FAR Part 42: Contract Administration
FAR Part 42 governs contract administration and audit services — everything that happens after a contract is awarded. It defines the roles and responsibilities of government personnel who oversee contractor performance, and the procedures for modifications, novation, and work stoppages.
This guide covers the key players in contract administration, how DCMA fits into the picture, and the procedures contractors need to understand for modifications, ownership changes, government delays, and stop-work orders.
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ACO, PCO, and TCO Roles
Government contracts involve multiple contracting officers, each with distinct authorities and responsibilities. Understanding who has the authority to make decisions on your contract is critical — acting on direction from someone without authority can leave you without recourse if things go wrong.
PCO — Procuring CO
The PCO is responsible for everything leading up to and including contract award.
- Issues solicitations and amendments
- Evaluates proposals and selects awardee
- Negotiates terms and conditions
- Executes the contract award
- Retains authority for scope decisions
ACO — Administrative CO
The ACO handles day-to-day administration after award, within delegated authority.
- Monitors contractor performance
- Processes invoices and payments
- Approves or disapproves subcontracts
- Processes modifications within authority
- Conducts contractor purchasing reviews
TCO — Termination CO
The TCO handles termination actions and settlement of termination claims.
- Processes termination for convenience
- Negotiates termination settlements
- Determines allowable termination costs
- Issues final termination decisions
- Handles termination for default disputes
Contract Administration Office (DCMA)
The Defense Contract Management Agency (DCMA) is the primary contract administration office for Department of Defense contracts and many civilian agency contracts. DCMA provides contract administration services on behalf of procuring agencies, allowing agencies to focus on requirements definition and source selection while DCMA handles post-award oversight.
DCMA's responsibilities include monitoring contractor performance against delivery schedules, conducting quality assurance surveillance, reviewing and approving contractor purchasing systems, performing property administration, and monitoring contractor financial health. DCMA personnel are often co-located at major contractor facilities.
For civilian agency contracts, the procuring agency may retain contract administration or delegate it to DCMA or another organization. The delegation of contract administration functions is documented in the contract and specifies which functions are delegated and to whom. Contractors should carefully review the contract administration delegation to understand who has authority for each administrative function.
DCMA also conducts Contractor Purchasing System Reviews (CPSR) for contractors with significant subcontracting activity. A CPSR evaluates whether the contractor's purchasing system provides reasonable assurance that the contractor is obtaining materials and services at fair and reasonable prices. An approved purchasing system allows the contractor to enter into subcontracts without prior contracting officer consent for most actions.
Novation and Change-of-Name Agreements
FAR 42.12 establishes the procedures for recognizing a successor contractor when a contractor undergoes a change in ownership (merger, acquisition, or asset sale) or a change of name. These situations are common in the government contracting industry and require specific government approvals.
A novation agreement is required when a contractor's assets are transferred to a third party. The novation transfers all rights and obligations under existing government contracts from the original contractor (the transferor) to the new contractor (the transferee). The government must consent to the novation and is not obligated to do so. The novation agreement is a three-party instrument executed by the transferor, transferee, and the government.
A change-of-name agreement is simpler and is used when the contractor changes its legal name but no transfer of assets or obligations occurs. This is common in rebranding situations. The change-of-name agreement amends existing contracts to reflect the new name and does not require the full novation process.
Contractors contemplating a merger, acquisition, or name change should notify the responsible contracting officer as early as possible. The novation process can take several months and requires submission of extensive documentation, including the acquisition agreement, evidence of the transferee's capability to perform, and an assumption of liability by the transferee.
Contract Modifications
Contract modifications are changes to the terms of an existing contract. FAR Part 43 provides detailed procedures for modifications, but FAR Part 42 establishes the administrative framework within which modifications are processed. Modifications come in two fundamental types.
Bilateral Modifications
Require the agreement of both the government and the contractor. Used for:
- Negotiated equitable adjustments
- Definitization of letter contracts
- Changes that add work within scope
- Settlement of claims and disputes
- Administrative changes requiring consent
Unilateral Modifications
Issued by the contracting officer without contractor consent. Used for:
- Changes clause directions (FAR 52.243)
- Option exercises
- Government property provisions
- Administrative corrections
- Termination actions
A critical principle is that all modifications must be within the scope of the original contract. An out-of-scope modification is essentially a new procurement that must be competed unless a sole-source justification exists. The scope determination considers whether the modified work is materially different from the original contract in terms of the type of work, performance period, or cost.
Government Delays and Stop-Work Orders
Government-caused delays are a reality of federal contracting. FAR 42.13 establishes the stop-work order procedure, and several contract clauses provide remedies when the government delays contractor performance.
A stop-work order is a written direction from the contracting officer that requires the contractor to stop all or part of the work under the contract for up to 90 days (or longer if extended). The contractor must comply immediately upon receipt. During the stop-work period, the contractor should take reasonable steps to minimize costs, including reassigning personnel where possible.
When a stop-work order is canceled or expires, the contracting officer must either terminate the contract, cancel the stop-work order, or extend it. If the order is canceled and work resumes, the contractor is entitled to an equitable adjustment for any increase in the cost of performance or the time required for performance that results from the stop-work order.
Beyond formal stop-work orders, constructive delays occur when government actions (or inactions) effectively delay contractor performance without a formal suspension. Examples include late delivery of government-furnished property, delayed responses to contractor submittals, excessive inspection delays, and failure to provide site access. Contractors should document constructive delays carefully and submit timely requests for equitable adjustment (REA) or claims.
The Suspension of Work clause (FAR 52.242-14) and the Government Delay of Work clause (FAR 52.242-17) provide the contractual basis for equitable adjustments resulting from government-caused delays. The key to recovering delay costs is contemporaneous documentation of the delay, its cause, and the resulting impact on cost and schedule.
Frequently Asked Questions
What is the difference between the ACO, PCO, and TCO?
The Procuring Contracting Officer (PCO) is responsible for the initial award of the contract, including solicitation, evaluation, negotiation, and award. The Administrative Contracting Officer (ACO) handles day-to-day contract administration after award, including monitoring performance, processing invoices, approving subcontracts, and managing modifications within their authority. The Termination Contracting Officer (TCO) handles contract termination actions, including settlement of termination claims. Each role has specific delegated authorities defined in their appointment letters.
What is a novation agreement?
A novation agreement (FAR 42.12) is a legal instrument that transfers all rights and obligations under a government contract from one contractor to another. Novation is required when a contractor is acquired by or merges with another company. The government must recognize the successor contractor and agree to the transfer. The novation agreement is executed by the original contractor, the successor contractor, and the government. The government is not required to consent to a novation — it can require the original contractor to continue performance.
What is a stop-work order?
A stop-work order (FAR 42.13) is a unilateral direction from the contracting officer requiring the contractor to stop all or part of the work under the contract. Stop-work orders are used when work needs to be suspended pending a decision by the government, such as during a protest or when a change in requirements is being considered. The contractor must comply immediately but is entitled to an equitable adjustment for costs incurred as a result of the stop-work order, including standby costs and the cost of resuming work.
How do contract modifications work?
Contract modifications come in two types: bilateral modifications (supplemental agreements) require the agreement of both parties and are used for changes within the scope of the contract, and unilateral modifications are issued by the contracting officer without the contractor's consent for actions authorized by specific contract clauses (such as the Changes clause, Options clause, or Government Property clause). All modifications must be within the scope of the original contract — changes outside the scope require a new procurement.
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