FAR 32.604—Demand for payment.
Plain-English Summary
FAR 32.604 explains when and how a contracting officer must issue a demand for payment when the Government has determined that a contractor owes an actual debt. It covers the timing of the demand, situations where a demand must still be issued even if the debt is being handled through a bilateral modification, contract terms, or a contractor’s agreement to repay, and when a demand should not be issued because the contractor has already taken action such as submitting a lump-sum payment, a credit invoice, or notifying the Government of an invoice overpayment. The section also specifies what the demand letter must contain: a description of the debt and amount, distribution of principal by line(s) of accounting, treatment of multiple lines of accounting and multiple contracts, inclusion of expired or cancelled funds, the basis for interest or penalties, special interest rules for debts arising under specific contract clauses, notice of Treasury interest for other debts, instructions for disputing the debt or remitting payment, offset notice, administrative charge notice, and notice of possible installment or deferment requests. In practice, this section is the Government’s core procedural rule for formally asserting a contract debt and starting collection-related actions, while also protecting the contractor by requiring clear notice, accounting detail, and an opportunity to question the debt or request payment relief.
Key Rules
Issue demand promptly
The contracting officer must issue the demand for payment as soon as an actual debt and its amount are determined. The demand is required even if the debt will be handled through a bilateral modification, the contractor already owes the money under the contract, or the contractor has agreed to repay it.
Include final decision when required
If FAR 32.605(a) requires a final decision, the demand for payment must be included in that final decision. This ties the debt-collection notice to the formal disputes process when applicable.
State debt and accounting detail
The demand must describe the debt and amount and distribute the principal by line(s) of accounting to the maximum extent practicable. If multiple lines are affected and full allocation is not practical, representative lines may be used, but the CO must consider affected agencies, appropriation years, and predominant appropriation types.
Respect appropriation limits
No amount may be distributed to a line of accounting in excess of the total obligation for that line. The demand must include the lines of accounting even if the funds are expired or cancelled, and cancelled funds remain tracked under the closed appropriation for Anti-Deficiency Act compliance.
Handle multiple contracts carefully
If the debt affects multiple contracts and the lines of accounting are not readily available, the CO may issue the demand without the distribution, but must say when the distribution will be provided and then provide it by that date.
Explain interest and penalties
The demand must state the basis and amount of any accrued interest or penalty. For debts arising from specific contract terms, the notice must say payment is due promptly and interest accrues under the contract clause; for all other debts, unpaid amounts after 30 days bear Treasury interest under 41 U.S.C. 7109.
Give contractor payment and dispute instructions
The demand must tell the contractor to contact the CO if the debt is believed invalid or the amount is incorrect, and if the contractor agrees, to send payment to the designated payment office with the contract number and a copy of the demand.
Warn of offset, charges, and relief options
The demand must notify the contractor that the payment office may offset the debt against amounts otherwise due, that administrative charges may apply under debt collection statutes, and that the contractor may request installment payments or deferment if immediate payment is not practicable or the debt is disputed.
Do not duplicate certain contractor actions
The CO should not issue a demand when the debt is first discovered through a lump-sum payment, a credit invoice, or the contractor’s notice that the payment office overpaid an invoice. If a demand was not issued in those situations, the CO generally must wait at least 30 days after becoming aware of the debt before issuing one, unless the contractor has already liquidated the debt, requested installments, or the payment office has issued its own demand.
Responsibilities
Contracting Officer
Determine when an actual debt exists and issue the demand promptly; include all required debt, accounting, interest, payment, offset, and relief information; coordinate with the payment office; avoid issuing duplicative demands in the situations covered by paragraph (c); and issue the demand no sooner than 30 days after awareness when paragraph (d) applies, unless an exception applies.
Contractor
Review the demand, contact the contracting officer if the debt is disputed or the amount is incorrect, remit payment if the debt is accepted, and may request installment payments or deferment when immediate payment is not practicable or the debt is disputed.
Payment Office
Receive contractor remittances as directed, may initiate offset procedures consistent with law and regulation, and may issue its own demand for payment in the circumstances referenced by the rule.
Agency
Provide procedures and designated payment-office instructions, apply administrative charges and offset actions as authorized, and maintain accounting treatment for debts tied to expired or cancelled appropriations in accordance with fiscal law requirements.
Practical Implications
This rule is the formal starting point for many contract debt collections, so the demand letter must be accurate, complete, and timely; missing accounting or interest information can create disputes and delay collection.
Contracting officers should not assume a contractor’s willingness to repay eliminates the need for a demand; the FAR generally requires the demand anyway so the Government preserves its collection rights and interest start date.
The accounting distribution can be difficult when multiple contracts or appropriations are involved, but the CO must still identify affected lines to the maximum extent practicable and avoid assigning more debt to a line than that line was obligated.
Contractors should pay close attention to the interest language because the accrual date and rate differ depending on whether the debt arises from a specific contract clause or from another type of contract debt.
A common pitfall is issuing a demand too early or too late: too early can conflict with the special rules for lump-sum payments, credit invoices, or overpayment notices; too late can delay interest accrual, offset actions, and collection.
Because the demand can trigger offset and administrative charges, contractors should respond quickly if they dispute the debt or need a payment plan, rather than ignoring the notice.
Official Regulatory Text
(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 the 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; and (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. 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). (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 41 U.S.C. 7109 , 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. (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) If the contractor agrees, to remit a check payable to the agency’s payment office 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 initiate procedures, in accordance with the applicable statutory and regulatory requirements, to offset the debt against any payments otherwise due the contractor. (7) Notification that the debt may be 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) 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. (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- (1) The contractor has liquidated the debt; (2) The contractor has requested an installment payment agreement; or (3) 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.