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
Contractors must act to preserve their rights. If this is not done by the contractor, the Prompt Payment Act may be denied.
Fraudulent Claims for Payment/Civil Fraud
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:
(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).
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.