Government Contracts CO Should Have Issued Final Decision to Successor
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Friday, November 8, 2019

CO Should Have Issued Final Decision to Successor

By Government Contracts Editorial Staff

A successor contractor’s motion to dismiss for lack of jurisdiction was granted by the Civilian Board of Contract Appeals because the successor was in privity of contract with the government as a result of a novation agreement and the contracting officer’s final decision issued to the original contractor was ineffective. Two years after the government cancelled a Federal Supply Schedule contract, the contractor divested the business unit responsible for the contract and the unit became a wholly-owned subsidiary of the successor contractor. The contractors executed a novation agreement that was signed by the original contractor’s corporate administrative contracting officer, who was an employee of the Defense Contract Management Agency. The novation agreement provided that the successor assumed all liabilities of and claims against the original contractor under the covered contracts, and that the government recognized the successor contractor as the party in interest under the contracts. The CO subsequently issued a decision to the original contractor seeking to recover for overbilling. The successor contractor nevertheless appealed the final decision. The government argued the successor contractor had no standing because it was not in privity of contract with the government.

CACO Authority. However, “a successor in interest under a novation agreement, pursuant to which it is ‘entitled to all the rights’ of its predecessor as if it were ‘the original party’ to the contract, is recognized by the government as the successor in interest for all purposes, including the right to pursue any claims its predecessor could have pursued” (18-1 BCA ¶37,045). Here, the successor expressly assumed all liabilities against the original contractor and the government accepted the substitution of the parties. Accordingly, there was no reason not to recognize the substitution when the government subsequently asserted a government claim arising under a contract covered by the novation agreement. In light of the novation agreement, the successor, not the original contractor, had standing to defend against any claims arising from the contract. The government also argued that, because a DCMA CO and not a General Services Administration CO executed the novation agreement, “GSA has not legally recognized any successor in interest or liability for the subject contract.” However, under the Federal Acquisition Regulation, when a contractor to which a CACO has been assigned has contracts with more than one agency, the agencies involved “agree on the responsible agency” before the CACO is placed (FAR 42.602(c)(2)). Once the CACO begins work, he or she exercises contract administration functions “on a corporate-wide basis” that can cover all of the contractor’s contracts. Thus, the CACO had authority to represent the government and sign the novation agreement. Finally, the government, not the contractor, had the obligation to notify all COs affected by the novation agreement. (Leidos Innovations Corp. v. GSA, CBCA, ¶95,872)

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