Novation Agreements - Assets & Dates
Regulations and Requirements
A novation agreement is required with the government when assets are transferred to another party. They occur from the transfer of:
- 1 All the contractors assets; or
- 2 The entire portion of the assets involved in performing on contracts.[1]
(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:
...(2) A list of all affected contracts between the transferor and the Government, as of the date of sale or transfer of assets...[2]
Date of Transfer of Assets
Under a asset purchase, the assets are transferred when the acquiring company acquires the assets of the selling company. Upon acquisition.
Under a stock purchase the transfer only occurs when assets are transferred to the buying company. Anytime after purchase.
A Case Study
International Propulsion Mechanics (IPM) purchases Nitrogen Oxygen Comprehensive Technologies Organization (NOCTO) under a stock purchase in 10/22. NOCTO continues to operate as a separate legal entity and perform on contracts. On 1/1/2024, IPM hires NOCTO employees to perform on NOCTO contracts. IPM is now a subcontractor to NOCTO using IPM employees to perform on NOCTO's contracts.
On 1/1/2025 IPM decides to transfer assets of NOCTO to IPM, and no longer have NOCTO as a separate legal entity.
IPM completes all the necessary paperwork, but the government will not accept the 1/1/2025 as the novation date. The government states that NOCTO's assets were transferred on 1/1/2024 and states that is when the NOCTO employees transferred to IPM. In conversations between the government and IPM, IPM used the term NOCTO employees transferred on 1/1/2024, which may have led to some confusion. Technically, they did not transfer but ceased employment with NOCTO and began employment with IPM.
The government is incorrect. Employees are not assets. Employees are not listed in the Financial Statements. Employees are resources. Assets are contracts and that transfer happened on 1/1/2025.
The correct novation date is 1/1/2025.