ARTICLE
15 August 2016

Government Contract Novations – Practical Practices Under FAR 42.1204

There are many reasons that a novation might be necessary.
United States Government, Public Sector
To print this article, all you need is to be registered or login on Mondaq.com.

Novations are the government contracting equivalent of M&A in the private sector – the process through which a government contract can be transferred from one business to another (without violating the Anti-Assignment Act).

There are many reasons that a novation might be necessary. A business holding a government contract could be acquired by another business (that now wants to take over and perform the contract). Or a government contractor could divest assets during a bankruptcy proceeding. The common denominator is a material change in the identity of the business that will perform under a contract with the government.

The novation process set out in FAR 42.1204 is deceptively simple. According to this regulation, a formal Novation Agreement is granted when the government determines that the transfer is in the "best interest" of the government and supported by appropriate documentation (set forth in checklist format).

In reality, novation is a fluid and unpredictable process. But, by thinking proactively about the transfer in advance, you can ease the administrative burden and set your business up for the future successful performance of a new contract.

Plan Ahead (If Possible)

FAR 42.1204 does not establish any timeline or schedule for the novation process. Even if you have all of your "checklist" documents prepared and ready for primetime, there is no guarantee that your Novation Agreement will get the rubber stamp that you hope for (in fact, it probably won't).

Look carefully at the contract that is being transferred. By understanding the expectations and deadlines, you'll minimize the chance of penalties caused by a longer-than-anticipated novation process.

You Might Not Check Every Box

Just because FAR 42.1204 has a list of required documents does not mean that your business (or the business transferring the contract) will be able to check all of those boxes. For any number of reasons, there may be a document here or there that is not in your records.

Before creating unnecessary work for yourself, contract the ACO (administrative contracting officer) that will handle the novation. By discussing your particular circumstances, you may be able to agree on a smaller or different set of documents that will satisfy that government's process.

But beware. Exceptions or concessions that are approved for one novation may not work for the next. Whether it's a different ACO or a change in the government's expectations, plan on treating each contract novation like a unique process (which, when you think about it, it is).

Stay Flexible and Be Ready to Supplement

The novation process is marked by a back-and-forth process between the contractor and the government. The ACO may ask for more – or different – information from what was included in your opening submission (even if you think your information is totally comprehensive).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More