional penalty is owed if the amount of the 
underlying interest penalty is less than $1.
    (B) If the interest penalty ceases to accrue in accordance with 
the limits stated in paragraph (a)(5)(iii) of this clause, the 
amount of the additional penalty shall be calculated on the amount 
of interest penalty that would have accrued in the absence of these 
limits, subject to the overall limits on the additional penalty 
specified in paragraph (a)(7)(iii)(A) of this clause.
    (C) For determining the maximum and minimum additional 
penalties, the test shall be the interest penalty due on each 
separate payment made for each separate contract. The maximum and 
minimum additional penalty shall not be based upon individual 
invoices unless the invoices are paid separately. Where payments are 
consolidated for disbursing purposes, the maximum and minimum 
additional penalty determination shall be made separately for each 
contract therein.
    (D) The additional penalty does not apply to payments regulated 
by other Government regulations (e.g., payments under utility 
contracts subject to tariffs and regulation).
    (b) Contract financing payments--(1) Due dates for recurring 
financing payments. If this contract provides for contract 
financing, requests for payment shall be submitted to the designated 
billing office as specified in this contract or as directed by the 
Contracting Officer. Contract financing payments shall be made on 
the (insert day as prescribed by Agency head; if not prescribed, 
insert 30th day) day after receipt of a proper contract financing 
request by the designated billing office. In the event that an audit 
or other review of a specific financing request is required to 
ensure compliance with the terms and conditions of the contract, the 
designated payment office is not compelled to make payment by the 
due date specified.
    (2) Due dates for other contract financing. For advance 
payments, loans, or other arrangements that do not involve recurring 
submissions of contract financing requests, payment shall be made in 
accordance with the corresponding contract terms or as directed by 
the Contracting Officer.
    (3) Interest penalty not applicable. Contract financing payments 
shall not be assessed an interest penalty for payment delays.
    (c) Fast payment procedure due dates. If this contract contains 
the clause at 52.213-1, Fast Payment Procedure, payments will be 
made within 15 days after the date of receipt of the invoice.

(End of clause)


52.232-26  Prompt Payment for Fixed-Price Architect-Engineer Contracts.

    As prescribed in 32.908(a), insert the following clause:

PROMPT PAYMENT FOR FIXED-PRICE ARCHITECT-ENGINEER CONTRACTS (MAY 1997)

    Notwithstanding any other payment terms in this contract, the 
Government will make invoice payments and contract financing 
payments under the terms and conditions specified in this clause. 
Payment shall be considered as being made on the day a check is 
dated or the date of an electronic funds transfer. Definitions of 
pertinent terms are set forth in section 32.902 of the Federal 
Acquisition Regulation. All days referred to in this clause are 
calendar days, unless otherwise specified. (However, see 
subparagraph (a)(3) of this clause concerning payments due on 
Saturdays, Sundays, and legal holidays.)
    (a) Invoice payments.--(1) Due date. The due date for making 
invoice payments shall be--
    (i) For work or services completed by the Contractor, the later 
of the following two events:
    (A) The 30th day after the designated billing office has 
received a proper invoice from the Contractor (except as provided in 
paragraph (a)(1)(iii) of this clause).

[[Page 12714]]

