Overview
FAR 32.601 defines contract debts as any amounts paid to a contractor that they are not entitled to or any other sums owed to the Government under the terms of a contract. This section provides a comprehensive, though non-exhaustive, list of specific circumstances—ranging from overpayments to performance damages—that trigger the debt collection process.
Key Rules
- Definition of Debt: A contract debt exists if a contractor receives payment they are not entitled to or if the contract terms specifically dictate that an amount is due to the Government.
- Pricing and Billing Adjustments: Debts include reductions resulting from price redeterminations, incentive-type contracts, and defective certified cost or pricing data.
- Financing Limitations: Payments exceeding the limits defined in financing clauses (e.g., Progress Payments or Performance-Based Payments) or increases in liquidation rates are classified as debts.
- Accounting and Compliance: Amounts due resulting from Cost Accounting Standards (CAS) noncompliance or changes in cost accounting practices are considered contract debts.
- Performance-Related Costs: The Government may claim debt for reinspection costs, the expense of correcting defects, and damages or excess costs arising from a default in performance.
- Administrative Errors: Duplicate payments, erroneous payments, and overpayments related to quantity or billing errors are recoverable as debts.
Practical Implications
- Contractors must maintain robust internal controls and accounting systems to proactively identify and refund overpayments, as these are legally classified as government debt upon receipt.
- The broad scope of this section allows Contracting Officers to use the debt collection process for various recoveries, including protest-related reimbursements and costs incurred due to contractor non-performance.