Introduction

On November 18, 2009, a revised Part 22 of 2 NYCRR entitled Prompt Contracting and Interest Payments for Not-For-Profit Organizations became effective. These regulations were updated by the Office of the State Comptroller in order to provide clear guidance to State agencies regarding Article IX-B of the State Finance Law: Prompt Contracting and Interest Payments for Not For Profit Organizations. In particular the revised regulations are intended to provide clear guidance to agencies on:

1. Determining when prompt contracting interest is due and the manner in which to calculate that interest.
2. Use of written directives for both new and renewal contracts.

For your ease in reviewing this updated Bulletin all changes are presented in bold print.

Chapter 166 of the Laws of 1991 added Article XI-B (The Prompt Contracting Law) to the State Finance Law promoting prompt contracting with NFP organizations.

More specifically, the Prompt Contracting Law sets time frames for processing contracts and related documents; provides for written directives, waivers of interest, advances, and loans to NFPs when those time frames cannot be met; and requires interest payments to NFPs when contract payments are late due to untimely processing of contracts and no advance or loan was provided.  For information on loans for NFPs from the Short-Term Revolving Loan Fund, refer to Bulletin A-268. 

Chapter 648 of the Laws of 1992 made several changes to Article XI-B.  The 1992 revisions provided more reasonable time frames for processing local grant awards and federally funded contracts; allowed for state agencies and NFPs to waive interest payments under certain circumstances; eliminated interest penalties for contracts executed and funded in whole or in part for services rendered in a prior fiscal year; and limited the amount of time a state agency may suspend time frames to four and one-half months.

Chapter 292 of the Laws of 2007 added further amendments to Article XI-B. The 2007 amendments prohibit state agencies from requiring NFPs, as a prerequisite of the execution of a contract, to waive claims for interest that would otherwise be due; provide that a contract is deemed to continue, and the contract remains in effect when a state agency does not timely notify an NFP of an intent to terminate the contract; require that any waivers of interest be subject to OSC’s approval and provide for the calculation and payment of interest to NFPs when OSC non-approves a waiver of interest; require state agencies to report prompt contracting information to OSC for inclusion in annual reports; and expand the NFP contracting advisory committee to sixteen members, require meetings at least quarterly, and expand the scope of the committee’s responsibility.

A key objective of the Prompt Contracting Law is to expedite the contract process, and corresponding payments with NFPs to avoid service interruptions and financial hardships for these organizations. OSC advises that state agencies take measures to ensure compliance with the requirements of the Prompt Contracting Law.  To this end, state agencies should maximize their use of the standard contract boilerplate; including simplified renewal documents, written directives, and valid waivers of interest when contracting with NFPs.

State agencies utilizing waivers of interest should ensure that the waiver is signed and dated by the NFP, includes an explanation for the retroactive contract start date, and satisfies required time frames set by the law.

Note:  The Prompt Contracting Law requirements pertain to all grant contracts with NFPs, including those that fall below the $50,000 threshold for the Comptroller’s prior approval.

Written Directives Section 179-t &
179-u

The Prompt Contracting Law formalizes the process for authorizing NFPs to begin/continue services without a fully executed contract by requiring a written directive. (A fully executed contract means a contractual agreement signed by both the state agency and the NFP, and subsequently approved by the Attorney General and OSC).  Specifically, the legislation requires the issuance of a written directive to the NFP while negotiating a renewal contract. A state agency shall be deemed to have issued a written directive with respect to a renewal contract when it has provided notice, either by mail or electronic mail, to the not-for-profit organization of its intent to renew the contract or has provided the not-for-profit organization with a proposed renewal agreement.  In order for a State agency to exercise an option in an existing contract to provide for an additional quarter of financing or any advance payment to the not-for-profit organization the State agency must issue a written directive.  Attachment A provides the format to be used for a written directive involving fifth quarter financing and Attachment B provides the format for a written directive providing an advance payment.

