Northwestern Factors, Inc., entered into a factoring agreement with Furniture Farmers, Inc. (Farmers), whereby Farmers assigned to Northwestern all moneys due and to become due under two contracts with the General Services Administration (GSA). Northwestern extended an unqualified line of credit to perform those contracts; however, on the day after Northwestern filed notices of the assigments with the contracting officer, the Farmers' GSA contracts were terminated for default. Northwestern claimed $55,720 as due and owing from GSA under its assignments from Farmers. GSA, on the other hand, contended that $44,066.69 of that amount was to be set off as excess reprocurement costs stemming from the termination for default of five other Farmers' contracts. The Claims Division upheld the denial of the claim by GSA because there was no record that funds were advanced to Farmers between the date the contracting officer was formally notified of the assignment and the end of contract performance. Northwestern appealed the denial of its claim. In its reconsideration of the matter, GAO held that the Government may not set off the excess costs assessed under four contracts terminated for default where the rights to such costs matured subsequent to valid assignment notices under the Assignment of Claims Act. However, the excess costs attributable to one other defaulted contract may be set off, since the right to costs under this contract matured prior to the receipt of valid assignment notices. Accordingly, the amount of $3,965.59 may be properly set off against the amount due and owing Northwestern; the remaining balance of $40,101.10 of excess costs may not be set off.
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