Public Contract Law Journal

With Unquantifiable Risks Come Great Uncertainties: Mergers and Acquisitions Endanger Pending Proposals but Due Diligence and Congressional Action May Reduce Protests

by Nathan Tyler Estock

Nathan Tyler Estock (testock@law.gwu.edu) is a J.D. candidate at the George Washington University Law School and Senior Managing Editor of the Public Contract Law Journal. He would like to thank Mark Nackman for his support and feedback.

I. Introduction

Two friends walk through the local shopping mall and notice a store advertising a promotional lottery game with a $1 million grand prize. Feeling lucky, the pair decides to enter the raffle. They fill out a single lottery ticket with required personal information, writing “Zoe Jenkins and Sharon Berger” in the name section. A few weeks later, Zoe reads in the newspaper that she won the lottery and immediately attempts to call Sharon. Despite considerable effort, Zoe cannot reach her. Surprisingly, Zoe learns that Sharon recently fell in love while traveling abroad and never plans on returning home. Without any conceivable way of contacting Sharon, Zoe decides to accept the award for herself. Excited about her new wealth, Zoe visits the store to receive her $1 million prize. However, the store rescinds the award because the lottery ticket includes both Zoe’s and Sharon’s names — the store refuses to award the winnings to Zoe because she lost contact with Sharon.

Similar to how the separation of two friends in the above anecdote led to the cancelation of a winning lottery ticket, the uncertainties of mergers and acquisitions (M&A) jeopardize government contract awards.1 M&As hold a prominent role in the business world.2 In 2015, the value of all U.S. M&A transactions reached a new high at $2,417 billion, and in 2016, the number of U.S. M&A transactions totaled 13,445.3 With this flurry of corporate transactions and high-dollar deals, contractors must take reasonable due diligence precautions to avoid compromising pending and anticipated government contracts.4 A line of recent cases involving contractors undergoing corporate transactions aids contractors in identifying factors that can jeopardize contract awards.5 Unless contractors consider these factors, agencies may reject proposals due to uncertainties arising from corporate transactions.6

The Federal Acquisition Regulation (FAR) attempts to establish certainties and formulaic procedures in government procurements.7 For example, the FAR provides guidance for when a contract already exists and a corporate transaction requires an assignment of contracts.8 FAR subpart 42.12, “Novation9 and Change-of-Name Agreements,” provides procedures for the “[r]ecognition of a successor in interest to [a] [g]overnment contract[]” and the “[r]ecognition of a change in the contractor’s name.”10 The FAR specifically mentions that the government may recognize a third party as a successor in interest to a contract when a transfer of the contractor’s assets occurs “incident to a merger or corporate consolidation.”11 Also, the FAR provides a format for novation12 and change-of-name agreements.13 However, the FAR does not establish procedures for the assignment or validation of proposals when a contractor reorganizes or changes ownership.14 This gap in the FAR results in recurring bid and proposal protests.15

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