A small contractor sitting on a signed federal contract but short on working capital can turn that contract into cash today, without ever asking the contracting officer to approve a new prime. The Assignment of Claims Act mechanics at FAR Subpart 32.8 let a contractor hand over its right to be paid — not the contract itself — to a bank or other financing institution, which then collects directly from the government's disbursing office as invoices come due. Rooted in the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727 and 41 U.S.C. 6305), this is the legal plumbing behind most invoice-factoring and accounts-receivable financing that keeps small and mid-size contractors solvent between contract award and payment.
Why the Government Recognizes Only One Assignee at a Time
FAR Subpart 32.8 sets narrow conditions before an assignment is valid. The contract must specify payments "aggregating $1,000 or more." The assignee must be "a bank, trust company, or other financing institution, including any Federal lending agency" — not just any third party a contractor wants to borrow from. The assignment has to cover all unpaid amounts remaining under the contract, and at any given time it can run to only one party, or to one party acting as trustee or agent for a group of financing institutions that are jointly funding the deal. That single-assignee structure means the disbursing officer always has exactly one payment instruction to follow, rather than competing claims from multiple lenders on the same invoice stream.
That does not mean the assignment is frozen once made. FAR 52.232-23 states the assignee "may thereafter further assign or reassign its right under the original assignment to any type of financing institution" covered by the Act, and FAR 32.803(a) confirms an existing assignment "may thereafter be further assigned and reassigned" to another qualifying lender as long as the notice and single-party conditions keep being met. So a bank can later hand its position to another qualified financing institution — in a syndication or a portfolio sale, for instance — without restarting the process. What the Act forecloses is not reassignment between financing institutions, but splitting the government's payment obligation across multiple, competing claimants at once.
The Paperwork FAR 52.232-23 Demands Before Money Moves
Contracts that permit assignment carry the clause at FAR 52.232-23, which spells out both the contractor's right and the notice mechanics that make it enforceable. The clause states plainly: "The Contractor...may assign its rights to be paid amounts due or to become due as a result of the performance of this contract to a bank, trust company, or other financing institution." That right doesn't activate automatically — the assignee must send written notice of the assignment, with a true copy of the assignment instrument, to the contracting officer or agency head, to any surety on a bond covering the contract, and to the disbursing officer named in the contract. Skip that notice and the government has no obligation to redirect payment — it will keep paying the contractor of record. The clause also bars the contractor from giving an assignee access to classified contract documents without the contracting officer's written authorization.
The payoff for lenders is a real legal backstop. FAR Subpart 32.8 states that "no payments made by the Government to the assignee...may be recovered on account of any liability of the contractor to the Government." Once the government pays a properly noticed assignee, that money is not clawed back later if the contractor turns out to owe the government on some unrelated debt or performance issue. That protection is what makes banks willing to advance against federal receivables in the first place — without it, lending against a government contract would carry the same recovery risk as lending against any other unsecured receivable.
Assignment Is Not Novation — and Confusing the Two Is Costly
Contractors and even some contracting staff sometimes conflate an Assignment of Claims with a novation agreement under FAR Subpart 42.12, but the two do fundamentally different things. A novation substitutes a new legal entity as the party to the contract — it happens when a business is sold, merged, or restructured and someone else needs to step into the original contractor's shoes for performance, liability, and payment alike. An assignment under FAR 32.8 changes none of that. The original contractor remains the party responsible for performing the work, meeting delivery schedules, and answering for defects or non-conformance; only the destination of the payment changes. A bank that takes an assignment of claims has no privity with the government, no standing to negotiate contract modifications, and no obligation — or right — to perform the underlying work if the contractor defaults. That distinction matters most when a contract runs into trouble: a lender holding an assignment can find its payment stream disrupted by a termination or a stop-work order just like the contractor's own revenue would be, because the assignment rides on top of a contract it has no power to keep alive.
What It Means for Contractors
For a contractor evaluating invoice financing or an accounts-receivable line against a federal award, the FAR 32.8 process is the checklist to work through with counsel and the prospective lender before signing anything. Confirm the contract's total remaining payments clear the $1,000 threshold — nearly all federal contracts do, but the wording has to be checked. Make sure the financing institution qualifies as a bank, trust company, or similarly regulated lender, since an assignment to an unqualified party isn't valid under the Act regardless of what the loan paperwork says. Assign the full unpaid balance to a single lender, or a syndicate acting through one trustee, rather than splitting receivables among multiple financiers, since FAR 32.8 won't recognize a second, competing assignment on the same contract. Get the written notice and true copy of the assignment instrument to the contracting officer, the disbursing officer, and any bond surety promptly — the government has no duty to reroute payment until it receives that notice, and a late notice can mean invoices keep flowing to the contractor's own account instead of the lender's. And keep the performance obligation separate from the financing: assigning payment rights does nothing to protect the government, the surety, or the lender if the contractor itself falls short on delivery, so an assignment is a cash-flow tool, not a risk-transfer mechanism. Contractors who treat FAR 32.8 as boilerplate to skim past invite exactly the payment-routing disputes the notice requirements exist to prevent.
