what is the federal assignment of claims act

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40 U.S.C. 121(c) ; 10 U.S.C. chapter 4 and 10 U.S.C. chapter 137 legacy provisions (see 10 U.S.C. 3016 ); and 51 U.S.C. 20113 .

48 FR 42328 , Sept. 19, 1983, unless otherwise noted.

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Subscribe to: 48 CFR Part 32 Subpart 32.8

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Subpart 32.8—assignment of claims, 32.800 scope of subpart..

This subpart prescribes policies and procedures for the assignment of claims under the Assignment of Claims Act of 1940, as amended, ( 31 U.S.C. 3727 , 41 U.S.C. 6305 ) (hereafter referred to as the Act ).

[ 48 FR 42328 , Sept. 19, 1983, as amended at 51 FR 2665 , Jan. 17, 1986; 79 FR 24212 , Apr. 29, 2014]

32.801 Definitions.

Designated agency, as used in this subpart, means any department or agency of the executive branch of the United States Government (see 32.803(d)).

No-setoff commitment, as used in this subpart, means a contractual undertaking that, to the extent permitted by the Act, payments by the designated agency to the assignee under an assignment of claims will not be reduced to liquidate the indebtedness of the contractor to the Government.

[ 48 FR 42328 , Sept. 19, 1983, as amended at 60 FR 49730 , Sept. 26, 1995; 66 FR 2132 , Jan. 10, 2001]

32.802 Conditions.

Under the Assignment of Claims Act, a contractor may assign moneys due or to become due under a contract if all the following conditions are met:

( a ) The contract specifies payments aggregating $1,000 or more.

( b ) The assignment is made to a bank, trust company, or other financing institution, including any Federal lending agency.

( c ) The contract does not prohibit the assignment.

( d ) Unless otherwise expressly permitted in the contract, the assignment—

( 1 ) Covers all unpaid amounts payable under the contract;

( 2 ) Is made only to one party, except that any assignment may be made to one party as agent or trustee for two or more parties participating in the financing of the contract; and

( 3 ) Is not subject to further assignment.

( e ) The assignee sends a written notice of assignment together with a true copy of the assignment instrument to the—

( 1 ) Contracting officer or the agency head;

( 2 ) Surety on any bond applicable to the contract; and

( 3 ) Disbursing officer designated in the contract to make payment.

32.803 Policies.

( a ) Any assignment of claims that has been made under the Act to any type of financing institution listed in 32.802(b) may thereafter be further assigned and reassigned to any such institution if the conditions in 32.802(d) and (e) continue to be met.

( b ) A contract may prohibit the assignment of claims if the agency determines the prohibition to be in the Government's interest.

( c ) Under a requirements or indefinite quantity type contract that authorizes ordering and payment by multiple Government activities, amounts due for individual orders for $1,000 or more may be assigned.

( d ) Any contract of a designated agency (see FAR 32.801), except a contract under which full payment has been made, may include a no-setoff commitment only when a determination of need is made by the head of the agency, in accordance with the Presidential delegation of authority dated October 3, 1995, and after such determination has been published in the Federal Register. The Presidential delegation makes such determinations of need subject to further guidance issued by the Office of Federal Procurement Policy. The following guidance has been provided: Use of the no-setoff provision may be appropriate to facilitate the national defense; in the event of a national emergency or natural disaster; or when the use of the no-setoff provision may facilitate private financing of contract performance. However, in the event an offeror is significantly indebted to the United States, the contracting officer should consider whether the inclusion of the no-setoff commitment in a particular contract is in the best interests of the United States. In such an event, the contracting officer should consult with the Government officer(s) responsible for collecting the debt(s).

( e ) When an assigned contract does not include a no-setoff commitment, the Government may apply against payments to the assignee any liability of the contractor to the Government arising independently of the assigned contract if the liability existed at the time notice of the assignment was received even though that liability had not yet matured so as to be due and payable.

[ 48 FR 42328 , Sept. 19, 1983, as amended at 60 FR 49730 , Sept. 26, 1995; 61 FR 18921 , Apr. 29, 1996]

32.804 Extent of assignee's protection.

( 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) below, 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 witheld 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.

