O ne of the DoD’s top priorities is expanding the industrial base and improving the health of its commercial partners. This improves our defense posture and enhances our ability to attain our sustainment and systems goals. One way we do this is by being a reliable, responsive contracting partner, un- derstanding and harnessing industry’s motivations, one of which is having a reliable cash flow. In the 1970s, there was significant
payment, to impose interest penalties on the government for late payments, and to ensure that the government took discounts for prompt payment only when payment is made within the discount period. (For example, if a contract had a 2 percent discount for payment within 15 days, the govern- ment should not take the discount if it did not pay within 15 days.) The Act was passed in 1982 and took effect in 1983. It became part of the Federal Acquisition Regulation (FAR) subpart 32.9. The PPA has since been modi- fied, in part to tighten government responsibilities and compliance. This article will review some of the his- tory of the Act and its impact on DoD contracting. Payment Due Date One of the key goals of the PPA was to establish clear payment due dates, so vendors would be better able to manage their cash flow, know when to expect payment, and budget accordingly. So, under the PPA, when are payments due? And if not made on time, when would interest begin to accrue? The clause Prompt Payment at FAR 52.232-25 states that payment is due 30 days from the latter of the following events: • Receipt of proper invoice at the designated office. • Acceptance of supplies/services. While 30 days is the normal win- dow from invoice/acceptance until payment is due, there are numerous exceptions to the 30-day rule. One in- volves perishable items such as sub- sistence, dairy, or meat, for which we reduce the 30 days and other periods discussed herein to accommodate
discontent in the commercial world with the government’s failure to pay invoices in a timely manner. Industry made this known to Congress, which instructed what was then the General Accounting Office (GAO) to inspect the timeliness of the payment process in government contracts. The GAO is- sued a report to Congress on Feb. 24, 1978, noting that approximately 30 percent of federal payments were late due to government fault—i.e., paid after the due date. As a result of this report, the Prompt Payment Act (PPA), Public Law 97-177, was born. The goals of the PPA were to es- tablish clear due dates for invoice pay- ments, to require timely government
quicker product turnover and the need for greater cash flow. Also, we should make payments for commercial items as similar as possible to prevailing in- dustry practice. We are required by the Act to specify the payment due date in the contract—the 30 days is a default if we do not. And there are special provisions for construction contracts. Please be aware of these exceptions in FAR 32.904. But for clarity’s sake, this article will not ad- dress these special circumstances further. In 1983, how did the paying office (a group separate from the contract- ing office) know what these dates were to enable timely payments? When the PPA was first implemented, most payments were made by local paying offices or those assigned to individual services. The Defense Fi- nance and Accounting Service (DFAS) did not yet exist; it was created in 1991. So, for almost a decade after the Act came into effect, these payments were made more organically. And the dates were usually captured using a
One of the key goals of the PPA was to establish clear payment due dates, so vendors would be better able to manage their cash flow, know when to expect payment,
and budget accordingly.
14 | DEFENSE ACQUISITION | July-August 2025
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