Stakeholders warned that the late payment issue could prompt companies to avoid doing business with the federal government.

Agencies could be on the hook for interest on late payments to government contractors, as President Donald Trump seeks to overhaul the contractor payment system.

On Feb. 26, the president signed an executive order requiring agencies in conjunction with the Department of Government Efficiency to build centralized technological systems to record all payments issued under their contracts and grants, as well as a justification for each such payment, to increase oversight of government contracting.

Since then — the Professional Services Council, a trade association for federal contractors — has reported that there’s been a slowdown, and cessation in some cases, of disbursements. While this hurts businesses, it also could ding agencies that must then pay interest on the late invoices under the Prompt Payment Act.

The interest rate under such law for the first six months of 2025 is 4.625%.

“The scope is growing, so this, I think, might be an unintended consequence of pausing payments and revamping and having a centralized technological system to handle it,” Stephanie Sanok Kostro, PSC executive vice president for policy, said during a press roundtable on March 27.

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