Propriety of Claims Settlement

The Department of Health and Human Services (HHS) requested a decision as to the propriety of paying a claim arising from the assignment of the proceeds from two HHS purchase orders. HHS contracted to lease office equipment in fiscal year (FY) 1978. Subsequently, the lessor assigned the remaining proceeds of the lease to another firm which in turn leased back all the equipment to the original lessor with the understanding that the equipment would be subleased to the Government. The parties agreed that all proceeds due the original lessor under its leases with HHS would be assigned to the assignee and that the lessor would issue the necessary notices of assignment as required by applicable legislation. In exchange for financing the leases, the assignee's bank was to receive the lease rental proceeds at issue in this case. While the notice of assignment was acknowledged by the contracting officer, the bank was not paid the rental for the first 2 months after the assignment. The rental was paid to the lessor. The lease was renewed for FY 1979, but there was no evidence submitted to show that a valid assignment of the renewal agreement existed. HHS retained the payments owed under this contract because of its dissatisfaction with the equipment and service and its belief that the lessor was no longer in business. Subsequently, the lessor sent HHS an invoice for the rental for October through December 1978 directing that payment be made to the bank. HHS refused to pay the bank without proof of the assignment of the renewal agreement. Both the assignee and the bank submitted a copy of the assignment and the HHS acknowledgment of the assignment. GAO held that, where the Government has received notice of a valid assignment but thereafter erroneously pays the assignor, it remains liable to the assignee for the amount of the erroneous payment. Although the assignment did not comply with the requirements of applicable legislation, the record established that the Government was aware of, assented to, and recognized the assignment of a contract. Accordingly, payment of the assignee's claim was authorized.