Overview
This section defines the legal immunities and financial protections provided to an assignee (typically a financing institution) when a government contract is assigned under the Assignment of Claims Act. It specifically limits the government's ability to recover payments already made or to reduce future payments to satisfy the contractor's unrelated debts.
Key Rules
- Immunity from Recovery: Once the government makes a payment to an assignee, it cannot recover those funds due to any liability the contractor owes the government, whether that liability is related to the specific contract or not.
- No-Setoff Commitment: If a contract includes a no-setoff clause, the government cannot reduce payments to the assignee for:
- Contractor liabilities arising independently of the contract.
- Specific contract-related liabilities including taxes, social security contributions, renegotiation, fines, and most penalties.
- Exceptions to Protection: The government may still apply a setoff, even with a no-setoff commitment, if:
- The assignee has not actually provided a loan or a firm commitment for financing.
- The payment amount exceeds the total amount of the loan or the firm financing commitment.
Practical Implications
- Reduced Lender Risk: These protections make government contracts more attractive as collateral for lenders by ensuring that a contractor's tax liens or legal penalties do not deplete the cash flow assigned to repay the lender.
- Conditional Security: Assignees must ensure they have a documented loan or firm commitment in place, as the lack of actual financing can void their protection against government setoffs.