Selling a Federal Contractor: Not an Acquire.com or Flippa Deal

If your company holds a facility security clearance, understand that a change of ownership can trigger a review of your clearance status, and if the buyer isn't a US person or entity, foreign ownership, control or influence considerations can materially complicate or restrict the deal. This is not an area to navigate without specialized counsel experienced in facility clearance matters, since getting it wrong can jeopardize the clearance itself, which is often central to the business's value.

Government contracts generally can't simply be assigned to a new legal entity; they require a formal novation agreement approved by the contracting agency under the Federal Acquisition Regulation. This process takes real time and isn't guaranteed, so a buyer needs to understand which of your active contracts would need novation and build that timeline into the deal structure rather than assume contracts transfer the moment the sale closes.

Document how many of your staff hold active security clearances, at what levels, and how tenured they are, since cleared personnel are both hard to hire and essential to performing on many contracts. A buyer will weigh clearance retention risk heavily, since losing several cleared employees during a transition can directly threaten your ability to perform on active contracts.

Retention agreements or transition bonuses tied to cleared staff staying through a defined post-close period are common in these deals for exactly this reason, and structuring one proactively can meaningfully ease a buyer's underwriting of this specific risk.

If your contracts are subject to Defense Contract Audit Agency oversight, your indirect cost rate structure and accounting system compliance are core diligence items. Have your DCAA-compliant accounting records and any audit history organized and ready to show, since a buyer's own compliance exposure depends partly on inheriting a clean, well-documented cost accounting practice rather than one that's never been seriously tested.

If your indirect rates have moved significantly year over year, be ready to explain why, since volatile rates raise questions about cost allocation discipline that a buyer's own auditors will want answered clearly before they're comfortable relying on your numbers.

If your revenue depends on access to specific contract vehicles, GSA schedules, IDIQs, or set-aside designations tied to your company's specific certifications, confirm which of these transfer with a change of ownership and which don't. Certain small business set-aside statuses, for example, can be affected by a change of ownership in ways that materially change what revenue a buyer can actually expect to retain, so this needs verification with counsel, not assumption.

Map out, contract by contract, what share of your revenue depends on a status or vehicle that could be affected by the sale, since a buyer needs this laid out clearly to underwrite the deal with any confidence.

Larger defense and government services contractors looking to add capability or contract vehicle access, private equity platforms building government services roll-ups, and specialist M&A advisors experienced in the GovCon space are the realistic buyer pool. These deals move through relationships in a relatively small, specialized industry, and a GovCon-focused advisor who understands novation, clearance and set-aside implications is essential, not optional.

Your past performance ratings on completed contracts, recorded in federal systems and referenced by contracting officers evaluating future bids, are a genuine asset that doesn't show up as a line item on a balance sheet. Document your ratings history and be ready to explain any that are below expectations, since a buyer is effectively acquiring your track record along with your contracts, and a strong one materially supports future bid competitiveness under new ownership.

Assemble a contract-by-contract summary showing remaining period of performance, novation requirements and contract vehicle type, alongside your clearance roster and DCAA compliance file, before you have a specific buyer in mind. This groundwork is what separates a credible GovCon sale process from one that stalls the moment a buyer's specialized counsel starts asking questions you weren't ready to answer.

Have this documentation assembled before you speak with a buyer:

• A contract-by-contract summary showing remaining period of performance, novation requirements and contract vehicle type.
• Your clearance roster, showing how many staff hold active clearances, at what levels and with what tenure.
• Your DCAA compliance file, including indirect cost rate structure and accounting system records.
• Your facility clearance status, plus an assessment of foreign ownership, control or influence questions for likely buyers.
• Past performance ratings on completed contracts, and which contract vehicles transfer with a change of ownership.