## Facts

- The Department of the Treasury’s U.S. Customs Service (Customs) awarded Northrop Worldwide Aircraft Services, Inc. (Northrop) a cost-reimbursement contract.
- Under the contract, Northrop provided transportation, storage, maintenance, and auction services for property seized by Customs.
- Northrop did not request and did not receive contract financing or other advance payments.
- Customs notified Northrop when services were required for particular seized items.
- Northrop performed the requested work and submitted an invoice to Customs for each service after the service was completed.
- Northrop operated under Customs’ strict supervision during performance.
- Customs accepted Northrop’s performance and did not dispute any invoice as inaccurate, unallowable, or otherwise improper.
- Despite the lack of any dispute, Customs did not promptly pay multiple invoices submitted by Northrop.
- Northrop submitted a claim to the contracting officer seeking interest penalties under the Prompt Payment Act (PPA) based on Customs’ late payments.
- The contracting officer denied the claim on the ground that the PPA’s interest-penalty provisions did not apply to cost-reimbursement contracts.
- Northrop appealed the denial to the General Services Board of Contract Appeals (GSBCA).

## Issues

1. Whether the Prompt Payment Act’s interest-penalty provisions apply to late payment of undisputed invoices submitted after completion of services performed under a cost-reimbursement contract.
2. Whether Customs could avoid PPA interest penalties based solely on the contract’s cost-reimbursement pricing structure where the invoices billed for completed, accepted services.

## Decision

- The GSBCA rejected Customs’ categorical position that the Prompt Payment Act is inapplicable to cost-reimbursement contracts.
- The GSBCA determined that Northrop’s invoices—submitted after completion of discrete services and not disputed by Customs—could trigger the PPA’s payment-timing requirements and interest-penalty consequences.
- The Board ruled that Customs’ late payment of undisputed invoices required payment of statutory interest penalties under the PPA.

## Legal Principles

- The Prompt Payment Act can apply to government payment obligations arising from accepted goods or services billed by proper, undisputed invoices, even when the contract is cost-reimbursement.
- Contract type, by itself, is not a complete defense to Prompt Payment Act interest penalties when an agency receives and accepts services and then pays late.
- When an agency does not timely pay a proper, undisputed invoice for completed performance, the Prompt Payment Act requires interest penalties unless a statutory or regulatory exception applies.
- An agency’s routine supervision of performance and later acceptance of services supports treating the resulting invoice as a bill for completed work rather than advance financing.

## Conclusion

Northrop’s appeal arose from Customs’ late payment of undisputed invoices for completed services under a cost-reimbursement contract. The GSBCA held that the Prompt Payment Act’s interest-penalty provisions may apply in that setting and that Customs’ late payments required statutory interest penalties despite the contract’s cost-reimbursement structure.


Northrop Worldwide Aircraft Services, Inc. v. Department of the Treasury, GSBCA No. 1162-TD (1992)