5-8.12 Novation Agreements

Novation agreements are agreements signed by the supplier (the “transferor”), the successor in interest (the “transferee”), and the Postal Service, by which, among other things, the transferor guarantees performance of the contract, the transferee assumes all obligations under the contract, and the Postal Service recognizes the transfer of the contract and related assets. The Postal Service generally prohibits contract novation (see paragraph b of Clause 4-1: General Terms and Conditions). However, the Postal Service may recognize a third party as the successor in interest when that party’s interest arises out of the transfer of:

• All the supplier’s assets.
• The entire portion of the assets involved in performing the contract.

Situations in which novation may be permitted include, but are not limited to the following:

• Sale of the supplier’s assets with a provision for assuming liabilities.
• Transfer of assets as part of a merger or corporate consolidation.
• Incorporation of a proprietorship or partnership, or formation of a partnership.

The CO is responsible for determining, in consultation with Legal Counsel, whether to permit contract novation. Before concurring in a contract novation, the CO must determine the capability of the successor in interest. If it is not in the Postal Service’s interest to concur in a contract novation, the “original supplier” remains responsible for performance, and the contract may be terminated for default for failure to perform. In the case that multiple contracts of one supplier, or transfers from several transferors to one transferee are involved, the CO responsible for the largest unsettled (unbilled plus billed-but-unpaid) contract dollar balance is responsible for executing the novation agreement.