How to Record Defense Contract Novation Costs
Accounting for the legal and administrative costs associated with transferring government contracts to a successor in interest.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| G&A Expense - Professional Services (Allowable) | Expense | 12,500.00 | - |
| Accrued Liabilities | Liability | - | 12,500.00 |
💡 Accountant's Note
Legal and consultant costs incurred to prepare a novation agreement under FAR Subpart 42.12 are generally allowable if they support the transfer of a contractor's assets to a third party. These are recorded as G&A expenses.
Practitioner & Systems Framework
💻 ERP Architecture
Use a specific project code linked to the 'Novation' indirect task to capture all associated labor and legal invoices.
⚠️ Audit Flags
DCAA often reviews novation costs to ensure they are not categorized as unallowable reorganization costs under FAR 31.205-27.
📄 Required Documentation
Executed Novation Agreement, legal invoices detailing work performed, and board resolutions approving the transfer.
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Discussion & Community Questions
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