B-159741, NOVEMBER 22, 1966, 46 COMP. GEN. 430

B-159741: Nov 22, 1966

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

OR FROM THE DATE THE CORRECT INVOICE IS RECEIVED. A DISCOUNT TAKEN ON THE PROGRESS PAYMENT RECOUPED FROM A PARTIAL DELIVERY INVOICE PAID AFTER THE EXPIRATION OF THE DISCOUNT PERIOD WAS PROPER. AS TAKING A DISCOUNT ON THE PROGRESS PAYMENT WOULD HAVE DEFEATED THE PURPOSE OF PROVIDING CAPITAL TO THE CONTRACTOR. THE GOVERNMENT IS ENTITLED TO A DISCOUNT ON THE AMOUNT OF THE PROGRESS PAYMENT DEDUCTED FROM THE PARTIAL DELIVERY PAYMENT. EVEN THOUGH THE PAYMENT ON THE BALANCE DUE ON THE PARTIAL DELIVERY WAS MADE TOO LATE TO HAVE EARNED A DISCOUNT. CONTRACTS - DISCOUNTS - PARTIAL AND PROGRESS PAYMENTS THE TERM "PROGRESS PAYMENTS" UNDER PARAGRAPH E-106 OF THE ARMED SERVICES PROCUREMENT REGULATION SIGNIFYING PAYMENTS THAT ARE MADE AS WORK PROGRESSES UNDER A CONTRACT.

B-159741, NOVEMBER 22, 1966, 46 COMP. GEN. 430

CONTRACTS - DISCOUNTS - PARTIAL AND PROGRESS PAYMENTS UNDER A CONTRACT PROVIDING FOR PROGRESS PAYMENTS AND A PROMPT PAYMENT DISCOUNT FROM DATE OF DELIVERY, EITHER TO THE CARRIER OR AT DESTINATION, OR FROM THE DATE THE CORRECT INVOICE IS RECEIVED, IF LATER THAN THE DELIVERY DATE, A DISCOUNT TAKEN ON THE PROGRESS PAYMENT RECOUPED FROM A PARTIAL DELIVERY INVOICE PAID AFTER THE EXPIRATION OF THE DISCOUNT PERIOD WAS PROPER, AS TAKING A DISCOUNT ON THE PROGRESS PAYMENT WOULD HAVE DEFEATED THE PURPOSE OF PROVIDING CAPITAL TO THE CONTRACTOR, AND THE DISCOUNT TIME PERIOD RUNNING AGAINST THE DELIVERY PAYMENT AND NOT THE AMOUNT APPLIED IN LIQUIDATION OF THE PROGRESS PAYMENT MADE PRIOR TO THE DELIVERY OF SUPPLIES AND TO THE DISCOUNT PERIOD, THE GOVERNMENT IS ENTITLED TO A DISCOUNT ON THE AMOUNT OF THE PROGRESS PAYMENT DEDUCTED FROM THE PARTIAL DELIVERY PAYMENT, EVEN THOUGH THE PAYMENT ON THE BALANCE DUE ON THE PARTIAL DELIVERY WAS MADE TOO LATE TO HAVE EARNED A DISCOUNT. CONTRACTS - DISCOUNTS - PARTIAL AND PROGRESS PAYMENTS THE TERM "PROGRESS PAYMENTS" UNDER PARAGRAPH E-106 OF THE ARMED SERVICES PROCUREMENT REGULATION SIGNIFYING PAYMENTS THAT ARE MADE AS WORK PROGRESSES UNDER A CONTRACT, OR UPON THE BASIS OF COSTS INCURRED, OR A PERCENTAGE OF COMPLETION ACCOMPLISHED UNDER A CONTRACT OR A PARTICULAR STAGE OF COMPLETION, AND THE TERM "PARTIAL PAYMENTS" IN ACCORDANCE WITH PARAGRAPH E-509.1 APPLYING TO PARTIAL DELIVERIES ACCEPTED BY THE GOVERNMENT UNDER THE CONTRACT, OR PARTIAL PAYMENTS ON CONTRACT TERMINATION CLAIMS, WHERE A CONTRACT PROVIDES FOR A PROMPT PAYMENT DISCOUNT FROM DATE OF DELIVERY, EITHER TO A CARRIER OR AT DESTINATION, OR FROM THE DATE THE CORRECT INVOICE IS RECEIVED, IF LATER THAN THE DELIVERY DATE, THE GOVERNMENT IS ENTITLED TO A DISCOUNT ON THE PROGRESS PAYMENT RECOUPED FROM A PARTIAL DELIVERY INVOICE, EVEN IF DEDUCTED FROM A PARTIAL DELIVERY PAYMENT MADE AFTER THE EXPIRATION OF THE DISCOUNT PERIOD, THE DISCOUNT PERIOD RUNNING ONLY ON THE DELIVERY PAYMENT.

