Notification of Ownership Changes

This is an edited version of a post from 2010 but we are posting it again because of a recent situation where a company, in the process of purchasing a Government contractor, had to scale back its offer when it determined that the fair market value of the assets could not be depreciated under Government contracts.

When a contractor becomes aware that a change in its ownership has occurred (or is certain to occur) that could result in changes in the valuation of its capitalized assets in the accounting records, it must notify the ACO (Administrative Contracting Officer) within 30 days.

Additionally, the contractor must notify the ACO within 30 days whenever changes to asset valuations or any other cost changes have occurred or are certain to occur as a result of a change in ownership.

This requirement applies to negotiated contracts or for which any preward or postaward cost determinations will be subject to the FAR cost principles in Part 31 (see FAR 15.408(k)). To find out whether it applies to your contract(s), look for the contract clause 52.215-19.

Besides the notification requirements, the clause also requires that contractors;

1. Maintain current, accurate, and complete inventory records of assets and their costs
2. Provide the ACO or designated representative ready access to the records upon request
3. Ensure that all individual and grouped assets, their capitalized values, accumulated depreciation, and remaining useful lives are identified accurately before and after each ownership change
4. Retain and continue to maintain depreciation and amortization schedules based on the asset records maintained before the ownership changed

Obviously, the Government does not want to pay for assets again and again. Some business combinations result in assets being "written up" to their fair market value (purchase method, for example) and there have been cases (prior to the implementation of FAR 31.205-52) where the Government paid for assets again after it had paid for the assets, through depreciation, to the predecessor company.

This requirement also applies to negotiated subcontracts..