The Novation of Government Contracts and the Unreliable and Unpredictable “Operation of Law” Exception

By William A. Roberts, III and Kay Tatum

claims against the United States. Under the Assignment of Contracts Act, “[t]he party to whom the Federal govern- ment gives a contract or order may not transfer the contract or order, or any interest in the contract or order, to another party.”3 The statute excepts only assignment of amounts due under a federal government contract to a financing in- stitution, such as a bank or trust company.4 The federal government may, when in its interest, waive the statutory prohibitions of the Anti-Assignment Act and recognize a third party as the successor in interest to a government contract. The most commonly accepted William A. Roberts, III Kay Tatum method for waiving the prohibition is through the execu- tion of a formal novation agreement.5 The Federal Acqui- It is no wonder government contractors seek to structure sition Regulation (FAR) establishes requirements for no- transactions to legally avoid the necessity of undertaking vation agreements. FAR 42.1204 states that the a novation. Collecting the information and documents government may recognize the third party as the successor required for a novation is a significant task for the con- in interest when the interest arises out of the transfer of all tractor, and reviewing them and assessing if it is in the the awarded contractor’s assets or all of the awarded con- government’s interest to grant the requested novation add tractor’s assets involved in performing the contract. Ex- greatly to the administrative duties of the contracting offi- amples of such transactions where novation may be in the cer. By its nature, a novation occurs at a time when a busi- government’s interest include: “(i) Sale of these assets ness is in transition and faced with numerous uncertain- with a provision for assuming liabilities; (ii) Transfer of ties that can undermine efficient operations. A novation, these assets incident to a merger or corporate consolida- which can take anywhere from several weeks to many tion; and (iii) Incorporation of a proprietorship or part- months, extends and compounds the uncertainties of nership, or formation of a partnership.”6 Perhaps most im- transition at a time when managers need to be focused on portantly, the FAR states that “[w]hen it is in the achieving the business goals the transaction was designed Government’s interest not to concur in the transfer of a to accomplish. So why should any government contractor contract from one company to another company, the orig- consider undertaking a novation if there is a solid argu- inal contractor remains under contractual obligation to ment a novation is not required? The answer is that the the government, and the contract may be terminated for case law and industry practices surrounding when a nova- reasons of default, should the original contractor not per- tion is required, especially in circumstances that implicate form.”7 The wide degree of latitude afforded to govern- a transfer “by operation of law,” are not consistent, and ment contracting officers on what constitutes the “gov- the consequence of miscalculating when a novation is re- ernment’s interest” may create significant risk for quired could be the loss of the most significant assets and contractors seeking novation agreements. source of revenue of the business. Novation agreements are not required in connection with all corporate transactions. Under the FAR, no nova- Background tion is required “when there is a change in the ownership Companies holding federal government contracts face spe- of a contractor as a result of a stock purchase, with no cial obstacles to assignment of contracts under the Anti- legal change in the contracting party, and when that con- Assignment Act. The Anti-Assignment Act refers to two tracting party remains in control of the assets and is the statutory provisions: the Assignment of Contracts Act,1 party performing the contract.”8 In addition to this FAR which prohibits assignment of government contracts, and exception for stock purchases, federal case law has created the Assignment of Claims Act,2 which bars assignment of an exception to the Anti-Assignment Act for assign- ments that occur “by operation of law.” The focus of this William A. Roberts, III and Kay Tatum are partners at Wiley Rein, article is whether and how this exception applies to as- LLP. Roberts is co-chair of the firm’s Government Contracts practice signments by virtue of corporate transactions. and Tatum is chair of the firm’s Corporate practice group. As early as 1878, the Supreme Court used the term

