In Plain English
Quick Answer
A federal law making agencies pay contractors on time (usually 14-30 days) or owe interest. Primes must then pay subs within 7 days of getting paid. Most states have their own prompt-payment rules too.
Definition
Definition
The Prompt Payment Act is a federal law requiring government agencies to pay contractors within set timeframes (generally 14-30 days of a proper invoice) or owe automatic interest penalties. Related FAR clauses require prime contractors to pay subcontractors within 7 days of receiving payment from the government. Most states have their own prompt-payment statutes covering public, and sometimes private, construction payments.
Context
Why It Matters in Bidding
Prompt-payment rules govern the cash-flow timing that makes or breaks a job: they set when the government must pay and when primes must pass funds to subs, with interest as the penalty for lateness. Subcontractors factor these timelines into bid pricing and cash planning because slow pay carries real financing cost.
Example
Example
A federal agency pays a proper pay application 40 days late, triggering automatic interest under the Prompt Payment Act on top of the invoiced amount.
See Also
Related Terms
FAQ
Questions Contractors Ask
How fast must the government pay under the Prompt Payment Act?
Agencies generally must pay a proper invoice within 30 days of receipt, or 14 days for certain construction progress payments, or automatic interest accrues. Disputed or improper invoices pause the clock, so contractors submit clean, complete pay applications to start the payment window promptly.
When must a prime pay its subcontractors?
Federal construction contracts include FAR clauses requiring the prime to pay each subcontractor within 7 days of receiving the corresponding payment from the government, and to pass through any interest for late payment. These flow-down obligations protect subs even though their contract is with the prime.
Do prompt-payment laws apply to private and state projects?
The federal Prompt Payment Act covers federal contracts, but most states have their own prompt-payment statutes governing public, and often private, construction, with their own deadlines and interest rates. On any project, the governing statute depends on the owner and jurisdiction, so terms vary widely.
What counts as a 'proper' invoice?
A proper invoice includes the information the contract requires, such as the contract number, itemized amounts, supporting documentation, and correct remit-to details. If anything required is missing, the agency can return it and the payment clock does not start until a corrected invoice is received.
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