As companies acquire and sell businesses that also have federal government contracts, the facts can be somewhat tricky as to whether the Anti Assignment Act is violated. The novation contract law attorneys at Watson & Associates, LLC bring decades of experience helping buyers and sellers to avoid the common and costly mistakes when purchasing or selling companies with government contracts. Our team of novation lawyers provides nationwide help with the process under FAR 42.1204.
Novation Process Under FAR 42.1204
Novating a government contract follows a unique set of rules in the federal procurement laws. The novation process under FAR 42.1204. may seem relatively simple to many contractors. However, the reality becomes obvious if the contracting officer decides that he or she will not approve your agreement.
A government contract novation commonly becomes a requirement when you are buying or selling a business via an asset purchase sale.
Federal Government Novation of Contract Services
With law offices in Washington D.C. and Denver, Colorado, the government contract law attorneys at Watson & Associates, LLC provides a vast array of government contracting legal services to small business and large DOD contractors. We have successfully provided novation consulting services to clients throughout the United States. When it comes to government contract novation law services, we provide the following:
- Complete oversight of the federal government novation process (this involves oversight of and collaboration with buyers and or seller’s attorneys. Who handles the state law process;
- Drafting contract novation agreement pursuant to FAR 42.1204;
- Assessing how a buyer’s small business size status can be affected (this is a common problem missed by the parties);
- Assessment of mergers and acquisitions of federal government contractors;
- Overseeing asset purchase business sales;
- Transfer of VA contracts
- Working with your local state attorneys through the buying and selling process, and
- Help for small businesses that are SBA 8(a) certified or some other government small business designation such as SDVOSB, HUBZone or others. Learn more about the small business set aside rules.
- Government contract fraud and investigations
- Get help with small business size and bid protest issues involving novation government contracts
What is a Novation Agreement?
Under federal procurement regulation, a novation of contract means, so long as it is approved by the contracting officer, allows for the original prime contractor to be substituted by a new contractor. This usually occurs when the company is bought or sold.
Is a Novation of Contract Required Under FAR 42.12?
FAR 42.1204 suggests that stock purchase sales do not require a novation agreement. However, an asset purchase sale does require a government contract novation and approval of the contracting officer. In all situations, it is up to the contracting officer’s discretion on whether or not he or she wants to approve the agreement. See the difference between government contract assignment Vs contract novation. See information about SDVOSB certification and bid protests.
Under federal contract law, any violation of the FAR 42.1204 and procurement law will void the novation agreement and even create federal criminal liability.
Is Your Novation Agreement in Violation of the Anti-Assignment Act?
Many contractors make the mistake of simply passing on the government contract as the only asset. This can be problematic to the agency’s attorneys. At Watson & Associates, not only do we help you draft the required federal documents and help you to navigate through the government contract novation process, but we also assess all the facts of the transfer agreements to make sure that your chances of disapproval are minimized.
(a) 41 U.S.C.6305 prohibits the transfer of Government contracts from the contractor to a third party. The Government may when in its interest, recognize a third party as the successor in interest to a Government contract when the third party’s interest in the contract arises out of the transfer of-
(1) All the contractor’s assets; or
(2) The entire portion of the assets involved in performing the contract. (See 14.404-2(l) for the effect of novation agreements after bid opening but before award.) Examples of such transactions include, but are not limited to-
(i) Sale of these assets with a provision for assuming liabilities;
(ii) Transfer of these assets incident to a merger or corporate consolidation; and
(iii) Incorporation of a proprietorship or partnership, or formation of a partnership.
(b)A novation agreement is unnecessary when there is a change in the ownership of a contractor as a result of a stock purchase, with no legal change in the contracting party, and when that contracting party remains in control of the assets and is the party performing the contract. However, whether there is a purchase of assets or a stock purchase, there may be issues related to the change in ownership that appropriately should be addressed in a formal agreement between the contractor and the Government (see 42.1203(e)).
Contact our novation contract law attorneys for guidance with the process and compliance with the procurement regulations. Free Initial Consultation. Call Toll-Free 1-866-601-5518.
Avoid Costly Mistakes in Government Contract Novation Law
When companies tentatively agree to buy or sell a business with government contracts, thinking ahead is critical. Under federal government novation contract law, you want to avoid costly legal mistakes such as:
- Failing to anticipate failure to convince the contracting officer to approve the agreement (near assume that the CO will approve the transfer under FAR 42.1204.)
- Creating an asset purchase agreement with only the contracts as the “assets.”
- Failure to condition the sale upon the government’s approval
- Assuming that the government will always exercise the future option years
- Failure to draft documents that address the buyer’s ability to perform.
Communicate with the Agency CO as Soon as Possible
One of the biggest mistakes the parties can make when planning to execute a novation agreement is to not inform the contracting officer. At Watson, our contract novation lawyers strongly suggest that clients communicate with the agency upfront, Agencies do not like to be surprised.
At Watson, our law firm understands the legal issues that arise in the novation of contract process with government contracts and the problems that buying and selling a business can create. Our goal is to provide our client with high-level guidance in the FAR novation process.
- Avoid the temptation to get a canned agreement template. It may not meet federal contracting requirements.
- You need more than just a simple novation agreement and to have a legal transaction.
- Understand how an asset purchase can severely impact your small business size status as the buyer.
- As the new party, you want to be able to demonstrate that you can perform the contract.
You Must Be Flexible
During the process, the parties to the purchase or sale must be flexible. Remember that the transaction also requires the contracting agency to be comfortable after approving your novation agreement.
The government must be convinced that it is in its interest to approve the agreement and be assured that the new owner can manage and complete the contract. The agency may also suggest certain topics that they might be interested in. These are considered the ‘hurting points’ from the government’s perspective.
Contact our Federal Government Contract Lawyers
Now that you are aware that the government is not obligated to approve your novation agreement if you need professional help with the process under FAR 42.1204, call Watson’s law firm today.
Use our Contact Us page to tell our government contract novation law lawyers about your specific situation or call toll-free at 1-866-601-5518. FREE INITIAL CONSULTATION.