Federal Acquisition Regulation; FAR Case 2005-018, Contract Debts, 62230-62237 [06-8806]

Agencies

• General Services Administration
• National Aeronautics and Space Administration
• DEPARTMENT OF DEFENSE

[Federal Register Volume 71, Number 205 (Tuesday, October 24, 2006)]
[Proposed Rules]
[Pages 62230-62237]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-8806]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 12, 13, 32, 33, 36, 42, and 52

[FAR Case 2005-018]
RIN: 9000-AK59: Docket 2006-0020; Sequence 11


Federal Acquisition Regulation; FAR Case 2005-018, Contract Debts

AGENCIES:  Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION:  Proposed rule.

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SUMMARY:  The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to revise the policies and 
procedures for contract debts.

DATES:  Interested parties should submit written comments to the FAR 
Secretariat on or before December 26, 2006 to be considered in the 
formulation of a final rule.

ADDRESSES:  Submit comments identified by FAR case 2005-018 by any of 
the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Search for any document by first selecting the proper document types 
and selecting ``Federal Acquisition Regulation'' as the agency of 
choice. At the ``Keyword'' prompt, type in the FAR case number (for 
example, FAR Case 2006-001) and click on the ``Submit'' button. You may 
also search for any document by clicking on the ``Advanced search/
document search'' tab at the top of the screen, selecting from the 
agency field ``Federal Acquisition Regulation'', and typing the FAR 
case number in the keyword field. Select the ``Submit'' button.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann 
Duarte, Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR case 2005-
018 in all correspondence related to this case. All comments received 
will be posted without change to https://www.regulations.gov, including 
any personal and/or business confidential information provided.

[[Page 62231]]


FOR FURTHER INFORMATION CONTACT:  Mr. Jeremy Olson at (202) 501-3221 
for clarification of content. For information pertaining to status or 
publication schedules, contact the FAR Secretariat at (202) 501-4755. 
Please cite FAR case 2005-018.

SUPPLEMENTARY INFORMATION:

