So You Want to Sell Your Government Contracting Business: Novations and FAR 42.1204

Congratulations. You’ve built a successful business. But, now you’re ready to move on to your next adventure.This means that it’s time to sell your business.

While the government contracting space shares many of the same complications and steps as other spaces do when an owner moves to sell a business, it should not shock anyone that there are some unique considerations that come along with selling a government contracting business.

If you’re in business with the government and not aware of FAR 42.1204 and novations, here’s your primer.

FAR 42.1204 is a section of the Federal Acquisition Regulation that governs novations in government contracts. A novation occurs when a contract is transferred from one party to another, and the new party assumes all the rights, duties, and obligations of the original party. This is a common occurrence in government contracting, especially when a business is being sold or merging with another company. If you are a business owner looking to sell your government contracting business, it is important to understand the requirements of FAR 42.1204 and what you need to do to obtain approval for a novation.

The first step in obtaining approval for a novation is to notify the government agency responsible for your contract. This should be done as soon as possible after the decision to sell your business has been made. You will need to provide the government with a letter of intent to transfer the contract, along with the name and address of the proposed transferee. The government will then provide you with a list of documents that will be required for the novation process.

One of the most important documents you will need to provide is a novation agreement. This is a legally binding contract that outlines the terms and conditions of the novation, and must be signed by all parties involved. The novation agreement must include a detailed description of the contract being transferred, as well as any amendments or modifications that have been made to it. It must also state that the new party will assume all the obligations and liabilities of the original party.

In addition to the novation agreement, you will also need to provide the government with evidence that the proposed transferee is capable of performing the contract obligations. This includes financial statements, evidence of technical expertise, and any relevant certifications or licenses. The government will also conduct a review of the proposed transferee’s past performance on government contracts.

Finally, you will need to provide the government with a certification that there has been no material change in the ownership or control of your company, and that no illegal or fraudulent actions have taken place. This certification must be signed by a company officer and notarized.

Obtaining approval for a novation under FAR 42.1204 is a complex process that requires careful planning and attention to detail. As a business owner looking to sell your government contracting business, it is important to work closely with the government agency responsible for your contract and provide all the required documentation in a timely and accurate manner. Failure to comply with the requirements of FAR 42.1204 can result in contract termination, financial penalties, and other legal consequences, so it is important to take the novation process seriously and seek professional guidance if needed.