Assignment of Claims is a federal contract financing mechanism that allows a contractor to transfer its right to receive money due or to become due under a government contract to an eligible financing institution. Instead of the government making covered contract payments directly to the contractor, payment is made to the assignee after the assignment has been properly executed and notice requirements have been satisfied.
The mechanism is governed primarily by the Assignment of Claims Act, 31 U.S.C. 3727 and 41 U.S.C. 6305, and FAR Subpart 32.8. FAR 52.232-23, Assignment of Claims, implements the arrangement at the contract level. Assignment can support financing because a bank or other eligible institution can obtain rights to a contractor’s future federal receivables, but the contractor does not transfer the underlying government contract or its performance responsibilities.
What a Contractor Can Assign
An assignment of claims concerns the contractor’s right to receive contract payments. It does not ordinarily transfer the contract itself, the contractor’s performance obligations, or its status as the party responsible for delivering the supplies or services.
This distinction separates Assignment of Claims from a transfer of the underlying federal contract. After a valid assignment, the original contractor remains responsible for performing the contract while the eligible financing institution receives the assigned payments.
FAR 32.802 establishes several conditions for an assignment under the statutory framework. Among them, the contract must specify payments aggregating $1,000 or more, and the contract must not prohibit assignment.
The assignment must be made to an eligible financial institution. FAR identifies:
- a bank;
- a trust company;
- another financing institution;
- a Federal lending agency.
Unless the contract expressly permits otherwise, the assignment must cover all unpaid amounts payable under the contract. A contractor generally cannot select individual invoices or arbitrary portions of future payments and assign only those amounts while retaining the rest.
The assignment also normally must be made to one party. An exception allows assignment to a single party acting as an agent or trustee for two or more parties participating in financing the contract.
The basic structure can be illustrated as follows:
| Element | Assignment of Claims |
|---|---|
| What is transferred | Right to receive amounts due or to become due |
| Who remains the contractor | Original federal contractor |
| Who can receive the assignment | Eligible financing institution |
| Minimum contract payment amount under FAR 32.802 | $1,000 in aggregate |
| Performance responsibility | Remains with the contractor |
| Normal scope of assignment | All unpaid amounts payable under the contract |
| Government’s payment recipient after effective assignment | Assignee |
FAR 52.232-23 also permits an assignee to further assign or reassign its rights to another qualifying financing institution. This is subject to the statutory and regulatory conditions governing the assignment.
The mechanism therefore creates a financing relationship around federal receivables without changing who owes performance to the government. If a contractor assigns payments from a $500,000 contract to its bank, the bank does not become responsible for delivering the products, meeting the delivery schedule, complying with technical specifications, or administering the contract. Those obligations remain with the contractor.
How an Assignment Becomes Effective for Government Payment
A private agreement between the contractor and its lender is not enough by itself to redirect federal contract payments. FAR 32.802 requires the assignee to provide written notice of the assignment together with a true copy of the assignment instrument to specified government and other parties.
The required recipients are:
- The contracting officer or agency head.
- The surety on any bond applicable to the contract.
- The disbursing officer designated in the contract to make payment.
FAR 32.805 provides more detailed procedures for executing and filing the assignment. The required documentation varies in part according to the contractor’s organizational form.
For a corporation, the assignment must be executed by an authorized representative and attested as specified in the FAR. The documentation must also address corporate authorization through the corporate seal or the required evidence of a board resolution.
For a partnership, one partner can sign when adequate evidence establishes that the signer is a general partner and is authorized to execute assignments on behalf of the partnership. An individual contractor signs personally, with the signature acknowledged before a notary public or another person authorized to administer oaths.
The assignee handles the formal filing. FAR 32.805 requires the assignee to forward the required notice and assignment documentation to the parties identified by the regulation.
A notice of assignment identifies information such as the contract, contractor, government agency, nature of the contract, assignee, and date of assignment. It also directs that amounts due or to become due under the identified contract should be paid to the assignee.
The government’s acknowledgment process serves an operational purpose. Federal payment personnel need reliable evidence that the contractor has transferred its payment rights and that future payments should be directed to another entity.
The government also verifies several fundamental points when acknowledging an assignment. These include whether the contract has been properly approved and executed, whether claims under the contract can be assigned, whether the assignment covers only money due or to become due, and whether the assignee satisfies applicable System for Award Management registration requirements.
Once the assignment is properly established, contractor invoicing procedures may need to reflect it. Agency supplements can contain additional administrative requirements concerning how invoices identify the assignee and how government payment offices are notified.
If the financing arrangement later ends while money remains payable under the contract, the contractor cannot simply assume that payments automatically return to its original account. FAR 32.805 contains a release procedure for reestablishing the contractor’s right to receive the remaining payments.
The release documentation is therefore an important part of the assignment lifecycle. It closes the payment redirection formally rather than relying solely on the contractor’s private confirmation that its financing obligation has been satisfied.
Assignment of Claims and Contract Financing
Assignment of Claims can be useful when a contractor needs working capital while waiting for government invoices to be paid. A lender may view assigned federal receivables as a source of repayment and structure financing around the contractor’s expected contract cash flow.
Consider a contractor that must purchase materials and pay employees before receiving payment from the government. The company has a valid federal contract and expects substantial payments after deliveries are accepted, but it needs cash during performance.
An assignment can support a financing arrangement in which the lender advances funds based in part on the expected government receivables. Once the assignment is effective, covered government payments go to the lender rather than first passing through the contractor.
A simplified transaction can look like this:
Government contract → Contractor performs → Contractor earns payment → Government pays assignee → Financing institution applies payment under financing arrangement
The precise commercial financing terms between the contractor and financial institution remain separate from the government’s contractual obligations. FAR Subpart 32.8 establishes the conditions under which the government recognizes the assignment, but it does not dictate every commercial term of the loan or financing agreement.
