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chrisp

How to Propose While Novations are Being Processed

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I am curious about the following hypothetical situation. A contractor has engaged in an asset sale. It plans to begin the novation process as soon as it is able and submit the required forms to the appropriate ACO or CO as applicable. However, it also needs to continue bidding jobs and it must do so in the name of the new company. This isn't a huge issue except for that fact that it wants to make sure that the past performance from the old company shows up when the government evaluates its proposals. It is told that it should leave the old company's CCR existing and unchanged until the novation goes through (for payment and other reasons). However, it needs to set up a new CCR to bid new jobs. Should it just write a narrative in its proposals stating that there has been a change, and listing the CAGE and DUNS numbers for the old company as well as for the new company? Advisors of the company have been told that once the novation goes through, CCR will do a CAGE Code swap to get the past performance information over to the new company. The old CCR registration will then be shut down. However, in the meantime before the swap takes place and during the potentially lengthy novation process they are worried about their proposals. Will those evaluating them know to look up the old company's information? How has the Government handled this in the past? What would it recommend? The FARs and DFARs don't seem to have anything exactly on point.

Have any of you had experience with this? How have you handled it? What have you recommended or would you recommend?

Applicable regs are:

DFARS 204.7205 Novation agreements, mergers and sales of assets.

DFARS 204.7206 Using CAGE codes to identify agents and brokers.

FAR 42.1204

There are others as well.

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Guest carl r culham

Chrisp - Your question - "Should it just write a narrative in its proposals stating that there has been a change, and listing the CAGE and DUNS numbers for the old company as well as for the new company?" - is in my view the answer.

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Chrisp - Your question - "Should it just write a narrative in its proposals stating that there has been a change, and listing the CAGE and DUNS numbers for the old company as well as for the new company?" - is in my view the answer.

Thanks for the response. I tend to agree that this is a good approach. However, you could see how there would be some worry involved that those reviewing the proposals would miss this and then not properly evaluate a proposal.

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Why are you submitting proposals in the name of the new company, rather than in the name of the old one? If all the people, assets, etc., that are the basis of the proposal are with the old company, aren't you creating a problem for yourself?

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Why are you submitting proposals in the name of the new company, rather than in the name of the old one? If all the people, assets, etc., that are the basis of the proposal are with the old company, aren't you creating a problem for yourself?

In this hypo, the asset sale has already gone through and we are talking about the period after the deal has closed but before the novations have been approved. Thus, all the people, assets, etc . . . are with the new company. Also, we are talking about a period before any CAGE code swap has taken place. That is why the new company's name is being used. The company wouldn't want to continue to propose in the old company's name because an endless loop of novation requests might occur.

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In this hypo, the asset sale has already gone through and we are talking about the period after the deal has closed but before the novations have been approved. Thus, all the people, assets, etc . . . are with the new company. Also, we are talking about a period before any CAGE code swap has taken place. That is why the new company's name is being used. The company wouldn't want to continue to propose in the old company's name because an endless loop of novation requests might occur.

Seems to me that under the hypo, the contractor is running a risk by closing on the asset sale before obtaining the novation. It is possible the government would not recognize the transaction.

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Chrisp - Your question - "Should it just write a narrative in its proposals stating that there has been a change, and listing the CAGE and DUNS numbers for the old company as well as for the new company?" - is in my view the answer.

The topic concerns new proposed contracts. I think that the advice given seems to be the answer.

However, I would also disclose the essential differences between the new and old companies.

In other words, you'd need to explain what has changed. It wouldn't seem appropriate to claim or to otherwise impart the old firm's experience, past performance or capabilities to the new firm if the new company doesn't have those assets and capabilities any more.

If that part of the company was sold, how would the new company have those same capabilities?

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It's an asset sale, so most everything was sold to the new company including goodwill. All the management, employees, operations staff are the same. Also, novation can only be approved after the transaction takes place by definition. Yes, in general that is a risk because it is discretionary for the Government to approve, but I am told it is actually usually a straightforward process especially if like in this situation nearly all the assets went to the new company.

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If the sale has already closed, I don't see the issue. Just explain what happened and that all the assets, people, etc. of the old company are now part of the new company.

The novation issue is irrelevant -- that's just for the old contracts and, as was pointed out, you never get them prior to the deal going through. The entire novation process is the closest I've seen to a real "Catch 22." By statute, you can't transfer a contract without the government's consent and doing so makes the contract void (although the case law says that it's voidable, not per se void). By the terms of the FAR, you can't get the consent (i.e., the novation) until after the transfer is completed and you have to provide a legal opinion that the transfer "was properly effected under applicable law." FAR 42.1204(f)(5). So, it's illegal to transfer the contract without the government's consent, you can't get the consent until after you transfer it, and to get the consent, you have to say that it was properly transferred pursuant to law, but the law says you can't transfer it without the consent that you haven't received yet. Somehow, this all gets done.