A. Background

    In 2003, the DoD Comptroller established the DoD Accounts 
Receivable Workgroup to evaluate the processes and procedures for 
reporting accounts receivables. This Workgroup concluded that 
contracting officers may not be properly reporting contract debts. 
Based on the Workgroup's recommendations, DoD established a Contract 
Debt Integrated Process Team (IPT).
    The mission of the IPT was to evaluate the adequacy of DoD's 
existing controls and procedures for ensuring that contract debts are 
identified and recovered in a timely manner, properly accounted for in 
DoD's books and records, and properly coordinated with the appropriate 
Government Officials. Contract debts result from compliance, or a 
failure to comply, with the terms of a contract and include debts 
identified by auditors, contracting officers, disbursing officials, and 
contractors. On May 26, 2005, a final report was issued that included a 
number of recommended FAR changes to improve contract debt controls and 
procedures, and to ensure consistency within/between existing 
regulations.
    The Councils established this case to evaluate the DoD 
recommendations. As a result of this review, the Councils are proposing 
the revisions discussed below. In addition, the Councils are 
considering whether the current provisions regarding interest 
provisions are sufficient. In particular, concerns have been expressed 
over the current timeline for computing interest. The Councils agreed 
to defer this issue for consideration to a later date (including a 
possible public meeting).
    1. Reorganize FAR Subpart 32.6. Reorganizes FAR Subpart 32.6 to add 
clarity and provide a logical sequence. The Subpart has been 
reorganized as follows:
    32.600 Scope of subpart.
    32.601 General.
    32.602 Responsibilities.
    32.603 Debt determination.
    32.604 Demand for payment.
    32.605 Final decisions.
    32.606 Debt collection.
    32.607 Installment payments and deferment of collection.
    32.607-1Installment payments.
    32.607-2Deferment of collection.
    32.608Interest.
    32.608-1Interest charges.
    32.608-2Interest credits.
    32.609 Delays in receipt of notices or demands.
    32.610 Compromising debts.
    32.611 Contract clause.
    2. Scope of Subpart. Revise FAR 32.600 to provide a more accurate 
description of the scope of this FAR subpart. FAR 32.6 prescribes 
policies and procedures for identifying, collecting, and deferring 
contract debts (including interest, if applicable).
    3. Responsible Official. Replace the term ``responsible official'' 
with the specific individual/organization responsible for fulfilling 
the FAR requirement. Some of the responsibilities currently listed are 
assigned to one individual/organization (e.g., the Procuring 
Contracting Officer) and other responsibilities are assigned to another 
individual/organization (e.g., the payment office). To assure a clear 
understanding of the process and applicable duties, the proposed rule 
specifies the responsible party for each required action(e.g., the 
Procuring Contracting Officer, the Administrative Contracting Officer, 
the payment office, etc.) rather than referring to all parties as 
``responsible officials.''
    4. Contract Debt - General. Revise FAR 32.601 to specify what 
constitutes a contract debt, rather than how a contract debt may arise. 
In addition, amend this section to include payments determined to be in 
excess of contract limitations for commercial financing, since such 
payments constitute a contract debt.
    5. Contract Debt Responsibilities - Identifying, Demanding Payment, 
Collecting, and Liquidating. Add a section to clearly define the 
responsibilities of the contracting officer and the payment officials 
to assure an efficient and non-duplicative process. Under the proposed 
rule the--
    (a) The contracting officer is responsible for identifying a 
contract debt and demanding payment of a contract debt. The contracting 
officer is prohibited from collecting contract debts or otherwise 
liquidating contract debts (e.g., offsetting the amount of the debt 
against existing unpaid bills due the contractor or allowing 
contractors to retain contract debts to cover amounts that may be 
payable to the contractor in the future).
    (b) The payment office is responsible for collecting payment of the 
contract debt and liquidating the contract debt.
    6. Contract Debt Determinations Consolidate all discussions of 
contract debt determinations in FAR 32.603, Debt Determinations, 
including the responsibility of the contracting officer in making debt 
determinations.
    7. Tax Credit. Delete the current FAR 32.607 because the referenced 
tax credit (Sec. 1481) was repealed on November 5, 1990, by Public Law 
101-508.
    8. Demand for Payment. Consolidate all discussions of the demand 
for payment in a single section, at FAR 32.604, Demand for Payment to 
include:
    (a) A requirement to issue the demand letter except in specific 
circumstances.
    (b) A requirement that the demand letter include accounting 
information to enable the payment office to correctly record the 
amounts in the proper accounts.
    (c) A requirement that the demand letter include the amount of 
interest owed under statutes that require interest assessments from the 
date of noncompliance to the date of re-payment (CAS and TINA).
    (d) A paragraph implementing the requirements of 31 U.S.C. 
3717(e)(1) and the Debt Collection Improvement Act of 1996; and
    (e) A paragraph addressing instances where overpayments exist but a 
demand for payment is not necessary.
    9. Final Decisions. Consolidate all discussions of final decisions 
in a single section at FAR 32.605, Final Decisions, to include:
    (a) When a final decision must be issued;
    (b) A statement that the due date for a demand letter is not 
extended simply because a final decision is being issued;
    (c) A need to obtain evidence of receipt by the contractor to 
establish the starting date for interest computations and the statute 
of limitations.
    10. Debt Collection. Consolidate all discussions of debt collection 
in a single section, at FAR 32.606, Debt Collection, to include:
    (a) The current requirements at 32.612;
    (b) The current requirements for transferring debts to the 
Department of Treasury; and
    (c) A requirement to assure the debt is being collected by 
maintaining communication between the contracting officer and the 
payment office.
    11. Installment Payments and Deferment of Collection. Clarify 
procedures for processing installment payments and deferment of 
collection requests.
    12. Interest. Consolidate and simplify all discussions of interest 
in a single section at FAR 32.608, Interest, to include:
    (a) The substance of the current language at 32.614;
    (b) Computing interest on overpayments.

[[Page 62232]]

    13. FAR 12.215 and 32.008 - Notification of Overpayment. Revise FAR 
32.008 to specifically state the responsibilities of the contracting 
officer when notified by the contractor of a duplicate payment or that 
the Government has otherwise overpaid. In addition, amend FAR 12.215 to 
include reference to the requirement in FAR 32.604.
    14. FAR Contract Clauses - Payment. Revise the contract clauses at 
FAR 52.212-4(i)(5)and (6); 52.232-25(d); 52.232-26(c); and FAR 52.232-
27(l) to assure that the contractor remits payment to the payment 
office (rather than the contracting officer) and the payment office is 
able to properly account for the remittance.
    15. FAR 52.232-17, Interest. Revise FAR 52.232-17 to conform with 
the other proposed revisions.
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Councils do not expect this proposed rule to have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., 
because the regulatory changes are predominantly internal operating 
procedures for contracting officers and will not significantly change 
duties of small entities under their contracts. An Initial Regulatory 
Flexibility Analysis has, therefore, not been performed. We invite 
comments from small businesses and other interested parties. The 
Councils will consider comments from small entities concerning the 
affected FAR Part(s) 12, 13, 32, 33, 36, 42, and 52 in accordance with 
5 U.S.C. 610. Interested parties must submit such comments separately 
and should cite 5 U.S.C. 601, et seq. (FAR case 2005-018), in 
correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose information collection requirements 
that require the approval of the Office of Management and Budget under 
44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 12, 13, 32, 33, 36, 42, and 52

    Government procurement.

