Getting Paid

When it comes to selling to the government, the one thing a contractor should not have to worry about is getting paid. You might reasonably expect to wait a bit longer to get paid, given the fact that the government is a very large organization with more layers of management than most businesses.

Yet you certainly don't need to worry about bad debt, or the government not paying you sooner or later. After all, the government is not about to go bankrupt, so you're not going to get one of those dreaded notices from the bankruptcy court that means you might as well write off the amount owed as worthless.

Payment in government contracting is different than in the commercial sector. While for commercial sales the buying, using, and paying offices are usually in the same location, for government contracts the purchasing office, location of the users, and the disbursing office are usually in different locations. The physical separation of these three functions -- buying, using, and paying -- makes it harder to coordinate communications among the personnel you need to talk with to move your payment along.

What's more, since the disbursing office is removed from the buying office, it often applies barriers to payment that weren't in the purchase order. The disbursing office will have a set of procedures and checklists necessary to be completed before payment will be released to you. If your invoice isn't proper according to its checklist, the disbursing office will refuse payment, even if the purchase order allows payment.

Because taxpayer money is at stake, it's reasonable for disbursing offices to be careful before making payment. That said, disbursing offices often make collecting payment more difficult and time consuming than necessary. This in turn increases the administrative cost of doing business with the government. It also can cause the type of extreme frustration that comes from dealing with a huge bureaucracy, where you can become caught in a never-ending circle of requests for the same information over and over again.

So what is the law governing payment? As with most government contract matters, you must first and foremost look to the contract entered into between you and the government. For a delivery order placed against a GSA Schedule contract, the terms set forth in the contract and the Schedule Pricelist govern payment. For an open market purchase order, you must look to the terms set forth on the purchase order. For other contracts, whether IDIQ, requirement, or fixed priced contracts, the terms included in the contract govern.

On occasion, you might receive a notice stating that your invoice was missing a DD Form 250, Material Inspection and Receiving Report, or some other standard form. An agency, however, can insist on such a standard form only if it is permitted under the terms of the contract governing the purchase. For an order placed under a GSA Schedule contract, for example, a Department of Defense activity simply cannot insist on a DD 250, since the GSA Schedule contract doesn't require that form for a proper invoice.

In many of these contracts, the Prompt Payment clause, FAR ¤ 52.232-25, will govern. Basically, the Prompt Payment clause requires the contractor to list certain pertinent information in the contractor's invoice. If the invoice includes the required information, it's considered a "proper" invoice, and must be paid either within 30 days after being issued or within 30 days after acceptance of the goods, whichever is later. If an invoice is not proper, the disbursing office is required to notify the contractor within seven days after its receipt.

Under the Prompt Payment clause, interest accrues if the government fails to pay a proper invoice on time, assuming the government received the goods and accepted them. The interest is due automatically, without demand by the contractor. Interest is also due if the government improperly took advantage of a prompt payment discount you offered.

Interest doesn't accrue for longer than one year, if you file a formal claim against the government for collection. In addition, a penalty may be due under the Prompt Payment clause if the government fails to pay the interest due on time and if you make a written demand for it not later than 40 days after the invoice amount is paid.

The government has a hard job keeping track of the multitude of purchases it makes, so it's understandable, although not acceptable, that it's slow to pay some invoices. For the contractor's part, you must be aware of your rights to payment and interest, and must also be knowledgeable in the government's payment process. By understanding the rules, you can work together with the government to make collection a less trying experience for both players.