By Lucantonio N. Salvi and Marko W. Kipa
A government contracts due diligence encompasses a broad range of statutory, regulatory, and contractual issues. One issue that we always consider is compliance with the Anti-Assignment Act (the “Act”), which prohibits the transfer of a government contract to a third-party. While the Act does not strictly apply to subcontracts, we nevertheless must review them, as well as other agreements (such as teaming agreements), for contractual anti-assignment provisions. This review was facilitated in the past by the widely held view among practitioners that a stock purchase or reverse triangular merger, without more, does not generally result in an assignment and therefore does not require the counterparty’s consent. This is particularly relevant since most sales and purchases of government contractors are structured as stock purchases or reverse triangular mergers (i.e., an acquisition structure in which a subsidiary of the buyer merges into the target company and the target company becomes a wholly-owned subsidiary of the buyer once the merger is consummated). In both cases, the separate corporate identity of the target company is preserved, and the parties generally avoid the need to obtain Government consent to novate government contracts held by the target company. The traditionally prevalent view even finds support under federal case law in the context of government contractors. See Appeals of Newport News Shipbuilding & Dry Dock Co., ASBCA Nos. 44731, 44826, 97-1 BCA ¶ 28,835 (holding, among other things, that reverse triangular mergers are stock purchase transactions where the acquired corporations retain their separate corporate existence and in which the acquired company’s contracts are in most cases unaffected).
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