    Dated: October 6, 2006.
Ralph De Stefano,
Director, Contract Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 12, 13, 
32, 33, 36, 42, and 52 as set forth below:
    1. The authority citation for 48 CFR parts 12, 13, 32, 33, 36, 42, 
and 52 continues to read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 12--ACQUISITION OF COMMERCIAL ITEMS

    2. Revise section 12.215 to read as follows:


12.215  Notification of Overpayment.

    If the contractor notifies the contracting officer of a duplicate 
payment or that the Government has otherwise overpaid, the contracting 
officer shall follow the procedures at 32.604.

PART 13--SIMPLIFIED ACQUISITION PROCEDURES

    3. Revise section 13.401 (b) to read as follows:


13.401  General.

* * * * *
    (b) The contracting officer shall be primarily responsible for 
determining the amount of debts resulting from failure of contractors 
to properly replace, repair, or correct supplies lost, damaged, or not 
conforming to purchase requirements (see 32.602 and 32.603).
* * * * *

PART 32--CONTRACT FINANCING

    4. Revise section 32.008 to read as follows:


32.008  Notification of Overpayment.

    If the contractor notifies the contracting officer of a duplicate 
payment or that the Government has otherwise overpaid, the contracting 
officer shall follow the procedures at 32.604.
    5. Revise subpart 32.6 to read as follows:
Subpart 32.6--Contract Debts
Sec.
32.600 Scope of subpart.
32.601 General.
32.602 Responsibilities.
32.603 Debt determination.
32.604 Demand for payment.
32.605 Final decisions.
32.606 Debt collection.
32.607 Installment payments and deferment of collection.
32.607-1 Installment payments.
32.607-2 Deferment of collection.
32.608 Interest.
32.608-1 Interest charges.
32.608-2 Interest credits.
32.609 Delays in receipt of notices or demands.
32.610 Compromising debts.
32.611 Contract clause.


32.600  Scope of Subpart.

    This subpart prescribes policies and procedures for identifying, 
collecting, and deferring contract debts(including interest, if 
applicable). Sections 32.607, 32.608, and 32.610 of this subpart do not 
apply to claims against common carriers for transportation overcharges 
and freight and cargo losses (31 U.S.C. 3726).


32.601  General.

    (a) Contract debts are amounts that--
    (1) Have been paid to a contractor to which the contractor is not 
currently entitled under the terms and conditions of the contract; or
    (2) Are otherwise due from the contractor under the terms and 
conditions of the contract.(b) Contract debts include, but are not 
limited to, the following:
    (1) Billing and price reductions resulting from contract terms for 
price redetermination or for determination of prices under incentive 
type contracts.
    (2) Price or cost reductions for defective cost or pricing data.
    (3) Financing payments determined to be in excess of the contract 
limitations at 52.232-16(a)(7), Progress Payments, or 52.232-32(d)(2), 
Performance-Based Payments, or any contract clause for commercial item 
financing.
    (4) Increases to financing payment liquidation rates.
    (5) Overpayments disclosed by quarterly statements required under 
price redetermination or incentive contracts.
    (6) Price adjustments resulting from Cost Accounting Standards 
(CAS) noncompliances or changes in cost accounting practice.
    (7) Reinspection costs for nonconforming supplies or services.
    (8) Duplicate or erroneous payments.
    (9) Damages or excess costs related to defaults in performance.
    (10) Breach of contract obligations concerning progress payments, 
performance based payments, advance payments, commercial item 
financing, or Government-furnished property.
    (11) Government expense of correcting defects.
    (12) Overpayments related to errors in quantity or billing or 
deficiencies in quality.
    (13) Delinquency in contractor payments due under agreements or 
arrangements for deferral or postponement of collections.

[[Page 62233]]

    (14) Reimbursement of amounts due under 33.102(b)(3) and 
33.104(h)(8).


32.602  Responsibilities.

    (a) The contracting officer has primary responsibility for 
identifying and demanding payment of contract debts except those 
resulting from errors made by the payment office. The contracting 
officer shall not collect contract debts or otherwise agree to 
liquidate contract debts (e.g. offset the amount of the debt against 
existing unpaid bills due the contractor, or allow contractors to 
retain contract debts to cover amounts that may become payable in 
future periods.
    (b) The payment office has primary responsibility for--
    (1) Collecting contract debts identified by contracting officers;
    (2) Identifying and collecting duplicate and erroneous payments; 
and
    (3) Authorizing the liquidation of contract debts in accordance 
with agency procedures.


32.603   Debt determination.

    (a) If the contracting officer has any indication that a contractor 
owes money to the Government under a contract, the contracting officer 
shall determine promptly whether an actual debt is due and the amount. 
Any unnecessary delay may contribute to--
    (1) Loss of timely availability of the funds to the program for 
which the funds were initially provided;
    (2) Increased difficulty in collecting the debt; or
    (3) Actual monetary loss to the Government.
    (b) The amount of indebtedness determined unilaterally by the 
contracting officer shall be an amount that--
    (1) Is based on the merits of the case; and
    (2) Is consistent with the contract terms.


