B-214948, MAY 22, 1984

B-214948: May 22, 1984

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DIGEST: WHERE CONTRACT PROVISION STATES THAT FOR THE PURPOSE OF EARNING A PROMPT PAYMENT DISCOUNT PAYMENT IS DEEMED MADE ON THE DATE THE GOVERNMENT CHECK IS MAILED. ISLAND HEATING AND AIR CONDITIONING: A MARINE CORPS DISBURSING OFFICER REQUESTS AN ADVANCE DECISION CONCERNING WHEN THE GOVERNMENT IS DEEMED TO MAKE PAYMENT TO A CONTRACTOR FOR THE PURPOSE OF EARNING A PROMPT PAYMENT DISCOUNT OFFERED BY THE CONTRACTOR. WHICH CONTAINS A STANDARD DISCOUNTS CLAUSE PROVIDING THAT "PAYMENT IS DEEMED TO BE MADE FOR THE PURPOSE OF EARNING THE DISCOUNT ON THE DATE OF MAILING OF THE GOVERNMENT CHECK.". THE PROMPT PAYMENT ACT PROVIDES THAT "A PAYMENT IS DEEMED TO BE MADE ON THE DATE A CHECK FOR THE PAYMENT IS DATED.".

B-214948, MAY 22, 1984

DIGEST: WHERE CONTRACT PROVISION STATES THAT FOR THE PURPOSE OF EARNING A PROMPT PAYMENT DISCOUNT PAYMENT IS DEEMED MADE ON THE DATE THE GOVERNMENT CHECK IS MAILED, THAT PROVISION CONTROLS.

ISLAND HEATING AND AIR CONDITIONING:

A MARINE CORPS DISBURSING OFFICER REQUESTS AN ADVANCE DECISION CONCERNING WHEN THE GOVERNMENT IS DEEMED TO MAKE PAYMENT TO A CONTRACTOR FOR THE PURPOSE OF EARNING A PROMPT PAYMENT DISCOUNT OFFERED BY THE CONTRACTOR. THE ISSUE HAS ARISEN IN CONNECTION WITH PAYMENTS MADE TO ISLAND HEATING AND AIR CONDITIONING UNDER CONTRACT NO. N62470 82-C-4512, WHICH CONTAINS A STANDARD DISCOUNTS CLAUSE PROVIDING THAT "PAYMENT IS DEEMED TO BE MADE FOR THE PURPOSE OF EARNING THE DISCOUNT ON THE DATE OF MAILING OF THE GOVERNMENT CHECK." THE DISBURSING OFFICER NOTES THAT, NOTWITHSTANDING THE DISCOUNTS CLAUSE, THE PROMPT PAYMENT ACT PROVIDES THAT "A PAYMENT IS DEEMED TO BE MADE ON THE DATE A CHECK FOR THE PAYMENT IS DATED." U.S.C. SEC. 3901(A)(5) (1982). THE CHECKS TO ISLAND HEATING AND AIR CONDITIONING WERE NOT MAILED UNTIL AFTER THE EXPIRATION OF THE OFFERED DISCOUNT PERIOD, BUT PRESUMABLY WERE DATED ON THE LAST DATE OF THE DISCOUNT PERIOD.

THE STANDARD DISCOUNTS CLAUSE IN THE CONTRACT, NOT THE PROMPT PAYMENT ACT, ESTABLISHES WHEN THE CONTRACTING AGENCY IS DEEMED TO MAKE PAYMENT FOR THE PURPOSE OF EARNING A PROMPT PAYMENT DISCOUNT. SEE EFFECTIVE DATE OF PAYMENT IN DETERMINING LIABILITY OF U.S. GOVERNMENT FOR LATE PAYMENT CHARGES, 61 COMP.GEN. 166 (1982), 82-1 CPD PARA. 70. BEFORE THE ADOPTION OF A CONTRACTUAL PROVISION DEFINING WHEN PAYMENT IS DEEMED MADE, THE RULE WAS THAT IN ORDER TO EARN THE DISCOUNT THE GOVERNMENT HAD TO MAIL A PAYMENT SUFFICIENTLY IN ADVANCE OF THE FINAL DATE OF THE DISCOUNT PERIOD TO ASSURE THAT THE CONTRACTOR RECEIVED THE PAYMENT, IN THE REGULAR COURSE OF THE MAILS, ON OR BEFORE THE DISCOUNT PERIOD'S FINAL DATE. ID. BECAUSE OF THE DIFFICULTIES OF DETERMINING WHEN PAYMENTS SHOULD BE MAILED IN ORDER TO ASSURE THEIR TIMELY RECEIPT IN THE REGULAR COURSE OF THE MAILS, THIS OFFICE RECOMMENDED THAT THE STANDARD DISCOUNTS CLAUSE STIPULATE THAT PAYMENT IS DEEMED MADE ON THE DATE THE GOVERNMENT CHECK IS MAILED. SEE B-107826, JULY 29, 1954.

THE NOTED PROVISION IN THE PROMPT PAYMENT ACT DOES NOT AFFECT THE VALIDITY OF THE DISCOUNTS CLAUSE. THE ACT BASICALLY REQUIRES THE GOVERNMENT TO PAY CONTRACTORS INTEREST PENALTIES FOR UNDULY LATE PAYMENTS, THAT IS, WHERE CHECKS ARE ISSUED AFTER THE DATE PAYMENT IS DUE AND AFTER A SUBSEQUENT GRACE PERIOD PROVIDED BY THE ACT TO ALLOW FOR BRIEF LAPSES IN THE GOVERNMENT'S BILL-PAYMENT PROCEDURES. THE PROVISION THAT PAYMENT IS DEEMED MADE WHEN THE CHECK IS DATED, IN THE CONTEXT OF PROMPT PAYMENT DISCOUNTS, IS DESIGNED TO ESTABLISH AN EASILY ASCERTAINABLE DATE TO DETERMINE WHETHER THE GOVERNMENT HAS INCURRED AN INTEREST PENALTY ON A DISCOUNT IMPROPERLY TAKEN. SEE 31 U.S.C. SEC. 3904. FOR THE PURPOSE OF DETERMINING WHETHER THE GOVERNMENT HAS EARNED THE DISCOUNT, HOWEVER, ONE REFERS TO THE PROVISIONS OF THE STANDARD DISCOUNTS CLAUSE.

THIS DISTINCTION IS RECOGNIZED BY THE DEFENSE ACQUISITION REGULATION (DAR). CONCERNING THE TYPE OF CONTRACT INVOLVED HERE, FOR EXAMPLE, THE REGULATION REQUIRES THE INCLUSION OF A STANDARD INVOICES CLAUSE STATING, "FOR PURPOSES OF DETERMINING IF INTEREST BEGINS TO ACCRUE UNDER THE PROMPT PAYMENT ACT ... PAYMENT SHALL BE CONSIDERED MADE ON THE DATE ON WHICH A CHECK FOR SUCH PAYMENT IS DATED. ..." DAR SECS. 7 103 AND 7-103.30 (DEFENSE ACQUISITION CIRCULAR (DAC) NO. 76-39, OCT. 20, 1982). AT THE SAME TIME, THE DAR LEFT UNCHANGED THE REQUIRED DISCOUNTS CLAUSE'S LANGUAGE PROVIDING THAT, FOR THE PURPOSE OF THE GOVERNMENT'S EARNING A PROMPT PAYMENT DISCOUNT PAYMENT IS DEEMED MADE ON THE DATE THE CHECK IS MAILED. SEE DAR SEC. 7-1902.11 (DAC NO. 76 17, SEPT. 1, 1978).