[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.
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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
