B-31446, JANUARY 18, 1943, 22 COMP. GEN. 656

B-31446: Jan 18, 1943

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INTEREST IS PAYABLE TO THE GOVERNMENT IN INSTALLMENTS AT THE END OF MONTHLY. THE INTEREST EARNED DURING EACH SUCH CALENDAR PERIOD IS REGARDED AS BEING EQUIVALENT TO A CORRESPONDING FRACTION OF THE YEAR'S INTEREST. WHERE LESS THAN SUCH A CALENDAR PERIOD IS INVOLVED THE INTEREST SHOULD BE COMPUTED BY EMPLOYING A FRACTION WHOSE NUMERATOR IS THE ACTUAL NUMBER OF DAYS ELAPSED AND WHOSE DENOMINATOR IS THE ACTUAL NUMBER OF DAYS IN THE PARTICULAR (CALENDAR) PERIOD. 1943: I HAVE YOUR LETTER OF DECEMBER 29. THIS ADVANCE WAS MADE ON AUGUST 20. THE AMOUNT OF THIS INTEREST WAS COMPUTED AS FOLLOWS: $2. 616.44 IT IS EXPECTED THAT FUTURE DEDUCTIONS WILL BE MADE MONTHLY BY THE NAVY COST INSPECTOR OF AN AMOUNT COMPUTED AS FOLLOWS: $2.

B-31446, JANUARY 18, 1943, 22 COMP. GEN. 656

INTEREST - COMPUTATION - INTEREST PAYABLE AT END OF MONTHLY, QUARTERLY, OR SEMIANNUAL INTERVALS WHERE, BY VIRTUE OF AGREEMENT OR STATUTORY REQUIREMENT, INTEREST IS PAYABLE TO THE GOVERNMENT IN INSTALLMENTS AT THE END OF MONTHLY, QUARTERLY OR SEMIANNUAL INTERVALS CONSIDERED TO REPRESENT FRACTIONS OF AN INTEREST YEAR, THE INTEREST EARNED DURING EACH SUCH CALENDAR PERIOD IS REGARDED AS BEING EQUIVALENT TO A CORRESPONDING FRACTION OF THE YEAR'S INTEREST, AND WHERE LESS THAN SUCH A CALENDAR PERIOD IS INVOLVED THE INTEREST SHOULD BE COMPUTED BY EMPLOYING A FRACTION WHOSE NUMERATOR IS THE ACTUAL NUMBER OF DAYS ELAPSED AND WHOSE DENOMINATOR IS THE ACTUAL NUMBER OF DAYS IN THE PARTICULAR (CALENDAR) PERIOD.

COMPTROLLER GENERAL WARREN TO ENSIGN W. C. MCLAUGHLIN, U.S. NAVY, JANUARY 18, 1943:

I HAVE YOUR LETTER OF DECEMBER 29, 1942, AS FOLLOWS:

A QUESTION HAS ARISEN WITH RESPECT TO THE PROPER METHOD OF COMPUTING INTEREST ON ADVANCES UNDER NAVY CONTRACTS.

CONTRACT NOS-87959, BLAW-KNOX COMPANY, PROVIDES THAT INTEREST AT 2 1/2 PERCENT ON AN ADVANCE OF $2,000,000.00 BE DEDUCTED FROM FIXED FEE PAYMENTS. THIS ADVANCE WAS MADE ON AUGUST 20, 1942.

INTEREST HAS BEEN DEDUCTED FOR THE PERIOD AUGUST 20, 1942 THROUGH SEPTEMBER 30, 1942. THE AMOUNT OF THIS INTEREST WAS COMPUTED AS FOLLOWS:

$2,000,000.00 TIMES 2 1/2 PERCENT TIMES 41/365 EQUALS $5,616.44

IT IS EXPECTED THAT FUTURE DEDUCTIONS WILL BE MADE MONTHLY BY THE NAVY COST INSPECTOR OF AN AMOUNT COMPUTED AS FOLLOWS:

$2,000,000.00 TIMES 2 1/2 PERCENT TIMES 1/12 EQUALS $4,166.67

IT IS SUGGESTED THAT THE DISBURSING OFFICER BE ADVISED WITH RESPECT TO THE CORRECTNESS OF THE ABOVE COMPUTATIONS IN ORDER THAT NECESSARY ADJUSTMENTS CAN BE MADE AS SOON AS POSSIBLE.