    (B) The 30th day after Government acceptance of the work or 
services completed by the Contractor. On a final invoice where the 
payment amount is subject to contract settlement actions (e.g., 
release of claims), acceptance shall be deemed to have occurred on 
the effective date of the contract settlement.
    (ii) The due date for progress payments shall be the 30th day 
after Government approval of Contractor estimates of work or 
services accomplished.
    (iii) If the designated billing office fails to annotate the 
invoice or payment request with the actual date of receipt at the 
time of receipt, the payment due date shall be the 30th day after 
the date of the Contractor's invoice or payment request, provided a 
proper invoice or payment request is received and there is no 
disagreement over quantity, quality, or Contractor compliance with 
contract requirements.
    (2) Contractor's invoice. The Contractor shall prepare and 
submit invoices to the designated billing office specified in the 
contract. A proper invoice must include the items listed in 
paragraphs (a)(2)(i) through (a)(2)(viii) of this clause. If the 
invoice does not comply with these requirements, it shall be 
returned within 7 days after the date the designated billing office 
received the invoice, with a statement of the reasons why it is not 
a proper invoice. Untimely notification will be taken into account 
in computing any interest penalty owed the Contractor in the manner 
described in subparagraph (a)(4) of this clause:
    (i) Name and address of the Contractor.
    (ii) Invoice date. (The Contractor is encouraged to date 
invoices as close as possible to the date of mailing or 
transmission.)
    (iii) Contract number or other authorization for work or 
services performed (including order number and contract line item 
number).
    (iv) Description of work or services performed.
    (v) Delivery and payment terms (e.g., prompt payment discount 
terms).
    (vi) Name and address of Contractor official to whom payment is 
to be sent (must be the same as that in the contract or in a proper 
notice of assignment).
    (vii) Name (where practicable), title, phone number, and mailing 
address of person to be notified in the event of a defective 
invoice.
    (viii) Any other information or documentation required by the 
contract.
    (ix) While not required, the Contractor is strongly encouraged 
to assign an identification number to each invoice.
    (3) Interest penalty. An interest penalty shall be paid 
automatically by the designated payment office, without request from 
the Contractor, if payment is not made by the due date and the 
conditions listed in paragraphs (a)(3)(i) through (a)(3)(iii) of 
this clause are met, if applicable. However, when the due date falls 
on a Saturday, Sunday, or legal holiday when Federal Government 
offices are closed and Government business is not expected to be 
conducted, payment may be made on the following business day without 
incurring a late payment interest penalty.
    (i) A proper invoice was received by the designated billing 
office.
    (ii) A receiving report or other Government documentation 
authorizing payment was processed and there was no disagreement over 
quantity, quality, Contractor compliance with any contract term or 
condition, or requested progress payment amount.
    (iii) In the case of a final invoice for any balance of funds 
due the Contractor for work or services performed, the amount was 
not subject to further contract settlement actions between the 
Government and the Contractor.
    (4) Computing penalty amount. The interest penalty shall be at 
the rate established by the Secretary of the Treasury under section 
12 of the Contract Disputes Act of 1978 (41 U.S.C. 611) that is in 
effect on the day after the due date, except where the interest 
penalty is prescribed by other governmental authority (e.g., 
tariffs). This rate is referred to as the ``Renegotiation Board 
Interest Rate,'' and it is published in the Federal Register 
semiannually on or about January 1 and July 1. The interest penalty 
shall accrue daily on the invoice principal payment amount approved 
by the Government until the payment date of such approved principal 
amount; and will be compounded in 30-day increments inclusive from 
the first day after the due date through the payment date. That is, 
interest accrued at the end of any 30-day period will be added to 
the approved invoice principal payment amount and will be subject to 
interest penalties if not paid in the succeeding 30-day period. If 
the designated billing office failed to notify the Contractor of a 
defective invoice within the periods prescribed in subparagraph 
(a)(2) of this clause, the due date on the corrected invoice will be 
adjusted by subtracting from such date the number of days taken 
beyond the prescribed notification of defects period. Any interest 
penalty owed the Contractor will be based on this adjusted due date. 
Adjustments will be made by the designated payment office for errors 
in calculating interest penalties.
    (i) For the sole purpose of computing an interest penalty that 
might be due the Contractor, Government acceptance or approval shall 
be deemed to have occurred constructively as shown in paragraphs 
(a)(4)(i) (A) and (B) of this clause. In the event that actual 
acceptance or approval occurs within the constructive acceptance or 
approval period, the determination of an interest penalty shall be 
based on the actual date of acceptance or approval. Constructive 
acceptance or constructive approval requirements do not apply if 
there is a disagreement over quantity, quality, Contractor 
compliance with a contract provision, or requested progress payment 
amounts. These requirements also do not compel Government officials 
to accept work or services, approve Contractor estimates, perform 
contract administration functions, or make payment prior to 
fulfilling their responsibilities.
    (A) For work or services completed by the Contractor, Government 
acceptance shall be deemed to have occurred constructively on the 
7th day after the Contractor has completed the work or services in 
accordance with the terms and conditions of the contract.
    (B) For progress payments, Government approval shall be deemed 
to have occurred on the 7th day after Contractor estimates have been 
received by the designated billing office.
    (ii) The following periods of time will not be included in the 
determination of an interest penalty:
    (A) The period taken to notify the Contractor of defects in 
invoices submitted to the Government, but this may not exceed 7 
days.
    (B) The period between the defects notice and resubmission of 
the corrected invoice by the Contractor.
    (C) For incorrect electronic funds transfer (EFT) information, 
in accordance with the EFT clause of this contract.
    (iii) Interest penalties will not continue to accrue after the 
filing of a claim for such penalties under the clause at 52.233-1, 
Disputes, or for more than 1 year. Interest penalties of less than 
$1 need not be paid.
    (iv) Interest penalties are not required on payment delays due 
to disagreement between the Government and the Contractor over the 
payment amount or other issues involving contract compliance, or on 
amounts temporarily withheld or retained in accordance with the 
terms of the contract. Claims involving disputes, and any interest 
that may be payable will be resolved in accordance with the clause 
at 52.233-1, Disputes.
    (5) Prompt payment discounts. An interest penalty also shall 
also be paid automatically by the designated payment office, without 
request from the Contractor, if a discount for prompt payment is 
taken improperly. The interest penalty will be calculated on the 
amount of discount taken for the period beginning with the first day 
after the end of the discount period through the date when the 
Contractor is paid.
    (6) Additional interest penalty. (i) If this contract was 
awarded on or after October 1, 1989, a penalty amount, calculated in 
accordance with paragraph (a)(6)(iii) of this clause, shall be paid 
in addition to the interest penalty amount if the Contractor--
    (A) Is owed an interest penalty of $1 or more;
    (B) Is not paid the interest penalty within 10 days after the 
date the invoice amount is paid; and
    (C) Makes a written demand to the designated payment office for 
additional penalty payment, in accordance with paragraph (a)(6)(ii) 
of this clause, postmarked not later than 40 days after the date the 
invoice amount is paid.
    (ii)(A) Contractors shall support written demands for additional 
penalty payments with the following data. No additional data shall 
be required. Contractors shall--
    (1) Specifically assert that late payment interest is due under 
a specific invoice, and request payment of all overdue late payment 
interest penalty and such additional penalty as may be required;
    (2) Attach a copy of the invoice on which the unpaid late 
payment interest was due; and
    (3) State that payment of the principal has been received, 
including the date of receipt.