A state agency may use a written directive to authorize commencement of services for a new contract, but is required to issue a written directive for renewal contracts.

With respect to new contracts a State Agency is deemed to have issued a written directive when it provides the not-for-profit organization with a proposed contract containing a start date. Alternatively, a State Agency may elect to more formally issue a written directive to a NFP for a new contract using the format provided in Attachment C.

If a written directive does not contain a start date, then the not-for-profit is authorized to provide services immediately.

Notifications and Suspension of Time Frames Section 179-w

The state agency must put all determinations or notifications required under the Prompt Contracting Law in writing and immediately submit them to any directly affected NFP, to the Chairman of the Senate Finance Committee, to the Chairman of the Assembly Ways and Means Committee, and to OSC who will include these determinations and notifications in the procurement record.

In the event that a state agency including, OSC, DOB or the Attorney General, determines that extenuating circumstances exist preventing the state agency from complying with the time frames required by the Prompt Contracting Law, the state agency will immediately provide the written notification of such determination of suspension of time frames to any directly affected NFP, to OSC, to the Chairman of the Senate Finance Committee, and to the Chairman of the Assembly Ways and Means Committee. The notification will include an explanation of the circumstances and state the specific amount of the time for which the time frames will be suspended. No suspension will be valid unless it states the specific amount of time of suspension, provided that the cumulative length of the suspension declared will not be for a period greater than 4½ months in any fiscal year.
           
Upon determining that significant and substantive differences exist between the state agency and the NFP in the negotiation of a contract or renewal contract, or when the state agency makes a determination that the NFP is not negotiating in good faith, the state agency may suspend the written directive and subsequent interest payments or subsequent advance payments required by the Prompt Contracting Law. With notice of such suspension, the state agency will be required to provide the affected NFP and OSC with a written notification of such determination and the reasons therefore. OSC will include these suspension documents in the procurement record.

Note: For renewal contracts, state agency’s determination of extenuating circumstances shall not operate to relieve the state agency of liability for interest under Section 179-t unless the agency shall also determine, and OSC concurs, that such circumstances are unusual circumstances which warrant the denial of interest.

Failure to Comply due to Unusual Circumstances Section 179-t

In the event that the state agency is unable to comply with the time frames for notice of intent to renew or terminate, due to unusual circumstances beyond the control of the state, no payment of interest is due to the NFP.

Unusual circumstances does not mean a state agency’s:

1. failure to plan for implementation of a program;
2. failure to assign sufficient staff resources to implement a program;
3. failure to establish a schedule for the implementation of a program;
4. failure to anticipate any other reasonably foreseeable circumstances: or
5. contract negotiations.

On or before the date set forth for the renewal of the contract, the state agency shall document the unusual circumstances which are the basis for its inability to comply in a written notice to OSC, DOB, and the NFP.  OSC has 20 days after receipt of such written notice to determine whether or not the unusual circumstances beyond control of the state warrant the denial of interest.  OSC shall inform the state agency, DOB, and the NFP of its determination.

If OSC’s determination concludes that the circumstances do not warrant a denial of interest and interest is due, once the contract is fully executed, the state agency shall immediately submit a voucher requesting the payment of interest to the NFP.

Advance Payments for Renewal Contracts Section 179-u

State agencies should continue to make use of advances if a renewal contract is not, or is not expected to be, "fully executed" by the start date of the renewal contract.  Where a fifth quarter financing provision has been included in the contract, state agencies should use written directives in the form contained in Attachment A (Written Directive - Renewal Contract:  Fifth Quarter Financing).  Where there is no such provision in the contract, State agencies can make an advance payment to an NFP using written directives in the form contained in Attachment B (Written Directive - Renewal Contract: Advance Payment).

To Pay Advance for A Renewal Contract

1. Complete a Written Directive (Attachment A or Attachment B) and forward to the NFP.  The advance amount stipulated on a written directive cannot exceed 25 percent of the existing or prior contract.