32.604  Demand for payment.

    (a) Except as provided in paragraph (c) of this section, the 
contracting officer shall take the following actions:
    (1) Issue the demand for payment as soon as the contracting officer 
has determined that an actual debt is due the Government and the 
amount.
    (2) Issue a demand for payment even if--
    (i) The debt is or will be the subject of a bilateral modification;
    (ii) The contractor is otherwise obligated to pay the money under 
the existing contract terms; or
    (iii) The contractor has agreed to repay the debt.
    (3) Issue the demand for payment as a part of the final decision, 
if a final decision is required by 32.605(a).
    (b) The demand for payment shall include the following:
    (1) A description of the debt, including the debt amount.
    (2) A distribution of the principal amount of the debt by line(s) 
of accounting subject to the following:
    (i) If the debt affects multiple lines of accounting, the 
contracting officer shall, to the maximum extent practicable, identify 
all affected lines of accounting. If it is not practicable to identify 
all affected lines of accounting, the contracting officer may select 
representative lines of accounting in accordance with paragraph 
(b)(2)(ii) of this section.
    (ii) In selecting representative lines of accounting, the 
contracting officer shall--
    (A) Consider the affected departments or agencies, years of 
appropriations, and the predominant types of appropriations;
    (B) Not distribute to any line of accounting an amount of the 
principal in excess of the total obligation for the line of accounting; 
and
    (iii) Include the lines of accounting even if the associated funds 
are expired or cancelled. While cancelled funds will be deposited in a 
miscellaneous receipt account of the Treasury if collected, the funds 
are tracked under the closed year appropriation(s) to comply with the 
Anti-Deficiency Act.
    (iv) If the debt affects multiple contracts and the lines of 
accounting are not readily available, the contracting officer shall--
    (A) Issue the demand for payment without the distribution of the 
principal amount to the affected lines of accounting;
    (B) Include a statement in the demand for payment advising when the 
distribution will be provided; and
    (C) Provide the distribution by the date identified in the demand 
for payment.
    (3) The basis for and amount of any accrued interest or penalty.
    (4)(i) For debts resulting from specific contract terms (e.g., 
debts resulting from incentive clause provisions, Quarterly Limitation 
on Payments Statement, Cost Accounting Standards, price reduction for 
defective pricing), a notification stating that payment should be made 
promptly, and that interest is due in accordance with the terms of the 
contract. Interest shall be computed from the date specified in the 
applicable contract clause until repayment by the contractor. The 
interest rate shall be the rate specified in the applicable contract 
clause.
    (ii) For all other contract debts, a notification stating that any 
amounts not paid within 30 days from the date of the demand for payment 
will bear interest. Interest shall be computed from the date of the 
demand for payment until repayment by the contractor. The interest rate 
shall be the interest rate established by the Secretary of the 
Treasury, as provided in Section 611 of the Contract Disputes Act of 
1978 (Public Law 95-563), which is applicable to the period in which 
the amount becomes due, and then at the rate applicable for each six-
month period as established by the Secretary until the amount is paid.
    (iii) In the case of a debt arising from a price reduction for 
defective pricing, or as specifically set forth in a Cost Accounting 
Standards (CAS) clause in the contract, interest is computed from the 
date of overpayment by the Government until repayment by the contractor 
at the underpayment rate established by the Secretary of the Treasury, 
for the periods affected, under 26 U.S.C. 6621(a)(2).
    (5) A statement advising the contractor--
    (i) To contact the contracting officer if the contractor believes 
the debt is invalid or the amount is incorrect; and
    (ii) To remit a check payable to the ``Treasurer of the United 
States'' annotated with the contract number along with a copy of the 
demand for payment to the payment office identified in the contract or 
as otherwise specified in the demand letter in accordance with agency 
procedures.
    (6) Notification that the payment office may offset the debt 
against any payments otherwise due the contractor.
    (7) Notification that the debt is subject to administrative charges 
in accordance with the requirements of 31 U.S.C. 3717(e) and the Debt 
Collection Improvement Act of 1996.
    (8) A notification that the contractor may submit a request for 
installment payments or deferment of collection if immediate payment is 
not practicable or if the amount is disputed.
    (c) Except as provided in paragraph (d) of this section, the 
contracting officer should not issue a demand for payment if the 
contracting officer only becomes aware of the debt when the 
contractor--
    (1) Provides a lump sum payment or submits a credit invoice. (A 
credit invoice is a contractor's request to liquidate the debt against 
existing unpaid bills due the contractor); or
    (2) Notifies the contracting officer that the payment office 
overpaid on an invoice payment. When the contractor provides the 
notification, the contracting officer shall notify the payment office 
of the overpayment.

