Washington Management Group

Novations

Practical Advice on GSA Schedule Contracting
By: Carolyn Alston, General Counsel, Washington Management Group

July 2011

I’ve noticed a spate of acquisitions and mergers affecting Washington Management Group clients. Sometimes both the acquiring company and the one being acquired have GSA Schedules.

In this situation, a number of questions arise. Can the GSA schedule contract be transferred to a third party? Can the acquiring company maintain all contracts for the contract period? Answers to these questions can be critical to a company’s ability to sell products and services and to assure payments from the government continue to flow uninterrupted. Here’s some information to help administer your government contract in the aftermath of a corporate acquisition.

When a federal contractor is acquired, the Government contract follows the corporate assets. If the government contract holder sells all of its assets (or all the assets used to perform the contract) to a third party, that third party can be substituted as the new contract holder. The process of recognizing a third party as the new contractor is called “novation”. Contracting officers can approve the novation, but will only do so after reviewing a list of documents that are required by the Federal Acquisition Regulations (FAR).

The required documents include:

  1. Bill of sale, certificate of merger, or other document effecting the transfer
  2. Resolutions of both corporate boards of directors authorizing the transfer of assets
  3. Minutes of stockholder meetings approving the transfer of assets
  4. 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. Audit Balance sheets of both companies

Let me note here that a novation is not necessary when a change in corporate ownership is due to a stock purchase. In that case there is no legal change in the contracting party. Additionally, a novation is not needed when a contractor simply changes its name. The FAR contains a process that authorizes a contracting officer to approve a name change but the documentation requirements are less stringent than in the case of a novation.

Here’s what you can expect when processing a novation

Title 41 U.S.C 15 prohibits transfer of Government contracts from the contractor to a third party. The novation process is an exception to that prohibition, so expect the government to be insistent upon ensuring that all required documents are submitted. There is little, if any, wiggle room in the process.

Processing a novation can take a long time. Sometimes novating the government contract is not a priority for either corporate attorneys or government officials. Your corporate attorneys are focused on closing the deal; it can be a time consuming internal process to retrieve the documents that you will need to support the novation. The government officials are focused on awarding and modifying contracts; novations fall to the bottom of the inbox – although I was pleasantly surprised by the government turn-around time on a recent novation request.

The Government may ask for additional documentation if the company being sold is not selling all assets, but is selling all assets used to perform the government contract. The contracting officer may ask for the supplemental documentation to confirm that the company has transferred all resources that it used to perform the government contract and to assure herself that the company is not simply selling the contract.

What you can do to improve the process

Think ahead. If you know early on that your company is being acquired or will acquire another Government contractor, make your corporate managers aware of the impact on the government contracts and brief them on the process.

Collect documents or identify the document owners as you go through the corporate acquisition process. One of the greatest difficulties in novating the government contract is trying to find documents after the acquisition process has been completed; employees of the predecessor company have scattered and organizationally the new company is focused on implementation.

If you have the twin luxuries of time and influence, implement preliminary organizational changes to help facilitate the transfer of the government contract. For example, if your company is selling all assets used to perform the government contract, it helps if all of those assets are co-located in one group or division, prior to the sale. Documenting the spinoff of assets of one division is easier than your task will be if relevant assets are dispersed throughout the corporation.

Avoid the novation process if possible. When both the acquiring company and the one being acquired have GSA Schedule contracts, consider using the Modification clause of the GSA Schedule, to consolidate multiple contracts. By adding and deleting items you may be able to transfer contract items and create a contract vehicle sufficient to market and sell items of the new corporate entity.

Do you have a government contracting question? Please email it to me at CarolynsCorner@washmg.com.

About Carolyn:

Carolyn Alston is General Counsel of Washington Management Group. She provides legal counsel to WMG's federal acquisition consulting operation, focusing on Multiple Award Schedule contract award, compliance, and audit procedures.

Prior to joining WMG, Carolyn had a distinguished career with the U.S. General Services Administration. Her experience as a senior attorney in the GSA's Office of General Counsel led to her role as the lead in developing and writing GSA's Multiple Award Schedule policy. Her GSA career culminated in running the agency's successful GSA Schedule program as Assistant Commissioner for Acquisition at GSA.

Carolyn holds a BA from Cornell University and a JD from Georgetown Law Center. Carolyn is a member of the bar in Maryland and the District of Columbia.



DISCLAIMER

WMG offers the information provided on this web site for informational purposes only.

WMG is a well recognized expert in GSA Schedule contracting, with more than 30 years of corporate experience. The information provided on this site is based on our substantial acquisition expertise, particularly with respect to commercial item contracting. Nothing on this site should be interpreted as legal advice.

As you recognize, most decisions regarding your GSA Schedule contract are highly dependent upon the facts of your particular circumstances. You should not rely on this site to make specific decisions about your contract. If you are considering taking specific actions on a matter affecting your GSA Schedule contract, we highly recommend that you contact WMG regarding a proposal for individual acquisition consulting services or that you seek advice from legal counsel with expertise in GSA Schedule contracting.

   

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