When a federal agency pays a construction invoice late, it owes the contractor interest. The Prompt Payment Act of 1982 requires it, according to the Bureau of the Fiscal Service, the Treasury office that publishes the rate. The agency calculates it and pays it without a request, and the project accountant who posts the receipt can check the math.
The rules sit in FAR 52.232-27, the prompt payment clause in federal construction contracts, and in the regulation it points to at 5 CFR part 1315.
When a payment is late
FAR 52.232-27 sets the due dates, and each one starts from a different event:
- A progress payment is due 14 days after the designated billing office receives a proper payment request.
- Retainage held under FAR 52.232-5 is due on the date the contract sets. When the contract is silent, it is due 30 days after the contracting officer approves its release.
- A final payment is due on the later of two dates, the 30th day after the billing office receives a proper invoice and the 30th day after the government accepts the work.
The clock starts only with a proper invoice, which the clause defines in eleven items. A billing office that finds a defect has 7 days to return the invoice with its reasons, and the government takes a late return into account when it computes interest.
Interest is automatic once the agency has processed a receiving report or similar document and there is no disagreement over quantity, quality, compliance or the amount requested. When a due date falls on a Saturday, Sunday or legal holiday, the agency may pay on the next working day with no penalty.
How the interest is calculated
5 CFR 1315.10 sets the method. In order:
- Count days late from the day after the due date through the payment date. The FAR clause treats the date on the check, or the date of the electronic funds transfer, as the payment date.
- Use the rate in effect on the day after the due date. Treasury publishes the rate by period, and for July 1 through December 31, 2026 it is 4.75%. That rate stays with the invoice even when the payment arrives after a new rate takes effect.
- Use a 360-day year.
- At the end of each 30-day period, add unpaid interest to the principal so later interest accrues on it. This compounding runs for up to one year.
The Fiscal Service publishes the formula behind its online calculator. Multiply the principal by (1 + r/12) raised to the number of full months, then by (1 + r/360 × the remaining days), and subtract the principal. Here r is the annual rate. For a payment 30 days late or less, no compounding period has closed, so the result is simple interest.
Interest stops accruing after one year, or once the contractor files a Contract Disputes Act claim for it. The regulation excludes penalties under $1, delays caused by a dispute over the amount or contract compliance, and amounts withheld temporarily under the contract. Retainage falls in that last group until its release is approved, and the retainage aging post covers how to track it by owner.
A worked example
The figures below are an example with round numbers. A general contractor on a federal fixed-price job has three payments in the second half of 2026:
- The August progress payment of $1,000,000. The billing office logged the request on September 1, so it was due September 15, and the agency paid on November 5.
- The September progress payment of $800,000, received October 1, due October 15 and paid October 29.
- A $500,000 retainage release the contracting officer approved on September 30. The contract sets no date, so it was due 30 days later on October 30. The agency paid on December 29.
All three due dates fall in the July to December 2026 period, so each one uses 4.75%.
| Payment | Amount ($) | Due date | Paid | Days late | Full 30-day periods | Remaining days | Interest owed ($) | Simple interest ($) | Additional penalty if interest goes unpaid ($) |
|---|---|---|---|---|---|---|---|---|---|
| August progress payment | $1,000,000 | Sep 15 | Nov 5 | 51 | 1 | 21 | 6,740.13 | 6,729.17 | 5,000.00 |
| September progress payment | $800,000 | Oct 15 | Oct 29 | 14 | 0 | 14 | 1,477.78 | 1,477.78 | 1,477.78 |
| Retainage release | $500,000 | Oct 30 | Dec 29 | 60 | 2 | 0 | 3,966.17 | 3,958.33 | 3,966.17 |
The August payment ran 51 days late, one full 30-day period plus 21 days. The formula gives $1,000,000 × (1 + 0.0475/12) × (1 + 0.0475/360 × 21) minus $1,000,000, or $6,740.13. Simple interest over the same 51 days would be $6,729.17, so compounding adds about $11 here.
The September payment was 14 days late, which keeps it inside the first period: $800,000 × 0.0475 × 14 / 360 = $1,477.78. The retainage was 60 days late, exactly two periods, for $3,966.17.
When the agency leaves out the interest
The regulation requires a notice with each interest payment stating the amount, the number of days late and the rate. Compare those three figures to your own calculation, invoice by invoice.
When the agency pays the principal late without the interest and still has not paid the interest 10 days later, the contractor can request an additional penalty in writing. Under 5 CFR 1315.11, the request must be postmarked or received by the 40th day after the payment. It must name the invoice, attach a copy, and state the date the principal arrived. The additional penalty equals the interest owed, with a $25 minimum and a $5,000 maximum, figured separately for each invoice.
In the example, the cap holds the August payment’s additional penalty to $5,000. For a payment dated November 5, the 40th day is December 15.
The subcontractor side
FAR 52.232-27 flows down to subcontracts. The prime has to pay each subcontractor within 7 days of receiving the government’s payment, and owes the subcontractor interest from the day after that date until it pays. The rate is the one Treasury sets for interest under 41 U.S.C. 7109, the Contract Disputes Act provision, in effect when the obligation arises. The clause does not specify compounding, so read the subcontract’s interest clause.
Say the drywall subcontractor’s share of the August payment is $400,000. The government paid on November 5, so the prime owes the subcontractor by November 12. A prime that pays on November 25 is 13 days late, and at 4.75% simple interest on a 360-day year, which this example assumes, it owes $686.11. Paragraph (k) of the clause says that interest is the prime’s obligation alone, and a cost-reimbursement claim may not include it.
How to track this on your jobs
Add five columns to the A/R subledger for federal jobs: the date the billing office received the request, the due date, the payment date, the interest you computed and the interest received. Use the receipt date the billing office annotates, or the timestamp from the submission portal. The DSO post already sorts federal receivables by due date, so that column may exist. The same 4.75% rate is the cost-of-money input in the Corps of Engineers equipment rate method.
Start with one federal job. Pull every payment received since July 1, 2026, find the ones dated after their due date, and compute the interest each should have carried. Then compare each result to the agency’s interest notice, and mark the 40th day after payment on any invoice where the interest is missing.