Prompt Payment Act: federal rules for contractors

It applies to federal agencies when they buy property or services from a "business concern". The Act defines that as a person carrying on a trade or business, or a nonprofit operating as a contractor. It also names some bodies specifically, including the Tennessee Valley Authority and the US Postal Service.

Subcontractors on federal projects are covered through clauses their prime contractor must include, described below.

The required payment date is:

• the date set in the contract, or
• if the contract sets no date, 30 days after the agency receives a proper invoice.

Under FAR 52.232-25, the due date is generally the later of 30 days after the designated billing office receives a proper invoice, or 30 days after the government accepts the supplies or services.

For construction contracts, the Act says the payment period for progress payments should not be more than 14 days after the payment request is received, unless the solicitation sets a longer one.

A late-paying agency owes an interest penalty. Under 31 U.S.C. 3902:

• Interest runs from the day after the required payment date until the date of payment.
• The agency must pay it without the contractor having to ask.
• Interest left unpaid at the end of each 30-day period is added to the principal, and further interest accrues on the total.

The rate is set by the Secretary of the Treasury and published by the Bureau of the Fiscal Service. For July 1 to December 31, 2026, it is 4.75 percent.

Under the federal regulations at 5 CFR 1315.10, interest penalties of less than one dollar need not be paid.

Say a contractor invoices $50,000 and the agency pays 20 days late. The agency should add interest for those 20 days without being asked.

The 30-day clock runs from receipt of a proper invoice. FAR 52.232-25 lists what a proper invoice must include:

• your name and address
• the invoice date and invoice number
• the contract number or other authorization, including the order and line item number
• a description, quantity, unit of measure, unit price and extended price of what was delivered
• shipping and payment terms, including any prompt payment discount
• the name and address of the person to be paid, matching the contract
• the name, title, phone number and mailing address of the person to notify if the invoice is defective
• your taxpayer identification number and electronic funds transfer details, where the contract requires them on the invoice
• anything else the contract requires, such as evidence of shipment

If an invoice is not proper, the billing office must return it within 7 days of receipt, with the reasons why. Since the 30 days run from receipt of a proper invoice, a returned invoice means a later due date. Our guide on invoice disputes covers how to handle a returned or queried invoice once it happens.

Yes, through the prime contract. Under 31 U.S.C. 3905, every subcontract on a covered federal contract must include:

• A payment clause. The prime contractor must pay the subcontractor for satisfactory performance within 7 days of receiving payment from the agency for that work.
• An interest penalty clause. If the prime contractor pays late, it owes the subcontractor interest at the same rate the agency would pay.
• Flow-down. Each subcontractor must put the same clauses in its own subcontracts, down every tier.

The Act also lets the parties agree in the subcontract that a set percentage of each progress payment is held as retainage. If a prime contractor withholds payment, it must give the subcontractor written notice of the amount withheld, the reasons under the subcontract, and what needs to be fixed, with a copy to the government.

The interest a prime contractor owes a subcontractor is not an obligation of the United States, so a subcontractor chases its prime contractor, not the agency.

Yes, for state and local government work, and they differ. Florida's law for local government construction, Florida Statutes 218.735, sets payment deadlines in business days, requires the contractor to pay its subcontractors and suppliers within 10 days of being paid, caps retainage at 5 percent on contracts over $200,000, and sets interest on late payments at 2 percent a month or the contract rate, whichever is greater.

For state or local projects, look up that state's statute and check whether it covers your contract.

Subject: Invoice [Invoice number] - payment past due - [Contract number]

Hi [First name],

Invoice [Invoice number] for [Amount] under contract [Contract
number] was received on [Date received] and was due for payment on
[Due date]. We have not yet received payment.

Could you confirm the payment date? If anything needs correcting,
tell us and we will send a corrected copy today.

Thanks,
[Your name]
[Company name]
[Phone and email for invoice queries]

For the follow-ups after that, our past due invoice email templates set out each stage.