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Government Contracts & Investigations Blog
The Novation Process
The first step in the novation process is to identify the responsible contracting officer. The FAR contemplates that one responsible contracting officer will be the single point of contact for the novation of all of the government contracts to be transferred. If any of the affected government contracts held by the transferor have been assigned to an administrative contracting officer (“ACO”), that ACO will be the responsible contracting officer. FAR 42.1202(a)(1). If the affected government contracts are in more than one plant or division of the transferor, the responsible contracting officer will be the ACO responsible for the transferor’s corporate office. FAR 42.1202(a)(2). If none of the transferor’s government contracts have been assigned to an ACO, the responsible contracting officer is the contracting officer responsible for the largest unsettled dollar balance – including both unbilled and billed but not yet paid. FAR 42.1202(b). Finally, if several transferors are involved, such as where two or more independently incorporated affiliates, or the assets of two or more such affiliates, are being acquired in a single transaction, the responsible contracting officer is the ACO administering the largest unsettled dollar balance or the contracting officer (or ACO) designated by the agency having the largest unsettled dollar balance, if none of the affected contracts have been assigned to an ACO. FAR 42.1202(c).
The FAR does not require a contractor to submit a formal novation request to the responsible contracting officer, and a novation agreement cannot be processed, until the government contract has been transferred. Put more crisply – the novation always follows the closing. Nevertheless, it is the best practice to contact the responsible contracting officer much earlier in the process. The responsible contracting officer has extraordinarily broad discretion in determining whether it is in the best interest of the Government to grant or deny the novation request, what documentation to require in support of the novation, and how quickly the novation process moves. See FAR 42.1203(c); FAR 42.1204(e)(4); FAR 42.1204(g). Reaching out to the responsible contracting officer well in advance of the transfer has numerous advantages. Specifically, it allows you to establish a good working relationship with the responsible contracting officer, to make your case for the novation before the transfer has occurred, to identify and address potential concerns before closing, to discuss the waiver of certain potentially burdensome documentation requirements, and to assess whether there is a risk that the Government may deny the novation request. The more progress you can make with the responsible contracting officer before closing, the less time it will take to obtain the novation agreement after closing.
With regard to the formal novation request, the FAR identifies numerous documents that must be submitted to the responsible contracting officer. Many of those documents can and should be submitted before the transaction closes. Those include:
1. Three signed copies of the proposed novation agreement;
2. The document describing the proposed transaction (e.g., the purchase agreement);
3. A list of the affected contracts and orders, including (a) the government contract number and type; (b) the
name and address of the contracting office; (c) the total dollar value as amended; and (d) the approximate
remaining unpaid balance;
4. Evidence of the transferee’s capability to perform; and
5. Any other information requested by the contracting officer.
FAR 42.1204(e). The fourth category of information bears particular emphasis and explanation. Providing evidence of the transferee’s capability to perform is your “sales pitch” for persuading the responsible contracting officer to grant the novation request. Such evidence could include, without limitation, information regarding the transferee’s financial stability, its experience with similar work, its performance of other government contracts, its applicable certifications and qualifications, its business systems, its favorable audit history, its possession of relevant security clearances, its management, and any other information bearing on its responsibility and ability to perform the contracts in accordance with their requirements.
06 | What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers Volume II — Obtaining Consent to Assign a Government Contract