Avoid violations and government criminal investigations for violating government contract novation rules and the Anti Assignment Clause.
Help for Federal Contractors in ALL STATES. Get Free Initial Consultation. Call Watson & Associates’ contract novation law attorneys at 1-866-601-5518.
Many federal contractors have heard the term government contract assignment and contract novation. However, the reality is that there are completely different legal theories.
Government contract assignments and novation of government contracts are intended to achieve different results. For federal contractors, the FAR assignment vs sale guidelines are particularly important when applying the rules. Failure to follow these rules can end up in suspension, debarment or some legal dispute that causes expensive civil litigation or criminal prosecution.
What is a Novation Sale?
This term in federal procurement novation contract law means that there is a sale of a business ( small or large) where the business is currently obligated under a federal government contract.
A novation in contract does not mean that the buyer is buying or the seller is selling government contracts. The is intent will violate the Anti-Assignment Clause. When consulting with you attorney, be sure to validate that there are either additional assets being sold or purchased, or you simply are transacting a stock purchase.
A novation sale under FAR 42.1202 is not a sale unless approved by the Contracting Officer. Therefore, how you plan and the precautions to take are very important.
Novation vs Assignment – Anti Assignment Clause & Assignment of Contract Meaning
Under an assignment of contract action as a contractor, your company must continue performance under the contract. Assignment means that you are giving a third party some of your rights to the contract. The common occurrence is when small businesses assign their rights to payment. See 48 CFR 52.232-23 – Assignment of Claims.
What is the difference between assignment and novation of government contracts?
Difference Between Assignment and Sale In Government Contract Novations – You can assign your contract or rights to a contract but you cannot simply just sell government contracts.
Note that under the Anti-assignment clause, government contracts are not by themselves intended to be for sale. However, through asset purchase sales and the FAR contract novation agreement process, small businesses and can transfer federal contractors when there is a sale of a business.
Before assigning your contracts rights to a third party, whether it is for financing or not, make sure you seek help from legal counsel and involve the contracting officer. Also, look into whether a continued relationship between the buyer and seller can run afoul of the similarly situated small business rules.
Contract Novation Meaning in Law and Definition
By comparison, a government contract novation meaning in law and legal definition allows for the transfer of a federal project to a third party. A novation contract revokes and discharges a prior contract.
This can only occur if the contracting officer deems it to be in the best interest of the government. There is simply no automatic right to have a contract novation agreement approved. Be aware of Buy American Act laws.
Novation of contract means understanding a few confusing parts of the FAR 42. For example, not all types of business sales mandate a contract novation.
What are Other Differences Between Assignment and Novation of Government Contracts
As stated earlier, there are subtle differences between assignment and novation of government contracts with the federal government (small business certification programs and an 8(a) certified company or HUBZone certified, you should also keep the SBA informed. Find out more about the SBA HUBZone Program Here.. If you are in the SBA
A common legal question arises as to whether the third party under an assignment of contract scenario becomes a party to the contract. These are all legal issues where consulting your government contracts attorney can be beneficial. If you are involved in allegations of criminal misconduct, call our novation business law lawyers and federal criminal defense attorneys at 1-866-601-5518 now.
- The FAR allows for contract assignments (you should inform the CO)
- If you are a limited liability company and small business, find out how a novation can impact your small business size
- The FAR also provides for contract novations but the initial party may still be on the hook
- The Anti-Assignment Clause prohibits outright sales of government contracts. Learn more about the small business set aside rules.