Acquisitions and mergers are a part of business – especially for a small company.
Let’s say you’re a small company with a GSA Schedule contract and you’re bought by a larger company, or merged with another small company. What happens to your contract? This is an important question not only from the perspective of continuing to do business with the government, but also from the perspective of continuing to get paid by the government.
Here are the rules, according to Carolyn Alston, General Counsel at Washington Management Group, and former senior attorney in the GSA’s Office of General Counsel:
“When a federal contractor is acquired, the Government contract follows the corporate assets. If the government contract holder sells all of its assets (or all the assets used to perform the contract) to a third party, that third party can be substituted as the new contract holder. The process of recognizing a third party as the new contractor is called “novation”. Contracting officers can approve the novation, but will only do so after reviewing a list of documents that are required by the Federal Acquisition Regulations (FAR).”
Be warned: Processing a novation can take a long time. For better or for worse, processing a novation is last on pretty much everyone’s list.
On the corporate side, your attorneys are focused on closing the deal. It’s a time-consuming process to gather up all the documents the government needs in order to prove that the merger/acquisition took place. On the government side, officials are focused on awarding and modifying contracts; novations tend to fall to the bottom of the inbox.
What can you do to help the process along?
First, think ahead. If you know early on that your company is being acquired or will merge with another Government contractor, make your corporate team aware of the impact on the government contracts and brief them on the process.
Collect documents or identify the document owners along the way – as you go through the corporate acquisition process – instead of saving this process for after the merger or acquisition. It can be a challenge to find documents after the deal is done.
Another option: Avoid the novation process all together. When both the acquiring company and the one being acquired have GSA Schedule contracts, consider using the Modification clause of the GSA Schedule, to consolidate multiple contracts. By simply adding and deleting items, you may be able to transfer contract items and create a contract vehicle sufficient to market and sell items of the new corporate entity.
– Bill Gormley