42.902 Procedures
Source: FAR 42.902 on acquisition.gov
When notified of a contractor's bankruptcy, agencies must promptly coordinate with legal counsel, assess potential claims, and take steps to protect the Government’s interests.
Overview
FAR 42.902 outlines the required procedures for agencies when notified of a contractor's bankruptcy. The regulation ensures that agencies take prompt and coordinated action to protect the Government’s interests, including notifying relevant offices, assessing potential claims, safeguarding property, and consulting with legal counsel before taking further steps. The section emphasizes the importance of communication and legal coordination in managing the risks associated with contractor bankruptcy.
Key Rules
- Notification and Coordination
- Agencies must promptly distribute bankruptcy notices to legal counsel, contracting, financial, property offices, and affected buying activities.
- Assessment of Government Claims
- Agencies must determine the Government’s potential claim by reviewing all open, completed, or terminated contracts with the bankrupt contractor.
- Protection of Government Interests
- Agencies must take necessary actions to protect financial interests and safeguard Government property.
- Information Sharing
- Agencies must provide relevant contract information to the Government’s legal counsel.
- Legal Consultation
- Contracting officers must consult with legal counsel before taking any action related to the bankruptcy proceedings.
Responsibilities
- Contracting Officers: Must consult legal counsel before acting and ensure all required notifications and assessments are completed.
- Contractors: No direct compliance requirements in this section, but their bankruptcy triggers these agency actions.
- Agencies: Must coordinate internally, assess claims, protect interests, and communicate with legal counsel.
Practical Implications
- This section exists to minimize financial and property risks to the Government when a contractor files for bankruptcy.
- It impacts daily contracting by requiring immediate, coordinated action and legal oversight.
- Common pitfalls include failing to notify all relevant offices, incomplete assessment of claims, or acting without legal guidance.
(a) When notified of bankruptcy proceedings, agencies shall, as a minimum-
(1) Furnish the notice of bankruptcy to legal counsel and other appropriate agency offices (e.g., contracting, financial, property) and affected buying activities;
(2) Determine the amount of the Government’s potential claim against the contractor (in assessing this impact, identify and review any contracts that have not been closed out, including those physically completed or terminated);
(3) Take actions necessary to protect the Government’s financial interests and safeguard Government property; and
(4) Furnish pertinent contract information to the legal counsel representing the Government.
(b) The contracting officer shall consult with legal counsel, whenever possible, prior to taking any action regarding the contractor’s bankruptcy proceedings.