“To address this issue, the Federal Acquisition Regulation (FAR) provides for a novation process to give contractors a method to transfer government contracts and not run afoul of the prohibitions in the Anti-Assignment Act. The ultimate goal of the novation process is to successfully transfer the contract and have the government recognize a new contractor as the successor-in-interest to the transferred contract.
In practice however, contractors seeking novation of a government contract understand the uncertainty of the process. First, the government is not required to enter into a novation agreement when requested by a contractor, but may do so in the contracting officer’s discretion, if the government finds the novation to be in the government’s ‘best interest.’ FAR 42.1204. Despite these uncertainties, contractors can successfully novate a government contract; if they follow the procedures and then communicate that process to an agency evaluating proposals. In a recent GAO decision, a contractor was successful in novating a contract and sustained a challenge to an agency recognizing the transferee as the successor-in-interest to that contract. The case is ICI Services Corporation, B-418255.5; B-418255.6 (October 13, 2021) …”
“After its debriefing, ICI filed a protest with the GAO raising several issues challenging the Navy’s award of the task order to Alion. Among the issues in the protest, ICI argued that the Navy failed to properly evaluate Serco’s eligibility for award as a corporate successor-in-interest to Alion. After reviewing ICI’s assertions, the GAO found no basis sustain ICI’s argument. In explaining the basis of its decision the GAO stated:
As an initial matter, not only was Serco’s acquisition of that portion of Alion imminent and certain–in fact, the transaction was completed prior to the agency’s award decision–but the Navy was aware of the transaction and fully considered it as part of the agency’s evaluation. Further, the record reflects the Navy reasonably found Serco to be the complete successor-in-interest to Alion as a result of Serco’s acquisition of the entirety of the NSBU, which was the business entity that had submitted Alion’s proposal and which was (with the one noted exception) proposed to perform under the proposal.
In its opinion, the GAO expressed that in reaching its decision it focused on whether or not it was reasonable for an agency to reach conclusions that it did regarding the corporate transaction. The GAO determined that an agency’s decision on an award is not improper where an acquisition or restructuring transaction does not have a ‘significant impact on cost or technical impact on contract performance.’…”
“There a couple of takeaways from this case. Although the ultimate goal of a novation is for the government to recognize a contractor as a successor-in-interest to a government contract, the FAR novation rules apply only to whether the government will allow a different contractor to perform. The government uses different criteria to then determine if a third-party buyer will be recognized as a successor-in-interest with respect to evaluating bid proposals.
This case also demonstrates that, despite the difficulties in obtaining agency approval for novation of a government contract, if the procedure is performed correctly it can be successfully accomplished and withstand a bid protest…” Read the full article here.
Source: GAO Confirms that Novations Work: Agency Properly Recognized Buyer of Contract as Awardee – By Kevin Wickliffe, December 15, 2021. SmallGovCon.
