You Bought the Business. The Government Doesn't Know You Exist Yet — And That's a Problem.

Contracts follow the legal entity, not the business name

This is the gap most acquisition attorneys do not cover, because government contracting is a specialty practice most general M&A attorneys do not work in.

When you buy a business through an asset purchase, you acquire the assets — equipment, accounts, customer relationships, trade name. The legal entity that held those assets — the LLC or corporation — stays with the seller. And every government contract is an agreement with a specific legal entity, identified by its UEI and CAGE code.

The moment the closing documents are signed and the asset purchase is complete, the business continues to operate. But the federal government's records still show the seller as the contractor. Any payments on active contracts will route to the seller's bank account. Any new solicitations the business wins will be awarded to the seller's entity — which no longer operates the business you paid for.

This is not theoretical. r/govcon has documented cases where buyers discovered months after closing that government payments on active contracts had continued to route to the seller. Recovering those funds, or negotiating an equitable settlement, is significantly more difficult and expensive than filing the novation agreement properly before or immediately after closing.

The novation process: what to file, who receives it, timeline

Novation is governed by FAR Subpart 42.12. The process involves three parties: you (the buyer/successor), the seller, and the contracting officer for each affected contract.

Step 1: Identify all active contracts. Request a complete list of active contracts, task orders, and blanket purchase agreements from the seller. Cross-reference against the seller's SAM.gov registration and any CPARS records you can access.

Step 2: Prepare the novation agreement. FAR 42.12 provides the standard format. You need: (a) evidence of the transfer of assets; (b) an assumption of obligations by the buyer; (c) agreement by the seller to waive claims against the contracting agency related to the transferred contracts; (d) legal opinion that the buyer has the legal authority to perform the contracts. Your attorney should prepare this.

Step 3: Submit to each contracting officer separately. Each agency processes novations independently. There is no central filing system.

Step 4: Continue performance during the review period. Contracts do not stop during novation processing. The seller typically needs to remain nominally available for the agency to contact during the 2–6 week review window.

SAM.gov re-registration after an asset purchase

In an asset purchase, you do not inherit the seller's SAM.gov registration. You register as a new entity and receive a new UEI and CAGE code. The process is the same as initial registration — submit your EIN, legal name, NAICS codes, and banking information at sam.gov.

Two details that trigger delays:

IRS validation. The EIN and legal business name in SAM must match your IRS records exactly. Common problems: using "LLC" vs. "L.L.C.," adding or dropping a "The," using the operating trade name instead of the legal entity name. These mismatches add 3–5 days.

Banking information. SAM.gov collects banking information through a separate verification step with the Federal Reserve. Allow 2–3 additional days for bank routing number verification.

For new entities, SAM.gov registration typically completes in 7–10 business days if submitted correctly on the first attempt.

Novation requirements by contract type

Stock purchase exception: in a stock purchase, the legal entity does not change. Existing contracts continue without a formal novation. However, FAR requires notification of a change in ownership to the contracting officer within 30 days. Failing to notify is a violation, even if no formal novation is required.

What most articles get wrong: the SAM.gov assumption

Most post-acquisition checklists for government contracting begin with "register in SAM.gov." For an asset purchase, that is necessary but not sufficient. The deeper issue is the entity identifier problem.

SAM.gov is a directory. Your registration tells agencies you exist and are eligible to receive payments. But agencies send payments to the account on file for the entity with the contract — which is the seller's entity, with the seller's UEI. Registering in SAM.gov as the buyer does not redirect existing contract payments to your account. Only novation does that.

The second gap: most acquisition due diligence does not include a government contracting audit. The seller may not have disclosed all active contracts. Some small businesses have orders under GSA Schedule or BPAs that generate revenue without being tracked as "contracts" in the seller's records. Ask specifically: do you have a GSA Schedule? Do you have any BPAs? Have you received any government payments in the last 12 months? Get the answers in writing.

The stock purchase exception

A stock purchase is the one transaction structure where existing government contracts may continue without a formal novation. In a stock purchase, the corporation or LLC does not change — it simply has a new owner. The UEI, CAGE code, and SAM.gov registration remain with the entity.

However, two obligations still apply. First, FAR requires notification to the contracting officer of an ownership change within 30 days of the change of control. Failing to notify is a violation. Second, if the ownership change triggers any concerns about the business's financial condition or capability, the contracting officer may request additional information or, in rare cases, issue a cure notice.

Stock purchases are also subject to SBA affiliation rules if the acquired business has SBA small business certifications — a new majority owner with large affiliated businesses may inadvertently void size certifications that the business depended on for set-aside contracts.

Frequently Asked Questions