The government may have no arguable defense for nonpayment, but simply fails to process the contractor’s invoice in a timely fashion. In addition, an agency may refuse payment of a contractor’s invoice on the grounds that the work is defective, that payment is not yet due, or that the costs being sought are unallowable.
The traditional common law remedy for delayed payment has been interest, Ramsey v. United States, 121 Ct. Cl. 426, 101 F. Supp. 353 (1951). It is sometimes stated that interest is the sole remedy. See Loudon v. Taxing Dist., 104 U.S. 771 (1881), in which the Court stated at 774:
The rule in government contracts has been that interest is not assessed against the government unless expressly permitted either by statute or contract provision.
The FAR cost principle barring interest on borrowings precluded a contractor from recovering interest on progress payments withheld by the government.
Interest is allowed as part of an equitable adjustment, without any express authorization for the recovery of interest. Two statutes serve as a basis for contractor recovery of interest for government delays in payment (1) the Prompt Payment Act of 1982, 31 U.S.C. § 3901et seq., covering undisputed delays in payment, and (2) the Contract Disputes Act of 1978, 41 U.S.C. § 611, providing for interest on contractor claims.
Prompt Payment Act
Prompt Payment Act (PPA), 31 U.S.C. § 3901et seq., which is effective for contracts entered into on or after October 1, 1982. The Act was amended in 1988 by Pub. L. No. 100-496. Section 3902 of the Act requires each federal agency that fails to make payment for each “delivered item of property or service by the required payment date” to pay an interest penalty. The Act is implemented by FAR Subpart 32.9. The Office of Management and Budget has also implemented the Act through 5 CFR § 1315. DFARS 232.905 contains guidance for the Department of Defense.To determine whether the liability for interest due on late payment falls on the program office or on the defense finance accounting service, see Liability for Prompt Payment Interest Payments Under Interagency Agreements, 65 Comp. Gen. 795 (B-219474) (1986). The PPA states that when the government is liable for interest on late payments, the Act “does not authorize the appropriation of additional amounts to pay an interest penalty. The head of an agency shall pay a penalty under this section out of amounts made available to carry out the program for which the penalty is incurred,” 31 U.S.C. § 3902(f).
Contractors must act to preserve their rights. If this is not done by the contractor, the Prompt Payment Act may be denied.
The Prompt Payment Act provides for the payment of interest on contract payments at 31 U.S.C. § 3902(a): The interest shall be 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), which is in effect at the time the agency accrues the obligation to pay a late payment interest penalty.
The False Claims Act was set forth in 31 U.S.C. § 231. In 1982, it was codified in 31 U.S.C. § 3729 and amended by the False Claims Amendments Act of 1986 to read as follows:(a) Liability for certain acts. Any person who -
(1) knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
(4) has possession, custody, or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;
(5) authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(6) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge the property; or
(7) knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, plus 3 times the amount of damages which the Government sustains because of the act of that person, except that if the court finds that—(A) the person committing the violation of this subsection furnished officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information;
The 1986 amendments enable the government to prove a case of fraud more easily. Under the Act, the government can establish liability without showing that the contractor had a specific intent to defraud. “Knowing,” is defined as:
(1) actual knowledge of the information.
(2) deliberate ignorance of the truth or falsity of the information.
(3) reckless disregard of the truth or falsity of the information.The government is allowed to prove its civil claims by a “preponderance of the evidence,” 31 U.S.C. § 3731(c).
18 U.S.C. § 287, as amended by the False Claims Amendments Act of 1986, provides:
Whoever makes or presents to any person or officer in the civil, military, or naval service of the United States, or to any department or agency thereof, any claim upon or against the United States, or any department or agency thereof, knowing such claim to be false, fictitious, or fraudulent, shall be imprisoned not more than five years and shall be subject to a fine in the amount provided in this title.Generally, this statute subjects a person convicted of false billings to a fine of $10,000 per billing. See, however, 18 U.S.C. § 1031, which greatly increases such fines in the case of “major fraud.” Under that provision, fines up to $1,000,000 may be imposed for false claims in contracts or subcontracts over $1,000,000.