Overview
FAR 32.604 outlines the mandatory procedures a Contracting Officer (CO) must follow to formally request the return of funds from a contractor. It establishes the timing, specific content, and notification requirements for a demand for payment to ensure the government’s financial interests and legal rights to interest and offsets are protected.
Key Rules
- Mandatory Issuance: The CO must issue a demand for payment as soon as a debt and its amount are determined, even if the contractor has already agreed to pay or a bilateral modification is pending.
- Accounting Accuracy: The demand must distribute the debt amount across specific lines of accounting (LOA), including expired or cancelled funds. If specific LOAs are not immediately available for multi-contract debts, the CO must provide a timeline for when that information will be delivered.
- Interest Triggers:
- For debts under specific clauses (e.g., defective pricing or CAS), interest is typically calculated from the date of the government's overpayment.
- For general contract debts, interest begins to accrue if the debt is not paid within 30 days of the demand letter date.
- Contractor Protections and Rights: The demand must notify the contractor of their right to dispute the debt, the process for remitting payment, the potential for administrative offsets against other invoices, and the availability of installment plans or deferments.
- Exceptions for Proactive Repayment: A formal demand letter is generally not issued if the contractor proactively submits a credit invoice or a lump sum payment, or if they notify the CO of an overpayment (provided the debt is liquidated within 30 days).
- Proof of Delivery: The CO is required to send the demand via certified mail (return receipt requested) or another method that provides evidence of receipt, ensuring a verifiable start date for the interest clock.
Practical Implications
- Administrative Rigor: COs must maintain precise financial records to accurately attribute debts to specific lines of accounting, as errors here can complicate agency audits and Anti-Deficiency Act compliance.
- Strategic Repayment: Contractors can avoid the formal "Demand for Payment" process and potential interest accrual by proactively issuing credit invoices or notifying the CO of overpayments as soon as they are discovered.
- Collection Authority: Once the demand is issued, the government gains the right to "offset"—essentially withholding money from other unrelated invoices due to the contractor to satisfy the debt.