It is very common for government contractors to use commercial financing, like banks and asset based lenders, to grow their business. Luckily, due to the ease of availability, unlimited access to borrowing power, and how quickly it can be put in place, many contractors rely on accounts receivable factoring when starting up a contract.
But like everything else with government contracting, the use of financing must conform to FAR (Federal Acquisition Regulation) contract regulations. Typically a government contract will have terms which disallow the work scheduled to be performed by another party. This means the government hired a contractor and expects that contractor to do the work.
But the Assignment of Claims Act allows the proceeds, or payments, to be made to a third party. Built into FAR is the ability to borrow against future payments that are made from a government agency to its contractor. This is a widely used vehicle to obtain working capital for an ongoing contract. It helps to cash flow payroll, taxes, and materials when fulfilling an awarded contract.
In order to satisfy the regulations, the prime contractor must present a Notice of Assignment to their contract officer. This form, usually prepared by the Lender, must be signed and notarized. It is actually an amendment to the contract authorizing the government to pay the registered third party. Without the NOA, the government cannot repay the capital source who has made advances on contract payments.
Usage of the NOA is SOP and should be acknowledged by the CO. The tip here is to be pro-active in notifying the agency that you will be using financing and to expect the NOA. This can save valuable time when getting a new contract underway. The biggest primes in contracting use the NOA, it’s a strong statement presenting your company as ready to do business with the government.