Not every business purchase or selling transaction requires a novation of contract under federal novation regulations. As federal contract novation lawyers and consultants, we help government contractors across the United States avoid costly legal mistakes with FAR 42.1204 legal requirements when they buy or sell a business that involves a government contract. We provide NATIONWIDE Help.
What is a Novation in Federal Contracting?
When a new contractor wants to enter into or take over the performance of an existing government contract, FAR Part 42.1204 requires a novation contract in place. The Contracting Officer will first have to approve the novation agreement when it is in the government’s best interest.
- A FAR novation agreement and purchase-sale transaction that simply attempts to transfer only the contracts will create turmoil for the parties
- Make sure that your FAR novation agreements not only meet the FAR 42.1204 requirements but also the Anti-Assignment Act.
Hiring a state contract lawyer that does not understand the FAR Novation regulations can cost you tens of thousands more in the long run.
- Understand that novation disputes can arise when you least expect them. Even in a bid protest case.
- Agreements that simply transfer government contracts and nothing else could potentially open your company up for criminal or civil OIG investigation for a violation of the Anti-Assignment Act and pass -through contract fraud schemes. Here, you want to pay attention to the SBA NAICS size standards as a small business.
- Note that a
When is a FAR Novation Agreement Required?
Do You Need a Novation of Contract for a Stock Purchase Sale?
When there is stock purchase sale, FAR 42.1204 (b) suggests that novation agreements are not required when there is no change in the original party to the federal government contract. With the stock purchase sale, the original party is still responsible for performance.
However, it is always advisable to keep the contracting officer aware of your plans early in the buying or selling process. He or she might have an issue with specific facts of the purchase transaction or some other issue under FAR part 12. Sometimes having a government contract lawyer that can interpret the FAR legal requirements and apply the facts can be a better solution.
Do You Need a FAR Novation Agreement for an Asset Purchase Sale?
By contrast, if you are involved in an asset purchase sale of business FAR 42.1204 (a) suggests that a government contract FAR novation agreement is required. Sellers and buyers should be aware that having the only asset as a government contract could be problematic. This is because the transaction looks too much like you are selling or buying a contract. Therefore, government attorneys can make the argument that such a transaction essentially violates the Anti-Assignment Act.
Tip: When buying or selling a company that has government contracts, you should find out how such mergers and acquisitions can impact the company’s small business size standard when there is an asset purchase.
Contracting Officer Involvement
Novation agreement governing law: FAR 42.1204 is the governing law for federal government contract novations. Under FAR Part 42.12, Novation and Change-of-Name Agreements, the regulation explains the process and requirements for getting the federal government to recognize a name change or a successor in interest to a federal government contract (novation). One of the golden rules in novation contract law is to always involve the contracting officer. See the difference between government contract assignment Vs contract novation.
Novation agreement effective date: The effective date of the novation is when the contracting officer approves the novation, and not when the seller and buyer effectuate the purchase agreement.
If you legally change your name as a contractor, or you transfer your assets to another business entity, the government contract novation process requires involving the Contracting Officer. See information about Bidding on GSA One Acquisition Solution for Integrated Services (OASIS Contracts)
- A contract modification cannot be issued to recognize a Novation or Change-of-Name Agreement without submission of the required information.
- Contract modifications for price adjustments, model additions or deletions, etc., may not be processed until an applicable Novation or Change-of-Name Agreement has been approved by GSA or another Federal Agency. See also information about FAR Part 15.
- Payment issues may also arise if a Novation or Change-of-Name Agreement is not processed at the time of the change.
- If there is an issue regarding your small business NAICS size standards in a bid protest or issues relating to the mentor and protege relationship, call us immediately.
What are FAR Part 42.1204 Contract Novation Agreement Requirements for Documents?
Novation agreement FAR part 42.12 – what must be submitted (note the requirements for a government contract novation attorney certification).
When it comes to the government contract novation process, and as a direct quote from the FAR Website,
When a contractor asks the Government to recognize a successor in interest under FAR. 42.1204, the contractor shall submit to the responsible contracting officer three signed copies of the proposed novation agreement and one copy each, as applicable, of the following:
(1) The document describing the proposed transaction, e.g., purchase/sale agreement or memorandum of understanding.
(2) A list of all affected contracts between the transferor and the Government, as of the date of sale or transfer of assets, showing for each, as of that date, the —
(i) Contract number and type;
(ii) Name and address of the contracting office;
(iii) Total dollar value, as amended; and
(iv) Approximate remaining unpaid balance.
(3) Evidence of the transferee’s capability to perform.
(4) Any other relevant information requested by the responsible contracting officer.
(f) Except as provided in paragraph (g) of this section, the contractor shall submit to the responsible contracting officer one copy of each of the following documents, as applicable, as the documents become available:
(1) An authenticated copy of the instrument effecting the transfer of assets; e.g., bill of sale, certificate of merger, contract, deed, agreement, or court decree.
(2) A certified copy of each resolution of the corporate parties’ boards of directors authorizing the transfer of assets.
(3) A certified copy of the minutes of each corporate party’s stockholder meeting necessary to approve the transfer of assets.
(4) An authenticated copy of the transferee’s certificate and articles of incorporation, if a corporation was formed for the purpose of receiving the assets involved in performing the Government contracts.
(5) The opinion of legal counsel for the transferor and transferee stating that the transfer was properly effected under applicable law and the effective date of transfer.
(6) Balance sheets of the transferor and transferee as of the dates immediately before and after the transfer of assets, audited by independent accountants.
(7) Evidence that any security clearance requirements have been met.
(8) The consent of sureties on all contracts listed under paragraph (e)(2) of this section if bonds are required, or a statement from the transferor that none are required.
(g) If the Government has acquired the documents during its participation in the pre-merger or pre-acquisition review process, or the Government’s interests are adequately protected with an alternative formulation of the information, the responsible contracting officer may modify the list of documents to be submitted by the contractor.
(h) When recognizing a successor in interest to a Government contract is consistent with the Government’s interest, the responsible contracting officer shall execute a novation agreement with the transferor and the transferee. It shall ordinarily provide in part that —
(1) The transferee assumes all the transferor’s obligations under the contract;
(2) The transferor waives all rights under the contract against the Government;
(3) The transferor guarantees performance of the contract by the transferee (a satisfactory performance bond may be accepted instead of the guarantee); and
(4) Nothing in the agreement shall relieve the transferor or transferee from compliance with any Federal law.
Call Watson’s Government Contract Novation Lawyers
For immediate help with FAR novation requirements, breach of contract of novation agreement requirements under FAR Part 42.1204, Anti-Assignment Act matters or help with overseeing the purchase or sale of your business involving government contracts, call our contract novation lawyers at 1-866-601-5518.