Does government AR count toward the borrowing base before an ABL revolver binds?
Last updated: August 27, 2026
What is the Assignment of Claims Act?
The Assignment of Claims Act, codified at 31 U.S.C. § 3727, allows contractors to assign money due or to become due under a federal contract to a financing institution. This statute enables ABL lenders to accept federal contract receivables as borrowing base collateral, provided the contractor and lender comply with the Act's requirements.
Assignment of Claims Act requirements (31 U.S.C. § 3727)
Per 31 U.S.C. § 3727(c), an assignment to a financing institution is valid when:
- The contract specifies payments totaling at least $1,000
- The assignment is made to a financing institution
- The contract does not forbid an assignment
- Unless the contract expressly provides otherwise, the assignment is for the entire amount not already paid, is made to only one party, and may not be reassigned
- The assignee files a written notice of the assignment and a copy of the assignment with the contracting official or agency head, the surety on a bond on the contract, and any disbursing official for the contract
FAR 32.802 defines "financing institution" to include "a bank, trust company, or other financing institution, including any Federal lending agency."
Why do ABL lenders require Assignment of Claims Act compliance for government AR?
The OCC Comptroller's Handbook on Asset-Based Lending identifies "Government receivables of the Assignment of Claims Act of 1940" as commonly ineligible "because of the unique perfection and documentation requirements." The OCC notes that "a government entity also typically has liberal rights to return goods, and government receivables' payment terms often exceed normal trade terms."
Without proper Assignment of Claims documentation, the ABL lender cannot enforce its lien against federal contract payments. The government will continue to pay the contractor directly rather than the lender, even if the contractor defaults on the ABL facility. Most ABL lenders require proof that the Assignment of Claims notices have been filed with designated officials, surety, and disbursing officials before including federal government AR in the borrowing base.
| Government AR type | ABL treatment | Requirement |
|---|---|---|
| Federal contract AR (Assignment of Claims compliant) | May be included in borrowing base at standard advance rate | Written notice filed with designated officials, surety, and disbursing officials per 31 U.S.C. § 3727. |
| Federal contract AR (no Assignment of Claims) | Excluded from borrowing base | Government pays contractor directly; ABL lender cannot enforce lien. |
| State and local government AR | Varies by lender and jurisdiction | Not subject to federal Assignment of Claims Act; state law governs assignment. |
Sources: OCC Comptroller's Handbook: Asset-Based Lending, 31 U.S.C. § 3727, FAR 32.802
State and local government AR
State and local government contracts are not subject to the federal Assignment of Claims Act. Each state has its own rules governing whether and how contractors may assign government contract receivables. Some states permit assignment with notice requirements similar to the federal statute; others restrict or prohibit assignment. ABL lenders evaluate state and local government AR on a case-by-case basis, considering the jurisdiction's assignment rules and the government entity's creditworthiness.
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Frequently asked questions
Does government AR count toward the borrowing base before an ABL revolver binds?
Government AR eligibility depends on whether the contract complies with the Assignment of Claims Act (31 U.S.C. § 3727). Federal contracts require the assignee to send written notice of the assignment and a copy of the assignment instrument to designated officials, surety on any bond applicable to the contract, and disbursing officials. Without proper Assignment of Claims documentation, government AR may be excluded from the Eligible Receivable definition.
What is the Assignment of Claims Act?
The Assignment of Claims Act, codified at 31 U.S.C. § 3727, allows contractors to assign money due or to become due under a federal contract to a financing institution. The statute requires that the contract specifies payments totaling at least $1,000, the assignment is made to a financing institution, the contract does not prohibit assignment, and the assignee provides written notice to designated officials, surety, and disbursing officials.
Can an ABL lender advance against state and local government AR?
State and local government contracts are not subject to the federal Assignment of Claims Act and may have different assignment requirements under state law. Each ABL lender evaluates state and local government AR based on the jurisdiction's assignment rules and the creditworthiness of the government entity. Some lenders advance against state and local government AR; others exclude it from the borrowing base.