CDA vs Prompt Payment Act: Why the Same Interest Rate Produces Different Results
The Setup
The Contract Disputes Act (41 USC §7109) and the Prompt Payment Act (31 USC §3903) both use the same interest rate, published semi-annually by the US Treasury. Right now, that rate is 4.125% for the period 1 January to 30 June 2026. So a $100,000 claim under either statute should accrue the same interest, yes?
No. The rate is identical. The arithmetic is not.
CDA Interest: Simple, 365 Days
The Contract Disputes Act applies to contractor claims in disputes with federal agencies. When a contractor prevails—whether at the contracting officer level, before a Board of Contract Appeals, or in the Court of Federal Claims—the contractor is entitled to interest on the amount found due, from the date the contracting officer received the claim until payment.
CDA interest is simple interest. It does not compound. The rate changes every six months, but when it changes, you apply the new rate to the same principal—unpaid interest is not added to the base to earn interest on the interest.
The day-count convention is actual days over 365.
PPA Interest: Compound Monthly, 360 Days
The Prompt Payment Act applies to payments the government owes contractors for goods or services already delivered. When the government pays late, it owes interest. Unlike CDA interest, PPA interest compounds.
Here's the mechanism: The regulation (5 CFR §1315.10) specifies that unpaid interest is added to the principal every 30 days, and the new, higher principal then accrues interest for the next 30-day period. This is monthly compounding.
The day-count convention is also different: the PPA uses a 360-day year for calculation purposes.
This matters. A 360-day year means each day is treated as 1/360th of a year, not 1/365th. Over a multi-year period, the difference compounds.
Worked Example: $100,000, One Year
Assume a debt of $100,000, outstanding for exactly 365 days, at a flat 4.125% rate (to simplify, we'll ignore mid-year rate changes).
CDA Calculation (Simple Interest, 365-day year)
Interest = $100,000 × 4.125% × (365 ÷ 365) = $4,125
PPA Calculation (Compound Monthly, 360-day year)
Monthly rate = 4.125% ÷ 12 = 0.34375%
After one month (30 days): $100,000 × 1.0034375 = $100,343.75
After two months (60 days): $100,343.75 × 1.0034375 = $100,689.34
…(repeat for 12 months)
After 12 months: $100,000 × (1.0034375)^12 ≈ $4,200.81
The difference: $75.81 on a one-year claim. Not trivial, and the gap widens substantially on longer claims and larger principal amounts.
Why the Difference?
Simple vs compound interest: With CDA, each month's interest is calculated on the original $100,000. With PPA, each month's interest is calculated on the growing balance (original principal plus accumulated unpaid interest).
365-day vs 360-day year: The 360-day year (used in PPA) slightly increases the daily rate, amplifying the compounding effect.
On a $2 million claim outstanding for three years, with semi-annual rate changes and monthly compounding under the PPA, the gap between CDA and PPA can easily be several thousand dollars.
Why This Matters
Most generic "government interest calculators" do not distinguish between CDA and PPA. They apply one formula to both, which means they are systematically overstating one and understating the other.
If you are a contractor preparing a certified claim or negotiating a settlement, getting this wrong can cost you money. Conversely, if you're the government's counsel reviewing a contractor's claim, you should spot this error and challenge it.
The statutes themselves are terse and do not spell out the mechanics in detail. The implementing regulations do. Read them, or use a tool that has.
For Government Contracts Practitioners
If your standard forms or settlement spreadsheets assume "government interest is just Treasury rate × principal × time," revisit that assumption.
CDA and PPA serve different purposes:
- CDA: Dispute resolution (interest on amounts found due in a claim).
- PPA: Prompt payment (interest on invoices the government fails to pay on time).
They accrue under different triggering events:
- CDA: From the date the contracting officer receives the claim.
- PPA: From the invoice due date.
And they calculate differently:
- CDA: Simple interest, 365-day year, rate fixed for the claim.
- PPA: Compound monthly, 360-day year, rate can change semi-annually.
Treat them accordingly. The difference can be material.
Calculate CDA or PPA Interest
Use our calculator with federal government rates pre-selected.