Overview
Subpart 32.8 implements the Assignment of Claims Act, allowing government contractors to assign their right to receive contract payments to financial institutions to facilitate private financing. It establishes the criteria, legal protections, and administrative procedures required for such assignments while balancing the government's right to set off contractor debts against payments.
Key Rules
- Eligibility Threshold: The contract must involve payments totaling $1,000 or more.
- Qualified Assignees: Assignments can only be made to a bank, trust company, or other financing institution (including Federal lending agencies).
- Exclusivity and Scope: Unless otherwise stated, an assignment must cover all unpaid amounts under the contract, be made to a single party (or one party acting as an agent for multiple financiers), and cannot be further assigned (except to another qualified financing institution).
- No-Setoff Commitment: Under specific "no-setoff" clauses, the government agrees not to reduce payments to the assignee to satisfy the contractor's independent debts (e.g., taxes, fines, or unrelated liabilities).
- Notification Requirements: The assignee must provide written notice and a copy of the assignment instrument to the Contracting Officer (CO), the surety (if any), and the designated disbursing officer.
- SAM Registration: The assignee must be registered in the System for Award Management (SAM) unless specific exceptions apply.
Responsibilities
- Contracting Officer (CO):
- Determines if prohibiting assignment is in the government’s interest.
- Reviews and acknowledges notices of assignment to ensure the contract is valid and the assignee is registered in SAM.
- Consults with debt collection officers if a contractor is heavily indebted before agreeing to a no-setoff commitment.
- Inserts appropriate FAR clauses (52.232-23 or 52.232-24) based on the contract’s requirements.
- Assignee (Financing Institution):
- Must file the notice of assignment and the assignment instrument with the proper authorities.
- Must provide a release of assignment once the contractor’s financial obligations are satisfied.
- Agency Head:
- Responsible for making a "determination of need" before a no-setoff commitment can be included in a contract, typically to facilitate national defense or emergency response.
- Contractor:
- Responsible for executing the assignment correctly based on their organizational structure (corporate seal, partnership authorization, or notarized individual signature).
Practical Implications
- Facilitating Cash Flow: This subpart is a vital tool for small and mid-sized businesses that need to "factor" their government receivables to maintain working capital during contract performance.
- Lender Risk Mitigation: The "no-setoff" provision is a significant protection for banks; without it, a bank’s collateral (the contract payments) could be wiped out by the contractor’s unrelated tax liens or legal penalties.
- Administrative Precision: Failure to follow the specific filing procedures (e.g., not notifying the surety or the disbursing officer) can lead to payment delays or legal disputes regarding who is entitled to the funds.
- Government Debt Recovery: If a "no-setoff" clause is not present, the government maintains a powerful position, as it can divert contract payments to pay down a contractor’s existing debts to the United States even before the bank gets paid.