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The Soil Conservation Service (SCS) requested a decision concerning whether it should terminate collection action against a watershed district for the recovery of a debt arising from an underpayment of its proportionate share of a settlement payment made by a defaulted construction contractor. GAO held that: (1) the grant agreement stated that in case of contractor defaults the district would bear all costs of litigation and that SCS would receive its prorated share of the total amount recovered; (2) SCS could not terminate the collection action, since it had a significant basis for recovery; and (3) SCS should refer the matter to the Department of Justice for litigation, since it exhausted all its administrative collection procedures.

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