[Federal Register Volume 61, Number 163 (Wednesday, August 21, 1996)]
[Proposed Rules]
[Pages 43294-43295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21231]



[[Page 43293]]


_______________________________________________________________________

Part II

Department of Defense

General Services Administration

National Aeronautics and Space Administration
_______________________________________________________________________



48 CFR Parts 42 and 53



Federal Acquisition Regulation; Novation and Related Agreements; 
Proposed Rule

  Federal Register / Vol. 61 No. 163, Wednesday, August 21, 1996 / 
Proposed Rules  

[[Page 43294]]



DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 42 and 53

[FAR Case 95-034]
RIN 9000-AH18


Federal Acquisition Regulation; Novation and Related Agreements

AGENCIES: Department of Defense (DOD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation (FAR) to facilitate the processing of novation 
and change-of-name agreements. This regulatory action was not subject 
to Office of Management and Budget review under Executive Order 12866, 
dated September 30, 1993. This is not a major rule under 5 U.S.C. 804.

DATES: Comments should be submitted on or before October 21, 1996 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: -
General Services Administration, FAR Secretariat (MVRS), 18th & F 
Streets, NW., Room 4037, Washington, DC 20405.
    Please cite FAR case 95-034 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: Ms. Linda Kline at (202) 501-3775 in 
reference to this FAR case. For general information, contact the FAR 
Secretariat, Room 4037, GS Building, Washington, DC 20405 (202) 501-
4755. Please cite FAR case 95-034.

SUPPLEMENTARY INFORMATION:

A. Background

    This proposed rule is in response to an October 2, 1995, request 
from the American Bar Association to revise FAR Subpart 42.12. The 
purpose of the revision is to facilitate the process of novating 
contracts and provide guidelines for contracting officers while 
preserving the Government's interests in business combinations 
affecting its contracts.

B. Regulatory Flexibility Act

    This proposed rule is not expected to have a significant economic 
impact on a substantial number of small entities within the meaning of 
the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because novation 
agreements in general only affect a relatively small number of large 
and small business entities. An Initial Regulatory Flexibility Analysis 
has, therefore, not been performed. Comments from small entities 
concerning the affected FAR subpart will be considered in accordance 
with 5 U.S.C. 610 of the Act. Such comments must be submitted 
separately and should cite 5 U.S.C. 601, et seq. (FAR case 95-034), in 
correspondence.

C. Paperwork Reduction Act-

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose recordkeeping or information 
collection requirements, or collections of information from offerors, 
contractors, or members of the public which require the approval of the 
Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 42 and 53

    Government procurement.

    Dated: August 15, 1996.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, it is proposed that 48 CFR Part 42 and 53 be amended as 
set forth below:

PART 42--CONTRACT ADMINISTRATION-

    1. The authority citation for 48 CFR Part 42 and 53 continues to 
read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

    -2. Section 42.1203 is revised to read as follows:


42.1203   Processing agreements.-

    (a) When a firm performing Government contracts wishes the 
Government to recognize (1) a successor in interest to these contracts 
or (2) a name change, the contractor shall submit a written request to 
the responsible contracting officer (see 42.1202).-
    (b) The responsible contracting officer shall--
    (1) Identify and request the contractor to submit the information 
necessary to evaluate the proposed agreement for recognizing a 
successor in interest or a name change. This information should include 
the items identified in 42.1204(e) or 42.1205(a), as applicable;--
    (2) Notify each contract administration office and contracting 
office affected by a proposed agreement for recognizing a successor in 
interest; provide those offices with a list of all affected contracts; 
and--
    (3) Request submission of any comments or objections to the 
proposed transfer within 30 days after notification. Any submission 
should be accompanied by supporting documentation.-
    (c) Upon receipt of the necessary information, the responsible 
contracting officer shall determine whether or not it is in the 
Government's interest to recognize the proposed successor in interest 
on the basis of----
    (1) The comments received from the affected contract administration 
offices and contracting offices;--
    (2) The proposed successor's responsibility under subpart 9.1, 
Responsible Prospective Contractors; and--
    (3) Any factor relating to the proposed successor's performance of 
contracts with the Government, which the Government determines would 
impair the proposed successor's ability to perform the contract 
satisfactorily.-
    (d) The execution of a novation agreement does not preclude the use 
of any other method available to the contracting officer to resolve any 
other issues related to a transfer of contractor assets, including the 
treatment of costs.-
    (e) Any agreement between the transferor and transferee regarding 
the assumption of liabilities (e.g., long-term incentive compensation 
plans, cost accounting standards noncompliances, environmental cleanup 
costs, and final overheads) should be specifically referenced in the 
novation agreement.-
    (f) Before novation and change-of-name agreements are executed, the 
responsible contracting officer shall ensure that Government counsel 
has reviewed them for legal sufficiency.-
    (g) The responsible contracting officer shall
    (1) Forward a signed copy of the executed novation or change-of-
name agreement to the transferor and to the transferee and
    (2) Retain a signed copy in the case file.-
    (h) Following distribution of the agreement, the responsible 
contracting officer shall----
    (1) Prepare a Standard Form 30, Amendment of Solicitation/
Modification of Contract, incorporating a summary of the agreement and 
attaching a complete list of contracts affected;--

