Claim for Late Payment Charges

GAO was asked whether a contractor was entitled to aggregate late payment charges on bills paid by Government checks which were issued and mailed before, but not received by the contractor until after, the delinquency date for payment. An agency had not paid these assessments on the theory that effective payment occurs when a Government check is issued rather than when it is received by the vendor. The contractor contended that the terms of payment are governed by company rules and regulations which provide for late charges on payments not received before the delinquency date. Federal courts have held that, in the context of prompt payment discounts, if it is not practicable to send a payment so that it will reach the creditor within 10 days, the payee must stipulate in its contracts a longer discount period. GAO has held that, in late payment cases as well as prompt payment discount cases, the question of when payment occurs is best remedied by express contractual provisions. GAO found that the contract between the agency and the contractor specifically provided for terms of payment in accordance with the company's rules and regulations. In view of the specific reference in the contract, GAO found the agency to be bound by the contractor's rules and regulations which provide that payment occurs upon receipt of the monies due rather than the issuance or mailing of the check. Accordingly, the agency was obliged to pay the late payment charges.