If you are a government contractor seeking to purchase or sell a company that performs federal contracts, developing a contract novation agreement under FAR Part 42 is one the most important things you must do. This is true if there is an asset purchase or sale. Small businesses in particular must understand the risks of the agreement of novation is not planned and followed out accordingly. Having oversight of the moving pieces and various parties involved in essential. The government contractor lawyers at Watson & Associates, LLC frequently help small businesses and large defense contractors through the novation process.
Watson & Associates, LLC’s lawyers, and government contract novation law firm have decades of experience helping small businesses and federal contractors to get through the government contract novation process. Our goal is to apply the legal requirements of FAR 42.12. We help clients throughout the United States. As former government staff members, we understand the process and concerns under federal novation contracts.
The Federal Acquisition Regulations (FAR Novation Agreements) do not mandate that the Government is obligated to approve your novation agreement. The last thing you want to experience is that after substantial negotiations with the buyer or seller, the contracting officer disapproves of your novation agreement.
Per federal regulations, a novation agreement is unnecessary when there is a change in the ownership of a contractor as a result of a stock purchase, with no legal change in the contracting party, and when that contracting party remains in control of the assets and is the party performing the contract. However, whether there is a purchase of assets or a stock purchase, there may be issues related to the change in ownership that appropriately should be addressed in a formal agreement between the contractor and the Government
What is a Novation?
A novation is a tri-party agreement between the federal government, the original prime contractor, and the new prime contractor. The new contractor attempts to assume the performance obligation for the current government contract. Such an offer is subject to the approval of the agency contracting officer. offering to assume the government contract. The purpose of the novation is to allow the Government to approve a new contractor, scrutinize its credentials, and analyze risks if any. It is critical for companies contemplating entering into an agreement of novation of government contracts to know that the contracting officer does not have to approve a novation. Therefore, it is better if the current prime contractor informs the agency ahead of time.
FAR 42.12 Novation Consulting and Government Contract Attorney Services
The purchase and sale of a company with federal government contracts can be a daunting process. Besides drafting the novation agreement form, small businesses are still required to consider other aspects of the sale such as whether the sale can impact the seller under SBA affiliation rules when there is an asset purchase sale. As part of our novation contract agreement services, we provide:
- Management and oversight of the purchase and sale process for potential FAR violations.
- Coordination with state attorneys involved in the buying and selling process.
- A-Z Government contract novation consulting services
- GSA novation agreement matters and settlement solutions
- Drafting of FAR novation contract documents
- Filing Pre-novation Disputes Act claims against the government as the successor in interest ( Vought Aircraft Co., 95-1 BCA ,r 27,421 at 136,666)
At Watson & Associates, LLC our government contract novation lawyers help clients to develop and propose a more acceptable novation agreement package to the contracting officer. FAR 42.12 has specific requirements for novation of government contracts.
- Avoid costly mistakes with asset transfers and Anti-Assignment Act violations
- Prompt turnarounds with the federal novation of contract actions
What Can You Do to Minimize the Possibility of the Contracting Officer’s Disapproval of Request for Novation of The Contract?
As stated before, if your novation does not fall within the purview of what is in the Government’s interest, then the CO does not have to approve your requests. Things that you can do to increase the chances of getting approved include:
- Keeping the CO involved in the initial stages of your negotiations with the buyer or seller. COs don’t want to be surprised with a request for approval.
- When you submit your, you may want to explain how the transfer of your contract to the buyer or seller would arguably be in the government’s interest.
- What past performance does the new owner have that the agency should consider?
- Consider talking about the reduction of risk of non-performance
Potential Pitfalls in the Government Novation Contract Process and How to Avoid Them
There is more to the FAR novation of contract process than simply filling out forms. We help with the following:
- Make sure that your small business status is still in place
- Assessing whether your asset purchase and transfers are really true assets in the government’s eyes (this is one area where government attorneys scrutinize your purchase and sale transactions.)
Our federal government novation consulting team of attorneys can help with the assessment of asset purchase sales and prepare our clients to ultimately get through the buying and selling process.
- Understand that the contracting officer is not obligated to approve your agreement
- If your company is performing with a joint venture or teaming arrangement, we help with the transfer process.
Important Points and Considerations
Under federal procurement laws, the FAR 42.12 contract novation meaning may be somewhat different than in the commercial sector. To novate a government contract is appropriate when the party to the contract somehow assigns their obligations under a current federal contract to a new party. In government contracting, the agency refers to the new part as a successor in interest.
Current teaming and joint venture relationships?
This can be a concern of the contracting officer. Our novation consulting services look at all of these commonly overlooked issues when we represent companies involved with government novation contracts.
The Anti-Assignment Act prohibits the sale of government contracts.
In other words, unless the responsible contracting officer decides that it is in the government’s best interest to novate a contract, then the government is not obligated to accept a novation agreement under FAR 42.12.
- If the only asset purchased is a government contract, there could be problems.
- Contractors fail when the contracting officer is suspect of the actual assets sold.
When you are involved in a purchase and sale of a business, it is important to assess the possibility that option years to existing contracts may not be extended. This is a risk for the buyer of a stock purchase contract. When there is such a potential problem, the value of the sale of the business may be impacted.
What happens if the buyer’s small business status expires? Would the small business status be gone?
Generally no. The rule has been that once you were a small business at the initial bidding and award stage, then you should be fine. The transaction should not impact your status as a small business.
Does Your Stock Purchase Sale Mean that The Government Has to Approve Your Novation Agreement?
Obviously, FAR 42.12 suggests that your agreement is unnecessary when there is a change in the ownership of a contractor as a result of a stock purchase, with no legal change in the contracting party, and when that contracting party remains in control of the assets and is the party performing the contract. However, under the FAR, when you execute a stock purchase agreement, you should, by all means, seek the approval of the contracting officer ahead of time.
- The key to any approval of a FAR novation agreement is to get the contracting officer involved as soon as possible. Arguably if the government’s interest in jeopardy, there may be an exception.
- Remember that approval of your agreement depends on what is in the best interest of the government.
A Novation of Contract is Not just a Transfer Agreement and Purchase of Assets
One common requirement that is missed involves the transfer itself. Many government contractors may think that only an asset purchase agreement is required to demonstrate the sale/purchase of assets in the final transaction. However, this is not the case. Among other requirements, a copy of the instrument affecting the transfer of assets; e.g., bill of sale, certificate of merger, contract, deed, agreement, or court decree must be provided. This requirement is in addition to the actual transfer agreement/asset purchase agreement.
- You must also have a novation agreement separate from the Asset Purchase Agreement.
- Some companies make huge mistakes and may impair their small business status when they purchase part of a company.
Contact Our FAR 42.12 Government Contract Agreement Lawyers
For help with FAR 42.12 requirements and improving your chances of contracting officer approval, call Watson’s contract novation consulting law firm at 1-866-601-5518 for immediate help.