Novation: Capturing Credit for the Assets and Experience of Your Predecessor
October 28, 2013
Relevant experience and past performance are key ingredients in the evaluation of proposals. In this world of constant mergers, acquisitions (asset purchases and stock purchases) and related novations of government contracts, the question is often exactly what experience can and should be counted by an agency when it evaluates proposals? The answer is not always clear. Take for example, two relatively recent protests decided by the General Accountability Office (GAO) within a year of one another with wildly differing results: Sevatec, Inc., B-406784 (Comp. Gen. Aug. 23, 2012) and Harbor Services, Inc., B-408325 (Comp. Gen. Aug. 23, 2013).
Sevatec protested the Defense Agency’s failure to credit it with the experience accumulated by the incumbent, NDC. Prior to the evaluation under protest, NDC, pursuant to a novation agreement approved by the Agency, had transferred its current contract to Sevatec. The novation agreement, however, did not discuss the transfer of any NDC assets or employees to Sevatec, and Sevatec did not propose to use NDC as part of its team.
Sevatec received a marginal rating under the experience factor. According to Sevatec, it was entitled to credit for “NDC’s experience given that Sevatec assumed all rights and responsibilities for NDC’s contract under the novation agreement” and, following execution of the novation agreement, had hired many of NDCs employees. GAO did not agree.
GAO found that Sevatec did not contend it had the relevant experience but instead argued that under the terms of the novation agreement the Agency was required to credit Sevatec for NDC’s experienced. This is an understandable flaw. Surprisingly, GAO went on to hold that “having the incumbent personnel from the NDC contract does not allow [Sevatec] to claim NDC’s experience because the RFP did not provide for consideration of personnel experience … [r]ather the Solicitation stated the agency would evaluate the experience of the offeror.”
One year to the day later GAO seemed to do an about-face.
Harbor protested the award of a VA contract to MedPro based on the Agency’s alleged misevaluation of MedPro’s experience. MedPro’s proposal cited to the experience of another company – IPW. According to MedPro, it was in the process of transitioning from IPW: that is, key personnel and assets of IPW, the predecessor firm, were being transferred to MedPro, in part via a novation agreement. According to GAO, this provided “continuity of operations between the two firms” and made “IPW’s experience relevant to predicting MedPro’s successful performance of the contract.” In Harbor, GAO clearly states that under such circumstances “an agency properly may consider the relevant experience and past performance of key individuals and predecessor companies.”
Two novations with opposite results. Why? First, Sevatec made the mistake of entering into a very narrow novation agreement covering only the transfer of the current contract. Second, Sevatec’s proposal did not contain and explain its relevant experience. And third, Sevatec was unlucky in drawing an agency and a GAO decision-maker that did not credit the offeror with the experience and past performance of its proposed key personnel.
The take away: Don’t view novation agreements as simple administrative forms. They can be important opportunities to explain, to your lasting benefit, the nature and scope of a transaction. And, in every proposal explain, in detail, exactly how and why the assets, personnel, experience, and past performance of a predecessor entity are yours to claim.
Lindsay Simmons is the attorney responsible for the content of this article.
© Jackson Kelly PLLC 2013