PRESUMABLY THE REFERRED-TO ADVANCE PAYMENT TO THE BLAW-KNOX COMPANY, OF $2,000,000 ON AUGUST 20, 1942, WAS MADE IN ACCORDANCE WITH SECTION 12 1 (C) OF SUPPLEMENTARY CONTRACT NOS-87959, DATED APRIL 24, 1942, WHICH PROVIDES AS FOLLOWS:

THE GOVERNMENT SHALL ADVANCE TO THE CONTRACTOR AFTER THE DATE OF THIS AMENDMENT IN ONE SUM, OR IN INSTALLMENTS FROM TIME TO TIME AT INTERVALS OF NOT LESS THAN FIFTEEN (15) DAYS, AS MAY BE REQUESTED BY THE CONTRACTOR, A FURTHER SUM OR SUMS IN THE AGGREGATE NOT EXCEEDING $4,000,000.00. THE AGGREGATE SUM REPRESENTED BY ADVANCES MADE UNDER THIS SUBPARAGRAPH (C) IS SOMETIMES HEREINAFTER REFERRED TO AS THE " THIRD ADVANCE FUND.'

THE CONTRACTOR WAS NOT REQUIRED TO PAY INTEREST TO THE GOVERNMENT ON SUMS ADVANCED TO IT PRIOR TO APRIL 24, 1942, BUT, WITH RESPECT TO THE " THIRD ADVANCE FUND," SECTION 12 2 (B) OF SAID CONTRACT PROVIDES THAT:

THE CONTRACTOR SHALL PAY INTEREST TO THE GOVERNMENT AT THE RATE OF 2 1/2 PERCENT PER ANNUM ON THE UNLIQUIDATED AMOUNT OF THE ADVANCE OR ADVANCES MADE TO CONTRACTOR PURSUANT TO SUBPARAGRAPH (C) OF SUBSECTION (1) OF THIS SECTION 12 FROM THE TIME OF THE MAKING OF SUCH ADVANCE OR ADVANCES UNTIL COMPLETE LIQUIDATION THEREOF AS PROVIDED IN SUBPARAGRAPH (C) OF SUBSECTION (3) OF THIS SECTION 12. SAID INTEREST PAYABLE BY THE CONTRACTOR SHALL BE DEDUCTED MONTHLY FROM THE AMOUNT OF FEE OTHERWISE PAYABLE TO THE CONTRACTOR HEREUNDER AND SHALL NOT BE AN ITEM OF REIMBURSABLE COST UNDER THIS CONTRACT. ( ITALICS SUPPLIED.)

WHILE THE CONTRACT COVENANTS RELATING TO THE CONDITIONS AND MANNER OF LIQUIDATING THE " THIRD ADVANCE FUND" SHOULD NOT BE OVERLOOKED, IT APPEARS THAT THE PROVISIONS QUOTED ABOVE GOVERN THE RATE AND COLLECTION OF INTEREST ON THE UNLIQUIDATED BALANCES THEREOF. THE RATE IS STIPULATED TO BE "2 1/2 PERCENT PER ANNUM," AND ACCRUED AMOUNTS ARE REQUIRED TO BE "DEDUCTED MONTHLY.' OBVIOUSLY, THEREFORE, THE PARTIES AGREED THAT INTEREST AT A YEARLY RATE WOULD BECOME DUE AND BE COLLECTED IN MONTHLY INSTALLMENTS.

