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When can I collect interest from the government?

CCS offers the following from our Chief Operations Problem Solver, Charlie Moschel:

In most instances, the answer is that you can’t. There are few exceptions based on statutes where Congress has said that interest will be paid, but generally speaking, the sovereign can dictate when and how it can be sued and, as in the case of interest, when it will and will not pay it.

One example where the government will pay interest is when a payment is due that is covered by the Prompt Payment Act. Under that law, the government has a fixed amount of time within which to issue payment after receipt of a “proper invoice.” If payment is not made by the due date (the one established in the law, not the one you place on the invoice), then interest is to be automatically paid. The law specifically states that the vendor does NOT need to make the request-- payment is supposed to be automatic.

Another situation where a vendor or supplier may be able to recover certain costs that look like interest is when the weighted guidelines are used to calculate the appropriate fee level in a cost type contract. An allowance may be made there for what is called “facilities capital cost of money.” Some agencies allow this as a cost, and then make a dollar for dollar reduction against the total fee.

The “no interest” rule is rather rigorously applied. In one recent case the Court of Appeals for the Federal Circuit held (2-1) that interest was also unallowable when it was part of the cost for a claim that involved the leasing of equipment. In England v. Contel Advanced Systems, Inc., No. 04-1006 (Fed. Cir. October 6, 2004), the court reviewed a decision from the Armed Services Board of Contract Appeals (ASBCA) where the Board awarded costs to the contractor that were incurred for having to carry loans for an extended period due to the government’s failure to timely negotiate changes to the contract. This resulted in forcing the contractor to carry the costs for over four years. Thus the only damages involved in the claim were for interests on those costs. While the ASBCA found the government in breach of the contract, the court held that even in this situation interest was simply not an allowable cost. Thus, the contractor won the case, but lost the full amount of its claim.

One judge who dissented from the majority opinion noted that the interest damages sought by the contractor were not “interest on a claim against the government,” (which she acknowledged would be unallowable costs), but were part of the contract price under the lease. This made them a direct cost, which was directly impacted by the government’s breach.
She concluded: “When damages flow from breach of an obligation that involves money, the nature of the obligation and its relationship to the economic injury must be considered in determining whether the cost of money is properly included in damages.” Unfortunately for most contractors, especially this one, her view is the minority position.

So the general rule to take away from this case is that you should NEVER have an expectation of recovering interest costs. For a small business this cost can be considerable and should be a factor in determining the fee. On those rare occasions where interest is payable, you should be certain to check and see that it was paid.

NOTE: CCS is not authorized to practice law or accounting. This information should not be relied on in any particular facts you may have without checking with a properly licensed professional.