2. Prepare a voucher, noting the following special instructions, and forward to OSC.

1. Interest Eligible (Y/N) - Enter 'N' since advance payments made pursuant to a written directive, other than those made under fifth quarter financing provisions, are not interest eligible.
2. Payment Date - Enter the date the advance voucher is prepared. This date should not precede the first payment date anticipated in the renewal contract.
3. Payee Amount - Enter the advance amount stipulated in the Written Directive.
4. MIR Date - Enter the date the first payment is due.
5. Originating Agency and PO/Contract - Enter the agency and contract number of the existing contract.

Note:  If the advance voucher rejects because it exceeds the contract or encumbered amount, process an AC-340 with an attached copy of the written directive increasing the contract and/or encumbered amounts in the existing contract.

To Account For An Advance For A Renewal Contract

The advance represents the first dollars that have been paid under the renewal contract when fully executed.  Any advance payment should be applied against future payments.

Interest Payments Section 179-v

For all payments required under new or renewal contracts, agencies must determine whether late contract interest is due under the Prompt Contracting Law (State Finance Law Article XI-B). Additionally, contract payments are subject to interest provisions under the Prompt Payment Law (State Finance Article XI-A).

Generally, late contract interest will be due to the NFPs if:

1. The initial payment(s) are not made to the NFP by the payment date(s) required in the contract; or
2. The NFP borrows funds from an outside source to provide services pursuant to a written directive issued by the agency.

However, the NFPs will be due interest only if all of the following conditions are satisfied.

1. A required written directive was not suspended
2. The initial payment required under the contract was paid after all of the following:
1. The contract term began;
2. the date services began;
3. the required payment was due.
3. The necessary Federal funds (cash) were available to make the required payment.
4. No loan fund payment was made to the NFP.
5. The contract is neither a construction contract nor a contract funded in the Capital Projects Budget.
6. The contract transaction was approved by OSC or the Attorney General.

Procedurally, state agencies should determine whether interest is due, and how much, by using the Late Contract Interest Worksheet (Attachment D). Key factors to consider when calculating prompt contracting interest  include:

• Interest shall be due a not-for-profit organization for each payment that would have been due if the contract had been fully executed before the scheduled commencement date.

• Interest shall be calculated for the period commencing thirty calendar days after the end of each billing period as specified in the contract and ending on the date payment is actually made, except where under the terms of the contract the not-for-profit organization is entitled to a payment or payments on specified dates without the submission of an invoice or voucher, in which case interest shall run from each such specified date or dates.

• Interest shall be calculated separately with respect to each payment due under the contract.

• If a contract does not specify billing periods or a payment schedule, it shall be presumed that the not-for-profit is authorized to submit invoices or vouchers at the end of each month for a pro rata portion of the total contract amount.

• The State agency is responsible for calculating interest due and preparing a separate voucher to pay such interest.

• A state agency may not deny interest to a not-for-profit organization on the basis that it failed to submit invoices or vouchers during the period prior to final execution of the contract.  However, where the not-for-profit fails to submit an invoice or voucher for such payment within thirty calendar days of the contract becoming fully executed, no additional interest shall accrue after such thirtieth day.

To Prepare An Interest Voucher

If interest is due, prepare a separate Special Charge Voucher noting the following special instructions.

1. Interest Eligible - Enter “N.”
2. Payment Date - Enter the date the interest voucher is prepared to expedite the interest payment.
3. Liability Date - Enter the actual payment date of the late contract payment.
4. Payee Amount - Enter the “amount of interest due” calculated on the Late Contract Interest Worksheet.
5. MIR Date - Enter the date payment was due.
6. Ref./Inv. No. - Enter the Agency Code/Contract Number and 'INTEREST', e.g. "99999X999999INTEREST."
7. Ref./Inv. Date - Enter the actual payment date of the late contract payment.
8. Description - Enter "See Attached Late Contract Interest Worksheet."
9. Cost Center - Enter a cost center which charges the agency administrative appropriation.
10. Object - Enter “56075,” Interest-Late Contract.
11. Liquidation - Leave blank.
12. Batch Type (on batch transmittal) - Enter “VNC,” Vouchers – Not-For-Profit Contract Interest, on the Batch Transmittal for this voucher.

