Introduction
In the complex world of federal procurement, contractors often look for ways to streamline operations or leverage external resources. However, the government maintains strict oversight regarding who performs the work and how payments are handled. An assignment fee contract—or more accurately, the assignment of claims under a government contract—is a highly regulated mechanism that requires strict adherence to federal statutes. Understanding these rules is essential for small businesses looking to manage cash flow or restructure their operations without violating the Anti-Assignment Act.
Definition
The Anti-Assignment Act (41 U.S.C. § 6305) generally prohibits the transfer or assignment of a government contract to a third party. However, the Assignment of Claims Act (31 U.S.C. § 3727) provides a narrow exception that allows a contractor to assign payments due under a contract to a bank, trust company, or other financing institution.
An "assignment fee" typically refers to the costs associated with factoring or financing these receivables, or in some cases, unauthorized attempts to "sell" the contract itself. It is critical to distinguish between the legal assignment of proceeds (money owed) and the illegal assignment of the contractual obligations (performance). Under FAR Part 32.8, the government may recognize the assignment of claims, but it will never recognize a third party as the primary contractor simply by virtue of an assignment fee agreement.
Examples
- Factoring Receivables: A small business contractor has completed work on a project but faces a 60-day payment delay. They enter an agreement with a financial institution to assign their future contract payments in exchange for immediate cash, minus an "assignment fee" or discount rate. This is permissible under the Assignment of Claims Act if all FAR 32.802 procedures are followed.
- Prohibited Contract Sale: A contractor attempts to "sell" their entire contract to a competitor for a fee. This is a violation of the Anti-Assignment Act. The government will not recognize this transfer, and the original contractor remains liable for all performance requirements.
Frequently Asked Questions
Can I sell my government contract to another company for a fee?
No. Under 41 U.S.C. § 6305, a contract may not be transferred by the contractor to another party. Any attempt to do so without the express written consent of the Contracting Officer (via a Novation Agreement under FAR Subpart 42.12) is void and can lead to termination for default.
What is an Assignment of Claims?
This is the legal process of assigning the right to receive payment from the government to a financial institution. It is a common tool for contractors using SamSearch to manage cash flow while waiting for slow federal payment cycles.
Are assignment fees tax-deductible?
Generally, fees paid to financial institutions for the factoring of receivables are considered business expenses. However, contractors should consult with a tax professional to ensure compliance with their specific accounting standards.
Does SamSearch help with contract financing?
While SamSearch provides the intelligence needed to win contracts, we recommend working with SBA-approved lenders or specialized government contract finance firms to navigate the legal requirements of assignment of claims.
Conclusion
Navigating the financial side of government contracting requires a clear understanding of the difference between assigning payments and assigning performance. While you can assign your claims for payment to a bank to improve liquidity, you cannot sell your contractual obligations for a fee without formal government approval. Always review FAR Part 32 before entering into any financial arrangement involving your federal contract to ensure you remain in compliance and avoid potential debarment.