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If the sale has already closed, I don't see the issue. Just explain what happened and that all the assets, people, etc. of the old company are now part of the new company.

The novation issue is irrelevant -- that's just for the old contracts and, as was pointed out, you never get them prior to the deal going through. The entire novation process is the closest I've seen to a real "Catch 22." By statute, you can't transfer a contract without the government's consent and doing so makes the contract void (although the case law says that it's voidable, not per se void). By the terms of the FAR, you can't get the consent (i.e., the novation) until after the transfer is completed and you have to provide a legal opinion that the transfer "was properly effected under applicable law." FAR 42.1204(f)(5). So, it's illegal to transfer the contract without the government's consent, you can't get the consent until after you transfer it, and to get the consent, you have to say that it was properly transferred pursuant to law, but the law says you can't transfer it without the consent that you haven't received yet. Somehow, this all gets done.

Right. The issue was more so how to link past performance/make sure that when the Government looked up the new DUNs and CAGE code and didn't see any past performance they didn't freak out and not award the contract. I think the consensus is that a narrative will accomplish the goals, but the idea was floating around at one point that the CCR accounts could be "linked" for past performance purposes. I am told that can happen, but not until the novation goes through. When the novation is complete, the old CCR will be shut down and a CAGE code swap will take place so that the past performance of the old company is linked to the new company's CCR.

The issue is the interim period until that occurs. I suppose under this strategy, you just have to trust that the proposal reviewers will look up the past performance for both companies.

More comments are welcome. Thanks to everyone who has responded thus far.

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I have a comment: In Post # 2, Carl told you the only solution of which any of us is aware--tell the CO in your proposal and in the proposal cover letter that Company X is the successor to Company Y and that the government should credit X with Y's past performance. I don't know what else you could do. I certainly can't think of anything else and I've been around for a while. You posted your first inquiry 8 days ago, and I'll bet that if there were some other thing you could do someone would have told you by now.

Good luck. If you put the notice in your proposal I think you will have done everything you could.

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Guest carl r culham

Thanks Vern...I yield to you on who has been around "for a while" longer and on expertise on many occasions, too.

chrisp - From the very beginning I have been confused about your concern about CCR and CAGE. Admittedly not knowing about 100% CAGE codes be aware that past performance is not kept in CCR or in the CAGE code database. Most if not agencies enter performance evals through CPARS (some have via the NIH system but are moving as we speak to CPARS) and then the information is archived in PPIRS. While a CO might search PPIRS using a CCR, DUNS and/or GAGE code they can search via a bunch of other ways too. Bottom line (again) just note the change in your proposal and go from there. If you are going to lose sleep over it then after you submit your proposal call the CO and remind them to look at your note in the proposal.

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Thanks Vern...I yield to you on who has been around "for a while" longer and on expertise on many occasions, too.

chrisp - From the very beginning I have been confused about your concern about CCR and CAGE. Admittedly not knowing about 100% CAGE codes be aware that past performance is not kept in CCR or in the CAGE code database. Most if not agencies enter performance evals through CPARS (some have via the NIH system but are moving as we speak to CPARS) and then the information is archived in PPIRS. While a CO might search PPIRS using a CCR, DUNS and/or GAGE code they can search via a bunch of other ways too. Bottom line (again) just note the change in your proposal and go from there. If you are going to lose sleep over it then after you submit your proposal call the CO and remind them to look at your note in the proposal.

Hi Carl. Thanks. I know that PPIRS is where the past performance information ends up. The folks at CCR have said a CAGE code swap would accomplish this. I think that because CCR is the central system for gov contractors and all info for other sites is pulled from there, that that is how this is accomplished. However, one must be trusting in this situation as there is very little info regarding this level of detail in the process.

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This information is somewhat helpful on the CCR/CAGE code process, but not enough for me to understand it completely

http://guidebook.dcma.mil/40/index.cfm

See DFARS 204.7204, Maintenance of the CAGE File and DFARS 204.7205, Novation Agreements, Mergers and Sales of Assets.

4.3.4. NOTE: when a contactor changes its name, address, business affiliation, financial institution, financial account number or mailbox in the Central Contractor Registration (CCR), CAGE information in the MOCAS database is automatically updated through DLIS. Consequently, even though the CCR system warns the contactor that making such changes without a contract modification may result in payment delays, contractor changes in CCR information may result in contracts being transferred from one cognizant CMO and/or Defense Finance and Accounting Service payment division to another in MOCAS. Therefore, in those cases where a contractual modification is required (e.g., Novation and Change of Name Agreements or change in address/CMO) it is important that ACOs advise contractors to wait until such modifications are actually processed in MOCAS before making changes to CCR information. However, since timing is crucial in the MOCAS system, the ACO shall advise the contractor to update CCR within 48 hours after the signing of the modification. LATEST CHANGE The ACO shall follow-up with the contractor or check the CCR to confirm that the change to CCR has been made.

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