32.805 Procedure.

( a ) Assignments.

( 1 ) Assignments by corporations shall be—

( i ) Executed by an authorized representative;

( ii ) Attested by the secretary or the assistant secretary of the corporation; and

( iii ) Impressed with the corporate seal or accompanied by a true copy of the resolution of the corporation's board of directors authorizing the signing representative to execute the assignment.

( 2 ) Assignments by a partnership may be signed by one partner, if the assignment is accompanied by adequate evidence that the signer is a general partner of the partnership and is authorized to execute assignments on behalf of the partnership.

( 3 ) Assignments by an individual shall be signed by that individual and the signature acknowledged before a notary public or other person authorized to administer oaths.

( b ) Filing. The assignee shall forward to each party specified in 32.802(e) an original and three copies of the notice of assignment, together with one true copy of the instrument of assignment. The true copy shall be a certified duplicate or photostat copy of the original assignment.

( c ) Format for notice of assignment. The following is a suggested format for use by an assignee in providing the notice of assignment required by 32.802(e).

Notice of Assignment

TO: __________ [ address to one of the parties specified in 32.802(e) ].

This has reference to Contract No. ______ dated ______, entered into between ________ [ contractor's name and address ] and ________ [ government agency, name of office, and address ], for ________ [ describe nature of the contract ].

Moneys due or to become due under the contract described above have been assigned to the undersigned under the provisions of the Assignment of Claims Act of 1940, as amended, ( 31 U.S.C. 3727 , 41 U.S.C. 6305 ).

A true copy of the instrument of assignment executed by the Contractor on ________ [ date ], is attached to the original notice.

Payments due or to become due under this contract should be made to the undersigned assignee.

Please return to the undersigned the three enclosed copies of this notice with appropriate notations showing the date and hour of receipt, and signed by the person acknowledging receipt on behalf of the addressee.

Very truly yours,

[ name of assignee ]

[ signature of signing officer

[ title of signing officer ]

[ address of assignee ]

Acknowledgement

Receipt is acknowledged of the above notice and of a copy of the instrument of assignment. They were received at ____ (a.m.) (p.m.) on ________, 20____.

[ signature ]

On behalf of

[ name of addressee of this notice ]

( d ) Examination by the Government. In examining and processing notices of assignment and before acknowleging their receipt, contracting officers should assure that the following conditions and any additional conditions specified in agency regulations, have been met:

( 1 ) The contract has been properly approved and executed.

( 2 ) The contract is one under which claims may be assigned.

( 3 ) The assignment covers only money due or to become due under the contract.

( 4 ) The assignee is registered separately in the System for Award Management unless one of the exceptions in 4.1102 applies.

( e ) Release of assignment.

( 1 ) A release of an assignment is required whenever—

( i ) There has been a further assignment or reassignment under the Act; or

( ii ) The contractor wishes to reestablish its right to receive further payments after the contractor's obligations to the assignee have been satisfied and a balance remains due under the contract.

( 2 ) The assignee, under a further assignment or reassignment, in order to establish a right to receive payment from the Government, must file with the addressees listed in 32.802(e) a—

( i ) Written notice of release of the contractor by the assigning financing institution;

( ii ) Copy of the release instrument;

( iii ) Written notice of the further assignment or reassignment; and

( iv ) Copy of the further assignment or reassignment instrument.

( 3 ) If the assignee releases the contractor from an assignment of claims under a contract, the contractor, in order to establish a right to receive payment of the balance due under the contract, must file a written notice of release together with a true copy of the release of assignment instrument with the addressees noted in 32.802(e).

( 4 ) The addressee of a notice of release of assignment or the official acting on behalf of that addressee shall acknowledge receipt of the notice.

