As federal novation law attorneys, we help government contractors to avoid costly legal mistakes with FAR 42.1204 when they buy or sell a business that involves a government contract. NATIONWIDE Help.
What is a Novation in Federal Contracting?
When a new contractor wants to enter into or take over performance of an existing government contract, FAR 42 requires a novation agreement in place. The Contracting Officer will first have to approve the novation agreement when it is the government’s best interest.
Three parties are involved in a novation:
- The transferee or new contractor
- The transferor or the seller of the existing contractor
- The United States Government (represented by the Contracting Officer.
- A contract 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 requirements but also the Anti-Assignment Act.
- Hiring a state contract lawyer that does not understand the FAR can cost you tens of thousands more in the long run.
- Understand that novation disputes can arise when you least expect. 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 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
Need a Contract Novation Agreement for a Stock Purchase Sale?
When there is stock purchase sale, FAR 42.1204 (b) suggest that novation agreements are not required when there is no change in the original party to the 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.
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.
Learn how mergers and acquisitions can impact the company’s small business size standard when there is an asset purchase.
Contracting Officer Involvement
FAR 42.1204, Novation and Change-of-Name Agreements, 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). See the difference between government contract assignment Vs contract novation.
If you legally change your name as a contractor, or you transfer your assets to another business entity, the FAR novation law and 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.
Oftentimes, small businesses find themselves in situations where non- performance is an issue or the surety has to step in a finish the construction project. Watson & Associates’ government contract lawyers help with novation construction project.
What are FAR 42.1204 Contract Novation Agreement Requirements for Documents?
As a direct quote from the FAR Website,
When a contractor asks the Government to recognize a successor in interest, 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.
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For immediate help with the FAR government contract novation , breach of contract of novation agreement requirements under FAR 42.104, 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.