[[Page 12715]]

    (B) Demands must be postmarked on or before the 40th day after 
payment was made, except that--
    (1) If the postmark is illegible or nonexistent, the demand must 
have been received and annotated with the date of receipt by the 
designated payment office on or before the 40th day after payment 
was made; or
    (2) If the postmark is illegible or nonexistent and the 
designated payment office fails to make the required annotation, the 
demand's validity will be determined by the date the Contractor has 
placed on the demand; provided such date is no later than the 40th 
day after payment was made.
    (iii)(A) The additional penalty shall be equal to 100 percent of 
any original late payment interest penalty that is due on or after 
January 22, 1990, except--
    (1) For additional penalties due on or before January 22, 1992, 
such penalties shall not exceed $2,500;
    (2) After January 22, 1992, the additional penalty shall not 
exceed $5,000;
    (3) The additional penalty shall never be less than $25; and
    (4) No additional penalty is owed if the amount of the 
underlying interest penalty is less than $1.
    (B) If the interest penalty ceases to accrue in accordance with 
the limits stated in paragraph (a)(4)(iii) of this clause, the 
amount of the additional penalty shall be calculated on the amount 
of interest penalty that would have accrued in the absence of these 
limits, subject to the overall limits on the additional penalty 
specified in paragraph (a)(6)(iii)(A) of this clause.
    (C) For determining the maximum and minimum additional 
penalties, the test shall be the interest penalty due on each 
separate payment made for each separate contract. The maximum and 
minimum additional penalty shall not be based upon individual 
invoices unless the invoices are paid separately. Where payments are 
consolidated for disbursing purposes, the maximum and minimum 
additional penalty determination shall be made separately for each 
contract therein.
    (D) The additional penalty does not apply to payments regulated 
by other Government regulations (e.g., payments under utility 
contracts subject to tariffs and regulation).
    (b) Contract financing payments--(1) Due dates for recurring 
financing payments. If this contract provides for contract 
financing, requests for payment shall be submitted to the designated 
billing office as specified in this contract or as directed by the 
Contracting Officer. Contract financing payments shall be made on 
the (insert day as prescribed by Agency head; if not prescribed, 
insert 30th day) day after receipt of a proper contract financing 
request by the designated billing office. In the event that an audit 
or other review of a specific financing request is required to 
ensure compliance with the terms and conditions of the contract, the 
designated payment office is not compelled to make payment by the 
due date specified.
    (2) Due dates for other contract financing. For advance 
payments, loans, or other arrangements that do not involve recurring 
submissions of contract financing requests, payment shall be made in 
accordance with the corresponding contract terms or as directed by 
the Contracting Officer.
    (3) Interest penalty not applicable. Contract financing payments 
shall not be assessed an interest penalty for payment delays.

