Financing a federal contract, answered

The questions contractors ask before they pledge a federal receivable. The Act, the FAR subpart, the notice, and the places it goes wrong.

Does Assignment of Claims need the contracting officer's approval?

No. The Assignment of Claims Act of 1940, at 31 U.S.C. § 3727 and 41 U.S.C. § 6305, gives you the right. FAR Subpart 32.8 sets the process and FAR 52.232-23 is the clause. What the contracting officer receives is notice, not a request. The exception is a contract carrying a no-assignment clause. [VERIFY: how commonly agencies invoke the prohibition, and at what thresholds. Counsel review before this ships.] Check the clause before you sign rather than after. The full walkthrough is in Assignment of Claims: A Contractor's Step-by-Step Guide.

How long does the assignment add to funding?

With a lender who has executed one, [CLIENT DATA: Sanctorum AoC execution, days added to funding]. With a lender who hasn't, three months, and the file comes back wrong at the end of it. The Act is from 1940 and the process is well-worn. The variable is the lender, not the mechanism. The criteria worth applying are in The Best Government Contract Financing Partner Fits Your AoC Process.

What happens to my bonding capacity?

It moves, and the direction depends on structure. Your surety underwrites the same balance sheet the lender does. A facility adding debt reads differently from one advancing against a receivable already on your books. Bring the surety into the conversation before the facility closes, never after. Worked through in Bonding and Working Capital.

My contract has a no-assignment clause. Now what?

The assignment route is closed and the receivable is still there. Check the clause before award where you have the chance, because a modification after the fact needs the contracting officer to agree to something they already declined once.

The contract says 30 days. When does the money land?

Thirty days after a proper invoice or acceptance, whichever is later, under FAR 52.232-25. On construction it's 14 days from a proper payment request under FAR 52.232-27. An invoice with a defect comes back inside 7 days and the clock restarts, which is where most of the surprise lives. Bridging Slow Government Payments works the gap end to end.

Is retainage automatic on a federal job?

No, and this is the answer that surprises people. On federal fixed-price construction, FAR 52.232-5(e) caps retainage at 10% and permits it where satisfactory progress hasn't been achieved, plus a hold at substantial completion. FAR 32.103 adds that it shouldn't substitute for good contract management. So money held on a federal prime contract is a performance finding, a substantial-completion hold, or it isn't federal retainage at all: it's prime-held subcontract retainage, or a state or local job. Which one it is changes what finances it. Retainage Financing separates the four.

Will this fund against a September 30 award?

Yes, and it's the hardest quarter to do it in. Award volume spikes in the weeks before the fiscal year closes and every contractor in your position calls a lender the same fortnight. A facility arranged in June prices better than the same facility arranged in October, and the reason is queue length rather than risk.

Is this the wrong answer for my situation?

Sometimes, and here's when. If your margin on the contract is under [CLIENT DATA: Sanctorum margin floor, %], the cost of the capital eats the job. If you have a bank line with room on it, use the line. If the contract is unprofitable, financing delivers the loss faster. Contract financing solves a timing problem. It does nothing for a pricing problem. The cases are laid out in When Contract Financing Is the Wrong Fit.

Read next

• The Government Contractor's Guide to Financing. Every structure available against a federal contract.
• Government Contract Financing Structures Compared: What Each Costs. Four structures against the same award.
• Contract Financing Readiness Assessment. The questions a lender asks, in order.
• AssetBasedLending.guide. Asset-based facility structure and advance rates.