The Assignment of Claims Act (ACA) was passed in 1940 and is codified in 31 U.S.C. § 3727 and 41 U.S.C. § 6305. The ACA allows contractors to assign their rights to receive payment from a federal contract to a third party, called an assignee, who then collects the funds from the government. The ACA’s main purpose is to help contractors and subcontractors access capital by allowing them to monetize their accounts receivable from the government. What is an Assignment of Claims?
A contractor can assign a contract’s payments to a financing institution if the following conditions are met:
- The contract is for $1,000 or more
- The assignment is made to a bank, trust company, or other financing institution, including a federal lending agency
- The contract doesn’t prohibit the assignment
- The assignment covers all unpaid amounts unless the contract permits otherwise
The ACA also defines how lenders and factoring companies can arrange for payments when federal contracts are part of a contractor’s loans or accounts receivable. When a FACA assignment is in effect, the government is required to make contract payments directly to the designated bank or financial institution.