[[Page 62234]]

    (d) If a demand for payment was not issued as provided for in 
paragraph (c) of this section, the contracting officer shall issue a 
demand for payment no sooner than 30 days after the contracting officer 
becomes aware of the debt unless--
    (i) The contractor has liquidated the debt;
    (ii) The contractor has requested an installment payment agreement; 
or
    (iii) The payment office has issued a demand for payment.
    (e) The contracting officer shall--
    (1) Furnish a copy of the demand for payment to the contractor by 
certified mail, return receipt requested, or by any other method that 
provides evidence of receipt; and
    (2) Forward a copy of the demand to the payment office.


32.605  Final decisions.

    (a) The contracting officer shall issue a final decision as 
required by 33.211 if-
    (1) The contracting officer and the contractor are unable to reach 
agreement on the existence or amount of a debt in a timely manner;
    (2) The contractor fails to liquidate a debt previously demanded by 
the contracting officer within the timeline specified in the demand for 
payment unless the amounts were not repaid because the contractor has 
requested an installment payment agreement; or
    (3) The contractor requests a deferment of collection on a debt 
previously demanded by the contracting officer (see 32.607-2).
    (b) If a demand for payment was previously issued for the debt, the 
demand for payment included in the final decision shall identify the 
same due date as the original demand for payment.
    (c) The contracting officer shall-
    (1) Furnish the decision to the contractor by certified mail, 
return receipt requested, or by any other method that provides evidence 
of receipt; and
    (2) Forward a copy to the payment office identified in the 
contract.


32.606  Debt collection.

    (a) If the contractor has not liquidated the debt within 30 days of 
the date due or requested installment payments or deferment of 
collection, the payment office initiates withholding of principal, 
interest, penalties, and administrative charges. In the event the 
contract is assigned under the Assignment of Claims Act of 1940 (31 
U.S.C. 3727 and 41 U.S.C. 15), the rights of the assignee will be 
scrupulously respected and withholding of payments shall be consistent 
with those rights. For additional information on assignment of claims, 
see Subpart 32.8.
    (b) As provided for in the Debt Collection Improvement Act of 1996, 
payment offices are required to transfer any debt that is delinquent 
more than 180 days to the Department of Treasury for collection.
    (c) The contracting officer shall periodically follow up with the 
payment office to determine whether the debt has been collected and 
credited to the correct appropriation(s).


32.607  Installment payments and deferment of collection.

    (a) The contracting officer shall not approve or deny a 
contractor's request for installment payments or deferment of 
collections. The office designated in agency procedures is responsible 
for approving or denying requests for installment payments or deferment 
of collections.
    (b) If a contractor has not appealed the debt or filed an action 
under the Disputes clause of the contract and the contractor has 
submitted a proposal for debt deferment or installment payments-
    (1) The office designated in agency procedures may arrange for 
deferment/installment payments if the contractor is unable to pay at 
once in full or the contractor's operations under national defense 
contracts would be seriously impaired. The arrangement shall include 
appropriate covenants and securities and should be limited to the 
shortest practicable maturity; and
    (2) The deferment/installment agreement shall include a specific 
schedule or plan for payment. It should permit the Government to make 
periodic financial reviews of the contractor and to require payments 
earlier than required by the agreement if the Government considers the 
contractor's ability to pay improved. It should also provide for 
required stated or measurable payments on the occurrence of specific 
events or contingencies that improve the contractor's ability to pay.
    (c) If not already applicable under the contract terms, interest on 
contract debt shall be made an element of any agreement entered into an 
installment payment or deferment of collection agreement.


32.607-1  Installment payments.

    If a contractor requests an installment payment agreement, the 
contracting officer shall notify the contractor to send a written 
request for installment payments to the office designated in agency 
procedures.


32.607-2  Deferment of collection.

    (a) All requests for deferment of collection must be submitted in 
writing to the contracting officer.
    (1) If the contractor has appealed the debt under the procedures of 
the Disputes clause of the contract, the information with the request 
for deferment may be limited to an explanation of--
    (i) The contractor's financial condition; and
    (ii) Whether deferment of the debt collection is advisable to avoid 
possible overcollection.
    (2) If there is no appeal pending or action filed under the 
Disputes clause of the contract, the following information about the 
contractor should be submitted with the request:
    (i) Financial condition.
    (ii) Contract backlog.
    (iii) Projected cash receipts and requirements.
    (iv) The feasibility of immediate payment of the debt.
    (v) The probable effect on operations of immediate payment in full.
    (vi) Whether deferment of the debt collection is advisable to avoid 
possible over collection.
    (b) Upon receipt of the contractor's written request, the 
contracting officer shall promptly provide a notification to the 
payment office and advise the payment office that the contractor's 
request is under consideration. Prompt notification is required to 
ensure that the payment office does not begin collection while the 
deferment request is being considered.
    (c)(1) The contracting officer shall forward the following to the 
office designated in agency procedures for a decision:
    (i) A copy of the contractor's request for a deferment of 
collection.
    (ii) A written recommendation on the request and the basis for the 
recommendation including the advisability of deferment to avoid 
possible overcollections.
    (iii) A statement as to whether the contractor has an appeal 
pending or action filed under the Disputes clause of the contract and 
the docket number if the appeal has been filed.
    (iv) A copy of the contracting officer's final decision (see 
32.605).
    (2) The contracting officer should consider any information 
necessary to develop a recommendation on the deferment request.
    (d) The office designated in agency procedures may authorize a 
deferment pending the resolution of appeal to avoid possible 
overcollections. The agency is required to use current year unexpired 
funds to pay interest on overcollections.