Published in The Procurement Lawyer, Volume 50, Number 1, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. “operation of law” in the context of assignments, stating Court held, in oft-quoted language, that: that the Act “does not embrace cases where there has been a transfer of title by operation of law.”9 The “op- We cannot believe that Congress intended to discourage, eration of law” exception is based on the long-standing hinder or obstruct the orderly merger or consolidation of cor- concept that certain types of assignments do not present porations as the various states might authorize for the public the same risks of fraud and abuse presented by most as- interest. There is no probability that the United States could signments and are not covered by the intent of the Anti- suffer injury in respect of outstanding claims from such union Assignment Act. The Supreme Court stated in reference of interests and certainly the result would not be more dele- to an 1853 version of the Anti-Assignment Act that terious than would follow their passing to heirs, devisees, as- signees in bankruptcy, or receivers, all of which changes of [the Act’s] primary purpose was undoubtedly to prevent per- ownership have been declared without the ambit of the stat- sons of influence from buying up claims against the United ute. The same principle which required the exceptions here- States, which might then be improperly urged upon officers tofore approved applies here.14 of the Government. . . . Another purpose, that upon which the Government now relies, has been inferred by this Court Although Seaboard never uses the term “operation of from the language of the statute. That purpose was to pre- law,” the Court’s comparison between merger/consolida- vent possible multiple payment of claims, to make unneces- tion and intestacy and bankruptcy led to corporate transac- sary the investigation of alleged assignments, and to enable tions being added as another type of “operation by law” as- the Government to deal only with the original claimant.10 signment. The earliest uses of the “operation of law” exception were developed in factual situations involving The Court has viewed one of the primary purposes of assignments of claims where there were no questions con- the Act to avoid a situation where “the assignors knew of cerning contract performance, only payment for perfor- no damage and refused to bring suit, yet by their assign- mance. Only later was the exception applied to factual cir- ment the Government is forced to defend this suit cumstances involving assignments of contracts where through the courts and deal with persons who were contract performance was a major concern. Following in strangers to the damage and are seeking to enforce a claim the tradition of Seaboard, the Court of Claims has stated which their assignors have forsworn.”11 that “[p]erhaps the most significant exception to the [Anti- The classic cases of assignments by operation of law are Assignment] statutes recognized thus far is when transfer of intestacy and bankruptcy, and these assignments are ex- a claim or contract is effected by consolidation or merger to empt from the Anti-Assignment Act.12 Because the “op- the successor of a claimant corporation.”15 eration of law” exception is judicially created, the outer However, the courts have not been uniformly consis- bounds of the exceptions are not precisely defined, and tent in applying the “operation of law” exception. The companies evaluating corporate transactions are faced danger of relying on the “operation of law” exception to with the difficult question of whether transactions that re- support an assignment without a novation agreement is sult in the transfer of federal contracts between companies highlighted in NGC Inv. & Dev., Inc. v. United States.16 are assignments by operation of law that are exempt from NGC held a contract with the Puget Sound Naval Ship- the Anti-Assignment Act. yard. After the start of contract performance, NGC sold all of its assets, including the contract, to JDL Construc- Corporate Transactions Exception for Assignment tion Company, while NGC remained an active legal cor- by Operation of Law poration. Prior to the transaction, NGC had approached Case law and commentary have created significant confu- the Navy’s contracting officer to request an assignment of sion over whether novation agreements are required for the contract to JDL; the contracting officer rejected the assignments of contracts in connection with certain cor- request. Undeterred, NGC proceeded with the sale and porate transactions. Some case law indicates that the “op- assignment to JDL without informing the Navy, and JDL eration of law” exception applies to corporate transac- completed the work on the contract while “maintaining tions, but other cases indicate otherwise. Moreover, the the illusion that NGC continued to perform the con- answer also appears to vary depending upon the structure tract.”17 The Court of Federal Claims found that the at- of the corporate transaction. tempted assignment was invalid and that the contract was A common thread emerging from the case law is that rendered invalid, and neither NGC nor JDL had a claim courts apply the