[ 48 FR 42328 , Sept. 19, 1983, as amended at 51 FR 2665 , Jan. 17, 1986; 52 FR 9039 , Mar. 20, 1987; 62 FR 237 , Jan. 2, 1997; 64 FR 10533 , Mar. 4, 1999; 65 FR 24325 , Apr. 25, 2000; 68 FR 56673 , Oct. 1, 2003; 78 FR 37679 , June 21, 2013; 79 FR 24212 , Apr. 29, 2014]

32.806 Contract clauses.

( 1 ) The contracting officer shall insert the clause at 52.232-23, Assignment of Claims, in solicitations and contracts expected to exceed the micro-purchase threshold, unless the contract will prohibit the assignment of claims (see 32.803(b)). The use of the clause is not required for purchase orders. However, the clause may be used in purchase orders expected to exceed the micro-purchase threshold, that are accepted in writing by the contractor, if such use is consistent with agency policies and regulations.

( 2 ) If a no-setoff commitment has been authorized (see FAR 32.803(d)), the contracting officer shall use the clause with its Alternate I.

( b ) The contracting officer shall insert the clause at 52.232-24, Prohibition of Assignment of Claims, in solicitations and contracts for which a determination has been made under agency regulations that the prohibition of assignment of claims is in the Government's interest.

[ 48 FR 42328 , Sept. 19, 1983, as amended at 51 FR 2665 , Jan. 17, 1986; 60 FR 49730 , Sept. 26, 1995; 61 FR 18921 , Apr. 29, 1996]

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Assignment of Claims Act Documentation

We are often asked, by lenders and borrowers alike, what the current market trend is with respect to lenders requiring documentation proscribed by the Federal Assignment of Claims Act  of 1940, as amended, 31 U.S.C.3727 ,  41 U.S.C.6305 (the “Assignment of Claims Act” or “FACA”), such as instruments of assignment and notices of assignment.  Are lenders still requiring their borrowers to complete, execute and deliver these documents?  What are the risks of not obtaining them?  Is there something short of full compliance with the Assignment of Claims Act that can be done to adequately protect a lender and not unduly burden a borrower?

Anyone who has been involved in the process of obtaining FACA assignments knows that it is frequently a tedious and sometimes burdensome process, especially if a borrower has many smaller contracts with a number of different government agencies.  As a result, we have found that the vast majority of lenders are not requiring borrowers to provide FACA assignments at the closing of a loan, but instead reserve the right to require them to be provided at a later date – typically upon the occurrence of an event of default under the loan documents.

The question then becomes, if FACA assignments are not being required at loan closing, how is a lender protected, and what are the potential risks of not having FACA assignments in place?

Before describing some of the specific benefits afforded by the Assignment of Claims Act, we will point out a common misunderstanding with respect to FACA assignments.  Many people believe that FACA assignments perfect a lender’s security interest in government accounts receivable.  That is simply not the case.  Perfection of a lender’s security interest in government accounts receivable, like any other account receivable, is accomplished by filing a properly completed UCC-1 financing statement among the state records of the jurisdiction of organization, jurisdiction of incorporation or state of residence of the borrower.  What then are the benefits of having FACA assignments in effect?  There are 4 primary benefits.

First, a properly processed FACA assignment obligates the government to make contract payments directly to the bank or financial institution identified in the FACA assignment.  Put another way, the government is prohibited from sending government contract payments to any other person or entity while the FACA assignment is in effect.  Just to be clear though, the actual obligation of the government to make payments under a government contract is set forth in the contract itself (or by reference to a particular Federal Acquisition Regulation set forth in the government contract).  However, once the obligation to pay ripens (pursuant to the terms of the applicable government contract), the payment direction of the FACA assignment then governs and (as further described below) not even the contractor/borrower can change that payment direction without the lender’s consent.

Second, a properly processed FACA assignment puts the government “on notice” that a lender is relying on the payment direction afforded by the FACA assignment – typically for purposes of collateralizing a loan, credit facility or some other financial accommodation made by the lender to the borrower.  And if the government is “on notice” of the FACA assignment, then the government is prohibited from clawing back from the lender any government contract payment received by the lender on behalf of its borrower that may have been made in error (or that could have been retained by the government as an offset to some other liability that the borrower may owe to the government).  Of course, the government would still have recourse against the borrower for the return of any such payment, but it would not have any such recourse against the lender.

