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  • Question

    when is it correct to use an assignment of claims


    Answer

    Congress passed the Assignments of Claim law specifically so government contractors could obtain financing that is secured by their accounts receivable. The government pays the bank the funds due to the contractor instead of paying the contractor directly. As a result, the contractor can use the contract as collateral to secure a loan with the bank, which in turn helps the contractor to perform under the contract. When a contractor owes the government money (e.g., unpaid taxes, liquidated damages), the government can deduct that amount from the payments due to the financial institution. This  is called a "setoff." FAR 32.803(d) covers the circumstances under which a "no set-off commitment" can be included as part of a contract.

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