Follow the steps below then click the Calculate button to calculate defective pricing for the given payments. If you make any changes to the form, click the Calculate button again to recalculate the totals. All fields can be reset by clicking the Reset Calculator button. Further information about calculations can be found in the documentation.
1. Select type of interest calculation
This model calculates interest required for price reductions due to defective pricing, for claims, and terminations for default. The defective pricing calculator is intended for use on defective pricing claims involving a firm-fixed-price contract type. For both defective pricing claims and for claims and terminations for default, the program uses the payment or settlement dates, the appropriate interest base, and the applicable interest rates for the periods.
The worksheet will be updated as underpayment interest rates and prompt payment interest rates are updated by the IRS. The worksheet specifies the date of the most recent interest rate update.
The interest calculator model is an informational and negotiation tool. We highly recommend working with a Defense Contracting Agency Auditor (DCAA) auditor on the interest calculation. DCAA auditors have specialized experience in this area. We highly recommend verifying payment information with the office responsible for administering the contract. Typically this is a function of the Administrative Contracting Officer (ACO).
How to use the model
1. Determine the type of claim you have
The Defective Pricing Interest Compounded Daily should be selected for contracts awarded on or after August 4, 2011 while the Defective Pricing Simple Interest should be selected for contracts awarded prior to August 4, 2011.
For defective pricing interest calculations, the model uses the underpayment interest rates as established by the Secretary of the Treasury, under 26 USC 6621(a)(2), for collection of debts owed resulting from price reductions.
For claims and terminations, the model computes interest using the prompt payment/ CDA rates. These rates are the same as the cost of money rates determined by the Secretary of the Treasury under Public Law 92-41, 85 Statute 97.
2. Enter information on the sheet
The worksheet is used to input all data used to calculate the total interest amount. First you must click the radio button to select the type of interest calculation you are doing - Defective Pricing Simple Interest, Defective Pricing Interest Compounded Daily; or Claim/Termination. The next step is to enter the data. Click on the blue question marks in order to get a pop up description or explanation of the cell.
For defective pricing, the data used includes contract price, recommended price adjustment, expected repayment date, and delivery payment dates and amounts. Using this data, it calculates the interest base (defective portion of each delivery payment), and interest.
For claims and terminations, enter the final receipt/demand date, the certification data and the settlement amount. Generally there will be only one settlement amount and one interest calculation, however, more than one can be entered and calculated.
3. Interest calculations and details
The summary shows the interest calculation for each individual payment and also shows the total interest amount.
Interest Calculations are described in more detail in the DCAA Contract Audit Manual in sections 14-124 Charging Interest When Defective Pricing is Found, Sections 12-504 Contract Disputes Act, and Section 8-503.2 Interest. The DCAA Contract Audit Manual should be used as a reference when utilizing this tool to calculate interest. The Defense Acquisition University (DAU) Defective Pricing Workshop is also highly recommended for individuals who contemplate utilizing this interest calculator tool for defective pricing claims. For non-defective pricing related CAS issues, please reach out to DCAA for assistance in calculating interest using the CAS interest calculator.