[[Page 43295]]

    (2) Retain the original Standard Form 30 with the attached list in 
the case file;--
    (3) Send a signed copy of this Standard Form 30 with attached list 
to the transferor and to the transferee; and--
    (4) Send a copy of the Standard Form 30 with attached list to each 
contract administration office or contracting office involved, which 
shall be responsible for further appropriate distribution.-
    3. Section 42.1204 is revised to read as follows:


42.1204   Applicability of novation agreements.-

    (a) The law (41 U.S.C. 15) 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) All the contractor's assets or
    (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--
    (i) Sale of these assets with a provision for assuming 
liabilities;--
    (ii) Transfer of these assets incident to a merger or corporate 
consolidation; and--
    (iii) Incorporation of a proprietorship or partnership, or 
formation of a partnership.-
    (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 where that contracting party 
remains in control of the assets and is the party performing the 
contract. However, there may be issues related to the change in 
ownership that should be addressed in an agreement between the 
contractor and the Government.-
    (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.-
    (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 contained in 9.503.-
    (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) The document describing the proposed transaction, e.g., 
purchase/sale agreement or memorandum of understanding.--
    (2) A list of all affected contracts between the transferor and the 
Government, showing for each the
    (i) Contract number and type,
    (ii) Name and address of the contracting office,
    (iii) Total dollar value as amended, and
    (iv) Approximate remaining unpaid balance.--
    (3) Evidence of the transferee's capability to perform.--
    (4) Any other relevant information requested by the responsible 
contracting officer.-
    (f) Except as provided in paragraph (g) of this section, the 
contractor shall provide to the responsible contracting officer one 
copy of each of the following documents as the documents become 
available:--
    (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) A certified copy of each resolution of the corporate parties' 
boards of directors authorizing the transfer of assets.--
    (3) A certified copy of the minutes of each corporate party's 
stockholder meeting necessary to approve the transfer of assets.--
    (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) 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) Balance sheets of the transferor and transferee as of the dates 
immediately before and after the transfer of assets, audited by 
independent accounts.--
    (7) Evidence that any security clearance requirements have been 
met.--
    (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.-
    (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.-
    (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) The transferee assumes all the transferor's obligations under 
the contract;--
    (2) The transferor waives all rights under the contract against the 
Government;--
    (3) The transferor guarantees performance of the contract by the 
transferee (a satisfactory performance bond may be accepted instead of 
the guarantee); and--
    (4) Nothing in the agreement shall relieve the transferor or 
transferee from compliance with any Federal law.-
    (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.

PART 53--FORMS


53.242-1   [Amended]-

    4. Section 53.242-1 is amended by removing ``42.1203(f)'' and 
inserting ``42.1203(h)'' in its place.


53.243   [Amended]-

    5. Section 53.243 is amended in the introductory text by removing 
``42.1203(f)'' and inserting ``42.1203(h).''

[FR Doc. 96-21231 Filed 8-20-96; 8:45 am]
BILLING CODE 6820-EP-P