31 U.S.C. § 3904 — Limitations on discount payments

Page 364 TITLE 31—MONEY AND FINANCE § 3904 Subsec. (a)(4). Pub. L. 100–496, § 4, amended par. (4) generally. Prior to amendment, par. (4) read as follows: ‘‘provide separate required payment dates for a con- tract under which property or service is provided in a series of partial executions or deliveries to the extent the contract provides for separate payments for partial execution or delivery; and’’. Subsec. (a)(5). Pub. L. 100–496, § 5(2), added par. (5). Former par. (5) redesignated (7). Subsec. (a)(6). Pub. L. 100–496, § 6(2), added par. (6). Subsec. (a)(7). Pub. L. 100–496, § 7, added par. (7) and struck out former par. (7), which read as follows: ‘‘re- quire that, within 15 days after an invoice is received, the head of an agency notify the business concern of a defect or impropriety in the invoice that would prevent the running of the time period specified in clause (1)(B) of this section.’’ Pub. L. 100–496, § 5(1), redesignated par. (5) as (7). Subsec. (a)(8), (9). Pub. L. 100–496, § 7, added pars. (8) and (9). Subsecs. (b), (c). Pub. L. 100–496, § 6(3), added subsecs. (b) and (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–496 applicable to pay- ments under contracts awarded, contracts renewed, and contract options exercised during or after the first fis- cal quarter which begins more than 90 days after Oct. 17, 1988, see section 14(a) of Pub. L. 100–496, set out as a note under section 3902 of this title. IMPLEMENTATION THROUGH FEDERAL ACQUISITION REGULATION Pub. L. 100–496, § 11, Oct. 17, 1988, 102 Stat. 2463, pro- vided that: ‘‘(a) The Federal Acquisition Regulation shall be modified to provide appropriate solicitation provisions and contract clauses that implement chapter 39 of title 31, United States Code, as amended by this Act [see Short Title of 1988 Amendment note set out under sec- tion 3901 of this title], and the regulations prescribed under section 3903 of such title (as amended). ‘‘(b) The solicitation provisions and contract clauses required by subsection (a) of this section shall include (but not be limited to) the following matters: ‘‘(1) Authority for a contracting officer to specify for a contract or class of contracts a specific payment period, which— ‘‘(A) in the case of payments for commercial items or services, is similar to the payment period or periods permitted in prevailing private industry contracting practices; ‘‘(B) in the case of payments for noncommercial items and services, does not exceed 30 days unless the circumstances of the procurement action is de- termined to require a longer period for payment and such determination is approved above the level of the contracting officer; ‘‘(C) in the case of payments for items of property or services in an amount less than the amount spec- ified as a small purchase in section 303(g)(2) of the Federal Property and Administrative Services Act of 1949 ([former] 41 U.S.C. 253(g)(2)) [now 41 U.S.C. 3305(b)], does not exceed 15 days after the date of re- ceipt of the invoice, if— ‘‘(i) the contract provides for such ‘fast pay- ment’ terms; ‘‘(ii) title to any property will vest in the Gov- ernment upon delivery (including delivery to a common carrier); and ‘‘(iii) the business concern offers appropriate warranties to furnish property or services con- forming to the requirements of the contract or purchase order, if payment will be due prior to ac- ceptance of the items or services; and ‘‘(D) in the case of progress payments under con- struction contracts, does not exceed 14 days, unless the solicitation specifies a longer period which the contracting officer has determined is required to af- ford the Government a practicable opportunity to adequately inspect the work and to evaluate the adequacy of the contractor’s performance under the contract. ‘‘(2) Requirements to make periodic payments, in the case of a property or service contract which does not prohibit periodic payments for partial deliveries or other contract performance during the contract period, upon— ‘‘(A) submission of an invoice for property deliv- ered or services performed during the contract pe- riod, if an invoice is required by the contract; and ‘‘(B) either— ‘‘(i) acceptance of the property or services by an employee of the contracting agency authorized to accept the property or services; or ‘‘(ii) the making of a determination by such an employee, that the performance covered by the payment conforms to the terms and conditions of the contract. ‘‘(3) A conclusive presumption, exclusively for the purposes of determining when an agency becomes ob- ligated to pay a late payment interest penalty (other than under construction contracts), that the Federal Government has accepted property or services by the 7th day after the date on which, in accordance with the terms and conditions of the contract, the prop- erty is delivered or final performance of the services is completed, unless the solicitation specifies a longer period which is determined by the contracting officer to be required to afford the agency a prac- ticable opportunity to inspect and test the property furnished or evaluate the services performed. ‘‘(4) The limitation that the Federal Government may take a discount offered by a contractor for early payment by the Federal Government only in accord- ance with the time limits specified by the contractor, determined in accordance with the second sentence of section 3904 of title 31, United States Code. ‘‘(5) The requirements of section 3902(c) of title 31, United States Code. ‘‘(6) The requirements of section 3903(a)(6) of title 31, United States Code. ‘‘(7) The requirements of section 3905 of title 31, United States Code. ‘‘(c) The regulations required by subsection (a) of this section shall be published as proposed regulations for public comment as provided in section 22 of the Office of Federal Procurement Policy Act ([former] 41 U.S.C. 418b) [now 41 U.S.C. 1707] within 120 days after the date of the enactment of this Act [Oct. 17, 1988].’’ EDIBLE FRESH OR FROZEN POULTRY MEAT, PERISHABLE POULTRY MEAT FOOD PRODUCTS, FRESH EGGS, AND PERISHABLE EGG PRODUCTS Pub. L. 98–181, title II, § 2002, Nov. 30, 1983, 97 Stat. 1297, to the extent that it provided that the terms ‘‘meat’’ and ‘‘meat food products’’ as used in 31 U.S.C. 3903(2) also included edible fresh or frozen poultry meat, perishable poultry meat food products, fresh eggs and perishable egg products, was stricken by Pub. L. 100–496, § 13(b), Oct. 17, 1988, 102 Stat. 2465, applicable to payments under contracts awarded, contracts renewed, and contract options exercised during or after the first fiscal quarter which begins more than 90 days after Oct. 17, 1988. § 3904. Limitations on discount payments The head of an agency offered a discount by a business concern from an amount due under a contract for property or service in exchange for payment within a specified time may pay the discounted amount only if payment is made within the specified time. For the purpose of the preceding sentence, the specified time shall be determined from the date of the invoice. The Page 365 TITLE 31—MONEY AND FINANCE § 3905 head of the agency shall pay an interest penalty on an amount remaining unpaid in violation of this section. The penalty accrues as provided under sections 3902 and 3903 of this title, except that the required payment date for the unpaid amount is the last day specified in the contract that the discounted amount may be paid. (Added Pub. L. 97–452, § 1(18)(A), Jan. 12, 1983, 96 Stat. 2476; amended Pub. L. 100–496, § 8, Oct. 17, 1988, 102 Stat. 2460.) HISTORICAL AND REVISION NOTES Revised Section Source (U.S. Code) Source (Statutes at Large) 3904 ......... 31 App.:1802. May 21, 1982, Pub. L. 97–177, § 3, 96 Stat. 86. The word ‘‘otherwise’’ is omitted as surplus. The words ‘‘may pay the discounted amount’’ are sub- stituted for ‘‘may make payment in an amount equal to the discounted price’’ to eliminate unnecessary words. The words ‘‘on such unpaid amount’’ and ‘‘the regulations prescribed pursuant to’’ are omitted as sur- plus. The words ‘‘specified in the contract that the dis- counted amount may be paid’’ are substituted for ‘‘of the specified period of time described in subsection (a)’’ for clarity. Editorial Notes AMENDMENTS 1988—Pub. L. 100–496 inserted after first sentence ‘‘For the purpose of the preceding sentence, the speci- fied time shall be determined from the date of the in- voice.’’ Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100–496 applicable to pay- ments under contracts awarded, contracts renewed, and contract options exercised during or after the first fis- cal quarter which begins more than 90 days after Oct. 17, 1988, see section 14(a) of Pub. L. 100–496, set out as a note under section 3902 of this title. § 3905. Payment provisions relating to construc- tion contracts (a) In the event that a contractor, after mak- ing a certified payment request to an agency pursuant to section 3903(b) of this title, dis- covers that a portion or all of such payment re- quest constitutes a payment for performance by such contractor that fails to conform to the specifications, terms, and conditions of its con- tract (hereafter in this subsection referred to as the ‘‘unearned amount’’), then the contractor shall— (1) notify the agency of such performance de- ficiency; and (2) be obligated to pay the Government an amount equal to interest on the unearned amount (computed in the manner provided in section 3903(c) of this title), from the date of the contractor’s receipt of such unearned amount until— (A) the date the contractor notifies the agency that the performance deficiency has been corrected; or (B) the date the contractor reduces the amount of any subsequent certified applica- tion for payment to such agency by an amount equal to the unearned amount. (b) Each construction contract awarded by an agency shall include a clause that requires the prime contractor to include in each subcontract for property or services entered into by the prime contractor and a subcontractor (including a material supplier) for the purpose of per- forming such construction contract— (1) a payment clause which obligates the prime contractor to pay the subcontractor for satisfactory performance under its sub- contract within 7 days out of such amounts as are paid to the prime contractor by the agency under such contract; and (2) an interest penalty clause which obli- gates the prime contractor to pay to the sub- contractor an interest penalty on amounts due in the case of each payment not made in ac- cordance with the payment clause included in the subcontract pursuant to paragraph (1) of this subsection— (A) for the period beginning on the day after the required payment date and ending on the date on which payment of the amount due is made; and (B) computed at the rate specified by sec- tion 3902(a) of this title. (c) The construction contract awarded by the agency shall further require the prime con- tractor to include in each of its subcontracts (for the purpose of performance of such con- struction contract) a provision requiring the subcontractor to include a payment clause and an interest penalty clause conforming to the standards of subsection (b) of this section in each of its subcontracts and to require each of its subcontractors to include such clauses in their subcontracts with each lower-tier subcon- tractor or supplier. (d) The clauses required by subsections (b) and (c) of this section shall not be construed to im- pair the right of a prime contractor or a subcon- tractor at any tier to negotiate, and to include in their subcontract, provisions which— (1) permit the prime contractor or a subcon- tractor to retain (without cause) a specified percentage of each progress payment other- wise due to a subcontractor for satisfactory performance under the subcontract, without incurring any obligation to pay a late pay- ment interest penalty, in accordance with terms and conditions agreed to by the parties to the subcontract, giving such recognition as the parties deem appropriate to the ability of a subcontractor to furnish a performance bond and a payment bond; (2) permit the contractor or subcontractor to make a determination that part or all of the subcontractor’s request for payment may be withheld in accordance with the subcontract agreement; and (3) permit such withholding without incur- ring any obligation to pay a late payment pen- alty if— (A) a notice conforming to the standards of subsection (g) of this section has been pre- viously furnished to the subcontractor; and (B) a copy of any notice issued by a prime contractor pursuant to subparagraph (A) of this paragraph has been furnished to the Government. (e) If a prime contractor, after making appli- cation to an agency for payment under a con-