Federal prompt payment: 3 clauses to match your contract

Key takeaways

• Search your contract for the clause numbers below.
• Check both exceptions before relying on 52.232-25.
• Confirm actual payment due dates and their triggering events.
• Keep clause locations and written answers with your contract.

The clause number is easy to miss, and the rule behind it depends on what kind of contract you have. This post is for small-business owners and bookkeepers who need to know which clause their contract uses. It covers the three prompt payment clauses that the Federal Acquisition Regulation (FAR) directs contracting officers to insert, the exceptions that change the answer, and a simple routine for recording the details in your books.

The post works in order. First, you match your contract to a construction rule, an architect-engineer rule, or the rule for all other contracts. Then you check the two exceptions. Last, you record the details so the answer is easy to find later.

This is general information, not legal advice. When a clause in it is unclear, ask the contracting officer on your contract before you rely on any date or rule described here. Each FAR rule below links to the official text.

How do you find the clause number in your contract?

Find the clause number wherever your contract cites it, and match that number to one of the three clauses in this post. Start by searching the contract for 52.232-25, 52.232-26, and 52.232-27. The rules in this post also refer to 52.232-10, 52.212-4, and 52.232-8, so search for those too. The last one is the discount clause, which is covered in its own section below.

If the contract was changed after it was signed, check the changes as well. The clause you rely on should be the one in the contract as it now stands. Write down each clause number you find, along with the section or page where you found it. A written note with a location is far more useful later than a memory of the answer.

Which clause applies to a construction contract?

For a construction contract, the clause is 52.232-27, Prompt Payment for Construction Contracts. The FAR says to insert it in all solicitations and contracts for construction, and it cross-references part 36 for construction work ( FAR 32.908). If the work is construction, this is the rule that applies. Because the rule covers solicitations as well as contracts, you can see which clause will apply before you submit a bid.

The clause also has a timing detail you should know. The FAR says the contracting officer may modify a date in the clause to specify a period longer than 14 days, if that is required to afford the Government a reasonable opportunity to adequately inspect the work and to determine the adequacy of the contractor's performance under the contract ( FAR 32.908). The 14-day figure concerns paragraph (a)(1)(i)(A), not a general invoice-to-payment deadline. A longer period is set by the contracting officer for that stated reason, not by the contractor.

Then ask the contracting officer whether a longer period applies to your contract before you set your collection schedule. Getting that answer in writing, if you can, keeps your records clear.

Which clause applies to a fixed-price architect-engineer contract?

For a fixed-price architect-engineer contract, the clause is 52.232-26, Prompt Payment for Fixed-Price Architect-Engineer Contracts. The FAR tells the contracting officer to insert it in solicitations and contracts that contain 52.232-10, Payments Under Fixed-Price Architect-Engineer Contracts ( FAR 32.908). The two clauses are paired in that rule. The presence of 52.232-10 is the first thing to check, and if your contract contains it, this is the rule to follow.

The FAR also addresses timing for this clause. It says the contracting officer may modify the date in the clause to specify a period longer than 7 days for constructive acceptance or constructive approval. The stated reason is to afford the Government a practicable opportunity to inspect and test the supplies furnished or evaluate the services performed ( FAR 32.908). So the 7-day figure concerns constructive acceptance or approval, not the payment deadline.

Keep the 7-day figure in your records, along with a note of any longer period the contracting officer sets. Record acceptance or approval timing separately from payment timing. Check the contract alongside the applicable FAR provisions before forecasting payment.

Which clause applies to all other contracts?

For contracts outside the two rules above, the FAR says to insert 52.232-25, Prompt Payment, in all other solicitations and contracts ( FAR 32.908). This is the clause for the remaining solicitations and contracts. If your contract is neither construction nor one that contains 52.232-10, check this rule next.

The FAR gives two exceptions to the rule for 52.232-25. The first is when the clause at 52.212-4, Contract Terms and Conditions-Commercial Products and Commercial Services, applies. The second is when payment terms and late payment penalties are established by other governmental authority, and the FAR gives tariffs as an example ( FAR 32.908). Each exception gets its own section below, because either one can change which clause you should be looking for.

Does 52.212-4 change which clause applies?

When 52.212-4 applies, the FAR's rule for 52.232-25 does not apply. That is the exception the FAR states in its paragraph on 52.232-25 ( FAR 32.908). The clause is titled Contract Terms and Conditions-Commercial Products and Commercial Services, so its title names the kind of purchase it addresses.

Check whether your contract uses 52.212-4 before you assume 52.232-25 is the right clause. If 52.212-4 is in your contract, the 52.232-25 rule is not the one to follow. Ask the contracting officer which payment terms govern, and keep that answer with your copy of the contract.

Does other governmental authority change the clause?

Yes, in one case. The FAR's rule for 52.232-25 does not cover contracts where payment terms and late payment penalties are established by other governmental authority. The FAR gives tariffs as its example ( FAR 32.908).

This exception is about which FAR clause the rule calls for. It does not tell you what the other authority requires. If a payment term in your contract comes from a source like that, read the terms it sets, and ask the contracting officer how they fit with the clauses in your contract.

Is a discount clause the same as a prompt payment clause?

No. Under FAR 32.906, payment terms are specified in 52.232-8, Discounts for Prompt Payment ( FAR 32.906). That is a different clause from the three covered in this post, so do not count it as one of them. If your contract cites it, record it alongside the prompt payment clause.

If a discount for prompt payment is taken, the FAR says the designated payment office will make payment as close as possible to, but not later than, the end of the discount period ( FAR 32.906). The FAR also says the discount period is specified by the contractor and is calculated from the date of the contractor's proper invoice ( FAR 32.906).

