[Federal Register Volume 62, Number 236 (Tuesday, December 9, 1997)]
[Rules and Regulations]
[Pages 64934-64936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31824]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 42 and 53

[FAC 97-03; FAR Case 95-034; Item XI]
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: Final rule.

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

EFFECTIVE DATE: February 9, 1998.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Ms. Linda Klein, Procurement Analyst, at (202) 501-
3775. Please cite FAC 97-03, FAR case 95-034.

SUPPLEMENTARY INFORMATION:

A. Background

    The purpose of this rule is to facilitate the process of novating 
contracts and to provide guidelines for contracting officers, while 
preserving the Government's interests in business combinations 
affecting its contracts. A proposed rule was published in the Federal 
Register on August 21, 1996 (61 FR 43294). Eighteen comments were 
received from six respondents. All comments were considered in the 
development of the final rule.

B. Regulatory Flexibility Act

    The Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not 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 
generally affect only a relatively small number of large and small 
business entities.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the 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: December 1, 1997.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, 48 CFR parts 42 and 53 are amended as set forth below:
    1. The authority citation for 48 CFR parts 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).

PART 42--CONTRACT ADMINISTRATION

    2. Section 42.1203 is amended by revising paragraphs (b) and (c); 
redesignating paragraphs (d) through (f) as (f) through (h), 
respectively; and adding new paragraphs (d) and (e) to read as follows:


42.1203  Processing agreements.

* * * * *
    (b) The responsible contracting officer shall--

[[Page 64935]]

    (1) Identify and request that the contractor 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) and (f) 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, and 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 
Governments 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 that 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 separate 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 overhead costs) should be 
referenced specifically in the novation agreement.
* * * * *
    3. Section 42.1204 is amended by--
    a. Revising the section heading and paragraph (a) introductory 
text, (a)(1), and the introductory text of (a)(2);
    b. Redesignating paragraphs (b), (c), (d), and (e) as (c), (e), 
(h), and (i), respectively;
    c. Adding new paragraphs (b), (d), (f), and (g); and
    d. Revising newly redesignated paragraph (e) to read as follows:


42.1204  Applicability of novation agreements.

    (a) 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--
* * * * *
    (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 when that contracting party 
remains in control of the assets and is the party performing the 
contract. However, whether there is a purchase of assets or a stock 
purchase, there may be issues related to the change in ownership that 
appropriately should be addressed in a formal agreement between the 
contractor and the Government (see 42.1203(e)).
* * * * *
    (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 at 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, as of the date of sale or transfer of assets, showing for 
each, as of that date, 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 submit to the responsible contracting officer one copy 
of each of the following documents, as applicable, 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 accountants.
    (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.
NOVATION AGREEMENT
* * * * *

PART 53--FORMS


53.242-1  [Amended]

    4. Section 53.242-1 is amended by revising ``42.1203(f)'' to read 
``42.1203(h)''.

[[Page 64936]]

53.243  [Amended]

    5. Section 53.243 is amended by revising ``42.1203(f)'' to read 
``42.1203(h)''.

[FR Doc. 97-31824 Filed 12-8-97; 8:45 am]
BILLING CODE 6820-EP-P