Nationwide Federal Novation Contract Law Attorneys.
Are you a federal contractor looking to buy, sell, or merge companies with government contracts? Do you need legal support to avoid costly mistakes in the FAR novation process?
Companies often make the mistake of thinking that federal contracts can be either brought or sold. This is not legally true. However, if there is a company merger or corporate consolidation, through an asset purchase, the transfer of contracts as seller assets can be allowed. The responsible contracting officer shall approve the novation only if it is in the government’s best interest
Our team of experienced contract novation lawyers can help you develop a novation agreement that protects your interests and ensures a smooth transition of federal contracts. We understand the complexities of the novation process and can guide you through it with ease.
With our help, you can avoid costly mistakes in the FAR novation process and ensure that your novation agreement meets the necessary requirements. We have a proven track record of success in helping federal contractors navigate the novation process, and we can do the same for you.
Don’t take any chances with your government contract novations. Contact us today to schedule a consultation with our contract novation lawyers and get the legal support you need to protect your business.
Our novation of contract attorneys provides the below information as a general overview of the novation process and a cursory view of the legal issues. If you are a small business that is purchasing or selling your business, novating a contract can be complex and confusing. The responsible contracting officer shall choose not to approve the transition of there is risk of nonperformance etc.
What is a Novation Agreement?
A novation agreement is a legal contract that transfers the rights and obligations of one party to another party. In government contracting, a novation agreement is used to transfer a contract from one vendor to another, typically due to a merger or acquisition. The novation agreement ensures that the new vendor assumes all responsibilities and obligations of the contract, including performance, payment, and compliance with government regulations.
When is a Novation Agreement Required?
A novation agreement is required in government contracting when a company merges with or acquires another company and seeks to transfer an existing contract to the new entity. A novation agreement is also necessary when a subcontractor is substituted with a new subcontractor, or when a government agency seeks to transfer a contract from one agency to another. Under FAR Part 42 a novation agreement is required if there is an asset purchase and not a stock purchase (because the contracting party remains the same.)
1. The rights and obligations of each contracting party must remain substantially unchanged.
2. The consideration for the novation agreement must be equal or greater than that originally agreed upon.
3. All parties to the original agreement must be in agreement and sign the novation agreement.
4. The novation must be approved by the procuring agency, typically done through the contracting officer.
5. Upon approval, the new contracting party will assume all legal liabilities associated with the contract that was novated.
6. The original contracting party is usually released
When is Novation of Contract Necessary?
Novation of a contract is necessary in government contracting when there is a change in the ownership of a contracting party and there is an asset purchase (transfer of assets). This may occur due to a merger or corporate consolidation, a change in the corporate structure, or the sale of a business. The FAR novation process ensures that the new party assumes all obligations and responsibilities of the contract.
Can a Commercial Novation Agreement Suffice to Novate a Contract?
A commercial novation agreement may not suffice to novate a contract. The Federal Acquisition Regulation (FAR) 42.1204 provides guidelines for novating a federal contract, and the standards may be more stringent than those for commercial contracts. The government agency responsible for the contract will review the novation agreement and other documents to ensure compliance with government regulations.
FAR 42.1204 Does Not Guarantee Approval of Government Contract Novations
While FAR 42.1204 provides guidelines for novating a government contract, it does not guarantee approval of the novation agreement. The government agency responsible for the contract will review the proposed novation agreement and other documents to ensure compliance with government regulations. In some cases, additional documentation may be required, and the standards may be more stringent than those outlined in FAR 42.1204. At Watson & Associates, LLC, our government novation contract lawyers can help with the issues that are required to help the contracting officer become more comfortable with novating the contract.
Why Must You Know the Difference Between Novation vs. Assignment of Contract?
Understanding the difference between novation vs assignment of contract is crucial in federal contracting. Novation is the process of transferring a contract from one party to another, while assignment is the transfer of a party’s rights and obligations under a contract to another party. The Anti-Assignment Act prohibits the assignment of gov contracts, but novation may be necessary in certain circumstances, such as a merger or acquisition.
What is the Anti-Assignment Act?