TO THE COMPTROLLER, DEFENSE SUPPLY AGENCY, NOVEMBER 22, 1966:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JULY 21, 1966, WITH ENCLOSURES, REQUESTING OUR DECISION AS TO WHETHER THE CLAIM OF HOL-GAR MANUFACTURING CORPORATION MAY BE CERTIFIED FOR PAYMENT.

THE CLAIM IS FOR THE REFUND OF A DISCOUNT TAKEN BY A FINANCE AND ACCOUNTING OFFICER DISBURSING FUNDS UNDER CONTRACT NO. DA 11184-566 AT THE DEFENSE CONTRACT ADMINISTRATION SERVICES REGION (DCASR), PHILADELPHIA, PENNSYLVANIA. THE RECORD INDICATES THAT THE CONTRACT, TO FURNISH A NUMBER OF GENERATOR SETS AND RELATED EQUIPMENT, WAS AWARDED AUGUST 28, 1964. IS SAID TO HAVE CONTAINED THE STANDARD DISCOUNT PROVISION SET FORTH ON PAGE 2 OF STANDARD FORM 30, INVITATION FOR BIDS, WHICH BECAME A PART OF THE DEFINITIVE CONTRACT.

THE ACCEPTED BID SUBMITTED BY HOL-GAR PROVIDED FOR A DISCOUNT OF ONE- TENTH OF 1 PERCENT UPON PAYMENT IN 20 DAYS. PARAGRAPH 7B OF STANDARD FORM 30 PROVIDES THAT IN CONNECTION WITH ANY DISCOUNT OFFERED, TIME WILL BE COMPUTED FROM THE DATE OF DELIVERY OF SUPPLIES TO THE CARRIER WHEN DELIVERY AND ACCEPTANCE ARE AT THE POINT OF ORIGIN, OR FROM THE DATE OF DELIVERY AT DESTINATION WHEN DELIVERY IS AT THAT POINT, OR FROM THE DATE THE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE IS LATER THAN THE DELIVERY.

PROVISION FOR PROGRESS PAYMENTS, IN ACCORDANCE WITH THE CLAUSE AS SET FORTH IN PARAGRAPH 23 OF THE SPECIAL TERMS AND CONDITIONS OF THE INVITATION, WAS INCLUDED IN THE AGREEMENT. THESE PAYMENTS WERE TO BE MADE TO MOL-GAR BASED UPON DIRECT LABOR AND MATERIAL COST, NOT TO EXCEED CERTAIN SPECIFIED PERCENTAGES, UPON THE SUBMISSION OF A CORRECT INVOICE. THE FINANCE OFFICER MADE PROGRESS PAYMENTS TO THE CONTRACTOR, HOWEVER, NO DISCOUNTS WERE TAKEN REGARDLESS OF WHETHER THE PAYMENTS WERE OR WERE NOT MADE WITHIN 20 DAYS AFTER THE SUBMISSION OF THE INVOICE FOR SUCH PROGRESS PAYMENTS.

PARTIAL PAYMENTS WERE ALSO MADE TO HOL-GAR UPON THE SUBMISSION OF A CORRECT INVOICE. THIS WOULD OFTEN RESULT IN A NET PAYMENT TO THE CONTRACTOR THAT WAS LESS THAN THE INVOICE AS FROM THE AMOUNT BILLED FOR A PARTIAL DELIVERY THERE WOULD BE RECOUPED THE AMOUNTS THERETOFORE PAID AS PROGRESS PAYMENTS.

DISBURSEMENTS AT DCASR, PHILADELPHIA, ARE MADE BY ONE FINANCE OFFICER UNDER ARMY SYMBOL 5015, NAVY SYMBOL 5704, AND AIR FORCE SYMBOL 5908. DISCOUNTS WERE DEDUCTED ON ARMY CONTRACTS CONTAINING PROGRESS PAYMENT CLAUSES WHEN A PARTIAL PAYMENT WAS MADE WITHIN 20 DAYS AFTER RECEIPT OF THE PARTIAL DELIVERY INVOICE. NO PROVISION EXISTED IN ARMY PROCUREMENT REGULATIONS PERMITTING THE DEDUCTION OF A DISCOUNT, WHEN THE DELIVERY PAYMENT WAS MADE AFTER THE EXPIRATION OF THE DISCOUNT PERIOD, ON THE AMOUNT OF THE DELIVERY PAYMENT APPLIED IN LIQUIDATION OF PROGRESS PAYMENTS. HOWEVER, NAVY PROCUREMENT REGULATIONS CONTAIN THE FOLLOWING PROVISION FOUND IN NAVCOMP VOLUME IV, PARAGRAPH 046023.3B:

