B-174001, OCT 27, 1971, 51 COMP GEN 251

B-174001: Oct 27, 1971

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INTEREST - PAYMENT DELAY - CONTRACTS THE RULE OF LONG STANDING THAT INTEREST MAY NOT BE PAID BY THE GOVERNMENT IN THE ABSENCE OF AN EXPRESS STATUTORY PROVISION OR A LAWFUL CONTRACT WILL NO LONGER BE FOLLOWED SINCE THERE IS NO STATUTE PROHIBITING THE PAYMENT OF INTEREST UNDER CONTRACTUAL PROVISIONS. SUCH PROVISIONS WILL NOT VIOLATE THE SO-CALLED ANTIDEFICIENCY ACT (31 U.S.C. 665). PROVIDED SUFFICIENT FUNDS ARE RESERVED UNDER THE APPROPRIATION FINANCING THE CONTRACT TO COVER THE INTEREST COST. A CONTRACTOR PRESENTING A CLAIM TO THE DEPARTMENT UNDER A CONTRACT IS NOT PAID INTEREST FOR PERIODS OF DELAY ON THAT PART OF A CLAIM ULTIMATELY DETERMINED TO BE OWED BY THE GOVERNMENT. YOU POINT OUT THAT DELAY IN PAYMENT MAY BE FOR A CONSIDERABLE PERIOD OF TIME IF THE CLAIM IS IN DISPUTE AND THE CONTRACTOR IS REQUIRED TO PURSUE HIS ADMINISTRATIVE REMEDIES OR EVEN LITIGATE BEFORE AN AMOUNT IS FINALLY DETERMINED OWING.

B-174001, OCT 27, 1971, 51 COMP GEN 251

INTEREST - PAYMENT DELAY - CONTRACTS THE RULE OF LONG STANDING THAT INTEREST MAY NOT BE PAID BY THE GOVERNMENT IN THE ABSENCE OF AN EXPRESS STATUTORY PROVISION OR A LAWFUL CONTRACT WILL NO LONGER BE FOLLOWED SINCE THERE IS NO STATUTE PROHIBITING THE PAYMENT OF INTEREST UNDER CONTRACTUAL PROVISIONS, AND SUCH PROVISIONS WILL NOT VIOLATE THE SO-CALLED ANTIDEFICIENCY ACT (31 U.S.C. 665), PROVIDED SUFFICIENT FUNDS ARE RESERVED UNDER THE APPROPRIATION FINANCING THE CONTRACT TO COVER THE INTEREST COST. THEREFORE, APPROPRIATE REGULATIONS MAY BE PROMULGATED TO AUTHORIZE INCLUSION IN FUTURE CONTRACTS OF PROVISIONS FOR THE PAYMENT OF INTEREST FOR A PERIOD OF DELAY IN PAYMENT OCCASIONED BY THE FACT A DISPUTED CLAIM UNDER THE CONTRACT REQUIRED THE CONTRACTOR TO PURSUE HIS ADMINISTRATIVE REMEDIES, OR LITIGATE, BEFORE THE AMOUNT OWING COULD BE DETERMINED. 22 COMP. GEN. 772, OVERRULED.

TO THE DEPUTY SECRETARY OF DEFENSE, OCTOBER 27, 1971:

BY LETTER DATED AUGUST 31, 1971, YOU WROTE TO OUR OFFICE CONCERNING THE FACT THAT UNDER CURRENT PRACTICE, A CONTRACTOR PRESENTING A CLAIM TO THE DEPARTMENT UNDER A CONTRACT IS NOT PAID INTEREST FOR PERIODS OF DELAY ON THAT PART OF A CLAIM ULTIMATELY DETERMINED TO BE OWED BY THE GOVERNMENT. YOU POINT OUT THAT DELAY IN PAYMENT MAY BE FOR A CONSIDERABLE PERIOD OF TIME IF THE CLAIM IS IN DISPUTE AND THE CONTRACTOR IS REQUIRED TO PURSUE HIS ADMINISTRATIVE REMEDIES OR EVEN LITIGATE BEFORE AN AMOUNT IS FINALLY DETERMINED OWING.

TO REMEDY THE SITUATION YOU PROPOSE TO PROMULGATE APPROPRIATE REGULATIONS ALLOWING FOR THE INCLUSION OF A CLAUSE IN FUTURE CONTRACTS PROVIDING FOR THE PAYMENT OF INTEREST ON THE DELAYED PAYMENT OF A CONTRACTOR'S CLAIM ARISING IN CONNECTION WITH HIS CONTRACT. IN VIEW OF OUR HOLDING IN 22 COMP. GEN. 772 (1943), YOU REQUEST OUR VIEWS ON THE MATTER.

