Assignment of claims under contracts
Contractors receiving guaranteed loans under defense production contracts must generally assign claims, unless specific exceptions apply, to protect government and lender interests.
Overview
FAR 32.304-5 outlines the requirements for the assignment of claims under contracts when a contractor is provided a guaranteed loan, particularly in the context of defense production contracts. The regulation generally requires contractors to execute an assignment of claims, which allows the government or a financing institution to receive payments directly from the contract proceeds. However, exceptions exist if the contractor is financially strong, if the administrative burden outweighs the benefit, or if the additional protection is unnecessary for smaller contracts. Contractors must also execute assignments if requested by the guarantor or financing institution. Additionally, subcontracts or purchase orders are not eligible for guaranteed loan financing if the issuer retains certain payment privileges or setoff rights after assignment notice.
Key Rules
- Assignment Requirement
- Contractors with guaranteed loans under defense production contracts must generally assign claims, unless specific exceptions apply.
- Exceptions to Assignment
- No assignment is required if the contractor is financially strong, if the protection is unnecessary for smaller contracts, or if the administrative burden is disproportionate.
- Assignment Upon Request
- Contractors must execute assignments if requested by the guarantor or financing institution.
- Subcontract Eligibility Restrictions
- Subcontracts or purchase orders are ineligible for guaranteed loan financing if the issuer reserves direct payment privileges or setoff rights after assignment notice.
Responsibilities
- Contracting Officers: Ensure assignment of claims is executed unless exceptions apply; verify eligibility of subcontracts for financing.
- Contractors: Execute assignments as required; comply with requests from guarantors or financing institutions; understand when subcontracts are ineligible for financing.
- Agencies: Assess contractor financial condition and administrative burden; determine necessity of assignments for smaller contracts.
Practical Implications
- This section protects government and lender interests by ensuring contract proceeds can be assigned as collateral for guaranteed loans. Contractors must be prepared to execute assignments and understand when exceptions apply. Failure to comply can jeopardize loan eligibility or contract payments. Agencies must balance administrative efficiency with risk protection.