[[Page 62235]]

    (e) Deferments pending disposition of appeal may be granted to 
small business concerns and financially weak contractors, with a 
reasonable balance of the need for Government security against loss and 
undue hardship on the contractor.
    (f) Contracts and arrangements for deferment shall not provide that 
a claim of the Government will not become due and payable pending 
mutual agreement on the amount of the claim or, in the case of a 
dispute, until the decision is reached.
    (g) At a minimum, the deferment agreement shall contain the 
following:
    (1) A description of the debt.
    (2) The date of first demand for payment.
    (3) Notice of an interest charge, in conformity with FAR 32.608 and 
the FAR clause at 52.232-17, Interest; or, in the case of a debt 
arising from a defective pricing or a CAS noncompliance overpayment, 
interest, as prescribed by the applicable Price Reduction for Defective 
Cost or Pricing Data or CAS clause.
    (4) Identification of the office to which the contractor is to send 
debt payments.
    (5) A requirement for the contractor to submit financial 
information requested by the Government and for reasonable access to 
the contractor's records and property by Government representatives.
    (6) Provision for the Government to terminate the deferment 
agreement and accelerate the maturity of the debt if the contractor 
defaults or if bankruptcy or insolvency proceedings are instituted by 
or against the contractor.
    (7) Protective requirements that are considered by the Government 
to be prudent and feasible in the specific circumstances. The coverage 
of protective terms at 32.409 and 32.501-5 may be used as a guide.
    (h) If a contractor appeal of the debt determination is pending, 
the deferment agreement shall also include a requirement that the 
contractor shall --;
    (1) Diligently prosecute the appeal; and
    (2) Pay the debt in full when the appeal is decided, or when the 
parties reach agreement on the debt amount.
    (i) The deferment agreement may provide for the right to make early 
payments without prejudice, for refund of overpayments, and for 
crediting of interest.
    (j) Actions filed by contractors under the Disputes clause shall 
not suspend or delay collection. Until the action is decided, 
deferments shall only be granted if, within 30 days after the filing of 
such action, the contractor presents to the office designated in agency 
procedures a good and sufficient bond, or other acceptable collateral, 
in the amount of the claim, and the deferment is approved by the office 
designated in agency procedures. Any amount collected by the Government 
in excess of the amount found to be due on appeal under the Disputes 
clause of the contract shall be refunded to the contractor with 
interest thereon from the date of collection by the Government until 
the date the monies are remitted to the contractor at the annual rate 
established by the Secretary of Treasury under Public Law 92-41. Simple 
interest shall be calculated to reflect each 6-month period change in 
the rates established by the Secretary.


32.608  Interest.


32.608-1  Interest charges.

    (a) Unless specified otherwise in the FAR clause at 52.232-17--
    (1) Interest charges shall apply to any contract debt unpaid after 
30 days from the issuance of a demand for payment or from any earlier 
date specified in the contract unless--
    (i) The contract is a kind excluded under 32.611; or
    (ii) The contract or debt has been exempted from interest charges 
under agency procedures.
    (2) The interest charge shall be at the rate established by the 
Secretary of the Treasury under Public Law 92-41 for the period in 
which the amount becomes due. The interest charge shall be computed for 
the actual number of calendar days involved beginning on the due date 
and ending on--
    (i) The date on which the designated office receives payment from 
the contractor;
    (ii) The date of issuance of a Government check to the contractor 
from which an amount otherwise payable has been withheld as a credit 
against the contract debt; or
    (iii) The date on which an amount withheld and applied to the 
contract debt would otherwise have become payable to the contractor.
    (b) If not already applicable under the contract terms, interest on 
contract debt shall be made an element of any agreement entered into on 
installment payment and deferment of collection agreements.


32.608-2  Interest credits.

