Government Contracts Monitor

Short Take: Department of the Treasury Updates Prompt Payment Act Interest Rate

January 10, 2017

The Department of the Treasury has updated the Prompt Payment Act Interest Rate for the first half of calendar year 2017. The new rate has increased from 1.875 percent to 2.5 percent per year. Under the Contract Disputes Act (CDA), when prevailing on a monetary contract dispute, a contractor is entitled to recover simple interest, calculated at the applicable rate for every six-month period, on late payments and contract claims. The interest accrues from the date the government receives the claim through when payment is made. The Treasury Department updates the interest rate twice a year, on January 1 and July 1. Since January 2011, rates have steadily been below 3 percent, falling to an all-time low of 1.375% for the first half of 2013. Historically, the interest rate has risen as high as 15.5% during periods of inflation. The Treasury Department provides a calculator for contractors to use to determine the interest payable on claims and late payments.

Contractors are not required to pay CDA interest on disputed amounts to subcontractors, unless the parties agree to such interest.