FAR 32.804—Extent of assignee’s protection.
Plain-English Summary
FAR 32.804 explains how much protection an assignee receives when a contractor assigns contract payments under the Assignment of Claims Act and the contract includes the required no-setoff commitment. The section addresses three core topics: the Government’s general inability to recover payments already made to the assignee, the assignee’s right to receive assigned contract payments free from reduction or setoff for certain contractor liabilities, and the limited circumstances in which setoff may still be allowed despite a no-setoff commitment. In practice, this rule protects financing institutions that lend against government receivables by giving them confidence that assigned payments will not be clawed back or reduced for many contractor debts. At the same time, it preserves some Government rights in narrow situations, especially where the assignee has not actually financed the assignment or where the contract payment exceeds the amount supported by the financing commitment. For contracting officers, the section is important because it affects payment processing, coordination with finance and legal offices, and how contractor liabilities are handled once an assignment is in place. For contractors and lenders, it defines the scope of payment protection and the limits of that protection.
Key Rules
Government cannot recover paid amounts
Once the Government makes payment to an assignee under a properly assigned contract, those payments generally cannot be recovered because of any liability the contractor owes the Government. This protection applies whether the contractor’s liability comes from the assigned contract itself or from some other source.
No-setoff commitment expands protection
If the assigned contract includes a valid no-setoff commitment, the assignee is entitled to receive contract payments without reduction or setoff for many contractor liabilities. This is the core financing protection that makes assignment of claims useful to lenders.
Independent liabilities are protected
With a no-setoff commitment, the Government may not reduce assigned payments to satisfy contractor liabilities that arise independently of the assigned contract. This includes debts or obligations unrelated to the specific contract being financed.
Certain contract-based liabilities are also protected
The assignee is also protected from setoff for specific liabilities arising from the assigned contract, including renegotiation liabilities, fines, penalties, taxes or social security contributions, and withholding or nonwithholding of taxes or social security contributions. The penalty protection does not cover amounts the Government may collect or withhold under the contract terms or for failure to comply with those terms.
Limited exceptions still allow setoff
Even with a no-setoff commitment, setoff may still be appropriate in some cases. Examples include when the assignee has not made a loan or commitment to finance the assignment, or when the amount due under the contract exceeds the amount supported by actual loans or a firm financing commitment.
Responsibilities
Contracting Officer
Recognize when a contract has been assigned and a no-setoff commitment applies, and ensure payment actions are consistent with the assignee’s protection. Coordinate with finance, legal, and payment offices before attempting any offset against assigned payments.
Government
Honor the assignee’s statutory protection by not recovering or setting off assigned payments except where the regulation allows. The Government must distinguish between liabilities covered by the no-setoff commitment and those rare situations where setoff remains permissible.
Assignee / Financing Institution
Provide financing or a firm commitment to finance the assignment if it wants the full benefit of no-setoff protection. The assignee should also document the assignment and monitor whether any claimed setoff falls within the narrow exceptions.
Contractor
Understand that assignment does not eliminate all liabilities to the Government, but it can limit the Government’s ability to collect those liabilities from assigned payments. The contractor remains responsible for its debts and compliance obligations even though the assignee may be protected from setoff.
Practical Implications
This section is mainly about payment risk allocation: lenders rely on it to accept assigned receivables, and the Government must avoid improper offsets that could undermine financing arrangements.
A common pitfall is assuming that every contractor debt can be offset against assigned payments; under a no-setoff commitment, many liabilities are barred from setoff, including some liabilities arising from the contract itself.
Another frequent issue is failing to verify whether the assignee actually made a loan or firm financing commitment, because the protection may be narrower if financing was never provided or promised.
Contracting and payment offices should treat assigned contracts carefully and coordinate before withholding or reducing payments, since improper setoff can create disputes with the assignee and disrupt contract financing.
Contractors should not assume assignment shields them from liability; it only limits the Government’s ability to collect certain debts from the assigned payment stream, not the underlying obligation itself.
Official Regulatory Text
(a) No payments made by the Government to the assignee under any contract assigned in accordance with the Act may be recovered on account of any liability of the contractor to the Government. This immunity of the assignee is effective whether the contractor’s liability arises from or independently of the assigned contract. (b) Except as provided in paragraph (c) of this section, the inclusion of a no-setoff commitment in an assigned contract entitles the assignee to receive contract payments free of reduction or setoff for- (1) Any liability of the contractor to the Government arising independently of the contract; and (2) Any of the following liabilities of the contractor to the Government arising from the assigned contract: (i) Renegotiation under any statute or contract clause. (ii) Fines. (iii) Penalties, exclusive of amounts that may be collected or withheld from the contractor under, or for failure to comply with, the terms of the contract. (iv) Taxes or social security contributions. (v) Withholding or nonwithholding of taxes or social security contributions. (c) In some circumstances, a setoff may be appropriate even though the assigned contract includes a no-setoff commitment; e.g.- (1) When the assignee has neither made a loan under the assignment nor made a commitment to do so; or (2) To the extent that the amount due on the contract exceeds the amount of any loans made or expected to be made under a firm commitment for financing.