Effective July 1, 2014, the Prompt Payment Act (PPA) and Contract Dispute Act (CDA) interest rates have decreased to 2% per annum. See 79 Fed. Reg. 33647 (June 12, 2014).
Since 2008, when the PPA and CDA interest rates were as high as 5 5/8 % per annum, the interest rates under the PPA and CDA have trended downward to a low of 1 3/8 % per annum for the first half of 2013. This meant that contractors were recovering next to nothing for delayed payments by the government or unpaid claims, and that the government had little to no incentive to make on-time payments. In the second half of 2013 and the first half of 2014 the PPA and CDA interest rates started to increase to a high of 2 1/8 % per annum.
Unfortunately, effective July 1, 2014, the PPA and CDA interest rates have declined again to a rate of 2% per annum. This is not a huge decrease, but it does show that the government is not as confident as it may have been last year that the economy will be turning around and that interest rates will increase across the board. Thus, for the foreseeable future contractors should be aware that PPA and CDA interest will remain low, and that the incentive for the government to make on-time or early payments will, likewise, remain low.
Also, remember that when calculating any PPA or CDA interest you have to use the percentage in effect at the time so your interest rate (if stretched over a year or more) could fluctuate on the same late payment. So when you calculate the amount owned make sure to take that into effect.
About the author: Cy Alba is a partner with PilieroMazza and is a member of the Government Contracts and Small Business Programs Groups. He may be reached at [email protected].