I know an adequate accounting system is required before you award "New" cost type contracts, but in a Novation, is an adequate accounting system required for the new company buying out the existing contract? ALso, they are canadian company, is there is an exception if it is required? Since this is an existing contract, and we don't want to stop performance, I assume an adequate accounting system audit is not required, correct?
There are no exceptions for Canadian firms to having an approved cost accounting system for cost-type or time and materials contracts. There is no waiver available for this requirement either.
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You must withhold approval of the Novation agreement unless and until the incoming Canadian contractor agrees to convert all the cost type (or T&M) contracts they will be taking over to fixed price contracts. You must renegotiate all those contracts first, and only then can you approve the Novation agreement pursuant to FAR part 42.