(End of clause)


52.232-27  Prompt Payment for Construction Contracts.

    As prescribed in 32.908(b), insert the following clause:

PROMPT PAYMENT FOR CONSTRUCTION CONTRACTS (MAY 1997)

    Notwithstanding any other payment terms in this contract, the 
Government will make invoice payments and contract financing 
payments under the terms and conditions specified in this clause. 
Payment shall be considered as being made on the day a check is 
dated or the date of an electronic funds transfer. Definitions of 
pertinent terms are set forth in section 32.902 of the Federal 
Acquisition Regulation. All days referred to in this clause are 
calendar days, unless otherwise specified. (However, see 
subparagraph (a)(3) concerning payments due on Saturdays, Sundays, 
and legal holidays.)
    (a) Invoice payments--(1) Types of invoice payments. For 
purposes of this clause, there are several types of invoice payments 
that may occur under this contract, as follows:
    (i) Progress payments, if provided for elsewhere in this 
contract, based on Contracting Officer approval of the estimated 
amount and value of work or services performed, including payments 
for reaching milestones in any project:
    (A) The due date for making such payments shall be 14 days after 
receipt of the payment request by the designated billing office. If 
the designated billing office fails to annotate the payment request 
with the actual date of receipt at the time of receipt, the payment 
due date shall be the 14th day after the date of the Contractor's 
payment request, provided a proper payment request is received and 
there is no disagreement over quantity, quality, or Contractor 
compliance with contract requirements.
    (B) The due date for payment of any amounts retained by the 
Contracting Officer in accordance with the clause at 52.232-5, 
Payments Under Fixed-Price Construction Contracts, shall be as 
specified in the contract or, if not specified, 30 days after 
approval for release to the Contractor by the Contracting Officer.
    (ii) Final payments based on completion and acceptance of all 
work and presentation of release of all claims against the 
Government arising by virtue of the contract, and payments for 
partial deliveries that have been accepted by the Government (e.g., 
each separate building, public work, or other division of the 
contract for which the price is stated separately in the contract):
    (A) The due date for making such payments shall be either the 
30th day after receipt by the designated billing office of a proper 
invoice from the Contractor, or the 30th day after Government 
acceptance of the work or services completed by the Contractor, 
whichever is later. If the designated billing office fails to 
annotate the invoice with the date of actual receipt at the time of 
receipt, the invoice payment due date shall be the 30th day after 
the date of the Contractor's invoice, provided a proper invoice is 
received and there is no disagreement over quantity, quality, or 
Contractor compliance with contract requirements.
    (B) On a final invoice where the payment amount is subject to 
contract settlement actions (e.g., release of claims), acceptance 
shall be deemed to have occurred on the effective date of the 
contract settlement.
    (2) Contractor's invoice. The Contractor shall prepare and 
submit invoices to the designated billing office specified in the 
contract. A proper invoice must include the items listed in 
paragraphs (a)(2)(i) through (a)(2)(ix) of this clause. If the 
invoice does not comply with these requirements, it shall be 
returned within 7 days after the date the designated billing office 
received the invoice, with a statement of the reasons why it is not 
a proper invoice. Untimely notification will be taken into account 
in computing any interest penalty owed the Contractor in the manner 
described in subparagraph (a)(4) of this clause.
    (i) Name and address of the Contractor.
    (ii) Invoice date. (The Contractor is encouraged to date 
invoices as close as possible to the date of mailing or 
transmission.)
    (iii) Contract number or other authorization for work or 
services performed (including order number and contract line item 
number).
    (iv) Description of work or services performed.
    (v) Delivery and payment terms (e.g., prompt payment discount 
terms).
    (vi) Name and address of Contractor official to whom payment is 
to be sent (must be the same as that in the contract or in a proper 
notice of assignment).
    (vii) Name (where practicable), title, phone number, and mailing 
address of person to be notified in the event of a defective 
invoice.
    (viii) For payments described in paragraph (a)(1)(i) of this 
clause, substantiation of the amounts requested and certification in 
accordance with the requirements of the clause at 52.232-5, Payments 
Under Fixed-Price Construction Contracts.
    (ix) Any other information or documentation required by the 
contract.
    (x) While not required, the Contractor is strongly encouraged to 
assign an identification number to each invoice.
    (3) Interest penalty. An interest penalty shall be paid 
automatically by the designated payment office, without request from 
the Contractor, if payment is not made by the due date and the 
conditions listed in paragraphs (a)(3)(i) through (a)(3)(iii) of 
this clause are met, if applicable. However, when the due date falls 
on a Saturday, Sunday, or legal holiday when Federal Government 
offices are closed and Government business is not expected to be 
conducted, payment may be made on the following business day without 
incurring a late payment interest penalty.
    (i) A proper invoice was received by the designated billing 
office.
    (ii) A receiving report or other Government documentation 
authorizing payment was