The Anti-Assignment Act prohibits the assignment of certain government contracts, particularly those that involve personal services. The act ensures that the government agency responsible for the contract retains control over the contractor’s performance and compliance with government regulations. However, novation may be necessary in certain circumstances, such as a merger and acquisition.
Can Federal Contract Novations Violate the Anti-Assignment Act?
Government contract novations do not necessarily violate the Anti-Assignment Act. Novation is a legal process that transfers the rights and obligations of a contract from one party to another, while assignment is the transfer of a party’s rights and obligations under a contract to another party.
Under the Anti-Assignment Act (41 U.S.C. § 6305), the transfer of a contract or interest in a federal contract to a third party is strictly prohibited. Any assignment of a contract in violation of this law renders the contract void, except for the government’s right to pursue breach of contract remedies. This can pose a significant challenge for contractors who undergo corporate transactions, such as mergers, acquisitions, or restructurings.
Fortunately, the Federal Acquisition Regulations recognize that firms involved in government contracts undergo changes in ownership and control from time to time. To address this issue, the FAR includes procedures for the novation of contracts in certain situations.
Novation enables a contractor to transfer its rights and obligations to another party, such as a successor entity following a merger or acquisition. By following the procedures outlined in the FAR, a contractor can ensure that the novation is valid and avoids a potential violation of the Anti-Assignment Act.
When is a Contract Novation Needed in Merger and Acquisition Transaction?
A government contract novation is needed in a merger or acquisition transaction when there is a change in the ownership of a contracting party. The novation process ensures that the new party assumes all obligations and responsibilities of the contract. The government agency responsible for the contract will review the proposed novation agreement and other documents to ensure compliance with government regulations. It is important to start the novation process early to avoid delays in processing and unexpected consequences related to non-compliance with government regulations. At Watson & Associates, when there is a merger and acquisition of businesses that have federal contracts
Why Must You Start the Novation Process Early?
Starting the novation process early is essential to avoid delays in processing and unexpected consequences related to non-compliance with government regulations.
Contracting officers do not like surprises. Novating government contracts is a complex process that requires careful planning and coordination between the parties involved. It is important to assess the contract that will be transferred carefully to ensure all contracts are up to date and all information is accurate. The responsible contracting officer shall coordinate the novating agreement with the government attorneys. This can take some time.
What Must You Submit as Part of the FAR 42.1204 Novation Package Requirements?
- Three signed copies of the proposed novation agreement
- Copy of the purchase/sale agreement between the transferor and transferee
- List of contracts that the transferor has with the Government, including (a) contract number and type; (b) name and address of contracting office; (c) total contract value; and (d) approximate remaining unpaid balance
- Evidence of the transferee’s capability to perform
- Any other relevant information requested by the contacting officer
- Authenticated copy instrument effecting the transfer of assets (e.g. bill of sale)
- Certified copy of each resolution of the corporate party’s board of directors authorizing the transfer of assets
- Certified copy of the stockholder meeting minutes for the transferor and transferee showing approval of the transfer of assets
- Authenticated copy of the transferee’s certificate and articles of incorporation;
- Opinion of legal counsel for the transferor and transferee stating the transfer was properly effected under applicable law and the effective date of the transfer;
- Balance sheets of the transferor and transferee as of the dates immediately before and after the sale audited by independent accounts;
- Evidence that any security clearance requirements have been met; and
- The consent of sureties on all contracts if bonds are required or a statement from the seller that none are required.
As part of the FAR novation requirements, the proposed novation must be submitted to the government agency responsible for the contract.
If You are Selling or Buying a Small Business, Does it Retain its Small Business Status After a Government Contract Novation?
If you are selling or buying a small business, it may not retain its small business status after a government contract novation. A novation may result in the loss of the business’s small business status, which could impact its ability to bid on future contracts set aside for small businesses.
This is yet another reason why our government contract novation law attorneys help companies across the United States. It is important to consider the implications of novation on the business’s small business status when undergoing a merger or acquisition transaction.