IN COMPUTING THE AMOUNTS OF ACCRUED INTEREST TO BE DEDUCTED BY THE GOVERNMENT AT THE END OF EACH MONTHLY INTERVAL, THERE IS FOR APPLICATION THE RULE LONG FOLLOWED BY THE ACCOUNTING OFFICERS OF THE GOVERNMENT, THAT COMPUTATION OF INTEREST IN GOVERNMENT TRANSACTIONS IS MADE ON THE BASIS OF THE ACTUAL NUMBER OF DAYS WITHIN THE PERIOD INVOLVED, INCLUDING EITHER THE BEGINNING OR ENDING DATE OF THE PERIOD, BUT NOT BOTH. IN OTHER WORDS, INTEREST GENERALLY IS COMPUTED ON THE BASIS OF 365 DAYS PER YEAR, OR 366 DAYS IN A LEAP YEAR.

HOWEVER, WHEN BY VIRTUE OF AGREEMENT OR STATUTORY REQUIREMENT, INTEREST IS PAYABLE IN INSTALLMENTS AT THE END OF MONTHLY, QUARTERLY, OR SEMIANNUAL INTERVALS CONSIDERED TO REPRESENT FRACTIONS OF AN INTEREST YEAR, SUCH AS 1/12, 1/4, OR 1/2, RESPECTIVELY, NORMAL CALENDAR PERIODS OF 1, 3, OR 6 MONTHS ARE CONTEMPLATED, AND THE INTEREST EARNED DURING EACH IS REGARDED AS BEING EQUIVALENT TO A CORRESPONDING FRACTION OF THE YEAR'S INTEREST CONSEQUENTLY, IN SUCH CASES, THE INSTALLMENT DUE FOR A PRESCRIBED PERIOD SHOULD BE COMPUTED ON THE BASIS OF SUCH FRACTION OF THE YEAR'S INTEREST, AND, WHEN THERE IS INVOLVED LESS THAN A WHOLE PERIOD, BY EMPLOYING AN ADDITIONAL FRACTION WHOSE NUMERATOR IS THE ACTUAL NUMBER OF DAYS ELAPSED AND WHOSE DENOMINATOR IS THE ACTUAL NUMBER OF DAYS IN THE PARTICULAR (CALENDAR) PERIOD. SEE 15 COMP. GEN. 992; ID. 871.

THE APPLICATION OF THIS RULE TO THE PRESENT MATTER REQUIRES THAT ANNUAL INTEREST BE COMPUTED ON THE BASIS OF 12 MONTHLY PERIODS. THAT IS TO SAY, AT THE TIME THE FIRST INSTALLMENT BECAME DUE, FOR THE ELAPSED TIME EXTENDING FROM AUGUST 20 THROUGH SEPTEMBER 30, 1942, THE GOVERNMENT HAD EARNED 1/12 OF THE YEARLY INTEREST DURING THE FULL MONTH OF SEPTEMBER AND 11/31 OF 1/12 OF THE YEARLY INTEREST DURING AUGUST. HENCE, THE CORRECT COMPUTATION FOR SAID INSTALLMENT IS 1 11/31 TIMES 1/12 TIMES $0.025 TIMES $2,000,000.00, OR $5,645.17, AND THE INTEREST EARNED ON ANY BALANCE OF THE PRINCIPAL OUTSTANDING AT THE TIME SUBSEQUENT MONTHLY INSTALLMENTS BECOME DUE SHOULD BE COMPUTED AT THE RATE OF 1/12 OF THE YEARLY INTEREST THEREON.

IT WILL BE OBSERVED THAT THE AMOUNT EARNED BY THE GOVERNMENT AT THE END OF SEPTEMBER IS $28.73 IN EXCESS OF THE SUM REPORTED TO HAVE BEEN COLLECTED FOR THAT PERIOD (ON THE BASIS OF 41/365 OF A YEAR). SAID AMOUNT SHOULD BE COLLECTED FROM THE CONTRACTOR ON THE NEXT VOUCHER EVIDENCING DEDUCTION OF AN INTEREST INSTALLMENT.