[[Page 12716]]

processed and there was no disagreement over quantity, quality, 
Contractor compliance with any contract term or condition, or 
requested progress payment amount.
    (iii) In the case of a final invoice for any balance of funds 
due the Contractor for work or services performed, the amount was 
not subject to further contract settlement actions between the 
Government and the Contractor.
    (4) Computing penalty amount. The interest penalty shall be at 
the rate established by the Secretary of the Treasury under section 
12 of the Contract Disputes Act of 1978 (41 U.S.C. 611) that is in 
effect on the day after the due date, except where the interest 
penalty is prescribed by other governmental authority (e.g., 
tariffs). This rate is referred to as the ``Renegotiation Board 
Interest Rate,'' and it is published in the Federal Register 
semiannually on or about January 1 and July 1. The interest penalty 
shall accrue daily on the invoice principal payment amount approved 
by the Government until the payment date of such approved principal 
amount; and will be compounded in 30-day increments inclusive from 
the first day after the due date through the payment date. That is, 
interest accrued at the end of any 30-day period will be added to 
the approved invoice principal payment amount and will be subject to 
interest penalties if not paid in the succeeding 30-day period. If 
the designated billing office failed to notify the Contractor of a 
defective invoice within the periods prescribed in subparagraph 
(a)(2) of this clause, the due date on the corrected invoice will be 
adjusted by subtracting from such date the number of days taken 
beyond the prescribed notification of defects period. Any interest 
penalty owed the Contractor will be based on this adjusted due date. 
Adjustments will be made by the designated payment office for errors 
in calculating interest penalties.
    (i) For the sole purpose of computing an interest penalty that 
might be due the Contractor for payments described in paragraph 
(a)(1)(ii) of this clause, Government acceptance or approval shall 
be deemed to have occurred constructively on the 7th day after the 
Contractor has completed the work or services in accordance with the 
terms and conditions of the contract. In the event that actual 
acceptance or approval occurs within the constructive acceptance or 
approval period, the determination of an interest penalty shall be 
based on the actual date of acceptance or approval. Constructive 
acceptance or constructive approval requirements do not apply if 
there is a disagreement over quantity, quality, or Contractor 
compliance with a contract provision. These requirements also do not 
compel Government officials to accept work or services, approve 
Contractor estimates, perform contract administration functions, or 
make payment prior to fulfilling their responsibilities.
    (ii) The following periods of time will not be included in the 
determination of an interest penalty:
    (A) The period taken to notify the Contractor of defects in 
invoices submitted to the Government, but this may not exceed 7 
days.
    (B) The period between the defects notice and resubmission of 
the corrected invoice by the Contractor.
    (C) For incorrect electronic funds transfer (EFT) information, 
in accordance with the EFT clause of this contract.
    (iii) Interest penalties will not continue to accrue after the 
filing of a claim for such penalties under the clause at 52.233-1, 
Disputes, or for more than 1 year. Interest penalties of less than 
$1 need not be paid.
    (iv) Interest penalties are not required on payment delays due 
to disagreement between the Government and the Contractor over the 
payment amount or other issues involving contract compliance, or on 
amounts temporarily withheld or retained in accordance with the 
terms of the contract. Claims involving disputes, and any interest 
that may be payable, will be resolved in accordance with the clause 
at 52.233-1, Disputes.
    (5) Prompt payment discounts. An interest penalty also shall be 
paid automatically by the designated payment office, without request 
from the Contractor, if a discount for prompt payment is taken 
improperly. The interest penalty will be calculated on the amount of 
discount taken for the period beginning with the first day after the 
end of the discount period through the date when the Contractor is 
paid.
    (6) Additional interest penalty. (i) If this contract was 
awarded on or after October 1, 1989, a penalty amount, calculated in 
accordance with subdivision (a)(6)(iii) of this clause, shall be 
