FAR 42.12 Novation and Change-of-Name Agreements: Packages and CO Review

Under FAR 42.12, the federal government recognizes a change in who holds one of its contracts through one of two instruments: a novation agreement when the legal entity performing the contract changes (typically after an asset sale, merger, or consolidation), or a change-of-name agreement when the same entity keeps performing but adopts a new corporate name. Both require approval from the responsible contracting officer, because federal law otherwise prohibits contractors from transferring their government contracts. Under 41 U.S.C. 6305, a transfer without the government’s consent annuls the contract from the government’s perspective, while leaving the government free to pursue a breach claim.1Office of the Law Revision Counsel. 41 USC 6305 – Prohibition on Transfer of Contract and Certain Allowable Assignments

The regulation gives the contracting officer discretion, not an obligation, to recognize a successor. Approval comes only when the contracting officer determines that recognition serves the government’s interest.2Acquisition.GOV. 48 CFR 42.1204 – Applicability of Novation Agreements

Which Agreement Your Situation Calls For

Start by asking whether the legal party to the contract has changed.

If a different company now owns the assets used to perform the contract, through an asset sale, merger, or consolidation, you need a novation. The novation substitutes the new entity for the original contractor and transfers all rights, obligations, and liabilities on the affected contracts.

If the same legal entity is performing under a new corporate name, with no change in ownership, control, or organizational structure, you need a change-of-name agreement. Rights and obligations stay identical; only the name on the paperwork changes.3Acquisition.GOV. 48 CFR 42.1205 – Agreement to Recognize Contractor’s Change of Name

A stock purchase generally requires neither. FAR 42.1204(b) states that a novation is unnecessary when ownership changes through a stock purchase, provided there is no legal change in the contracting party and that entity keeps control of the assets and continues performing.2Acquisition.GOV. 48 CFR 42.1204 – Applicability of Novation Agreements The shareholders behind the entity changed; the party to the contract did not. Even so, the contracting officer may want a separate written understanding on issues like cost-accounting practice changes, long-term incentive compensation plans, or environmental cleanup liabilities. FAR 42.1203(e) directs that any such agreement between transferor and transferee be specifically referenced in whatever document the parties execute.4Acquisition.GOV. 48 CFR 42.1203 – Processing Agreements

One boundary worth stating: FAR 42.12 governs prime contracts with the federal government. It does not impose novation requirements at the subcontract level.5Acquisition.GOV. 48 CFR Subpart 42.12 – Novation and Change-of-Name Agreements Ownership changes at a subcontractor are handled between the prime and the subcontractor under their own agreement.

What Goes in a Novation Package

The contractor requesting recognition submits a written request to the responsible contracting officer along with three signed copies of the proposed novation agreement and supporting documentation. The package must show that the successor can actually perform.

  • An authenticated copy of the instrument that effected the asset transfer, such as a bill of sale, merger certificate, or court decree.2Acquisition.GOV. 48 CFR 42.1204 – Applicability of Novation Agreements
  • Certified copies of each corporate party’s board of directors resolutions, and where necessary stockholder meeting minutes, authorizing the transfer.
  • Balance sheets of both the transferor and the transferee dated immediately before and after the transfer, audited by independent accountants.
  • An opinion from legal counsel for both sides confirming the transfer was properly executed under applicable law and stating the effective date.
  • A complete list of all affected contracts as of the transfer date, showing the contract number and type, contracting office name and address, total dollar value as amended, and approximate remaining unpaid balance.

The transferor’s counsel must also confirm that the transferor remains liable for performance until the government executes the novation. That point matters because months typically pass between deal closing and novation approval. During that gap the original contractor is still on the hook.

What the Novation Agreement Itself Commits You To

FAR 42.1204 includes a model novation format that contracting officers generally follow. A few of its provisions catch parties off guard:

  • The transferee agrees to be bound by every contract term and assumes all obligations, liabilities, and claims against the transferor as if it had been the original party.2Acquisition.GOV. 48 CFR 42.1204 – Applicability of Novation Agreements
  • The transferee ratifies everything the transferor did under the contracts, giving those actions the same legal effect as if the transferee had taken them.
  • The transferor confirms the transfer and waives any current or future claims against the government related to the contracts.
  • The transferor guarantees payment of all liabilities and performance of all obligations the transferee assumes, including obligations under future contract modifications. A satisfactory performance bond may be accepted instead.
  • The government owes neither party anything for costs, taxes, or expenses arising from the transfer itself. Legal fees and tax consequences fall entirely on the parties to the transaction.

What Goes in a Change-of-Name Package

The documentation is lighter, because no new entity is stepping into the contract. The contractor submits three signed copies of the proposed agreement along with:

  • The name-change document, authenticated by a proper official of the state with jurisdiction. This is typically amended articles of incorporation or a certified corporate resolution.3Acquisition.GOV. 48 CFR 42.1205 – Agreement to Recognize Contractor’s Change of Name
  • An opinion from the contractor’s legal counsel confirming the name change was properly executed and stating its effective date.
  • A list of all affected contracts and purchase orders still unsettled, showing the contract number, type, and contracting office name and address. The contracting officer may also request the total dollar value and remaining unpaid balance for each.

The agreement itself recognizes the new name and states that the rights and obligations of both the government and the contractor remain completely unchanged.

How the Contracting Officer Reviews and Approves It

The complete package goes to the responsible contracting officer, who follows the process in FAR 42.1203. The contracting officer notifies every affected contract administration office and contracting office, providing the list of affected contracts. Those offices have 30 days to submit comments or objections with supporting documentation.4Acquisition.GOV. 48 CFR 42.1203 – Processing Agreements

For a novation, the contracting officer’s determination rests on:

  • Comments received from the notified offices
  • The proposed successor’s responsibility under FAR Subpart 9.1, which covers financial resources, performance history, integrity, organizational capability, and technical skills6Acquisition.GOV. 48 CFR Subpart 9.1 – Responsible Prospective Contractors
  • Any other factor relating to the successor’s ability to perform satisfactorily

Before executing either type of agreement, the contracting officer must have government counsel review it for legal sufficiency. Once approved, signed copies go to both parties, and the contracting officer prepares a Standard Form 30 that incorporates a summary of the agreement and attaches the complete list of affected contracts.7Acquisition.GOV. 48 CFR 53.242-1 – Novation and Change-of-Name Agreements (SF 30)

Plan on several months from submission of a complete package to executed agreement. Build that timeline into any deal that depends on the government recognizing a successor.

If the Government Declines to Approve

FAR 42.1204(c) is blunt about what happens if the contracting officer determines that recognizing a successor is not in the government’s interest. The original contractor stays under its contractual obligation, and the contract may be terminated for default if the original contractor fails to perform.2Acquisition.GOV. 48 CFR 42.1204 – Applicability of Novation Agreements

That creates real exposure for companies that close an asset sale before securing novation approval. The buyer ends up with the assets but no recognized contract, and the seller faces potential default termination on a contract it can no longer perform because it sold the assets needed to perform it. Starting the FAR 42.12 process early, and staying in contact with the contracting officer through closing, is the practical way to keep that from happening.