B. PROGRESS PAYMENTS. ON CONTRACTS PROVIDING FOR PROGRESS PAYMENTS AND DELIVERY PAYMENTS, DISCOUNT WILL BE DEDUCTED ON THE DELIVERY PAYMENTS ONLY. WHEN THE DELIVERY PAYMENT IS MADE WITHIN THE DISCOUNT PERIOD, DISCOUNT WILL BE DEDUCTED ON THE GROSS VALUE OF THE MATERIAL DELIVERED INCLUDING AMOUNTS APPLIED IN LIQUIDATION OF PROGRESS PAYMENTS. WHEN THE DELIVERY PAYMENT IS MADE AFTER THE EXPIRATION OF THE DISCOUNT PERIOD, DISCOUNT NEVERTHELESS WILL BE DEDUCTED ON THAT PART OF THE DELIVERY PAYMENT APPLIED IN LIQUIDATION OF THE PROGRESS PAYMENTS.

THE PRACTICE OF TAKING A DISCOUNT ON PAYMENT FOR A PARTIAL DELIVERY FROM WHICH RECOVERY OF A PROGRESS PAYMENT WAS AFFECTED EVEN WHEN THE PAYMENT WAS MADE TOO LATE FOR DISCOUNT ON THE PARTIAL PAYMENT WAS INSTITUTED BY DCASR UNDER AN ARMY SYMBOL. IN ACCORDANCE WITH THIS PRACTICE THE FINANCE OFFICER DEDUCTED A DISCOUNT OF $253.63 ON THE AMOUNT OF THE 26TH PARTIAL PAYMENT APPLIED IN LIQUIDATION OF PROGRESS PAYMENTS EVEN THOUGH THE DISCOUNT PERIOD ON THE PARTIAL PAYMENT HAD EXPIRED.

HOL-GAR HAS MAINTAINED THAT THE DEDUCTION OF THE DISCOUNT ON THE 26TH PARTIAL PAYMENT WAS IN ERROR AND HAS REQUESTED THAT THE AMOUNT WITHHELD BE RETURNED. YOU HAVE SUBMITTED FOR OUR DETERMINATION THE QUESTION OF THE LEGALITY OF THE PRACTICE OF BASING THE DEDUCTION ON A NAVY PROCUREMENT REGULATION EVEN THOUGH THE PAYMENT WAS MADE ON AN ARMY CONTRACT. THE BROAD LEGAL QUESTION IS WHETHER OR NOT THE NAVY REGULATION PROVIDING FOR THE DEDUCTION OF A DISCOUNT ON THE AMOUNT OF THE DELIVERY PAYMENT APPLIED IN LIQUIDATION OF PROGRESS PAYMENTS AFTER THE EXPIRATION OF THE DISCOUNT PERIOD IS VALID. IF SUCH A DEDUCTION IS IN ACCORDANCE WITH THE PROVISIONS OF THE CONTRACT THEN THE PRACTICE AS EMPLOYED BY THE FINANCE OFFICER IS NOT SUBJECT TO CHALLENGE.

THE TERM "PROGRESS PAYMENTS" SIGNIFIES PAYMENTS THAT ARE MADE AS WORK PROGRESSES UNDER A CONTRACT, OR UPON THE BASIS OF COSTS INCURRED. IT CAN ALSO SIGNIFY PAYMENTS FOR A PERCENTAGE OF COMPLETION ACCOMPLISHED UNDER A CONTRACT, OR FOR A PARTICULAR STAGE OF COMPLETION. PARAGRAPH E-106, ARMED SERVICES PROCUREMENT REGULATION (ASPR). THE TERM "PARTIAL PAYMENTS" DESCRIBES ONLY, (1) PAYMENTS FOR PARTIAL DELIVERIES ACCEPTED BY THE GOVERNMENT UNDER THE CONTRACT, OR (2) PARTIAL PAYMENTS ON CONTRACT TERMINATION CLAIMS. ASPR E-509.1.

IN DECISION B-154299, JULY 9, 1964, A CLAIM WAS MADE FOR REFUND OF DISCOUNTS TAKEN BY THE POST OFFICE DEPARTMENT IN MAKING PAYMENTS ON INVOICES UNDER A CONTRACT TO FURNISH AND INSTALL A MAIL-HANDLING SYSTEM IN A UNITED STATES POST OFFICE. INVOICES FOR PROGRESS PAYMENTS WERE NOT PAID WITHIN THE PRESCRIBED NUMBER OF DAYS (20) ALLOWED BY THE CASH DISCOUNT PROVISION. BECAUSE INSTALLATION, TESTS AND RUN-IN PERIOD WERE YET TO BE COMPLETED THE DEPARTMENT ARGUED THAT ,DELIVERY" HAD NOT TAKEN PLACE, AND SINCE THE CONTRACT PROVIDED THAT THE TIME FOR SUCH DISCOUNTS WOULD BE COMPUTED FROM THE DELIVERY DATE OR FROM RECEIPT OF THE INVOICE, WHICHEVER WAS LATER, THAT THEY WERE STILL ENTITLED TO A DISCOUNT ON THE PROGRESS PAYMENT. WE HELD THAT THE GOVERNMENT MIGHT NOT DEDUCT THE DISCOUNT ON THE PROGRESS PAYMENT ITSELF UNLESS PAYMENT WAS MADE WITHIN 20 DAYS AFTER RECEIPT OF THE INVOICE.