paid in addition to the interest penalty amount if the Contractor--
    (A) Is owed an interest penalty of $1 or more;
    (B) Is not paid the interest penalty within 10 days after the 
date the invoice amount is paid; and
    (C) Makes a written demand to the designated payment office for 
additional penalty payment, in accordance with subdivision 
(a)(6)(ii) of this clause, postmarked not later than 40 days after 
the date the invoice amount is paid.
    (ii)(A) Contractors shall support written demands for additional 
penalty payments with the following data. No additional data shall 
be required. Contractors shall--
    (1) Specifically assert that late payment interest is due under 
a specific invoice, and request payment of all overdue late payment 
interest penalty and such additional penalty as may be required;
    (2) Attach a copy of the invoice on which the unpaid late 
payment interest was due; and
    (3) State that payment of the principal has been received, 
including the date of receipt.
    (B) Demands must be postmarked on or before the 40th day after 
payment was made, except that--
    (1) If the postmark is illegible or nonexistent, the demand must 
have been received and annotated with the date of receipt by the 
designated payment office on or before the 40th day after payment 
was made; or
    (2) If the postmark is illegible or nonexistent and the 
designated payment office fails to make the required annotation, the 
demand's validity will be determined by the date the Contractor has 
placed on the demand; provided such date is no later than the 40th 
day after payment was made.
    (iii)(A) The additional penalty shall be equal to 100 percent of 
any original late payment interest penalty that is due on or after 
January 22, 1990, except--
    (1) For additional penalties due on or before January 22, 1992, 
such penalties shall not exceed $2,500;
    (2) After January 22, 1992, the additional penalty shall not 
exceed $5,000;
    (3) The additional penalty shall never be less than $25; and
    (4) No additional penalty is owed if the amount of the 
underlying interest penalty is less than $1.
    (B) If the interest penalty ceases to accrue in accordance with 
the limits stated in subdivision (a)(4)(iii) of this clause, the 
amount of the additional penalty shall be calculated on the amount 
of interest penalty that would have accrued in the absence of these 
limits, subject to the overall limits on the additional penalty 
specified in subdivision (a)(6)(iii)(A) of this clause.
    (C) For determining the maximum and minimum additional 
penalties, the test shall be the interest penalty due on each 
separate payment made for each separate contract. The maximum and 
minimum additional penalty shall not be based upon individual 
invoices unless the invoices are paid separately. Where payments are 
consolidated for disbursing purposes, the maximum and minimum 
additional penalty determination shall be made separately for each 
contract therein.
    (D) The additional penalty does not apply to payments regulated 
by other Government regulations (e.g., payments under utility 
contracts subject to tariffs and regulation).
    (b) Contract financing payments--(1) Due dates for recurring 
financing payments. If this contract provides for contract 
financing, requests for payment shall be submitted to the designated 
billing office as specified in this contract or as directed by the 
Contracting Officer. Contract financing payments shall be made on 
the (insert day as prescribed by Agency head; if not prescribed, 
insert 30th day) day after receipt of a proper contract financing 
request by the designated billing office. In the event that an audit 
or other review of a specific financing request is required to 
ensure compliance with the terms and conditions of the contract, the 
designated payment office is not compelled to make payment by the 
due date specified.
    (2) Due dates for other contract financing. For advance 
payments, loans, or other arrangements that do not involve recurring 
submissions of contract financing requests, payment shall be made in 
accordance with the corresponding contract terms or as directed by 
the Contracting Officer.
    (3) Interest penalty not applicable. Contract financing payments 
shall not be assessed an interest penalty for payment delays.
    (c) Subcontract clause requirements. The Contractor shall 
include in each subcontract for property or services (including a 
material supplier) for the purpose of performing this contract the 
following:
    (1) Prompt payment for subcontractors. A payment clause that 
obligates the Contractor