Third (albeit similar to the first point), a properly processed FACA assignment protects a lender from borrower-fraud.  When a FACA assignment has been accepted by the government, the borrower is unable to redirect the government to make contract payments elsewhere.  The government can only act pursuant to the written instructions of the lender (as to where payments should be sent – either by mail, ACH or wire) while the FACA assignment is in effect.  A few years back, one of our lender clients shut down a revolving line of credit of one of its customers (simply because the customer failed to provide requested financial information to renew the line).  And, while suspending the customer’s line of credit quickly got the customer’s attention, the customer was also quick to re-direct future payments under its government contracts to a different financial institution.  For the record, this particular lender client of ours hadn’t retained us until after it had already shut down the line of credit and discovered that its customer had redirected payments elsewhere.  Had FACA assignments been in effect, the customer would not have been able to redirect the payment on its government accounts receivable to a different account maintained by another financial institution.

And fourth, a properly processed FACA assignment provides the lender with the right to pursue collection of a government contract receivable against the government.  If, for example, the government was obligated to make a government contract payment pursuant to the terms of the applicable government contract, but simply failed to do so, then the lender can pursue a collection action directly against the government for the payment of the assigned government contract receivable (which, unlike commercial account debtors, the lender would not be able to do in the absence of a FACA assignment).  Obviously, to the extent that the government had a valid defense against the borrower as to the payment of the government contract receivable, the lender would likewise be subject to that defense.

So, notwithstanding the benefits afforded by FACA assignments, why aren’t lenders insisting on them and what are lenders doing to otherwise minimize the risk that their government contract receivable collateral will not disappear?  There are a number of reasons, but we will only highlight the most common ones in this article.  First and foremost, many lenders find comfort in having a perfected security interest in the government account receivable by virtue of simply filing a UCC-1 financing statement.  Second, government contracts are awarded, expire, terminate and are renewed all the time, and many lenders cannot keep up with processing FACA assignments for every government contract of their borrowers.  Instead, some lenders obligate their borrower to periodically provide FACA assignments for only those government contracts which meet certain criteria, such as having a remaining value of $500,000 or more and a remaining term (including renewal options) of 6 months or longer.  The dollar threshold is intended to quantify a certain credit risk tolerance while the “6 months or longer” criteria is appropriate from a practical perspective because sometimes it could take a few months just to get the government to acknowledge receipt of a properly filed FACA assignment.  And while there is certainly the “inconvenience” factor that borrowers oftentimes claim, the fact is that the task of completing FACA assignments is ministerial in nature and not very time consuming to accomplish.  Nevertheless, for our lender clients who elect not to require FACA assignments either at loan closing and/or periodically thereafter, we include a provision in our loan documents which grants the lender the right to require them at any time after the occurrence of an event of default.  The savvy lender knows, however, that it cannot count on a borrower performing a post-event of default obligation if that borrower is presumably already in default for failing to perform some other obligation.  For that reason, our loan documents also include a corresponding right of the lender to obtain injunctive or other equitable relief (such as specific performance) to compel the borrower to deliver FACA assignments to the lender (if requested) after the occurrence of an event of default.  This adds an extra level of protection to the lender in the event that a borrower, who is already in default, fails to timely comply with the lender’s request.

There are many nuances to properly completing and processing FACA assignments, as well as details with respect to the mechanics of complying with the Assignment of Claims Act, which we have not fully vetted in this article.  If you would like further information, or would like to discuss government contract financing generally, please do not hesitate to contact us.

Note: This Bulletin is not intended as legal advice.  Readers should seek professional legal counseling before acting on the information it contains.

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Assignment of claims act of 1940.

1940-10-09, ch. 779, , 54 Stat. 1029

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FTC Announces Crackdown on Deceptive AI Claims and Schemes

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The Federal Trade Commission is taking action against multiple companies that have relied on artificial intelligence as a way to supercharge deceptive or unfair conduct that harms consumers, as part of its new law enforcement sweep called Operation AI Comply.

