48 CFR §42.1204

1. (a)41 U.S.C. 6305 prohibits transfer of Government contracts from the contractor to a third party. The Government may, when in its interest, recognize a third party as the successor in interest to a Government contract when the third party's interest in the contract arises out of the transfer of—
   1. (1)All the contractor's assets; or
   2. (2)The entire portion of the assets involved in performing the contract. (See 14.404-2(l) for the effect of novation agreements after bid opening but before award.) Examples of such transactions include, but are not limited to—
      1. (i)Sale of these assets with a provision for assuming liabilities;
      2. (ii)Transfer of these assets incident to a merger or corporate consolidation; and
      3. (iii)Incorporation of a proprietorship or partnership, or formation of a partnership.
2. (b)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 (see 42.1203(e)).
3. (c)When it is in the Government's interest not to concur in the transfer of a contract from one company to another company, the original contractor remains under contractual obligation to the Government, and the contract may be terminated for reasons of default, should the original contractor not perform.
4. (d)When considering whether to recognize a third party as a successor in interest to Government contracts, the responsible contracting officer shall identify and evaluate any significant organizational conflicts of interest in accordance with subpart 9.5. If the responsible contracting officer determines that a conflict of interest cannot be resolved, but that it is in the best interest of the Government to approve the novation request, a request for a waiver may be submitted in accordance with the procedures at 9.503.
5. (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. (1)The document describing the proposed transaction, e.g., purchase/sale agreement or memorandum of understanding.
   2. (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—
      1. (i)Contract number and type;
      2. (ii)Name and address of the contracting office;
      3. (iii)Total dollar value, as amended; and
      4. (iv)Approximate remaining unpaid balance.
   3. (3)Evidence of the transferee's capability to perform.
   4. (4)Any other relevant information requested by the responsible contracting officer.
6. (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. (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. (2)A certified copy of each resolution of the corporate parties' boards of directors authorizing the transfer of assets.
   3. (3)A certified copy of the minutes of each corporate party's stockholder meeting necessary to approve the transfer of assets.
   4. (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. (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. (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. (7)Evidence that any security clearance requirements have been met.
   8. (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.
7. (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.
8. (h)When recognizing a successor in interest to a Government contract is consistent with the Government's interest, the responsible contracting officer shall execute a novation agreement with the transferor and the transferee. It shall ordinarily provide in part that—
   1. (1)The transferee assumes all the transferor's obligations under the contract;
   2. (2)The transferor waives all rights under the contract against the Government;
   3. (3)The transferor guarantees performance of the contract by the transferee (a satisfactory performance bond may be accepted instead of the guarantee); and
   4. (4)Nothing in the agreement shall relieve the transferor or transferee from compliance with any Federal law.
      1. (i)The responsible contracting officer shall use the following format for agreements when the transferor and transferee are corporations and all the transferor's assets are transferred. This format may be adapted to fit specific cases and may be used as a guide in preparing similar agreements for other situations.