[Federal Register Volume 61, Number 163 (Wednesday, August 21, 1996)] [Proposed Rules] [Pages 43294-43295] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 96-21231] [[Page 43293]] _______________________________________________________________________ Part II Department of Defense General Services Administration National Aeronautics and Space Administration _______________________________________________________________________ 48 CFR Parts 42 and 53 Federal Acquisition Regulation; Novation and Related Agreements; Proposed Rule Federal Register / Vol. 61 No. 163, Wednesday, August 21, 1996 / Proposed Rules [[Page 43294]] DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Parts 42 and 53 [FAR Case 95-034] 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: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council are proposing to amend the Federal Acquisition Regulation (FAR) to facilitate the processing of novation and change-of-name agreements. This regulatory action was not subject to Office of Management and Budget review under Executive Order 12866, dated September 30, 1993. This is not a major rule under 5 U.S.C. 804. DATES: Comments should be submitted on or before October 21, 1996 to be considered in the formulation of a final rule. ADDRESSES: Interested parties should submit written comments to: - General Services Administration, FAR Secretariat (MVRS), 18th & F Streets, NW., Room 4037, Washington, DC 20405. Please cite FAR case 95-034 in all correspondence related to this case. FOR FURTHER INFORMATION CONTACT: Ms. Linda Kline at (202) 501-3775 in reference to this FAR case. For general information, contact the FAR Secretariat, Room 4037, GS Building, Washington, DC 20405 (202) 501- 4755. Please cite FAR case 95-034. SUPPLEMENTARY INFORMATION: A. Background This proposed rule is in response to an October 2, 1995, request from the American Bar Association to revise FAR Subpart 42.12. The purpose of the revision is to facilitate the process of novating contracts and provide guidelines for contracting officers while preserving the Government's interests in business combinations affecting its contracts. B. Regulatory Flexibility Act This proposed rule is not expected to 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 in general only affect a relatively small number of large and small business entities. An Initial Regulatory Flexibility Analysis has, therefore, not been performed. Comments from small entities concerning the affected FAR subpart will be considered in accordance with 5 U.S.C. 610 of the Act. Such comments must be submitted separately and should cite 5 U.S.C. 601, et seq. (FAR case 95-034), in correspondence. C. Paperwork Reduction Act- The Paperwork Reduction Act does not apply because the proposed 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: August 15, 1996. Edward C. Loeb, Director, Federal Acquisition Policy Division. Therefore, it is proposed that 48 CFR Part 42 and 53 be amended as set forth below: PART 42--CONTRACT ADMINISTRATION- 1. The authority citation for 48 CFR Part 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). -2. Section 42.1203 is revised to read as follows: 42.1203 Processing agreements.- (a) When a firm performing Government contracts wishes the Government to recognize (1) a successor in interest to these contracts or (2) a name change, the contractor shall submit a written request to the responsible contracting officer (see 42.1202).- (b) The responsible contracting officer shall-- (1) Identify and request the contractor to 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) 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; 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 Government's 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, which 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 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 overheads) should be specifically referenced in the novation agreement.- (f) Before novation and change-of-name agreements are executed, the responsible contracting officer shall ensure that Government counsel has reviewed them for legal sufficiency.- (g) The responsible contracting officer shall (1) Forward a signed copy of the executed novation or change-of- name agreement to the transferor and to the transferee and (2) Retain a signed copy in the case file.- (h) Following distribution of the agreement, the responsible contracting officer shall---- (1) Prepare a Standard Form 30, Amendment of Solicitation/ Modification of Contract, incorporating a summary of the agreement and attaching a complete list of contracts affected;-- [[Page 43295]] (2) Retain the original Standard Form 30 with the attached list in the case file;-- (3) Send a signed copy of this Standard Form 30 with attached list to the transferor and to the transferee; and-- (4) Send a copy of the Standard Form 30 with attached list to each contract administration office or contracting office involved, which shall be responsible for further appropriate distribution.- 3. Section 42.1204 is revised to read as follows: 42.1204 Applicability of novation agreements.- (a) The law (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-- (i) Sale of these assets with a provision for assuming liabilities;-- (ii) Transfer of these assets incident to a merger or corporate consolidation; and-- (iii) Incorporation of a proprietorship or partnership, or formation of a partnership.- (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 where that contracting party remains in control of the assets and is the party performing the contract. However, there may be issues related to the change in ownership that should be addressed in an agreement between the contractor and the Government.- (c) When it is in the Government's interest not to concur in the transfer of a contract from one company to another company, the original contractor remains under contractual obligation to the Government, and the contract may be terminated for reasons of default, should the original contractor not perform.- (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 contained in 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, showing for each 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 provide to the responsible contracting officer one copy of each of the following documents 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 accounts.-- (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.- (h) When recognizing a successor in interest to a Government contract is consistent with the Government's interest, the responsible contracting officer shall execute a novation agreement with the transferor and the transferee. It shall ordinarily provide in part that--- (1) The transferee assumes all the transferor's obligations under the contract;-- (2) The transferor waives all rights under the contract against the Government;-- (3) The transferor guarantees performance of the contract by the transferee (a satisfactory performance bond may be accepted instead of the guarantee); and-- (4) Nothing in the agreement shall relieve the transferor or transferee from compliance with any Federal law.- (i) The responsible contracting officer shall use the following format for agreements when the transferor and transferee are corporations and all the transferor's assets are transferred. This format may be adapted to fit specific cases and may be used as a guide in preparing similar agreements for other situations. PART 53--FORMS 53.242-1 [Amended]- 4. Section 53.242-1 is amended by removing ``42.1203(f)'' and inserting ``42.1203(h)'' in its place. 53.243 [Amended]- 5. Section 53.243 is amended in the introductory text by removing ``42.1203(f)'' and inserting ``42.1203(h).'' [FR Doc. 96-21231 Filed 8-20-96; 8:45 am] BILLING CODE 6820-EP-P