Acquiring a Government Contractor: Deal Structuring and Compliance Issues, Purchase Agreement Reps, Indemnities

In recent years the government contracting market has seen a spike in M&A activity. Given the specific laws and regulations that apply to federal government contractors, transactional attorneys must take a different approach when structuring the deal, conducting the due diligence, and drafting the purchase agreement.

Regulators may waive the Anti-Assignment Act in connection with a merger, but for asset deals a novation will be required, and there are specific rules and filing requirements which must be navigated. Subcontracts are not subject to the Anti-Assignment Act, but the buyer must review all subcontracts to ensure there are no other restrictions on assignment.

Federal government contractors are potentially subject to import and export restrictions, intellectual property rights, restrictions on recruiting and hiring, the Anti-Kickback Act, and wage and hour laws. The buyer must conduct due diligence to ensure compliance by the target, including review the target's code of conduct, employee handbook, and policies and procedures related to government contracts.

The purchase agreement should contain government contract-specific representations and warranties regarding compliance with existing contracts, potential criminal or civil liability, and compliance with various laws and regulations. The buyer should also seek an indemnity for the target's noncompliance with the requirements of its government contracts identified during due diligence or disclosed by the target in disclosure schedules.

Federal government contracts typically require notification of a change in ownership. If the target is a small business, the successor-in-interest must be able re-represent its small business size status. The acquirer should determine whether the merged entity will remain eligible for the small business contract.

Listen as our authoritative panel discusses due diligence, structuring, and purchase agreement provisions to consider when acquiring government contractors.