Proposed Novation Agreements - What's Required
Contents |
Definition
“Novation agreement” means a legal instrument.[1]—
(1) Executed by the—
- (i) Contractor (transferor);
- (ii) Successor in interest (transferee); and
- (iii) Government; and
(2) By which, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the Government recognizes the transfer of the contract and related assets
Contractor Asks the Government to Recognize a Successor in Interest
(e) 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.
Documents That Need to Be Provided to 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.
7-404.6 Depreciation Under Novation Agreements[2]
For contracts being performed under novation agreements, depreciation allowed to the successor contractor should not exceed the amount which would have been allowed to the predecessor contractor to which the contract was originally awarded (see 7-1700).
(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.[3]
(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.
Related Information
For background related to novations, the reason they are needed and more on the Anti-Assignment Act, look in the Category: Novation.