The cases being announced today include actions against a company promoting an AI tool that enabled its customers to create fake reviews, a company claiming to sell “AI Lawyer” services, and multiple companies claiming that they could use AI to help consumers make money through online storefronts.

“Using AI tools to trick, mislead, or defraud people is illegal,” said FTC Chair Lina M. Khan. “The FTC’s enforcement actions make clear that there is no AI exemption from the laws on the books. By cracking down on unfair or deceptive practices in these markets, FTC is ensuring that honest businesses and innovators can get a fair shot and consumers are being protected.”

Claims around artificial intelligence have become more prevalent in the marketplace, including frequent promises about the ways it could potentially enhance people’s lives through automation and problem solving. The cases included in this sweep show that firms have seized on the hype surrounding AI and are using it to lure consumers into bogus schemes, and are also providing AI powered tools that can turbocharge deception.

The FTC is taking action against DoNotPay , a company that claimed to offer an AI service that was “the world’s first robot lawyer,” but the product failed to live up to its lofty claims that the service could substitute for the expertise of a human lawyer.

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The complaint also alleges that DoNotPay offered a service that would check a small business website for hundreds of federal and state law violations based solely on the consumer’s email address. This feature purportedly would detect legal violations that, if unaddressed, would potentially cost a small business $125,000 in legal fees, but according to the complaint, this service was also not effective.

DoNotPay has agreed to a proposed Commission order settling the charges against it. The settlement would require it to pay $193,000, provide a notice to consumers who subscribed to the service between 2021 and 2023 warning them about the limitations of law-related features on the service. The proposed order also will prohibit the company from making claims about its ability to substitute for any professional service without evidence to back it up.

The Commission vote authorizing the staff to issue the complaint and proposed administrative order was 5-0. Commissioner Holyoak issued a concurring statement joined by Chair Lina M. Khan. Commissioner Ferguson also issued a concurring statement .  The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Once processed, comments will be posted on Regulations.gov.

Ascend Ecom

The FTC has filed a lawsuit against an online business opportunity scheme that it alleges has falsely claimed its “cutting edge” AI-powered tools would help consumers quickly earn thousands of dollars a month in passive income by opening online storefronts. According to the complaint, the scheme has defrauded consumers of at least $25 million.

The scheme is run by William Basta and Kenneth Leung, and it has operated under a number of different names since 2021, including Ascend Ecom, Ascend Ecommerce, Ascend CapVentures, ACV Partners, ACV, Accelerated eCom Ventures, Ethix Capital by Ascend, and ACV Nexus.

According to the FTC’s complaint, the operators of the scheme charge consumers tens of thousands of dollars to start online stores on ecommerce platforms such as Amazon, Walmart, Etsy, and TikTok, while also requiring them to spend tens of thousands more on inventory. Ascend’s advertising content claimed the company was a leader in ecommerce, using proprietary software and artificial intelligence to maximize clients’ business success.

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As a result of the FTC’s complaint, a federal court issued an order temporarily halting the scheme and putting it under the control of a receiver. The FTC’s case against the scheme is ongoing and will be decided by a federal court.

The Commission vote authorizing the staff to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Central District of California.

Ecommerce Empire Builders

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The complaint alleges that EEB’s CEO, Peter Prusinowski, has used consumers’ money – as much as $35,000 from consumers who purchase stores – to enrich himself while failing to deliver on the scheme’s promises of big income by selling goods online. In its marketing, EEB encourages consumers to “Skip the guesswork and start a million-dollar business today” by harnessing the “power of artificial intelligence” and the scheme’s supposed strategies.

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The Commission vote authorizing the staff to file the complaint against Prusinowski and his company was 5-0. The complaint was filed in the U.S. District Court for the Eastern District of Pennsylvania.

Since April 2021, Rytr has marketed and sold an AI “writing assistant” service for a number of uses, one of which was specifically “Testimonial & Review” generation. Paid subscribers could generate an unlimited number of detailed consumer reviews based on very limited and generic input.

