1.  Notification of Sale or Business Combination or Change of Name:

    1.1.  The ACO shall notify Legal Counsel upon being notified of a possible sale or reorganization of a DoD contractor. LATEST CHANGE: The assistance of Counsel is needed as early as possible in determining whether purchases by foreign or domestic concerns of a DoD contractor, or a reorganization of the contractor, may require a Novation Agreement or Change of Name Agreement.

        1.1.1.  The ACO shall promptly notify each Contract Management Office (CMO) and contracting office affected by a proposed Novation.  For contracts awarded by the Military Departments and the National Aeronautics and Space Administration (NASA) these notices are forwarded to the centralized addresses set forth in DFARS 242.1203 PGI.  For DLA, the mailing addresses for the Defense Supply Centers are as follows:

LATEST CHANGE:

DLA Land & Maritime
Attention: BP
P.O. Box 3990
Columbus, OH 43218-3990

DLA Aviation
Attention: BP
8000 Jefferson Davis Hwy
Richmond, VA 23297-5401

DLA Troop Support
Attention: BP
700 Robbins Avenue
Philadelphia, PA 19111-5092

        1.1.2.  The notifications shall include a list of all affected contracts and purchase orders remaining unsettled between the transferor and the Government, showing for each:  contract number and type; name and address of contracting office; total dollar value as amended by contract modification; and remaining unpaid balance in accordance with FAR 42.1204. The cognizant Contracting Officer shall notify DCMA Special Programs of all novations/name changes via an email to the DCMAS-Inbox with the ARZ modification attached.

    1.2.  LATEST CHANGE: When a contractor requests in writing that the Government recognize a name change, the ACO, in conjunction with DCMA Legal Counsel, shall determine whether the Government and the contractor's obligations remain unaffected and whether advance notification to the contracting and administration offices is warranted in accordance with FAR 42.1205.  Comments from the contracting or administration offices are not required prior to issuance of a change of name agreement.

2.  Evaluation of Contractor's Novation/Change of Name Agreement: 

    2.1. Normally, the Administrative Contracting Officer (ACO) for the selling contractor (transferor) is responsible for processing a novation or change of name agreement in accordance with FAR 42.1202.  However, in some cases where there is more than one ACO administering affected contracts, the responsible ACO shall be determined in accordance with the provisions of FAR 42.1202(c).  In either case, the ACO shall process such agreements in accordance with the provisions of FAR 42.1203.  In addition, the ACO for the transferor contractor shall include external restructuring provisions in the novation agreement, in accordance with DFARS 242.1204, when it is known that the "successor in interest" (transferee) company will incur external restructuring costs.

        2.1.1.  The ACO for the transferee company shall promptly process a restructuring advance agreement, in accordance with DFARS 231.205-70, when the transferee company will incur external restructuring costs associated with restructuring activities after the business combination.

    2.2.  When a contractor requests in writing that the Government recognize a successor in interest, the responsible ACO shall obtain three signed copies of the proposed Novation Agreement and other items listed in FAR 42.1204(e).  If any of the items listed in FAR 42.1204(e) are missing or inadequate, the ACO shall promptly notify the contractor of the deficiencies and request corrective action.

        2.2.1.  Prior to the execution of a Novation or Change of Name Agreement, the ACO shall request a legal review by DCMA Legal Counsel in accordance with FAR 42.1203(f).  LATEST CHANGE: The ACO shall request a review of the balance sheets of the transferor and transferee from the DCMA Cost and Pricing Center Financial Capability Group, or from DCAA relative to FAR 42.1204(f)(6).  The financial analysis should be done at the corporate level.  In addition, the ACO shall request a technical review to determine the transferee's capability to perform the contracts in accordance with FAR 42.1204(e)(3).

        2.2.2.  When a Novation Agreement is required and the transferee company intends to incur restructuring costs as defined in DFARS 231.205-70, the cognizant ACO for the transferor company shall make sure to include the provision cited in DFARS 242.1204(i) as paragraph (b)(7) of the Novation Agreement instead of the paragraph (b)(7) provided in the sample format at FAR 42.1204(i).

      2.2.3. LATEST CHANGE: On occasion, contractors contend that a novation agreement is not required because the transfer of assets occurred by operation of law, due to a merger, bankruptcy, or conversion.  In a conversion, the contractor changes the form of its legal entity, such as from a corporation to a limited liability company (LLC).  Because these are technical legal arguments, the ACO should seek assistance from Legal Counsel before concluding that a novation agreement is or is not required.

