Nov 2011 , Vol. VI, No.1

Federal Prompt Act does not Create a Private Right of Action

Authored by attorney Mike Giordano

Congress enacted the Federal Prompt Payment Act (PPA) in 1982 to provide the federal government with an incentive to pay government contractors on time by imposing penalties in the form of interest (currently 2.5%) on government agencies with certain overdue bills.  Congress amended the PPA in 1988, imposing similar penalties applicable to subcontractors.
 

As a result of the amended PPA, prime contractors must insert a payment clause in subcontracts obligating the prime contractor to pay the subcontractor for satisfactory performance within 7 days of receiving payment from the government.  Prime contractors must also insert a clause obligating them to pay an interest penalty to subcontractors on amounts due but not paid after the 7-day period.
 

A recent decision by the U.S. District Court for the District of Columbia highlighted one major “catch” for subcontractors.  The Court held that the PPA does not provide plaintiffs with a private right of action.  This does not mean that the PPA provides no remedy. The PPA still entitles a claimant due money to interest.  The decision does mean that a PPA violation, by itself, does not provide a subcontractor with an independent cause of action against a prime contractor (or presumably its surety).        
 

Virginia has a similar prompt payment scheme in the Virginia Public Procurement Act (VPPA).  Like the federal PPA, the VPPA also does not expressly provide for a private cause of action.  One would expect a Virginia court to therefore come to the same conclusion. 
 

The lesson for subcontractors is that they must ensure that the contract includes the PPA-required payment language.  Then, subcontractors can enforce the PPA obligations in a breach of contract suit if the prime contractor fails to make timely payments.  If the PPA language is not included in the contract, subcontractors cannot rely on the protection of the PPA.  The result would be costly—a forfeiture of any right to interest, penalties and fees under the PPA.  

Authored by attorney Mike Giordano, these articles are meant to bring awareness to these topics and are not intended to be used as legal advice.
For more information, contact Mike at 757-446-8626 or Bill Franczek at 757-446-8600.
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