purpose of the statute rather than the strict for payment under the contract. While not explicitly ad- statutory language. The case most cited supporting applying dressing the “operation of law” exception, the court stated the “operation of law” exception to corporate transactions that the judicially created exceptions to the Anti-Assign- is Seaboard Air Line Ry. v. United States.13 In this 1921 case, ment Act would not apply in this case. the Supreme Court held that a claim payable to Florida What, then, is the rule for determining when the re- Central & Peninsular Railroad Company could be paid to strictions of the Anti-Assignment Act are to be enforced the successor company, Seaboard. Seaboard was the surviv- or when the exception should apply? In United Int’l Inves- ing entity of a merger between it and Florida Central. The tigative Servs. v. United States,18 the Claims Court (now

Volume 50, Number 1 The Procurement Lawyer 11 Published in The Procurement Lawyer, Volume 50, Number 1, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. the Court of Federal Claims) followed the model of Sea- with essentially the same entity, which has undergone a board and Aetna and utilized a conceptually simple but change in its corporate form or ownership.”24 practically difficult rule: follow the purpose of the statute, The L-3 court held that “[w]here a transfer is incident to and “[a]ccordingly, where these purposes are not im- the sale of an entire business or the sale of an entire portion pinged, a transfer should be allowed to stand.”19 In United of a business, the transfer is considered to have occurred ‘by Int’l Investigative Servs., the Air Force entered into a con- operation of law,’ and the assignment is exempted from the tract with United Security Unlimited, Inc. During the anti-assignment statute.”25 L-3 had purchased the entire di- course of contract performance, United Security executed vision responsible for the proposal, including all of the as- a change-of-name agreement with the Air Force, repre- sets, and Raytheon had explicitly abjured its claim. The senting to the Air Force that it had changed its corporate court read the Seaboard decision broadly, stating that “the name to United International Investigative Services. In Act does not restrict assignments where there is no proba- reality, United International Investigative Services was a bility that the United States could suffer injury.”26 The separate corporate entity, and later the Air Force refused court appeared to focus more on the probability of injury to to accept contract claims from the new entity on the basis the government than the actual mechanisms for defining of lack of privity. The court agreed with the Air Force that the “operation of law” exception. the change-of-name agreement did not satisfy the require- Following the L-3 decision, the Court of Federal ments for a proper novation under the FAR, but held that Claims stayed on the same trajectory in Liberty Ammuni- “this defect does not necessarily preclude an effective tion, Inc. v. United States.27 In a rare instance of a govern- transfer of the contract from United Security to plaintiff ment contracts case not involving a procurement, Liberty . . . [because] the issue before the court is whether the con- Ammunition sued the federal government for patent in- tract’s transfer was otherwise prohibited under 41 U.S.C. fringement and breach of contract arising from various § 15.”20 The court upheld the transfer of the contract to nondisclosure agreements (NDAs) signed between the the plaintiff, stating that: government and a sole proprietor. The NDAs had been executed to permit the sharing of information regarding The mere legal existence of two corporations at the time of the private party’s patented weapons technology. Eventu- the contract’s transfer does not automatically invalidate the ally, the sole proprietorship was transformed into Liberty transfer. Instead, the relevant inquiry is whether one corpo- Ammunition, Inc. Upon the government’s motion to dis- ration is, in fact, the successor-in-interest of the other. . . . miss the breach of contract claims, citing the Anti-As- Further, the successor corporation must retain the same man- signment Act’s prohibition on transfer of contracts, the agement and financial resources that its predecessor pos- court ruled against the government, stating that “Liberty sessed. . . . The retention of these resources adequately en- alleges that it meets the criteria of the ‘operation of law’ sures that the government continues to receive the benefit of exception because the sole proprietorship transferred all the management and financial responsibility for which it of its assets to Liberty Ammunition Inc., a Florida corpo- bargained.21 ration, which then underwent a series of corporate reorga- nizations until it reached its present status.”28 The court held that the plaintiff was the awardee’s suc- cessor-in-interest and therefore