     2.2.4. LATEST CHANGE: In accordance with DFARS PGI 242.1203(5), before making any substantial alterations or additions to the Novation Agreement format at FAR 42.1204(i), the ACO, with input from Legal Counsel, shall coordinate with the addressees listed under DFARS PGI 242.1203(1). 

    2.3.  For Change of Name Agreements, the ACO, in conjunction with DCMA Legal Counsel, shall review the package for completeness.  The package shall include items required by FAR 42.1205(a).

3.  Determination to Recognize a Successor in Interest or Change of Name:

    3.1. LATEST CHANGE: The ACO shall make the determination whether to recognize a successor in interest to a Government contract in accordance with FAR 42.1203(c) and after receiving a legal sufficiency determination from DCMA Legal Counsel.  The ACO shall not execute a Novation Agreement with any contractors who are debarred or proposed for debarment without prior review by DCMA Legal Counsel and the DCMA Contract Integrity Center.

        3.1.1.  LATEST CHANGE: For Novation Agreements, the ACO shall notify the contractor if he/she decides that a successor will not be recognized.  In this situation, the original contractor remains under contractual obligation to perform the existing contracts as provided in FAR 42.1204(c).

    3.2.  For Change Of Name Agreements, the ACO shall request a legal sufficiency determination from DCMA Legal Counsel.

4.  Execution of Novation/Change of Name Agreement:

    4.1.  The ACO, transferor, and transferee shall execute the Novation Agreement.  The ACO should forward signed copies of the Novation Agreement to the transferor and transferee in accordance with FAR 42.1203(g), and retain a signed copy in the case file. 

   4.2.  Upon receipt of a legal sufficiency determination, the ACO and contractor shall execute the Change of Name Agreement.  A suggested format is in FAR 42.1205, which may be adapted for specific cases.

   4.3.  A freeform Standard Form 30, Amendment of Solicitation/Modification of Contract, is used to transfer/update contracts in the Mechanization of Contract Administration Services (MOCAS) database.  Such modifications are called ARZ Modifications.  An ARZ Modification is defined as a global modification which is:  (1) processed systemically and (2) is applicable to all contracts assigned to a given contractor.

        4.3.1.  An ARZ transfer modification is defined as a modification which:  (1) transfers all contracts for a CAGE code(s) to another CAGE code (i.e., Novations); or (2) transfers all contracts for a CAGE code to the same Code in a different CMO (i.e., the contractor physically moves and retains the original CAGE code); or (3) transfers all contracts for a specific CMO into one or more other CMOs (e.g., due to downsizing, creation of CMOs, or elimination of CMOs); or (4) transfers some of the contracts for a specific CAGE code to another CAGE code.

            4.3.1.1.  The transfer process involves a balancing of contract and invoice counts, contract dollars involved, as well as verifying that all database records have been properly updated to reflect changes.  Transfers are only run at the end of the month immediately following the regular MOCAS monthly cycle.  LATEST CHANGE: (Transfers are NOT performed at FY and CY end, i.e. end of September and end of December).  The verification and balancing is performed by cognizant Functional Information Resource Management Team (FIRM) and Defense Finance and Accounting Service (DFAS) Systems Office personnel.

            4.3.1.2.  An ARZ modification which does not transfer contracts but makes a change to the contractor's name and/or address is also processed systemically (normally the 3rd weekend of the month).  This type of global modification does not physically change MOCAS data unless a change to the non-EFT remittance address is addressed in the modification.  It does, however, generate and post modification numbers to the impacted contracts.  The change in MOCAS data is made via a contractor initiated CCR update.  In order for a change of name or change of address agreement to qualify for an ARZ modification, the modification must impact a minimum of 10 contracts.  If the contractor does not have 10 active prime contracts, individual contract modifications will be required in lieu of utilizing the ARZ modification.

