[Question Concerning Priority for Distribution of Contract Proceeds]

The Army requested a decision regarding the priority for distribution of contract proceeds under an Army Corps of Engineers purchase order. In order to finance the contracted work, the contractor assigned the contract proceeds to a bank. However, the Internal Revenue Service (IRS) issued a tax lien against the contract proceeds and maintained that it had priority over any existing assignment. The bank claimed that its Uniform Commercial Code filing and assignment took precedence over the IRS claim. GAO noted that: (1) the bank secured a loan to the contractor to finance the contract work; and (2) the assignment contained a no-setoff provision which defeated operation of the IRS lien. GAO held that: (1) the assignment complied with the requirements of the Assignment of Claims Act; and (2) IRS would receive any money remaining after the bank received its payment. Accordingly, all of the proceeds should be paid to the bank.