the transfer of the con- Application of “Operation of Law” to Asset Sales tract was not invalidated by the Anti-Assignment Act. The foregoing case law establishes that at least some The Court of Federal Claims affirmed that rule more courts consider assignments that are the results of some recently in L-3 Commc’ns Integrated Sys., L.P. v. United types of corporate transactions to be assignments made by States.22 L-3 filed a post-award bid protest at the court operation of law and consequently exempt from the re- challenging an Air Force award of two contracts to a com- strictions of the Anti-Assignment Act. One major excep- petitor. The Air Force moved to dismiss, arguing L-3’s tion, however, is partial asset sales, as demonstrated in claim was barred because the proposal had been submitted Westinghouse Elec. Co., LLC v. United States.29 In by a division of Raytheon and not L-3. In the intervening Westinghouse, the Atomic Energy Commission contracted period, L-3 had completed an acquisition of the Raytheon with Westinghouse Electric Corporation for management business division that incurred the bid and proposal costs and operation of the Bettis Atomic Power Laboratory. for this procurement. The court began by considering the Subsequently, Westinghouse acquired CBS, Inc., and “operation of law” exception and stating that “[t]he ‘oper- changed its name to CBS Corporation. After the acquisi- ation of law’ exception to the Anti-Assignment Act most tion, CBS sold its commercial nuclear fuel assets to British often applies to transfers by intestate succession or testa- Nuclear Fuels, plc., and the assets were reorganized into a mentary disposition, judicial sale, the process of subroga- new subsidiary, Westinghouse Electric Company, LLC. tion to an insurer, and where the assignment or transfer of However, because CBS had already lost the recompetition a claim is effected through consolidation or merger.”23 for the contract to another contractor (Bechtel), almost The court went on that “the ‘operation of law’ exception all the personnel working on the contract for CBS had generally involves situations where, for all intents and transitioned to the new contractor and not Westinghouse purposes, the contract with the Government continues Electric Company, LLC. When Westinghouse LLC

12 The Procurement Lawyer Fall 2014 Published in The Procurement Lawyer, Volume 50, Number 1, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. brought suit against the government for cleanup costs as- exception to the Anti-Assignment Act. Formal novation sociated with contract performance, the government ar- agreements are the primary form of government waiver of gued that the right to seek cleanup costs was invalidly as- the statutory restrictions, but courts have also permitted signed from CBS to Westinghouse LLC. The court cases of “implied” waiver by the government.36 The Court agreed, stating that “as a sale of assets, the CBS/BNFL of Federal Claims held in Ins. Co. of the W. v. United States transaction was not exempt from the restrictions of the that “[t]o determine whether the Government has implic- anti-assignment legislation.”30 In doing so, the court itly waived the Anti-Assignment Acts, courts look at all noted a distinction between corporate reorganization, conduct that can be construed as amounting to a waiver” where the new entity would assume all of the old entity’s under a “totality of the circumstances test.”37 contract rights by operation of law, and an asset sale such In Tuftco, a pair of Housing and Urban Development as this one where the new entity “acquired only a portion (HUD) contracts were assigned by the awardee to Tuft- of the [predecessor] business that had, in the past, per- co. Prior to the assignments, both the original awardee formed certain services under the [government con- and Tuftco raised the assignments to the attention of the tract].”31 The court ruled that permitting the assignment contracting officer, and the contracting officer agreed it would result in the government having to deal with mul- would make payments to Tuftco as arranged by the par- tiple claimants, defeating a fundamental purpose of the ties. However, HUD made only some payments to Tuft- Anti-Assignment Act. co and made others to the awardee, and when Tuftco The Westinghouse decision cites the Armed Services was unable to recover the incorrectly paid amounts from Board of Contract Appeals decision in Mancon Liquidating the awardee, Tuftco sued HUD. The Court of Claims Corp. Intercontinental Mfg. Co., Inc., for the proposition held that, although a novation agreement is “[t]he that “the sale of assets alone involves a voluntary transac- soundest and most accepted method of establishing rec- tion that falls within the scope of the Anti-Assignment ognition by the Government,” novation was not an ex- Act.”32 In Mancon, the ASBCA distinguished between clusive means of establishing a valid assignment. The “involuntary assignments” caused by operation of law, court held that HUD had knowledge of and recognized such as corporate reorganizations and consolidations, the assignment of contracts under a theory of implied from “voluntary assignments” such as a sale of assets. Man- waiver and was consequently liable to Tuftco. con acknowledged “an exception has developed with re- Courts must analyze both the implied waiver exception spect to the sale of an entire business.” Although Mancon and the “operation of law” exception in many cases, and has been subject to some criticism from commentators,33 the analysis often confuses and confounds the two excep- it continues to be cited for the proposition that “[t]he as- tions. In NGC Inv. & Dev., Inc. v. United States, NGC signment of Government contracts as an incident to the sold all its assets to JDL, but the court invalidated the as- sale of the assets of a business is not an involuntary assign- signment. The court expressed concern that NGC and ment or transfer by operation of law and hence is barred JDL “have shown the same lack of candor with this court by the statute.”34 that they showed in their dealings with the Navy”38 and The distinction in the case law for asset sales as op- that the parties misled the Navy as to who was performing posed to most corporate reorganizations and mergers the work. Given that NGC sold all its assets to JDL, the largely comports with the purposes of the Anti-Assign- court could have found that JDL was the successor-in-in- ment Act. A partial asset sale puts the government at risk terest, as the court did in United Int’l Investigative Servs. v. of being stuck with a contractor that lacks the capabili- United States. Instead, the court treated the two excep- ties that were the basis of the government’s award deci- tions as intertwined and voided the contract. sion. However, the application of the exception is hardly Consequently, any interpretation of the “operation of predictable. As noted in Westinghouse, the court was con- law” exception necessarily requires an analysis of the im- cerned that the government may face contract claims plied waiver exception. A further complication is that the from multiple parties. The same comment could have case law on implied waiver itself is not well defined. Tuftco been made in United Int’l Investigative Servs., where the and other cases have held that a reasonable inference is court stated that “[t]he mere legal existence of two corpo- sufficient to satisfy the totality of circumstances test,39 but rations at the time of the contract’s transfer does not au- the majority of the case law favors a more stringent stan- tomatically invalidate the transfer.”35 In United Int’l Inves- dard for waiver.40 tigative Servs., the court simply chose which legal entity held the valid contract interest. Courts generally attempt Why Seeking Novation Still Makes Sense Despite the to apply the purpose of the Anti-Assignment statute in Operation of Law Exception interpreting the “operation of law” exception, but that ap- The case law demonstrates that the “operation of law” ex- plication can be inconsistent. ception to the Anti-Assignment Act is applied by courts to many corporate transactions involving government Operation of Law and Waiver Exceptions contracts. Where does that leave a company considering a Interpreting the “operation of law” exception is compli- corporate transaction involving one or more government cated by the existence of the government waiver contracts? The answer is to present the proposed

Volume 50, Number 1 The Procurement Lawyer 13 Published in The Procurement Lawyer, Volume 50, Number 1, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. transaction to the contracting officer prior to undertaking There is no indication that the FAR recognizes any ex- the transaction and receive assent from the contracting ception for assignments by operation of law. Prior com- officer to whatever course of action is to be taken. mentary has noted that “the FAR incorrectly implies that To bypass the contracting officer and rely solely on the a novation agreement is always required in order to trans- “operation of law” exception poses significant risks to the fer a government contract.”43 Whether or not the FAR is contractor as outlined below: correct in always requiring a novation agreement, the re- ality for contractors is that the FAR provision is the first • A complex body of case law: As detailed above, the (and possibly only) legal authority a contracting officer case law on the “operation of law” exception is com- may consult in evaluating a corporate transaction and as- plex. There are numerous factors that contribute to signment of contract. Whether or not the “operation of the analysis, including the structure of the transaction law” exception applies, the contracting officer simply may undertaken and the pretransaction communications not know such an exception exists. Even if