        4.3.2.  ACOs shall consult with their cognizant FIRM representative for questions concerning proper ARZ Modification preparation.   ACOs shall send a copy of the ARZ Modification to their cognizant FIRM representative who  reviews the modification for the correct format and will coordinate the scheduling and processing of the ARZ Modification with the Defense Information Systems Agency Systems Office.  The ARZ Modification shall incorporate the agreement, or if it is not practical to do so, shall incorporate a written summary of the agreement, as well as a complete list of affected contracts and CAGE codes in accordance with DFARS 204.70.   ACOs shall NOT assign modification numbers to the SF Form 30, as the transfer program generates ARZ/AZ numbers.  For ARZ modifications, Block 8 of the ARZ Modification shall be completed with the former name and address of the contractor and Block 14 shall be completed with the new name, address, and remittance address of the contractor.

        4.3.3.  After the ARZ Modification is approved by the FIRM representative, the ACO shall submit it along with a copy of the Novation or Change of Name Agreement to Defense Logistics Information Service (DLIS) and request that they update the Commercial and Government Entity (CAGE) code file. See DFARS 204.7204 for the DLIS address.

        4.3.4.  For more information, see DFARS 204.7204, Maintenance of the CAGE File and DFARS 204.7205, Novation Agreements, Mergers and Sales of Assets.

        4.3.5.  NOTE: when a contactor changes its name, address, business affiliation, financial institution, financial account number or mailbox in the Central Contractor Registration (CCR), CAGE information in the MOCAS database is automatically updated through DLIS.  Consequently, even though the CCR system warns the contactor that making such changes without a contract modification may result in payment delays, contractor changes in CCR information may result in contracts being transferred from one cognizant CMO and/or Defense Finance and Accounting Service payment division to another in MOCAS. Therefore, in those cases where a contractual modification is required (e.g., Novation and Change of Name Agreements or change in address/CMO) it is important that ACOs advise contractors to wait until such modifications are actually processed in MOCAS before making changes to CCR information.  However, since timing is crucial in the MOCAS system, the ACO shall advise the contractor to update CCR within 48 hours after the signing of the modification.  The ACO shall follow-up with the contractor or check the CCR to confirm that the change to CCR has been made.

      4.3.6. LATEST CHANGE: ACOs should note the Government's right to suspend payments under FAR 4.11 and 52.204-7 when a contractor fails to comply with the FAR 42 Novation and Change of Name requirements after making certain changes in the CCR. 

5.  Execution of a  Restructuring Advance Agreement following the Business Combination:

    5.1. LATEST CHANGE: Execution of a Restructuring Advance Agreement is typically a Divisional Administrative Contracting Officer (DACO) or Corporate Administrative Contracting Officer (CACO), hereafter referred to as ACO, function. 

    5.2.  If restructuring activities are planned, the ACO of the transferee company shall direct the contractor to segregate restructuring costs and to suspend those amounts from any billings, final contract price settlements, and overhead settlements until a written determination of  two-to-one savings to DoD on a present value basis is received in accordance with DFARS 231.205-70.  

         5.2.1.  LATEST CHANGE If the amount of restructuring costs is expected to exceed $25 million over a 5-year period, the designated official is the Under Secretary of Defense (AT&L).

         5.2.2.  LATEST CHANGE For all other cases, the designated official is the DCMA Director.

    5.3.  Whether or not a restructuring proposal is submitted by the contractor, the ACO shall review any existing forward pricing rate agreements and/or recommendations after a business combination as warranted by the facts and circumstances.  When the underlying assumptions upon which they were based have changed due to the business combination, the rate agreements and/or recommendations may no longer be valid. The forward pricing rate agreements and/or recommendations shall be revised or terminated, as appropriate, to protect the Government's best interests.

    5.4.  The ACO shall request the contractor to provide an overall plan of restructuring activities and an adequately supported proposal for planned restructuring projects.  The restructuring proposal shall only include restructuring activities associated with the business combination.  LATEST CHANGE: The types of restructuring activities that should be proposed is defined in DFARS 231.205-70(b)(3).  In addition, the ACO shall concurrently request the contractor to provide a Forward Pricing Rate Proposal which is traceable to the restructuring proposal.

    5.5.  The ACO shall notify major buying activities of contractor restructuring actions and inform them about any potential monetary or other impacts on major weapons or other acquisition programs.  In addition, if restructuring costs are included in forward pricing rates prior to the execution of an advance agreement, the ACO shall notify the procurement contracting officers to include a repricing clause in each fixed-price action that is priced based on the rates in accordance with DFARS 231.205-70(d).