Note : State agencies should not process prompt contracting interest payments through the quick pay process.

Interest Rate

The interest rate used in the late contract interest calculation is based on the "overpayment" rate established by the Commissioner of Taxation and Finance. As of October 1, 2009 the current rate is three percent. This rate, however, is subject to change quarterly. Contact OSC’s Help Desk at (518) 408-4672 or 1-866-370-4672, or Helpdesk@osc.state.ny.us for the interest rate in effect on the date of the late payment and the corresponding interest factor.

Interest payments may be made to an NFP at a rate higher than the rate set by the Commissioner of Taxation and Finance if the NFP borrowed money from an outside source. If a higher rate is requested, the NFP is required to submit documentation to the state agency indicating the interest rate, lender of the funds and any other information requested by the state agency, Attorney General, or OSC. OSC may disallow any portion of the higher interest rate deemed unreasonable.

Waiver of Interest Agreement §179-v

If the time frames for processing a contract have been met and the state agency is liable for interest due to a retroactive start date, the state agency and the NFP may mutually agree in writing to waive any interest owed to the NFP under provisions of State Finance Law, Article XI-B.  However, a state agency may not require a waiver of interest as a prerequisite to the execution to a contract. A waiver of interest must be determined to be warranted by OSC.  In order for a written agreement waiving interest to be determined warranted by OSC, such agreement must include:

1. A statement that the time frames found in Article XI-B of the State Finance Law were met, and that such agreement is null and void if the time frames required by Article XI-B of the State Finance Law were not met by the state agency;
2. documentation explaining the reasons for a retroactive contract start date; and
3. a signature of person authorized to sign a binding contract on behalf of the not-for-profit organization.

Any waiver of interest agreement shall be immediately provided to OSC, DOB, and to the NFP. State agencies must use Attachment E (Waiver of Interest Agreement) to this bulletin.  

OSC will determine, using the above stated criteria, whether the waiver of interest is warranted no later than 20 days after the receipt of the written waiver of interest agreement and required documentation. OSC shall inform the state agency, DOB, and the NFP of its determination. If the determination concludes that a waiver of interest is unwarranted, the state agency shall immediately submit to OSC a voucher requesting the payment of interest to the NFP, as required by the State Finance Law, Article XI-B and as further prescribed in Part 22 of 2 NYCRR entitled Prompt Contracting and Interest Payments for Not-For-Profit Organizations. If the voucher is not received within 30days of OSC determination, OSC will assess the amount of unpaid interest in the manner prescribed by law.

Examples of Interest Payments/Waivers

The following examples illustrate how late contract interest provisionsand calculations apply.

Example 1
A state agency entered into a new contract with a NFP. A written directive was issued on January 1st requesting the NFP to begin services on April 1st. The NFP began providing services on April 1st.  The terms and conditions of the contract call for an advance payment in the amount of $100,000 to be paid on the first day of the contract term. Due to delays, the contract is not approved until April 16th. The payment to the NFP is made on May 14th.  Interest is due from April 1st to May 14th. The payment is 43 days late; therefore, the amount of late contract interest is $354.04.
$100,000 X .003540354* = $354.04
*Interest factor for 43 days at 3 percent.

