Government Contract Payment Terms Guide 2025: Get Paid Faster

Quick Answer: When Does the Government Pay?

Federal construction contracts typically pay within 14 days of a proper invoice under the Prompt Payment Act. Progress payments are usually monthly based on work completed. Retainage of 5-10% is held until substantial completion. Late payments earn interest automatically.

14 Days

Federal Payment

5-10%

Retainage

Monthly

Progress Pay

Interest

Late Payments

Types of Contract Payments

Government contracts use various payment structures:

Progress Payments

Most common for construction. Pay based on percentage of work completed.

• Monthly billing cycle
• Based on schedule of values
• Requires inspection/approval
• Subject to retainage

Milestone Payments

Payments tied to achieving specific deliverables or milestones.

• Defined in contract
• Binary: achieved or not
• May create cash flow gaps
• Clear performance triggers

Cost Reimbursement

For cost-plus contracts, reimbursement of allowable costs incurred.

• Requires detailed cost tracking
• Subject to audit
• May include fee/profit
• Monthly or bi-weekly billing

Final Payment

Release of retainage and final amounts after contract completion.

• After substantial completion
• Requires final inspection
• All deliverables submitted
• Release of claims

Prompt Payment Act

Federal law requires timely payment to contractors:

Key Requirements

Payment Timeline

Construction: 14 calendar days from receipt of proper invoice.
Other contracts: 30 calendar days.

Interest on Late Payments

If payment is late, interest accrues automatically at the Treasury rate. No need to request — it should be included automatically.

Invoice Requirements

Clock starts when a “proper invoice” is received. Incomplete or incorrect invoices restart the clock when corrected.

Flow-Down to Subcontractors

Prime contractors must pay subcontractors within 7 days of receiving payment from the government (or notify subcontractors of the reason for delay). This ensures the benefits of prompt payment flow through the supply chain.

Progress Payment Process

Submit Schedule of Values

Early in the project, submit a detailed breakdown of contract value by work item. This becomes the basis for all progress payments.

Monthly Progress Assessment

Near the end of each billing period, assess percentage complete for each line item. Request inspection/verification from COR.

Submit Payment Request

Prepare and submit invoice with supporting documentation. Use required forms (often SF-1443 for federal construction).

Government Review

COR/Contracting Officer reviews and approves invoice, applying any adjustments or retainage. Rejected items require resubmission.

Payment Issued

Upon approval, payment is processed. Electronic funds transfer (EFT) is typically required for federal payments.

Understanding Retainage

Retainage is a portion of each payment held back until project completion:

Retainage Basics

Typical Rates

• Federal: 0-10% (often 5%)
• State: Varies (0-10%)
• May reduce after 50% complete
• Check contract specifics

Release Timing

• Substantial completion
• Punch list completion
• Final inspection approval
• All closeout documents

Retainage Impact on Cash Flow

10% retainage on a $10M project means $1M tied up until completion. Factor this into project financing. Some contracts allow retainage reduction after 50% complete or substitution with securities.

Invoicing Best Practices

Do

✓ Submit invoices promptly
✓ Include all required information
✓ Use correct forms and format
✓ Attach supporting documentation
✓ Track submission and receipt dates
✓ Follow up on delayed payments

Avoid

✗ Submitting incomplete invoices
✗ Billing for unapproved work
✗ Missing billing cycles
✗ Overbilling (creates audit issues)
✗ Ignoring rejection notices
✗ Waiting too long to escalate

Proper Invoice Checklist

☑ Contract number
☑ Invoice number and date
☑ Period of performance covered
☑ Detailed breakdown of charges
☑ Supporting documentation

☑ Cumulative billing to date
☑ Retainage calculation
☑ EFT banking information
☑ Point of contact
☑ Required signatures

Resolving Payment Problems

When payments are delayed or disputed:

Escalation Path

Step 1: COR Contact

Start with your Contracting Officer Representative. Often delays are administrative and easily resolved at this level.

Step 2: Contracting Officer

If COR cannot resolve, escalate to the Contracting Officer. Put concerns in writing with documentation.

Step 3: Written Request for Interest

If payment is late, request calculation and payment of interest under the Prompt Payment Act.

Step 4: Formal Claim

For significant disputes, submit a formal claim under the Contract Disputes Act. Seek legal counsel for large amounts.

Frequently Asked Questions

Can I get paid faster than 14 days?

Federal contracts sometimes offer accelerated payment programs for small businesses. Electronic invoicing and payment can also speed processing. Check if your contract has fast pay provisions.

What if the government rejects my invoice?

The payment clock stops until you submit a corrected invoice. Get specific feedback on what needs fixing and resubmit quickly. Partial payments may be possible for undisputed amounts.

How do I calculate interest owed?

Interest accrues from day 15 (construction) or day 31 (other) at the Treasury rate. The rate is published quarterly. Calculate: Principal × Rate × Days Late / 365.

Are state and local payment terms similar?

Many states have prompt payment laws, but terms vary. Some states require payment within 30-45 days. Check state-specific requirements for each contract.

Find Contracts With Good Payment Terms

BidFinds helps you discover government contracts that fit your business needs. Understand terms before you bid.

Start Finding Bids→