Government Contract Novations – Practical Practices Under FAR 42.1204

Novations are the government contracting equivalent of M&A in the private sector – the process through which a government contract can be transferred from one business to another (without violating the Anti-Assignment Act).

There are many reasons that a novation might be necessary. A business holding a government contract could be acquired by another business (that now wants to take over and perform the contract). Or a government contractor could divest assets during a bankruptcy proceeding. The common denominator is a material change in the identity of the business that will perform under a contract with the government.

The novation process set out in FAR 42.1204 is deceptively simple. According to this regulation, a formal Novation Agreement is granted when the government determines that the transfer is in the "best interest" of the government and supported by appropriate documentation (set forth in checklist format).