You Cannot Just Sell the Contract: Novation, Change of Ownership, and Recertification

Published 2026 | TIKC NewsWire

Selling your company, buying another, or restructuring can be the biggest move you make as an owner. But government contracts do not behave like ordinary business assets. You cannot simply hand them to a buyer along with the furniture. Federal law restricts transferring contracts, requires a formal government process to recognize a new owner, and can quietly change your competitive status overnight. If you are contemplating a sale, a merger, or an acquisition, three concepts, the Anti-Assignment Act, novation, and recertification, will shape whether the deal actually delivers what you think it does.

The Anti-Assignment Act: you cannot just transfer a contract

The starting point is a restriction. Under the Anti-Assignment Act, a contractor generally cannot transfer (assign) a government contract to a third party without the government’s recognition. The idea is that the government chose to do business with you, not with whoever you decide to sell to. So when ownership changes hands, the contracts do not automatically go with the business. Ignoring this can leave a buyer holding a company whose contracts the government does not recognize it as holding.

Novation: how the government recognizes a new owner

The mechanism to fix that is a novation agreement. When assets are transferred, the successor asks the government to recognize it as the new party to the contract, through a formal process the FAR lays out. The responsible contracting officer reviews the transaction and documentation and decides whether a novation is in the government’s interest. Until the novation is approved, the original contractor generally remains responsible. A novation is not a rubber stamp, and timing it correctly within a transaction is critical, because an unrecognized transfer can disrupt payments and performance.

Recertification: the hidden deal-changer for small businesses

Here is where set-aside firms get caught. A merger, acquisition, or change of ownership can trigger a requirement to recertify your size and socioeconomic status. If the transaction makes you affiliated with a larger company, or otherwise other than small, you may lose small-business status on existing set-aside work for future orders, and you may no longer qualify for the set-asides your business was built on. The value a buyer thinks it is acquiring, a pipeline of small-business contracts, can evaporate the moment the deal closes if recertification pushes the firm out of its category. This is a conflict between growth and eligibility that must be modeled before, not after, signing.

Do the diligence before you sign

These issues are why government-contract due diligence is its own discipline. A buyer needs to know which contracts require novation, whether the government is likely to approve, and how the transaction affects size and status. A seller needs to understand what it can actually deliver and what representations it is making about transferable value. Structuring the deal, asset versus stock, timing, and which entity survives, can change the answers. The worst outcome is discovering after closing that the contracts did not transfer or the status was lost.

What to do now

• Map your contracts early. Identify which contracts would need a novation and assess the likelihood of government approval.
• Plan the novation timing. Build the FAR novation process into the transaction, and remember the original contractor stays responsible until it is approved.
• Model recertification. Determine whether the deal triggers size or status recertification and what it does to your eligibility.
• Protect the value. If set-aside contracts drive the deal’s value, confirm they survive the ownership change before you rely on them.
• Do real GovCon diligence. Treat government-contract transfer, eligibility, and compliance as a distinct workstream in any sale or acquisition.

A change of ownership can be the payoff for everything you built, but only if the contracts and the status come with it. Plan the novation and the recertification before you sign, and the value you earned stays yours. Brick by brick.

FAQ

Can I transfer a government contract when I sell my company?

Not automatically. The Anti-Assignment Act generally bars transferring a contract without the government’s recognition, so contracts do not simply move with the business.

What is a novation agreement?

A formal agreement in which the government recognizes a successor as the new party to a contract after an asset transfer. The contracting officer must find it in the government’s interest, and the original contractor remains responsible until approval.

What is recertification and why does it matter?

A merger or change of ownership can require recertifying your size and status. If the deal makes you affiliated or other than small, you can lose eligibility for set-asides your business depended on.

When should I address these issues?

Before signing. Map novation needs, model recertification, and confirm that the contracts and status survive the transaction as part of due diligence.

Sources

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

U.S. Small Business Administration. (2026). Recertification of size and status after mergers and acquisitions (13 CFR 121.404).

This article is general information, not legal advice.