Avoid violations and government criminal investigations for violating government contract novation rules and the Anti Assignment Clause.
Assignment and novation are two legal concepts that are often used in government contracting to transfer the rights and obligations of a contract from one party to another. While both concepts involve the transfer of contract rights, they differ in significant ways.
Assignment of contract is the transfer of a party’s rights under the contract to another party. The original party remains responsible for fulfilling the obligations under the contract. This means that the assignee takes on the rights of the assignor under the contract, but not the obligations. The assignor retains its obligations under the contract and remains liable for any breaches.
In contrast, novation is the legal process of transferring a contract from one party to another with the consent of the government agency responsible for the contract. Novation transfers both the rights and obligations under the contract to the new party, and the original party is released from all obligations and liabilities under the contract.
In a novation, the government agency responsible for the contract must approve the transfer, and the new party must demonstrate that it has the necessary qualifications, resources, and capacity to perform the contract. This process ensures that the government agency can rely on the new party to fulfill all obligations under the contract.
There are significant differences between assignment and novation, and it is important to understand the implications of each before proceeding with any transfer of contract rights. While assignment may be appropriate in some circumstances, novation is often necessary when there is a change in ownership or control of a contracting party.
In conclusion, assignment and novation are two legal concepts that are often used in government contracting to transfer the rights and obligations of a contract from one party to another. Understanding the differences between assignment and novation is crucial to ensure compliance with government regulations and avoid the potential for breach of contract remedies.
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 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.
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.
- 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 contracts and their 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.
Contact Our Government Novation Law Lawyers for Immediate Help With Novation vs Assignment
For immediate help with contract assignments or government contract novation law, call the federal contract attorneys at Watson & Associates, LLC for a FREE Initial Consultation. 1-866-601-5518.