Novation required for warranty only?

[Gold and Marooned]

Is novation required under FAR Part 42 if performance is complete and only the warranty remains?

Contractor assets are changing hands and a contract novation will certainly be required for open contracts. By the time the deal closes, the period of performance for one of the contracts will be complete, but there will still be a parts warranty for 2 years. How should a purchaser treat closed contracts with warranty obligations post-closing? I could not find anything on point in the FAR, DFARS or guidance.

[Retreadfed]

Is the contract an 8(a) contract?

[Gold and Marooned]

It is not 8(a), but it is a 100% set aside. Buyer is OTSB.

[C Culham]

15 hours ago, Gold and Marooned said:

Is novation required under FAR Part 42 if performance is complete and only the warranty remains?

It depends.   Remember the government approves the original contractors request to novate.   So if it is in the government's best interest to recognize the successor for purposes of the warranty then yes novation.   But I could imagine, based on specifics of a contract, that it is not in the government's  best interest and then the answer would be that the government would not agree to the novation.  

 

[Gold and Marooned]

Thanks @C Culham. I understand the discretion that contractors have in deciding whether to consent to a novation.

I guess I'm trying to figure out whether a novation would be necessary to preserve the value of the warranty. If the party providing the warranty no longer exists, then a it seems that a novation would be required to preserve the government's warranty rights. But if the warranty was actually something the contractor was passing along from an OEM, then it wouldn't matter whether that contractor still existed, right? And in that case, it isn't a breach of the contract (which includes 52.204-133) for the contractor not to seek novation because the period of performance has passed?

 

[C Culham]

y opinion.....

40 minutes ago, Gold and Marooned said:

If the party providing the warranty no longer exists, then a it seems that a novation would be required to preserve the government's warranty rights.

Agree

40 minutes ago, Gold and Marooned said:

But if the warranty was actually something the contractor was passing along from an OEM, then it wouldn't matter whether that contractor still existed, right?

No, not in my view.  The devil is in the details of the OEM warranty and whether it is transferable and/or what was negotiated and agreed to under the contract?  Did the contractor who obtianed OEM get the agreement of the OEM that warranty would transfer to the government and when?   You see lots of questions that spin off of the best interest of the government to novate or not.   

1 hour ago, Gold and Marooned said:

And in that case, it isn't a breach of the contract (which includes 52.204-133) for the contractor not to seek novation because the period of performance has passed?

Think obligations under the contract, not period of performance.   I would offer the overall concern might be related to privity of contract.

In the end I would offer that your questions demonstrate the complexities that come up when considering novation or not.  After all in a general sense if the govenment does not agree to novation and the original contractor does not perform then you are headed down the default termination road, maybe?   So my overall suggestion is to seek legal counsel within your agency to hash out what is in the best interest of the government based on the specifics of the contract.  I would even add the contractor has some soul searching to do as well with regard to seeking novation.

[Gold and Marooned]

@C Culham - sound advice. Thanks.

[Neil Roberts]

23 hours ago, Gold and Marooned said:

Is novation required under FAR Part 42 if performance is complete and only the warranty remains?

Contractor assets are changing hands and a contract novation will certainly be required for open contracts. By the time the deal closes, the period of performance for one of the contracts will be complete, but there will still be a parts warranty for 2 years. How should a purchaser treat closed contracts with warranty obligations post-closing? I could not find anything on point in the FAR, DFARS or guidance.

Who is a "purchaser"? and of what? Are you asking what the government could do or what a contractor could do or is contractually required to do? Don't you need to know whether or if what contracts were sold from one company to the other? A sale of assets does not necessarily mean that any or all contracts were sold or not sold. Also not clear if after the sale of assets, whether the company is still going to be in business. 

[Neil Roberts]

6 hours ago, Gold and Marooned said:

it isn't a breach of the contract (which includes 52.204-133) for the contractor not to seek novation because the period of performance has passed?

Do you have a copy of this contract clause...the numbering seems like it could be a special contract clause not in FAR.

[Gold and Marooned]

@Neil Roberts - Apologies - the FAR citation is 52.204-13 System for Award Management (accidental double 3)

The contractor (seller) will be acquired by another company (buyer) through an equity purchase. Post-closing, the contractor will be converted from a Corp to an LLC, which will trigger novation requirements for open contracts.