Government Contract Novation Process Under FAR 42.1204
The novation of contract process under FAR 42.1204 is a legal process that allows a government contractor to transfer its contractual rights and obligations to another entity. The primary objective of the process is to ensure that the transferee will take on all of the original contractor’s responsibilities and liabilities with regard to the contract, while providing the government with an adequate level of assurance that it will receive performance in accordance with its contractual requirements.
This can be done through a bilateral agreement between the parties involved in which they agree to novate (transfer) the existing contract but with the required approval of the responsible contracting officer, only if in the best interest of the government. A government contract novation lawyer can help guide you through this process and ensure that all parties involved are fully informed before any decisions are made.
In addition, it is important to note that the novation of a contract must be approved by both the government and the other party in order to be legally binding. Once this process is successfully completed, it will result in the termination of the original contract and the establishment of a new agreement between all parties involved.
Why Hire Watson’s Government Contract Novation Lawyers?
- We understand the FAR process and will screen your novation package for potential errors before sending it to the contracting officer.
- Some of our attorneys are previous contracting personnel and understand federal procurement regulations.
- We have spent more than three decades in the procurement marketplace. We understand the issues that can arise during the novation process.
- In addition to developing the required FAR documents, we can oversee the entire buying/selling process at your request.
Federal Government Contract Novation Agreement Attorneys Services
With law offices in Washington D.C. and Denver, Colorado, the novation contract law attorneys at Watson & Associates, LLC provides a vast array of government contracting legal services to small business and large DOD firms. As federal contractors lawyers, we have successfully provided government contract 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 novation in contract law process (this involves oversight of and collaboration with buyers and or seller’s attorneys. Who handles the state law process;
- Drafting contract novation agreements 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;
- Help in criminal cases alleging fraud and other white collar crimes
- 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 government novation in contract law
When is a Novation Required Under FAR 42.12?
When is a government contract novation required? FAR 42.1204 suggests that stock purchase sales do not require a novation of contract because the contracting party remains the same. However, a transfer of assets sale does require a federal contract novation and the approval of the contracting officer.
For sales and acquisitions of a business that also has federal government contracts, a novation is necessary when there is a transfer of assets. This could be a transfer of assets via a merger. Once there is a change of original contracting parties, then a novation is required.
In all situations, it is up to the contracting officer’s discretion on whether or not he or she wants to approve the FAR novation. See the difference between contract assignment Vs contract novation. See information about SDVOSB certification and bid protests.
Federal Contractor Lawyers – We Help You to Avoid Costly Mistakes in Government Contract Novation Law
Applicability of novation agreements: When companies tentatively agree to buy or sell a business with government contracts, thinking ahead is critical. Under federal government contract novation law, you want to avoid costly legal mistakes such as:
- Failing to anticipate failure to convince the contracting officer to approve FAR novation (never 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- possibility that the responsible contracting officer determines to not approve the novation.
- Failure to seriously consider the pros and cons of engaging in a novation of contract agreement.
- Misrepresenting company’s small business status. See more on white collar crime
- If you are buying part of a company or a separate division, consider the potential impact on revenues as a small business.
- Failure to investigate if the newly acquired company complies with the Buy American Act ( this is common for construction companies). – Is the seller or Buyer on the hook once the novation is completed? See More On Buy American Act Frequently Asked Questions
At Watson, our federal contractor lawyers understand the legal issues that arise with contract novations and 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.
Tips about Government Contract Novations
- 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.
- Be mindful that when you submit a bid but there is a pending novation approval, you can run into legal problems. See Wyle Laboratories Inc.
- Understand how an asset purchase can severely impact your small business’s size status as the buyer.
- As the new party, you want to be able to demonstrate that you can perform the contract.
- What happens if your company becomes under investigation while the novation process is moving along? What happens if the newly acquired company comes under government investigation sometime after the novation occurs? Then what? Be mindful of this possibility.
Contact our Federal Government Contract Novation Lawyers
Now that you are aware that the agency is not obligated to approve your contract novation 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 lawyers and consulting team about your specific situation or call toll-free at 1-866-601-5518. FREE INITIAL CONSULTATION.