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NOVATION


lacylu

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I submitted close-out paperwork to a vendor and they in turn stated they are working on a novation package and until its completed they can't process closeout paperwork . I asked questions about why a novation was needed , just received info and they stated a the novation is a result of internal reorganization designed to streamline separate divisions into one corporate parent as of Dec 2010. The contract was complete a few years ago.

Is a novation needed. Have not worked much with novations. I have read the FAR and still unsure; it seems more like internal reorg as their letter states

I don't see that they have consulted with their legal department either.

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Does your contract allow assignment?

FAR, what do you mean by "assignment"? This thread concerns "novations". See FAR 42.12 for instance..

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FAR, what do you mean by "assignment"? This thread concerns "novations". See FAR 42.12 for instance..

I usually put language that states in summary, 'this agreement cannot be reassigned etc without mutual agreement.' I ran into this issue years ago when one of my subcontractors (very small company of -10 employees) was purchased by a large competitor. The sub wanted me to complete Novation paperwork to assign the agreement to new large company; I pointed out the clause in our agreement and stated I would not novate the agreement. The agreement was with the company (that no longer exisited) and therefore terminated the agreement (again, per the terms of the agreement)

In this case, unless I had no issues with the novation, state that the agreement was with X entity and will be completed with X entity.

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  • 3 weeks later...

Lucy was your issue resolved? FWIW, a novation agreement is executed when a contractor transfers its assets to a successor in interest. A contractor is the transferror and must guarantee performance of the successor in interest (the transferee) and the transferee must assume all of the obligations of the transferor under the contract. The Assignment of Claims Act prohibits the assignment of Government contracts. Notwithstanding this prohibition, the law provides that the Government may recognize a third party as a successor in interest when a contractor transfers all of its assets or the portion of its assets required to perform a contract. Note the KO acting for the Government is not required to enter into novation agreements; rather, it is discretionary. The KO is responsible for determining whether a novation will serve the Government's best interests. The KO must be assured that entering into a novation agreement recognizing a successor in interest will not result in a reduction of the contractor's responsibilities or the Government's rights under the contract. Sample novation and change of name agreements are set forth in FAR Subpart 42.12.

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