the contractor between the contractor and the government. Asset is ultimately proven correct, there are significant adminis- sales may be less likely to qualify for the exception, trative and legal obstacles to proving the exception ap- and the treatment of complete asset sales versus par- plies, either in post-transaction communications with the tial asset sales is inconsistent. Even reorganizations contracting officer or through litigation. In the interven- and consolidations may not qualify for the exception ing period, the contractor may face significant delays in if they present certain risks, such as the possibility of contract performance and in receiving payment. More- multiple entities making a contract claim against the over, if it is determined that a novation agreement is nec- government or the contractor assuming significantly essary, the contracting officer has discretion to determine greater liabilities in the reorganization without gain- whether it is in the best interests of the government.44 A ing a commensurate amount of additional assets. contracting officer is more likely to view a novation re- • Also, the courts have in some instances confounded quest favorably when consulted prior to the transaction. the “operations of law” exception with the implied Consequently, the prudent strategy for companies is to waiver exception. This confusion in particular high- inform the contracting officer prior to the transaction and lights the need to seek assent from the contracting provide as much information as possible regarding the officer prior to undertaking the transaction, because type of transaction being proposed. A formal novation companies that are viewed as having mislead the agreement in compliance with FAR Subpart 42.12 may government are more likely to have their transac- not be necessary under the case law, but in this instance, it tions voided under the Anti-Assignment Act. is better to ask for permission beforehand than to beg for- • Contracting officers unsophisticated in corporate giveness after the fact. PL law: As a whole, government contracting officers (and their counsel) tend to be more sophisticated in issues of Endnotes government contracts and less sophisticated in the area 1. 41 U.S.C. § 6305 (formerly cited as 41 U.S.C. § 15). of corporate transactions. Even if a company is confi- 2. 31 U.S.C. § 3727. 3. 41 U.S.C. § 6305(a). dent that its proposed transaction is of the type to qual- 4. Id. § 6305(b). ify for the “operation of law” exception, there is no 5. Tuftco Corp. v. U. S., 614 F.2d 740, 745 (Ct. Cl. 1980) (“The guaranty that the contracting officer will understand soundest and most accepted method of establishing recognition by the nuances of the corporate transactional mechanisms the Government is for all three parties to enter into a novation at work. Companies are well-advised to offer a fulsome agreement.”). 6. FAR 42.1204(a)(2). explanation to contracting officers about the transac- 7. FAR 42.1204(c). tions, highlighting how the business units actually per- 8. FAR 42.1204(b). The FAR goes on to state that “However, forming the contract will be impacted. whether there is a purchase of assets or a stock purchase, there may • The FAR novation requirements: Perhaps most be issues related to the change in ownership that appropriately importantly, the FAR does not include any recogni- should be addressed in a formal agreement between the contractor and the Government (see 42.1203(e)).” Id. tion of the “operation of law” exception. As noted 9. Erwin v. United States, 97 U.S. 392, 397 (1878). above, the only exception in the FAR for the nova- 10. United States v. Aetna Cas. & Sur. Co., 338 U.S. 366, 373 tion requirement is “when there is a change in the (1949) (internal citation omitted). ownership of a contractor as a result of a stock pur- 11. United States v. Shannon, 342 U.S. 288, 293 (1952). chase, with no legal change in the contracting party, 12. Erwin, 97 U.S. at 397 (“The passing of claims to heirs, devisees, or assignees in bankruptcy is not within the evil at which the statute and when that contracting party remains in control aimed.”); United States v. Shannon, 342 U.S. 288, 292 (U.S.S.C. of the assets and is the party performing the con- 1952) (“The first of these exceptions is justified by analogy to trans- tract.”41 The FAR states that “[i]f a contractor wishes fers by intestacy, which are exempt from the statute as being transfers the Government to recognize a successor in interest by operation of law. It would be unwise to make a distinction for pur- to its contracts or a name change, the contractor poses of the Act between transfers which serve so much the same pur- poses as transfers by will and by intestacy. In similar fashion, the ex- must submit a written request to the responsible ception for voluntary assignments for the benefit of creditors has been 42 contracting officer.” justified by analogy to assignments in bankruptcy.”).