    (a) An equitable interest credit shall be applied under the 
following circumstances:
    (1) When the amount of debt initially determined is subsequently 
reduced; e.g., through a successful appeal.
    (2) When the collection procedures followed in a given case result 
in an over collection of the debt due.
    (3) When the responsible official determines that the Government 
has unduly delayed payments to the contractor on the same contract at 
some time during the period to which the interest charge applied, 
provided an interest penalty was not paid for such late payment.
    (b) Any appropriate interest credits shall be computed under the 
following procedures:
    (1) Interest at the rate under paragraph (b) of the FAR clause at 
52.232-17 and 32.608-1(a)(2) shall be charged on the reduced debt from 
the date specified in the first demand made for payment of the higher 
debt.
    (2) Interest may not be reduced for any time between the due date 
under the demand and the period covered by a deferment of collection, 
unless the contract includes an interest clause; e.g., the clause 
prescribed in 32.611.
    (3) Interest shall not be credited in an amount that, when added to 
other amounts refunded or released to the contractor, exceeds the total 
amount that has been collected, or withheld for the purpose of 
collecting the debt. This limitation shall be further reduced by the 
amount of any limitation applicable under paragraph (b)(2) of this 
subsection.


32.609  Delays in receipt of notices or demands.

    If interest is accrued based on the date of the demand letter and 
delivery of the demand letter is delayed by the Government (e.g., undue 
delay after dating at the originating office or delays in the mail), 
the date of the debt and accrual of interest shall be extended to a 
time that is fair and reasonable under the particular circumstances.


32.610  Compromising debts.

    For debts under $100,000, excluding interest, if further collection 
is not practicable or would cost more than the amount of recovery, the 
designated agency official may compromise the debt. Compromise is 
authorized by the Federal Claims Collection Act (31 U.S.C. 3711). 
Compromise shall conform to Federal Claims Collection Standards 31 CFR 
part 900), and agency regulations. Unless specifically authorized by 
agency procedures, contracting officers can not compromise debts.


32.611  Contract clause.

    (a) The contracting officer shall insert the clause at 52.232-17, 
Interest, in solicitations and contracts unless it is contemplated that 
the contract will be

[[Page 62236]]

in one or more of the following categories:
    (1) Contracts at or below the simplified acquisition threshold.
    (2) Contracts with Government agencies.
    (3) Contracts with a State or local government or instrumentality.
    (4) Contracts with a foreign government or instrumentality.
    (5) Contracts without any provision for profit or fee with a 
nonprofit organization.
    (6) Contracts described in Subpart 5.5, Paid Advertisements.
    (7) Any other exceptions authorized under agency procedures.
    (b) The contracting officer may insert the FAR clause at 52.232-17, 
Interest, in solicitations and contracts when it is contemplated that 
the contract will be in any of the categories specified in 32.611(a).

PART 33--PROTESTS, DISPUTES, AND APPEALS


33.208  [Amended]

    6. Amend section 33.208(b) by removing ``32.614' and adding 
``32.608'' in its place.


33.211  [Amended]

    7. Amend section 33.211(a)(vi)by removing ``32.610(b)'' and adding 
``32.604 and 32.605'' in its place.

PART 36--CONSTRUCTION AND ARCHITECT-ENGINEER CONTRACTS


36.608   [Amended]

    8. Amend section 36.608 in the fourth sentence by removing 
``collect'' and adding ``issue a demand for payment of the amount due'' 
in its place.

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

    9. Amend section 42.302 by revising paragraph (a)(17) to read as 
follows:


42.302  Contract administration functions.

    (a) * * *
    (17) Analyze quarterly limitation on payments statements and take 
action in accordance with Subpart 32.6 to recover overpayments from the 
contractor.
* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

    10. Amend section 52.212-4 by revising the date of the clause and 
paragraph (i)(5); and adding paragraph (i)(6) to read as follows:


52.212-4  Contract Terms and Conditions--Commercial Items.

* * * * *

CONTRACT TERMS AND CONDITIONS--COMMERCIAL ITEMS-(DATE)

* * * * *
    (i) * * *
    (5) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall take the following actions:
    (i) Remit the overpayment amount to the payment office cited in the 
contract along with a description of the overpayment including the--
    (A) Circumstances of the overpayment (e.g., duplicate payment, 
erroneous payment, liquidation errors, date(s) of overpayment);
    (B) Affected contract number and delivery order number if 
applicable;
    (C) Affected contract line item or subline item, if applicable; and
    (D) Contractor point of contact.
    (ii) Provide a copy of the remittance and supporting documentation 
to the Contracting Officer.
    (6) Interest. (i) All amounts that become payable by the Contractor 
to the Government under this contract shall bear simple interest from 
the date due until paid unless paid within 30 days of becoming due. The 
interest rate shall be the interest rate established by the Secretary 
of the Treasury as provided in Section 611 of the Contract Disputes Act 
of 1978 (Public Law 95-563), which is applicable to the period in which 
the amount becomes due, as provided in paragraph (b) of this clause and 
then at the rate applicable for each six-month period as fixed by the 
Secretary until the amount is paid.
    (ii) Amounts shall be due at the earliest of the following dates:
    (A) The date fixed under this contract.
    (B) The date of the first written demand for payment consistent 
with this contract, including any demand for payment resulting from a 
default termination.
    (iii) The interest charge shall be computed for the actual number 
of calendar days involved beginning on the due date and ending on--
    (A) The date on which the designated office receives payment from 
the Contractor;
    (B) The date of issuance of a Government check to the Contractor 
from which an amount otherwise payable has been withheld as a credit 
against the contract debt; or
    (C) The date on which an amount withheld and applied to the 
contract debt would otherwise have become payable to the Contractor.
    (iv) The interest charge made under this clause may be reduced 
under the procedures prescribed in 32.608-2 of the Federal Acquisition 
Regulation in effect on the date of this contract.
* * * * *
    11. Revise section 52.232-17 to read as follows:


52.232-17  Interest.