[[Page 12717]]

to pay the subcontractor for satisfactory performance under its 
subcontract not later than 7 days from receipt of payment out of 
such amounts as are paid to the Contractor under this contract.
    (2) Interest for subcontractors. An interest penalty clause that 
obligates the Contractor to pay to the subcontractor an interest 
penalty for each payment not made in accordance with the payment 
clause--
    (i) For the period beginning on the day after the required 
payment date and ending on the date on which payment of the amount 
due is made; and
    (ii) Computed at the rate of interest established by the 
Secretary of the Treasury, and published in the Federal Register, 
for interest payments under section 12 of the Contract Disputes Act 
of 1978 (41 U.S.C. 611) in effect at the time the Contractor accrues 
the obligation to pay an interest penalty.
    (3) Subcontractor clause flowdown. A clause requiring each 
subcontractor to include a payment clause and an interest penalty 
clause conforming to the standards set forth in subparagraphs (c)(1) 
and (c)(2) of this clause in each of its subcontracts, and to 
require each of its subcontractors to include such clauses in their 
subcontracts with each lower-tier subcontractor or supplier.
    (d) Subcontract clause interpretation. The clauses required by 
paragraph (c) of this clause shall not be construed to impair the 
right of the Contractor or a subcontractor at any tier to negotiate, 
and to include in their subcontract, provisions that--
    (1) Retainage permitted. Permit the Contractor or a 
subcontractor to retain (without cause) a specified percentage of 
each progress payment otherwise due to a subcontractor for 
satisfactory performance under the subcontract without incurring any 
obligation to pay a late payment interest penalty, in accordance 
with terms and conditions agreed to by the parties to the 
subcontract, giving such recognition as the parties deem appropriate 
to the ability of a subcontractor to furnish a performance bond and 
a payment bond;
    (2) Withholding permitted. Permit the Contractor or 
subcontractor to make a determination that part or all of the 
subcontractor's request for payment may be withheld in accordance 
with the subcontract agreement; and
    (3) Withholding requirements. Permit such withholding without 
incurring any obligation to pay a late payment penalty if--
    (i) A notice conforming to the standards of paragraph (g) of 
this clause previously has been furnished to the subcontractor; and
    (ii) A copy of any notice issued by a Contractor pursuant to 
subdivision (d)(3)(i) of this clause has been furnished to the 
Contracting Officer.
    (e) Subcontractor withholding procedures. If a Contractor, after 
making a request for payment to the Government but before making a 
payment to a subcontractor for the subcontractor's performance 
covered by the payment request, discovers that all or a portion of 
the payment otherwise due such subcontractor is subject to 
withholding from the subcontractor in accordance with the 
subcontract agreement, then the Contractor shall--
    (1) Subcontractor notice. Furnish to the subcontractor a notice 
conforming to the standards of paragraph (g) of this clause as soon 
as practicable upon ascertaining the cause giving rise to a 
withholding, but prior to the due date for subcontractor payment;
    (2) Contracting Officer notice. Furnish to the Contracting 
Officer, as soon as practicable, a copy of the notice furnished to 
the subcontractor pursuant to subparagraph (e)(1) of this clause;
    (3) Subcontractor progress payment reduction. Reduce the 
subcontractor's progress payment by an amount not to exceed the 
amount specified in the notice of withholding furnished under 
subparagraph (e)(1) of this clause;
    (4) Subsequent subcontractor payment. Pay the subcontractor as 
soon as practicable after the correction of the identified 
subcontract performance deficiency, and--
    (i) Make such payment within--
    (A) Seven days after correction of the identified subcontract 
performance deficiency (unless the funds therefor must be recovered 
from the Government because of a reduction under paragraph 
(e)(5)(i)) of this clause; or
    (B) Seven days after the Contractor recovers such funds from the 
Government; or
    (ii) Incur an obligation to pay a late payment interest penalty 
computed at the rate of interest established by the Secretary of the 
Treasury, and published in the Federal Register, for interest 
payments under section 12 of the Contracts Disputes Act of 1978 (41 
U.S.C. 611) in effect at the time the Contractor accrues the 
obligation to pay an interest penalty;
    (5) Notice to Contracting Officer. Notify the Contracting 
Officer upon--
    (i) Reduction of the amount of any subsequent certified 
application for payment; or
