32.804 Extent of assignee’s protection
Source: FAR 32.804 on acquisition.gov
Assignees of government contracts are generally protected from setoff or recovery of payments due to contractor liabilities, especially when a no-setoff commitment is included, but exceptions apply if no financing is provided or payments exceed the financed amount.
Overview
FAR 32.804 outlines the protections afforded to assignees (typically financial institutions) who receive contract payments directly from the government under an assignment of claims. The regulation ensures that, once a contract is properly assigned, the government cannot recover payments made to the assignee due to the contractor’s liabilities, whether those liabilities are related to the assigned contract or arise independently. If the contract includes a no-setoff commitment, the assignee is further protected from reductions or setoffs for most contractor liabilities, including renegotiation, fines, penalties, and tax issues. However, exceptions exist: setoff may still occur if the assignee has not provided financing or if payments exceed the amount financed. This section is crucial for contractors and lenders to understand the extent and limits of payment protections in government contract assignments.
(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.