    As prescribed in 32.611(a) and (b), insert the following clause:

INTEREST (DATE)

    (a) Except as otherwise provided in this contract under a Price 
Reduction for Defective Cost or Pricing Data clause or a Cost 
Accounting Standards clause, all amounts that become payable by the 
Contractor to the Government under this contract shall bear simple 
interest from the date due until paid unless paid within 30 days of 
becoming due. The interest rate shall be the interest rate established 
by the Secretary of the Treasury as provided in Section 611 of the 
Contract Disputes Act of 1978 (Public Law 95-563), which is applicable 
to the period in which the amount becomes due, as provided in paragraph 
(b) of this clause, and then at the rate applicable for each six-month 
period as fixed by the Secretary until the amount is paid.
    (b) Amounts shall be due at the earliest of the following dates:
    (1) The date fixed under this contract.
    (2) The date of the first written demand for payment consistent 
with this contract, including any demand for payment resulting from a 
default termination.
    (c) The interest charge shall be computed for the actual number of 
calendar days involved beginning on the due date and ending on--
    (1) The date on which the designated office receives payment from 
the Contractor;
    (2) The date of issuance of a Government check to the Contractor 
from which an amount otherwise payable has been withheld as a credit 
against the contract debt; or
    (3) The date on which an amount withheld and applied to the 
contract debt would otherwise have become payable to the Contractor.
    (d) The interest charge made under this clause may be reduced under 
the procedures prescribed in 32.608-2 of the Federal Acquisition 
Regulation in effect on the date of this contract.
    12. Amend section 52.232-25 by revising the date of the clause and 
paragraph (d) to read as follows:


52.232-25  Prompt Payment.

* * * * *

PROMPT PAYMENT (DATE)

* * * * *

[[Page 62237]]

    (d) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall--
    (1) Remit the overpayment amount to the payment office cited in the 
contract along with a description of the overpayment including the--
    (i) Circumstances of the overpayment (e.g., duplicate payment, 
erroneous payment, liquidation errors, date(s) of overpayment);
    (ii) Affected contract number and delivery order number if 
applicable;
    (iii) Affected contract line item or subline item, if applicable; 
and
    (iv) Contractor point of contact.
    (2) Provide a copy of the remittance and supporting documentation 
to the Contracting Officer.
    (End of clause)
    13. Amend section 52.232-26 by revising the date of the clause and 
paragraph (c) to read as follows:


52.232-26  Prompt Payment for Fixed-Price Architect-Engineer Contracts.

* * * * *

PROMPT PAYMENT FOR FIXED-PRICE ARCHITECT-ENGINEER CONTRACTS (DATE)

* * * * *
    (c) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall--
    (1) Remit the overpayment amount to the payment office cited in the 
contract along with a description of the overpayment including the--
    (i) Circumstances of the overpayment (e.g., duplicate payment, 
erroneous payment, liquidation errors, date(s) of overpayment);
    (ii) Affected contract number and delivery order number if 
applicable;
    (iii) Affected contract line item or subline item, if applicable; 
and
    (iv) Contractor point of contact.
    (2) Provide a copy of the remittance and supporting documentation 
to the Contracting Officer.
    (End of clause)
    14. Amend section 52.232-27 by revising the date of the clause and 
paragraph (l) to read as follows:


52.232-27  Prompt Payment for Construction Contracts.

* * * * *

PROMPT PAYMENT FOR CONSTRUCTION CONTRACTS (DATE)

* * * * *
    (l) Overpayments. If the Contractor becomes aware of a duplicate 
contract financing or invoice payment or that the Government has 
otherwise overpaid on a contract financing or invoice payment, the 
Contractor shall--
    (1) Remit the overpayment amount to the payment office cited in the 
contract along with a description of the overpayment including the--
    (i) Circumstances of the overpayment (e.g., duplicate payment, 
erroneous payment, liquidation errors, date(s) of overpayment);
    (ii) Affected contract number and delivery order number if 
applicable;
    (iii) Affected contract line item or subline item, if applicable; 
and
    (iv) Contractor point of contact.
    (2) Provide a copy of the remittance and supporting documentation 
to the Contracting Officer.
    (End of clause)
[FR Doc. 06-8806 Filed 10-23-06; 8:45 am]
BILLING CODE 6820-EP-S