    (ii) Payment to the subcontractor of any withheld amounts of a 
progress payment, specifying--
    (A) The amounts withheld under subparagraph (e)(1) of this 
clause; and
    (B) The dates that such withholding began and ended; and
    (6) Interest to Government. Be obligated to pay to the 
Government an amount equal to interest on the withheld payments 
(computed in the manner provided in 31 U.S.C. 3903(c)(1)), from the 
8th day after receipt of the withheld amounts from the Government 
until--
    (i) The day the identified subcontractor performance deficiency 
is corrected; or
    (ii) The date that any subsequent payment is reduced under 
subdivision (e)(5)(i) of this clause.
    (f) Third-party deficiency reports--(1) Withholding from 
subcontractor. If a Contractor, after making payment to a first-tier 
subcontractor, receives from a supplier or subcontractor of the 
first-tier subcontractor (hereafter referred to as a ``second-tier 
subcontractor'') a written notice in accordance with section 2 of 
the Act of August 24, 1935 (40 U.S.C. 270b, Miller Act), asserting a 
deficiency in such first-tier subcontractor's performance under the 
contract for which the Contractor may be ultimately liable, and the 
Contractor determines that all or a portion of future payments 
otherwise due such first-tier subcontractor is subject to 
withholding in accordance with the subcontract agreement, the 
Contractor may, without incurring an obligation to pay an interest 
penalty under subparagraph (e)(6) of this clause--
    (i) Furnish to the first-tier subcontractor a notice conforming 
to the standards of paragraph (g) of this clause as soon as 
practicable upon making such determination; and
    (ii) Withhold from the first-tier subcontractor's next available 
progress payment or payments an amount not to exceed the amount 
specified in the notice of withholding furnished under paragraph 
(f)(1)(i) of this clause.
    (2) Subsequent payment or interest charge. As soon as 
practicable, but not later than 7 days after receipt of satisfactory 
written notification that the identified subcontract performance 
deficiency has been corrected, the Contractor shall--
    (i) Pay the amount withheld under paragraph (f)(1)(ii) of this 
clause to such first-tier subcontractor; or
    (ii) Incur an obligation to pay a late payment interest penalty 
to such first-tier subcontractor computed at the rate of interest 
established by the Secretary of the Treasury, and published in the 
Federal Register, for interest payments under section 12 of the 
Contracts Disputes Act of 1978 (41 U.S.C. 611) in effect at the time 
the Contractor accrues the obligation to pay an interest penalty.
    (g) Written notice of subcontractor withholding. A written 
notice of any withholding shall be issued to a subcontractor (with a 
copy to the Contracting Officer of any such notice issued by the 
Contractor), specifying--
    (1) The amount to be withheld;
    (2) The specific causes for the withholding under the terms of 
the subcontract; and
    (3) The remedial actions to be taken by the subcontractor in 
order to receive payment of the amounts withheld.
    (h) Subcontractor payment entitlement. The Contractor may not 
request payment from the Government of any amount withheld or 
retained in accordance with paragraph (d) of this clause until such 
time as the Contractor has determined and certified to the 
Contracting Officer that the subcontractor is entitled to the 
payment of such amount.
    (i) Prime-subcontractor disputes. A dispute between the 
Contractor and subcontractor relating to the amount or entitlement 
of a subcontractor to a payment or a late payment interest penalty 
under a clause included in the subcontract pursuant to paragraph (c) 
of this clause does not constitute a dispute to which the United 
States is a party. The United States may not be interpleaded in any 
judicial or administrative proceeding involving such a dispute.
    (j) Preservation of prime-subcontractor rights. Except as 
provided in paragraph (i) of this clause, this clause shall not 
limit or impair any contractual, administrative, or judicial 
remedies otherwise available to the Contractor or a subcontractor in 
the event of a dispute involving late payment or

[[Page 12718]]

nonpayment by the Contractor or deficient subcontract performance or 
nonperformance by a subcontractor.
    (k) Non-recourse for prime contractor interest penalty. The 
Contractor's obligation to pay an interest penalty to a 
subcontractor pursuant to the clauses included in a subcontract 
under paragraph (c) of this clause shall not be construed to be an 
obligation of the United States for such interest penalty. A cost-
reimbursement claim may not include any amount for reimbursement of 
such interest penalty.

(End of clause)

[FR Doc. 97-6319 Filed 3-14-97; 8:45 am]
BILLING CODE 6820-EP-P