Restricted Expenditures — Advance and Late Payments
A state agency may only pay a penalty when a valid federal law or regulation requires the payment. In the absence of a federal law or regulation requiring the payment of a penalty, a penalty assessed is not payable because its payment is considered extra compensation.
Late Charges versus Penalties
For the purposes of the Texas Constitution, a late charge must be distinguished from a penalty.
A late charge is not a penalty if the charge reasonably relates to the costs incurred by a person or entity because a state agency was late making a payment. In contrast, a late charge is a penalty if the charge does not reasonably relate to the cost incurred by a person or entity because a state agency was late in making the payment.
A Texas state agency is assessed a late fee and an account fee by a vendor for paying late. The agency calls the vendor to inquire about the fees. The vendor explains that the account fee is assessed because of the labor involved for manually researching, producing and resending an invoice, while the late fee is a standard charge assessed as a penalty to customers for late payments.
In this case, the agency could pay the account fee because of the associated labor involved in “manually researching, producing and resending an invoice.” However, the agency cannot pay the late fee because there is no associated cost recovery by the vendor; it is simply a fee (penalty) for paying late. Under the Prompt Payment Law, in lieu of the late fee, the vendor would receive penalty interest paid by the state agency.
Texas Constitution Article III, Sections 44, 53; Article VIII, Section 3; Article XVI, Section 6(a); Opinion of the Texas Attorney General NO. H-1289 (1978); Education Code Chapter 51, Subchapter A.