THE ISSUE IN B-154299 IS DISTINGUISHABLE FROM THE PRESENT CASE FOR IN THAT CASE THE INVOICE ON WHICH THERE WAS A FAILURE TO MAKE PAYMENT WITHIN 20 DAYS WAS A PROGRESS PAYMENT INVOICE, NOT A PARTIAL DELIVERY INVOICE. NEVERTHELESS, WE ARE OF THE OPINION THAT IT IS QUESTIONABLE WHETHER A DISCOUNT SHOULD BE DEDUCTED AT THE TIME OF PAYMENT ON A PROGRESS PAYMENT INVOICE. PROGRESS PAYMENTS ARE MADE SO THAT THE CONTRACTOR MAY HAVE THE NECESSARY CAPITAL TO TURN OUT A FINISHED PRODUCT. THE PURPOSE OF THE PAYMENT WOULD BE DEFEATED IF THE GOVERNMENT PAID THE CONTRACTOR CAPITAL FUNDS WITH ONE HAND, AND THEN IMMEDIATELY TOOK PART OF THEM BACK WITH THE OTHER.

PROVISION FOR A PROMPT PAYMENT DISCOUNT RESTS ON AN EXPRESS CONDITION OF THE CONTRACT. PARAGRAPH 76 SPECIFICALLY PROVIDES IN CONNECTION WITH THE DISCOUNT OFFERED THAT: * * * TIME WILL BE COMPUTED FROM DATE OF DELIVERY OF THE SUPPLIES TO CARRIER WHEN DELIVERY AND ACCEPTANCE ARE AT POINT OF ORIGIN, OR FROM DATE OF DELIVERY AT DESTINATION OR PORT OF EMBARKATION WHEN DELIVERY AND ACCEPTANCE ARE AT EITHER OF THOSE POINTS, OR FROM THE DATE CORRECT INVOICE OR VOUCHER IS RECEIVED IN THE OFFICE SPECIFIED BY THE GOVERNMENT IF THE LATTER DATE IS LATER THAN THE DATE OF DELIVERY.

BY THE VERY PROVISIONS OF THE DISCOUNT CLAUSE INCLUDED IN THE CONTRACT THE DISCOUNT PERIOD BEGINS TO RUN ONLY AFTER DELIVERY OF THE SUPPLIES TO THE CARRIER, OR AT DESTINATION, OR AFTER THE INVOICE FOR THOSE SUPPLIES IS RECEIVED.

WHERE A PAYMENT HAS ALREADY BEEN MADE, AS IN THE CASE OF PROGRESS PAYMENTS, THE GOVERNMENT IS ENTITLED TO A DISCOUNT ON ANY PART OF DELIVERY PAYMENTS APPLIED IN LIQUIDATION OF PROGRESS PAYMENTS. THIS WOULD APPLY EVEN WHERE THE DISCOUNT PERIOD HAS EXPIRED ON THE BALANCE DUE ON THE PARTIAL DELIVERY. IT IS THE BALANCE DUE AGAINST WHICH THE "TIME" AS PROVIDED IN THE DISCOUNT CLAUSE IS RUNNING. CERTAINLY THE PROGRESS PAYMENT HAS BEEN A PROMPT PAYMENT WITHIN THE TERMS OF THE DISCOUNT CLAUSE. IT WAS MADE PRIOR TO DELIVERY OF SUPPLIES TO THE CARRIER, OR AT DESTINATION, AND THUS PRIOR TO THE BEGINNING OF THE DISCOUNT PERIOD. THE CONTRACTOR HAS HAD THE USE OF THESE FUNDS AND THE FINANCE OFFICER IS ENTITLED TO TAKE A PROMPT PAYMENT DISCOUNT ON THEM AT THE TIME THEY ARE RECOUPED.

ACCORDINGLY, IT IS OUR OPINION THAT THE ACTION OF THE FINANCE OFFICER IN DEDUCTING A DISCOUNT ON PAYMENT OF A PARTIAL DELIVERY ON WHICH RECOVERY OF A PROGRESS PAYMENT WAS COMPLETED BUT ON WHICH PAYMENT WAS TOO LATE FOR DISCOUNT ON THE BALANCE DUE ON THE PARTIAL DELIVERY WAS WITHIN THE TERMS AND CONDITIONS OF THE CONTRACT.