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.
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.
Malyszek and Malyszek can help you with your government contracting needs in terms of Interest and Interest Penalties.