    5.6.  After the restructuring and forward pricing rate proposals are submitted, the ACO shall adjust forward pricing and billing rates to reflect estimated restructuring savings.  Such adjustments immediately implement the proposed savings.  In addition, the ACO shall continually evaluate and, if necessary, adjust forward pricing rates after proposal submission.  After receiving the contractor's restructuring and forward pricing rate agreement proposals, the ACO shall request an audit of the proposals.

    5.7.  Upon issuance of the DCAA audit report, the ACO shall negotiate a restructuring advance agreement which addresses the allowability of the contractor's restructuring expenditures and the resultant projected costs and savings to be realized by DoD.  The ACO shall obtain a legal sufficiency review of the restructuring advance agreement from DCMA Legal Counsel.  The ACO shall also prepare a projected restructuring cost and savings summary which will include any amortized depreciation costs covering the five-year period of projected restructuring savings.  LATEST CHANGE: The ACO shall submit a contractor external restructuring board case through the CMO Contracts Director or Corporate Administrative Contracting Officer Group Director to DCMA-AQ for a Board of Review.  The submission shall include:  an executive summary, restructuring cost and savings summary, negotiation memorandum, restructuring advance agreement, recommendation for determination of two-to-one savings to DoD, DCAA audit report, novation agreement, legal review and the contractor's restructuring proposal.  The recommendation for determination of two-to-one savings to DoD is submitted to OSD by Headquarters after the Board of Review if applicable.   

        5.7.1.  Amortization of restructuring costs is permitted in accordance with 48 CFR 9904.406-61, Interpretation, as promulgated by the Cost Accounting Standards Board (CASB) for contractor restructuring costs paid or approved on or after August 15, 1994.  Pursuant to the interpretation, restructuring costs may be deferred, and subsequently amortized, over a period during which the benefits are expected to accrue. Straight line amortization should normally be used, and the amortization period shall not exceed five years. 

       5.7.2.  The CASB interpretation also permits, on an exception basis, restructuring costs to be expensed in the current accounting period when the contracting officer agrees that such treatment results in a more equitable assignment of costs under the circumstances.  Therefore, expensing restructuring costs in the accounting period in which they are incurred would be appropriate when the contractor proposes to expense restructuring costs to the current year and expensing should result in savings to the DoD of at least twice the allowable costs for the period on a present value basis.  In making this assessment, ACOs shall consider the composition of the business base (Government versus commercial contracts) and the contract mix (fixed price versus cost reimbursement) for current and future years.

• Acquisition workforce personnel will be certified in accordance with the Defense Acquisition Workforce Improvement Act (DAWIA) for the position held. 

• FAR 4.11, Central Contractor Registration
• FAR 42.12, Novation and Change-of-Name Agreements
• DFARS 204.7204, Maintenance of the CAGE file
• DFARS 204.7205, Novation agreements mergers and sales of assets
• DFARS 231.205-70, External restructuring costs

• Process Indicator/s:
  • TBD
• Workload Indicator/s:
  • TBD
• Resource Indicator/s:
  • TBD
• Supplier Indicator/s:
  • TBD

• PLAS Process code:  047A

• Definitions:
  • Novation Agreement - A novation agreement is used to recognize a successor in interest to Government contracts where a third party's interest arises out of the transfer of all the assets of the contractor, or all of that part of the contractor's assets involved in the performance of the contract.  Novation and change of name agreements are legally binding documents used to memorialize the rights and responsibilities of the Government and the contractors.  By a novation agreement, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the Government recognizes the transfer of the contract and related assets (FAR 2.101)
  • Restructuring Advance Agreement - A restructuring advance agreement limits the allowable external restructuring costs that the Government pays to business combination transferees.  Such agreements are required when DFARS 231.205-70 applies.  Pursuant to DFARS 231.205-70(b) and (c), if the transferee will incur more than $2.5 million in external restructuring costs, none of these costs are allowable unless either, (a) the proposed savings to DoD exceed the estimated costs by a factor of at least two-to-one on a present value basis, or (b) the projected savings will exceed the estimated costs, and a critical capability will be preserved for DoD.
• Novation Agreement Checklist
• Restructuring Advance Agreement Format
• Restructuring Cost and Savings Summary Format
• ACO Recommendation for Written Determination Format
• Sample AT&L Written Determination
• Process Flowchart