Example 2
A state agency entered into a new contract with an NFP. A written directive is issued on April 1st   in the form of the contract document containing a start date of July 1st.  The NFP began providing services on July 1st.  The terms and conditions of the contract call for a quarterly advance payment in the amount of $75,000 to be paid on the first day of the quarter. In order to begin services, the NFP borrows funds from an outside source at an interest rate of 5 percent. The contract is approved on October 12th and payment is made on November 10th. Interest is due from July 1st to November 10th. The payment is 132 days late; therefore, the amount of late contract interest, calculated at 5 percent, is $1,368.41.
$75,000 X .018245403* = $1,368.41
*Interest factor for 132 days at 5 percent.

Example 3
A state agency entered into a new contract with an NFP. A written directive is issued on April 1st   in the form of the contract document containing a start date of July 1st.  The NFP began providing services on July 1st. The terms and conditions of the contract call for a quarterly reimbursement of actual expenses incurred. The contract is approved on November 1st  and the first reimbursement payment for the quarter July- September in the amount of $75,000 is made on November 15th. The payment is 16 days late (thirty days after the end of the billing period as specified in the contract and ending on the date payment is actually made); therefore, the amount of late contract interest is $98.69
$75,000 X .001315879* = $98.69
*Interest factor for 16 days at 3 percent.

Example 4
A state agency notifies a NFP of its intent to renew a contract 90 days prior to the end of the term of the contract by forwarding the proposed renewal contract. The NFP began providing services on July 1st  , the start of the renewal period. The terms and conditions of the contract call for monthly reimbursement of actual expenses incurred.  The renewal contract is approved on November 30th  and the NFP submits vouchers for the months of July, August in the amount of $20,000 each on December 15th  which are paid on December 30th.  The NFP then submits vouchers for the months of September and October in the amount of $20,000 each on January 15th which are paid on February 1st. Interest would be calculated for each monthly reimbursement separately as follows:

* where the not-for-profit fails to submit an invoice or voucher within thirty days of the contract becoming fully executed, no additional interest shall accrue after the thirtieth day.

July              $20,000*..010077424 (interest factor @ 3% for 122 days) =$201.55
August         $20,000*.007507183(interest factor @ 3% for 91 days) =$150.14
September   $20,000*..005026081(interest factor @ 3% for 61 days) =$100.52
October       $20,000* ..002468694interest factor @ 3% for 30 days) = $49.37
Total late contracting interest payable                                            $501.58

Example 5
A state agency intends to enter into a new contract with an NFP. A written directive is issued on January 1st requesting the NFP to begin services on April 1st.  The NFP began providing services on April 1st.  Before the contract is approved, the State agency determines that the NFP did not negotiate in good faith. On June 1st the State agency notifies the NFP, in writing, that the written directive is suspended; therefore, no late contract interest is due, however, the State agency owes the NFP for the services that were provided from April 1st to June 1st.

Example 6
The appropriation was enacted April 1st. A state agency entered into a new agreement with an NFP. Due to the seasonal nature of the services required, both parties agreed that the services must commence by July 1st. A written directive was issued April 1st directing the NFP to begin services on July 1st. The NFP began providing services on July 1st.  The contract was approved on August 15th. The terms of the contract call for the initial payment 30 days after commencement of services. Because the contract start date occurred within 150 days of the enactment of the appropriation, the parties chose to sign an agreement to waive any potential interest obligations that may be due. OSC determined that the waiver of interest was warranted.  Since time frames (pages 3-6) for processing the contract had been met, and a waiver of interest had been agreed upon and determined to be warranted by OSC, no interest is due. However, if the waiver of interest agreement had not been deemed warranted, interest would have been owed from July 31st through the date of initial payment.

Other Requirements and Changes

Contracts with NFPs must contain a specific payment date indicating when the initial payment is due.

No State agency shall be liable for interest payments on contracts executed pursuant to appropriations made in whole, or in part, for liabilities incurred in a prior fiscal year, or if a waiver of interest agreement is executed and subsequently determined to be warranted by OSC.

Questions

If further clarification if required regarding this bulletin, please contact the Bureau of Contracts’ Grants Team Leader at (518) 474-3488.