According to the FTC’s complaint , Rytr’s service generated detailed reviews that contained specific, often material details that had no relation to the user’s input, and these reviews almost certainly would be false for the users who copied them and published them online. In many cases, subscribers’ AI-generated reviews featured information that would deceive potential consumers who were using the reviews to make purchasing decisions. The complaint further alleges that at least some of Rytr’s subscribers used the service to produce hundreds, and in some cases tens of thousands, of reviews potentially containing false information.

The complaint charges Rytr with violating the FTC Act by providing subscribers with the means to generate false and deceptive written content for consumer reviews. The complaint also alleges that Rytr engaged in an unfair business practice by offering a service that is likely to pollute the marketplace with a glut of fake reviews that would harm both consumers and honest competitors.

The proposed order settling the Commission’s complaint is designed to prevent Rytr from engaging in similar illegal conduct in the future. It would bar the company from advertising, promoting, marketing, or selling any service dedicated to – or promoted as – generating consumer reviews or testimonials.

The Commission vote authorizing the staff to issue the complaint and proposed administrative order was 3-2, with Commissioners Melissa Holyoak and Andrew Ferguson voting no. Commissioners Holyoak and Ferguson issued statements. The FTC will publish a description of the consent agreement package in the Federal Register soon. The agreement will be subject to public comment for 30 days, after which the Commission will decide whether to make the proposed consent order final. Instructions for filing comments appear in the published notice. Once processed, comments will be posted on Regulations.gov.

FBA Machine

In June, the FTC took action against a business opportunity scheme that allegedly falsely promised consumers that they would make guaranteed income through online storefronts that utilized AI-powered software. According to the FTC, the scheme, which has operated under the names Passive Scaling and FBA Machine, cost consumers more than $15.9 million based on deceptive earnings claims that rarely, if ever, materialize.

The complaint alleges that Bratislav Rozenfeld (also known as Steven Rozenfeld and Steven Rozen) has operated the scheme since 2021, initially as Passive Scaling. When Passive Scaling failed to live up to its promises and consumers sought refunds and brought lawsuits, Rozenfeld rebranded the scheme as FBA Machine in 2023. The rebranded marketing materials claim that FBA Machine uses “AI-powered” tools to help price products in the stores and maximize profits.

The scheme’s claims were wide-ranging, promising consumers that they could operate a “7-figure business” and citing supposed testimonials from clients who “generate over $100,000 per month in profit.” Company sales agents told consumers that the business was “risk-free” and falsely guaranteed refunds to consumers who did not make back their initial investments, which ranged from tens of thousands to hundreds of thousands of dollars.

As a result of the FTC’s complaint, a federal court issued an order temporarily halting the scheme and putting it under the control of a receiver. The case against the scheme is still under way and will be decided by a federal court.

The Commission vote authorizing the staff to file the complaint against Rozenfeld and a number of companies involved in the scheme was 5-0. The complaint was filed in the U.S. District Court for the District of New Jersey.

The Operation AI Comply cases being announced today build on a number of recent FTC cases involving claims about artificial intelligence, including:  Automators , another online storefront scheme;  Career Step , a company that allegedly used AI technology to convince consumers to enroll in bogus career training;  NGL Labs , a company that allegedly claimed to use AI to provide moderation in an anonymous messaging app it unlawfully marketed to children;  Rite Aid , which allegedly used AI facial recognition technology in its stores without reasonable safeguards; and  CRI Genetics , a company that allegedly deceived users about the accuracy of its DNA reports, including claims it used an AI algorithm to conduct genetic matching.

The Federal Trade Commission works to promote competition and protect and educate consumers .  The FTC will never demand money, make threats, tell you to transfer money, or promise you a prize. Learn more about consumer topics at consumer.ftc.gov , or report fraud, scams, and bad business practices at  ReportFraud.ftc.gov . Follow the FTC on social media , read consumer alerts and the business blog , and sign up to get the latest FTC news and alerts .

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Jay Mayfield Office of Public Affairs 202-326-2656