Setoff of Payments Retained under a Contract in Which the Contractor Defaulted

A state agency appealed a settlement determining that the setoff of payments, retained under a contract in which the contractor defaulted, against debts owed to the government by the surety was proper. Although the surety is now being liquidated in a state court proceeding, the setoff was affirmed because the debts and credits being set off accrued before the liquidation.