Installment Payments

From time to time, organizations find themselves in situations where they owe the Government money. Most often, this involves income tax and payroll tax liabilities but it can also result from instances where contractors have received overpayments on contracts. Contract overpayments can occur because of billing system inadequacies, payment mistakes (e.g. duplicate payments) or because of contract administration adjustments. Of course, as soon as an overpayment is discovered, contractors should immediately refund the amount of the overpayment back to the Government. Contractors that do not refund overpayments in a timely manner, do so at their own peril. We know of an instance where a Federal Government investigative organization opened a criminal investigation on one such case.

There may be cases however, where contractors are financially strapped and cannot repay the overpayment right away. If the overpayment involves a DoD contract, there may be some relief. The DoD Financial Management Regulation, Volume 10, Chapter 18 allows for a series of installment payments under certain circumstances. When a debtor to the U.S. Government can establish sufficient justification, a series of installment payments may be approved by DFAS (Defense Finance and Accounting Service) in amounts that will ensure liquidation of the debt within a reasonable time frame.

Prior to approving the installment agreement, DFAS will ask the contracting officer to perform a financial capability analysis, taking into consideration the proposed installment payments to ensure that the contractor has the financial capability to make the installment payments. In addition to determining the contractor's ability to repay, the contracting officer will also determine

• what the contractor did with the overpayment and
• why it is not currently in a position to return the overpayment to the Government.

Needless to say, contractors that embark down this road must have strong rationale to support its case and must expect and be prepared to have auditors poking around in their financials. Tomorrow, we will look at some of the specific things that the Government will request when performing its review.

Go to Part 2