When researching government contract funding, it is key to pick a lender that knows government processes well, including the Assignment of Claims. The Federal Assignment of Claims Act created the process by which a “Financing Institution” may collaborate with a government contractor to have the contractor’s payments under prime contracts paid by the government customer directly to the Financing Institution.

Congress passed this law specifically to help government contractors obtain financing secured by their accounts receivable. The process is thoroughly defined in the Federal Acquisitions Register (FAR) and government contract officers and payment officials are accustomed to cooperating with professionally processed Assignments of Claims. It is important that a bank, asset based lender or factoring company thoroughly understand the Assignment of Claims Act and the FAR for assignments to be processed efficiently without undue inconvenience to contract and payment officials. An Assignment of Claims results in an actual modification to the contract. So, it is important in the contractor’s relationship with its federal customer that the financing institution is knowledgeable and works efficiently within the process.

Any financing secured by accounts receivable under a federal government contract requires the preparation, execution and processing of an Assignment of Claims and a Notice of Assignment Form to direct payments to the bank or finance company. Specialized forms (available in the FAR), multiple notarized originals, and the return by the government of an executed Notice of Assignment are necessary to complete the assignment.

Many banks and nearly all asset based lenders and factoring companies, that serve the small business government contracting community, require this assignment to support their financing.

This kind of assignment is available for commercial accounts receivable or federal subcontracts through the provisions of the Uniform Commercial Code (UCC) adopted by most states. The UCC requirements for assignments are simpler and more streamlined but the Assignment of Claims Act overrides the UCC for federal accounts receivable and requires that the FAR be followed for assignments of payments.

In general, the Assignment of Claims requires that Assignments be processed unless the contract expressly forbids it. This is extremely rare. Overwhelmingly, most federal contracts allow an Assignment of Claims. However, the Contracting Officers have some amount of discretion and, typically, they will resist processing Assignments of Claims for small contracts. Contract size of $100,000 is a typical threshold but some offices will refuse to process Assignments on contracts up to $200,000. Commonly, contracts contain the language, “this contract may not be assigned”. But this language typically means that the performance of the contract may not be assigned to another contractor. It does not mean the Assignment of Claims may not be applied.

To learn more about related issues, read our other news post, “How Government Contract Funding is Different”.