To Assign or not to Assign � by dMm2l3jw

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									                 To Assign or not to Assign – Myth and Reality
             the FAR and the Federal Assignment of Claims Act –

                             By: Cameron S. McRae

Once in a while a company doing business with agencies of the federal
government will express reluctance to assigning its accounts receivable from
those contracts under the Federal Assignment of Claims Act (FACA). The reason
usually stated for that reluctance is the fear that the contracting officers of the
firm’s government clients will view such assignments as evidence of financial
weakness of the firm. In some cases, the company may perceive that the process
of assignment will impose a paper-work burden on the company, will slow down
the flow of payments from its clients, or both. In a few cases, the contractor may
voice all of the above objections to assigning.

If a contracting officer is adversely influenced by the contractor’s assignment
under the FACA, that contracting officer is either ignorant of Subpart 32 of the
FAR or ignoring the provisions of Subparts 32.106 and 32.107 of that Regulation.

FAR Subpart 106 Order of Preference reads in part as follows:

        “The contracting officer shall consider the following order of preference
when a contractor requests contract financing, unless the exception would be in
the Government’s best interest in a specific case:
    (a) Private financing without a Government guarantee. It is not intended,
        however, that the contractor be required to obtain private financing
            (1) At unreasonable rates, or
            (2) From other agencies.”

FAR Subpart 107 Need for Contract Financing Not a Deterrent reads in part as
follows:
    (a) “If a contractor or offeror meets the standards prescribed for responsible
       prospective contractors at (FAR) 9.104, the contracting officer shall not
       treat the contractor’s need for contract financing as a handicap for a
       contract award; e.g., as a responsibility factor or evaluation criterion,
    (b) The contractor should not be disqualified from contract financing solely
        because the contractor failed to indicate a need for contract financing
        before the contract was awarded.”

Of course, concern about the contractor’s financial responsibility may not be the
real reason(s) for the government awarding the contract to another offeror. The
writer makes no representation that no contracting officer ever could, ever would,
perform as indicated above. But the playing field can be brought a bit closer to
level when both parties know the rules.
Depending on the circumstances, the paper work required of the contractor in the
assignment process can involve signing between one and seven documents for
each contract assigned. All of the documents should be prepared by the lender,
thereby limiting the burden on the contractor to signing. If an existing assignment
does not have to be released in order to assign to a new lender, and depending on
the practice of the new lender, the signatures required of the contractor may be
only one or up to three per contract.

The assignment process could cause some disruption to the payment flow, but
those delays will normally be brief and can be minimized by effective action by
the lender. Such disruptions can be eliminated for the assignment of newly
awarded contracts by making the assignment as soon as the award process is
completed and prior to the submission of any invoices.

The FACA extends specific payment protections to the lender, and those
protections represent benefits to the contractor as well. When a valid FACA
assignment is in place, the government may not recover a payment made to the
lender unless such payment was made in error to the wrong contractor. In
addition, the lender is immune to the government’s offsetting payments due to the
contractor against government claims against the contractor that arose subsequent
to the date of the assignment and that are not applicable to the contract to which
the assignment applies. Consequently, the payment stream that is assigned under
one contract may not be used by any agency of the government to satisfy claims
not arising from said contract.

Therefore, the contractor’s cash flow under an assigned contract is protected
against claims arising from any other contract (even with the same agency) and
IRS claims for income and withholding tax payments, for example. Should the
owner(s) of the contracting firm be guarantors on the firm’s loans with the
assignee, they have only to ensure that the firm performs on its assigned
contract(s), and the lender will receive the payments there from and not have to
call on the guarantors for payment. Thus the owner/guarantor benefits form the
FACA assignments.

And finally, lenders may lend a higher percentage against assigned accounts
receivable.

For more information on this topic, contact McRae at 703-336-4972, fax 703-336-
4979, or e-mail: cameron@mcraefinancial.com

								
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