Selling Your Company? The Government Has to Agree to Keep Your Contract

Published 2026 | TIKC NewsWire

Say you spend years building a GovCon business and a buyer comes along. You sell the company, hand over the assets, and assume the new owner inherits your federal contracts along with everything else. That assumption can wreck the deal. Unlike a commercial sale, you cannot freely transfer a government contract to someone else. The government chose to do business with you, and it has to agree before anyone else steps into your shoes. That approval comes through a novation agreement.

Why the government gets a say

A federal contract is a relationship, not just a piece of property. The government evaluated your company, your responsibility, and your ability to perform before it awarded the work. If you sell to someone it never vetted, the government could end up relying on a contractor it never agreed to. So the rules give it the right to recognize a successor only through a formal process. A novation is the government’s way of saying it agrees to release you and accept the buyer in your place.

What a novation actually does

A novation agreement is a three-way deal between you, the buyer, and the government. The buyer agrees to take on all your obligations under the contract. You agree to guarantee performance or otherwise stay on the hook as the agreement specifies. And the government agrees to recognize the buyer as the new contractor. Until that is signed, the contract legally still belongs to you, no matter what your sale paperwork says.

The trap in the timing

The danger is closing the sale and assuming the contract came with it. If the buyer starts performing and billing under a contract that was never novated, the government can treat those invoices as coming from a party it has no agreement with. The structure of the deal matters too. Some sales are set up as asset purchases, some as stock purchases, and the two are treated very differently for whether a novation is even required. Getting that wrong early can tangle the whole transaction, much like missing the rules on assigning payments.

What to do now

• Plan the novation before closing. Treat government approval as part of the deal timeline, not an afterthought.
• Know your deal structure. Understand whether your sale is an asset or stock purchase, because it changes whether a novation is needed.
• Talk to the contracting officer early. The government has to recognize the successor, so bring it in before you rely on the transfer.
• Keep performing until it is signed. The contract is still yours until the novation is approved, so do not drop the ball mid-transfer.
• Get the paperwork right. A novation requires specific documents proving the buyer took on your obligations.

Selling your company should be a reward for years of work, not a compliance landmine. The contract you built is often part of what makes the business worth buying, so protect it by bringing the government into the transfer the right way. Plan the novation early, know your deal structure, and keep performing until it is signed, and the sale closes clean. Brick by brick.

FAQ

What is a novation agreement?

It is a three-way agreement among you, the buyer, and the government in which the government agrees to recognize the buyer as the new contractor and release you from future performance, subject to the agreement’s terms.

Can I just transfer my contract when I sell?

No. A government contract cannot be freely transferred. The government must approve the successor through a novation, because it chose to contract with your company specifically.

Does every sale require a novation?

Not always. It often depends on whether the deal is structured as an asset purchase or a stock purchase. The structure determines whether the contracting party legally changed, so confirm it early.

What happens if we skip it?

The contract legally remains with the original company. If the buyer performs and bills without a novation, the government may not recognize those invoices, which can jeopardize payment and the deal itself.

Sources

Federal Acquisition Regulation. (2026). Subpart 42.12, Novation and Change-of-Name Agreements.

U.S. Government Accountability Office. (2026). Guidance on successor-in-interest and contract transfers.

This article is general information, not legal advice.