The assignment also does not guarantee that every expected dollar will necessarily become payable. The contractor must still satisfy the contract requirements that create the government’s payment obligation.
If performance problems mean that an amount never becomes due under the contract, the assignment itself does not manufacture a payment entitlement. The assignee generally receives the contractor’s assigned right to money due or to become due rather than a new independent right to payment unrelated to contract performance.
This difference is important when evaluating the financing value of federal receivables. Contract value, obligated amount, invoiced amount, accepted amount, and amount actually payable are not always identical figures.
Contractors considering an assignment should therefore understand both the federal procedure and their underlying payment cycle. Factors that can affect the financing arrangement include:
- invoice frequency;
- acceptance procedures;
- expected government payment timing;
- remaining contract value;
- contract modifications;
- potential deductions or adjustments;
- termination risk;
- order volume under indefinite-delivery contracts.
An assignment is consequently different from simply changing electronic funds transfer information. Updating a bank account tells the government where to deposit money that remains payable to the contractor. An Assignment of Claims legally transfers the contractor’s payment rights to an eligible assignee under the statutory and contractual framework.
Indefinite-Delivery Contracts and GSA Orders
Assignment becomes more complicated when one contract supports orders and payments from multiple government activities. FAR 32.803 specifically addresses requirements and indefinite-quantity contracts that authorize ordering and payment by multiple government activities.
For these contracts, amounts due for individual orders of $1,000 or more may be assigned. This allows assignment to operate at the order level in circumstances where treating every payment under the entire multi-agency contract as a single receivable would create administrative difficulties.
GSA has an agency-specific clause for this situation. GSAR 552.232-23, Assignment of Claims, is prescribed for solicitations and requirements or indefinite-quantity contracts under which more than one agency may place orders.
The GSA clause modifies the standard structure because multiple agencies can issue orders and make payments. It prohibits assignment of claims for amounts due or to become due under the overall contract itself, while permitting separate assignment of all amounts due or to become due under qualifying individual orders.
For a qualifying order, the assignment can be made to a bank, trust company, other financing institution, or Federal lending agency under the Assignment of Claims Act. The assignment becomes effective for government payment purposes when the required written notice and assignment instrument are filed with the contracting officer issuing the order and the finance office designated to make payment.
This order-level treatment is particularly relevant to the GSA Multiple Award Schedule environment. A MAS contractor can hold one Schedule contract while receiving orders from numerous federal agencies, each with its own order documentation and payment activity.
The contractor should therefore distinguish between:
- assigning receivables under the overall contract;
- assigning amounts associated with a specific agency order;
- changing ordinary EFT payment information;
- financing invoices without establishing an Assignment of Claims recognized by the government.
These arrangements can have different contractual consequences.
GSA’s current procedures also require administrative coordination after an assignment. When acknowledging a notice of assignment, the contracting officer notifies the contractor that future invoices or payment requests must identify the assignee and indicate that payments have been assigned. The contract finance office is also notified.
For requirements or indefinite-quantity contracts used solely by GSA, GSA procedures call for ordering offices to receive information about the assignee when payments have been assigned. This reduces the risk that different ordering or payment activities send funds to the wrong recipient.
A MAS contractor considering receivables financing should consequently review the actual Schedule contract, applicable GSAR language, and the individual order involved. The general FAR rule provides the foundation, but the GSA-specific structure can determine how assignment works when multiple agencies are ordering under the same vehicle.
Restrictions, No-Setoff Commitments, and Release of an Assignment
Not every federal contract necessarily permits Assignment of Claims. FAR 32.803 allows an agency to prohibit assignment when it determines that a prohibition is in the government’s interest.
When such a determination has been made, FAR 32.806 prescribes FAR 52.232-24, Prohibition of Assignment of Claims, rather than the standard FAR 52.232-23 clause. Contractors should therefore confirm the actual payment clauses in their contract before attempting an assignment.
For contracts expected to exceed the micro-purchase threshold, FAR 32.806 generally requires FAR 52.232-23 unless assignment is prohibited. The clause is not required for purchase orders, although it can be used in certain purchase orders above the micro-purchase threshold when the specified conditions are met.
A separate issue is setoff. The government can have rights to reduce payments in circumstances where the contractor owes money to the United States. For designated agencies and qualifying contracts, FAR Subpart 32.8 provides a mechanism for an authorized no-setoff commitment.
When such a commitment is authorized, Alternate I of FAR 52.232-23 is used. The alternate provides, subject to its terms and the Assignment of Claims Act, protection against specified reductions or setoffs of payments assigned to the financing institution.
A no-setoff commitment is not an automatic feature of every assignment. It requires the conditions and authorization described in the FAR, so a contractor or lender should not assume that assignment of a federal receivable necessarily eliminates every government setoff risk.
The assignment can also end before the federal contract does. When the contractor has satisfied its obligations to the assignee and a balance remains payable under the contract, FAR 32.805 requires a release process before the contractor reestablishes its right to receive future payments directly.
The contractor must file the appropriate notice of release and a true copy of the release instrument with the required recipients. Further assignments or reassignments similarly require specified release and new assignment documentation.
These procedures protect the government from competing payment instructions. Without formal notice and release rules, a payment office could receive conflicting demands from the contractor, original lender, and subsequent financing institution.
Assignment of Claims is therefore more than a lender asking the government to send invoices to a different bank account. It is a regulated transfer of payment rights that requires an eligible assignee, a contract that permits assignment, qualifying receivables, properly executed documentation, formal notice, and appropriate release procedures when the financing arrangement changes.
