Government Contract Novation Guide 2025: Transfer Contracts After M&A
Complete guide to government contract novation. Learn when novation is required, the approval process, documentation requirements, and how to transfer contracts after mergers and acquisitions.
Quick Answer: What is Contract Novation?
Novation is a legal process that transfers all rights and obligationsunder a government contract from one contractor to another. It's typically required when a contractor is acquired, merges with another company, or sells assets that include government contracts. The government must approve novations before they take effect.
What is Contract Novation?
A novation agreement substitutes a new contractor for the original contractor, transferring all contract rights, duties, and obligations. It's a three-party agreement between the government, the original contractor (transferor), and the new contractor (transferee).
Key Parties Involved
Transferor
Original contractor transferring the contract
Transferee
New contractor receiving the contract
Government
Represented by the ACO
When is Novation Required?
Novation Triggers
Note: Name Changes
Simple name changes (same legal entity, same ownership) require a Change-of-Name Agreement, not a full novation. This is a simpler process covered under FAR 42.1205.
The Novation Process
Novation Steps
Submit Request to ACO
Notify the Administrative Contracting Officer of intended transfer
Provide Required Documentation
Submit all required agreements and corporate documents
Government Review
ACO evaluates transferee's capability and responsibility
Legal Review
Government counsel reviews novation agreement
Execute Novation Agreement
All parties sign the three-party agreement
Required Documentation
Documents for Novation Request
Transaction Documents
- • Asset purchase agreement
- • Merger documents
- • Bill of sale
- • Assignment agreement
Corporate Documents
- • Articles of incorporation
- • Certificate of good standing
- • Board resolutions
- • List of affected contracts
Transferee Requirements
- ✓Evidence of capability to perform
- ✓Updated SAM.gov registration
- ✓Financial statements
- ✓Security clearances (if applicable)
Alternatives to Novation
Change-of-Name Agreement
For simple name changes without ownership change:
- →Same legal entity
- →Same ownership
- →Simpler process
Recognition of Successor
When law automatically transfers contracts:
- →State statutory mergers
- →May not require full novation
- →Government recognition needed
Frequently Asked Questions
How long does novation take?
Typically 60-90 days, but complex transactions can take longer. Start the process early—before or concurrent with the business transaction closing.
Can performance continue during novation?
Yes. The original contractor remains responsible until novation is complete. Work can continue, but the original contractor bears the performance risk.
What if the government rejects novation?
The original contractor remains bound by the contract. This is why due diligence on novation likelihood should occur before finalizing M&A transactions.
Does novation affect small business status?
The acquiring company's size matters. If a large business acquires a small business, set-aside contracts may not be novated and could be terminated.
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