14 The Procurement Lawyer Fall 2014 Published in The Procurement Lawyer, Volume 50, Number 1, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 13. 256 U.S. 655 (1921). the Government’s Contractual Stealth Weapon, 26 Pub. Con. L.J. 339 14. Id. at 657. (1997), citing 4 Nash & Cibinic Rep. ¶ 56 at 142–43 (1990). As 15. Tuftco Corp. v. U. S., 614 F.2d 740, 745 (Ct. Cl. 1980). noted in the Manos article, the “voluntary vs. involuntary” distinc- Among corporate lawyers, a merger is widely thought of as a means tion has been criticized as “incorrect and illogical.” of transferring assets by operation of law, that is, by relying on the 34. In re Siracusa Moving & Storage, ASBCA No. 51433, 99-2 statutory provisions regarding mergers rather than transferring them B.C.A. (CCH) ¶ 30447 (July 7, 1999) (quoting Mancon). by a conveyance document such as a bill of sale. However, FAR 35. 26 Cl. Ct. 892, 898 (Cl. Ct. 1992). 42.1204()(2)(ii) specifically lists a merger as a form of transaction 36. Tuftco Corp. v. U. S., 614 F.2d 740, 743–44 (Ct. Cl. 1980) (“[W]e to which novation agreements apply. It is not clear how the Tuftco conclude the contracting officer was fully aware of the assignments, rec- court would reconcile its ruling with FAR 42.1204(a)(2)(ii). ognized them, and communicated such recognition to plaintiff. In this 16. 33 Fed. Cl. 459, 461 (Fed. Cl. 1995). case the action of defendant constituted a waiver of the Act’s provi- 17. Id. at 463. sions, including the notice provision applicable to banks and financial 18. 26 Cl. Ct. 892, 898 (Cl. Ct. 1992). institutions. Having chosen to recognize the assignments, defendant 19. Id. at 898. was bound to act in accordance with their terms.”). 20. Id. 37. 100 Fed. Cl. 58, 66 (Fed. Cl. 2011) (citing Johnson v. Zerbst, 21. Id. (internal citations omitted). 304 U.S. 458 (1938)). 22. 84 Fed. Cl. 768 (Fed. Cl. 2008). 38. 33 Fed. Cl. at 463. 23. Id. at 776–77 (emphasis added). 39. 100 Fed. Cl. at 66 (citing Tuftco, 614 F.2d at 746; United 24. Id. States v. Kelley, 482 F.3d 1047, 1050 (9th Cir.2007); Blanchard v. 25. Id. at 777. Peerless Ins. Co., 958 F.2d 483, 488 (1st Cir.1992)). 26. Id. at 778. 40. 100 Fed. Cl. at 66 (citing White Mountain Apache Tribe, 537 U.S. 27. 101 Fed. Cl. 581, 588 (Fed. Cl. 2011). at 472; Helvering v. Fitch, 309 U.S. 149, 156 (1940); Aspex Eyewear, 28. Id. at 589. Inc. v. Clariti Eyewear, Inc., 605 F.3d 1305, 1316 (Fed. Cir. 2010)). 29. 56 Fed. Cl. 564, 569 (Fed. Cl. 2003). 41. FAR 42.1204(b). 30. Id. at 569. 42. FAR 42.1203(a) (emphasis added). 31. Id. 43. Manos, supra note 33 at 345 (the FAR has been modified since 32. Id. at 570, citing ASBCA No. 18304, 74-1 B.C.A. (CCH) ¶ this article was published, but the point remains relevant today). 10470 (Jan. 24, 1974). 44. FAR 42.1203(b). 33. Karen Manos, Novation Agreements in Corporate Restructuring:

Volume 50, Number 1 The Procurement Lawyer 15 Published in The Procurement Lawyer, Volume 50, Number 1, Fall 2014. © 2014 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.