For bookkeeping, that means two dates matter. One is the date of the proper invoice that starts the discount period. The other is the payment date, which you compare against the end of that period. Because the contractor specifies the discount period, record the period you chose and the invoice date it runs from, so you can check the payment against it later.

What does "proper invoice" mean for your records?

The FAR uses the term proper invoice in its discount rule, and this post does not define it. The FAR does say the discount period is calculated from the date of the contractor's proper invoice ( FAR 32.906), so that date sets the start of the period.

Since the term is not defined here, ask the contracting officer what a proper invoice must include for your contract, and get the answer in writing. Keep a copy of each invoice you send, with its date, so you can show which document a discount period started from. For a contract that does not include a discount, the same habit still helps when a payment question comes up. Use the invoice approval checklist when reviewing your billing routine.

Three quick examples

Each example below is a hypothetical. Each one shows how a rule in this post applies to a contract type.

A firm builds a structure under a federal construction contract. The work is construction, so the FAR rule points to 52.232-27. The firm's bookkeeper records the clause and checks its applicable date provision before forecasting payment.

A firm provides design services under a fixed-price architect-engineer contract. If the contract contains 52.232-10, the FAR rule points to 52.232-26, and the 7-day constructive acceptance or approval period may be extended for the stated reasons.

A firm sells supplies under a contract that is neither construction nor one containing 52.232-10. The FAR rule points to 52.232-25. That rule does not apply if the contract contains 52.212-4, or if other governmental authority establishes the payment terms and late payment penalties. If 52.212-4 is in the contract, the firm reads that clause's terms rather than relying on the 52.232-25 rule.

Illustrative example: checking a discount period

Suppose a contractor specifies an illustrative discount period of 20 days. Payment arrives 10 days after the proper invoice date. Comparing 10 with 20 places payment within that illustrative period. The bookkeeper keeps the invoice date, specified discount period and payment date together. This comparison checks discount timing; it does not establish a general payment deadline.

Today, open one contract, mark its payment clause and ask the contracting officer to confirm the actual payment due date and triggering event.

What questions should you ask the contracting officer?

Ask the contracting officer to confirm the clause number, any exception that applies, and any longer period. A short list of questions covers most of what this post raises:

• Which prompt payment clause does this contract use, and which rule in this post leads to it?
• Does 52.212-4 apply to this contract?
• Has the contracting officer set a longer period for the clause, and what is the stated reason?
• Do other governmental authority rules establish the payment terms or late payment penalties here?
• What does proper invoice mean for this contract?

Ask for the answers in writing, and file them with the contract. A written answer gives you something to point to when the books and the contract need to agree.

Is constructive acceptance the payment deadline?

No, the architect-engineer constructive acceptance or approval period is separate from the actual payment due date. Confirm both dates before planning follow-up.

What should you do when payment is late?

Follow up using the actual contractual payment due date and its triggering event. Keep the relevant contract terms and invoice copy available.

How should you plan cash flow around these clauses?

Forecast using actual contractual payment due dates and their triggering events, keeping acceptance or approval periods separate. Base your forecast on the contract's terms and the contracting officer's written answers.

Set up a simple calendar for each open invoice. Mark the invoice date, actual payment due date and triggering event separately from any acceptance or approval period. For recording those dates, see the guide to invoice payment schedules.

If your contract includes a discount for prompt payment, decide ahead of time how you will use it. The discount period runs from the proper invoice date, so compare the end of that period with your own cash needs before you rely on the discount.

What should bookkeepers record for each contract?

Record the clause number, the contract type, and the invoice date for each billing. A simple routine keeps the details in one place:

• Clause number. Note whether the contract cites 52.232-25, 52.232-26, or 52.232-27. Also note whether it cites 52.232-8 for discounts.
• Contract type. Note whether the work is construction, a fixed-price architect-engineer contract, or another type. The rule you follow depends on this.
• Exceptions. Note whether 52.212-4 applies, and whether other governmental authority establishes the payment terms and late payment penalties.
• Timing provisions. Record the applicable construction provision or architect-engineer acceptance or approval period separately from payment due dates. Also note any longer period the contracting officer sets, the reason given, and the date you received it.
• Invoice date. Record the date of each proper invoice. If the contract has a discount, the discount period is calculated from that date.

Keep a copy of the contract with the clause numbers marked, and keep the contracting officer's written answers next to it. The notes help anyone who picks up the books later see which rule applied and why.

Quick checklist for matching your contract

Use this list when you open a new federal contract or a new task order:

• Find the clause number in the contract, and compare it with 52.232-25, 52.232-26, and 52.232-27.
• For construction work, the rule points to 52.232-27 ( FAR 32.908).
• For a fixed-price architect-engineer contract that contains 52.232-10, the rule points to 52.232-26 ( FAR 32.908).
• For other contracts, the rule points to 52.232-25, unless 52.212-4 applies or other governmental authority establishes the payment terms and late payment penalties ( FAR 32.908).
• Note any longer period the contracting officer sets, and the reason given.
• If your contract includes a discount clause, note that 52.232-8 is a different clause, and record the proper invoice date ( FAR 32.906).

Where should you confirm the details?

Confirm the details with the contract itself and the contracting officer. The FAR text is the authority for the rules in this post, and the links above go to the official pages for each rule. If the contract and the FAR text seem to disagree, the contracting officer is the right person to ask, and a written answer is the most useful record you can keep.

Start with the clause number. Once you know which rule applies, the timing questions become much easier to answer, and your books will show where each payment stands.