IT IS A RULE OF LONG STANDING THAT INTEREST MAY NOT BE PAID BY THE GOVERNMENT IN THE ABSENCE OF EXPRESS PROVISIONS IN STATUTES OR A LAWFUL CONTRACT. SEE 24 ALR 2D 985, SEC. 19 (1952). THIS HISTORICAL RULE IS RESTATED FOR APPLICATION BY THE COURT OF CLAIMS AT 28 U.S.C. 2516. IN 22 COMP. GEN. 772 (1943) THERE WAS FOR CONSIDERATION A CLAIM PRESENTED BY THE CONTRACTOR FOR INTEREST PURSUANT TO THE TERMS OF A CONTRACT. SPECIFICALLY, THE CONTRACTOR HAD NOTED ON HIS BID THAT IT WAS SUBMITTED SUBJECT TO CERTAIN RULES AND REGULATIONS OF THE DEPARTMENT OF THE INTERIOR WHICH PROVIDED IN PART FOR THE PAYMENT OF INTEREST TO THE SELLER ON THE INVOICE PRICE OF COAL IN CASE OF DELAYS OF MORE THAN 10 DAYS. WE DENIED THE CLAIM HOLDING THAT NO STATUTE PROVIDED FOR THE PAYMENT OF SUCH INTEREST AND, "TO THE EXTENT THAT THE SAID NOTATION ON THE BID WOULD PURPORT TO RESULT IN MAKING THIS (DEPARTMENT OF THE INTERIOR) RULE APPLICABLE TO THE PURCHASE, ITS INCLUSION IN THE CONTRACT MAY NOT BE TREATED AS AUTHORIZED BY LAW. THERE IS NO STATUTE AUTHORIZING PURCHASING OFFICERS TO OBLIGATE THE GOVERNMENT TO PAY INTEREST FOR DELAY IN PAYING FOR SUPPLIES OR MATERIALS." THUS, IN APPLYING THE HISTORIC RULE CONCERNING THE PAYMENT OF INTEREST WE CONSTRUED THE CONTRACT EXCEPTION AS BEING FOR APPLICATION ONLY WHERE THERE WAS SPECIFIC STATUTORY AUTHORITY AUTHORIZING THE INCLUSION OF PROVISIONS IN CONTRACTS FOR THE PAYMENT OF INTEREST.

IN UNITED STATES V. THAYER-WEST POINT HOTEL COMPANY, 329 U.S. 585, 590 (1947), THERE WAS FOR CONSIDERATION WHETHER IT WAS PROPER FOR THE COURT OF CLAIMS TO AWARD INTEREST WHERE THE GOVERNMENT HAD BREACHED A LEASE WHICH, PURSUANT TO A STATUTE REQUIRING "JUST COMPENSATION" TO THE LESSEE, CONTAINED A PROVISION FOR JUST COMPENSATION IN CASE OF BREACH. WHILE THE COURT IN DENYING THE CLAIM FOR INTEREST HELD THAT THE COURT OF CLAIMS HAD ERRONEOUSLY APPLIED THE JUST COMPENSATION RULE OF EMINENT DOMAIN IN ALLOWING FOR INTEREST, IT RECOGNIZED THAT THE GOVERNMENT COULD HAVE CONTRACTED IN THE LEASE FOR THE PAYMENT OF INTEREST. SPECIFICALLY, THE COURT HELD THAT: "HERE NEITHER THE ACT OF MARCH 30, 1920, NOR THE LEASE UNDER WHICH RESPONDENT OPERATED CONTAINS AN EXPRESS PROVISION FOR THE PAYMENT OF INTEREST, EITHER IN ADDITION TO OR AS A PART OF THE 'JUST COMPENSATION' TO BE PAID TO RESPONDENT. IF THE UNITED STATES HAD DESIRED TO PROVIDE BY STATUTE OR TO CONTRACT IN THE LEASE FOR PAYMENT OF INTEREST, IT WOULD HAVE BEEN EASY TO HAVE SAID SO IN EXPRESS TERMS."

THERE IS NO STATUTE PROHIBITING THE PAYMENT OF INTEREST UNDER CONTRACTUAL PROVISIONS. SUCH CONTRACTUAL PROVISIONS WOULD NOT VIOLATE THE SO-CALLED ANTIDEFICIENCY ACT (31 U.S.C. 665), PROVIDED THAT SUFFICIENT FUNDS ARE RESERVES UNDER THE APPROPRIATION FINANCING THE CONTRACT TO COVER THE INTEREST COST. AFTER A CAREFUL REVIEW OF OUR PRIOR DECISION AND THE RELEVANT COURT CASES WE ARE OF THE VIEW THAT STATUTORY AUTHORITY IS NOT REQUIRED FOR A FEDERAL DEPARTMENT OR AGENCY TO INCLUDE IN ITS CONTRACTS PROVISIONS FOR THE PAYMENT OF INTEREST WHERE, ON CLAIMS UNDER ITS CONTRACTS, THERE ARE DELAYS IN PAYMENT OCCASIONED BY THE GOVERNMENT.

WE THEREFORE HAVE NO OBJECTION TO THE PROMULGATION OF APPROPRIATE REGULATIONS AUTHORIZING THE INCLUSION IN FUTURE DEPARTMENT OF DEFENSE CONTRACTS OF PROVISIONS PROVIDING FOR SUCH INTEREST PAYMENTS. THE DECISION IN 22 COMP. GEN. 772 (1943) IS OVERRULED.

WE WOULD LIKE TO HAVE AN OPPORTUNITY TO COMMENT ON ANY PROPOSED REGULATIONS ON THIS SUBJECT.