13 CFR 124.518 - How can an 8(a) contract be terminated or novated before performance is completed?

U.S. Code of Federal Regulations

Regulations most recently checked for updates: Feb 11, 2026

View all text of Subpart A [§ 124.1 - § 124.704]

§ 124.518 - How can an 8(a) contract be terminated or novated before performance is completed?

(a) Termination for default. A decision to terminate a specific 8(a) contract for default can be made by the procuring activity contracting officer after consulting with SBA. The contracting officer must advise SBA of any intent to terminate an 8(a) contract for default in writing before doing so. SBA may provide to the Participant any program benefits reasonably available in order to assist it in avoiding termination for default. SBA will advise the contracting officer of this effort. Any procuring activity contracting officer who believes grounds for termination continue to exist may terminate the 8(a) contract for default, in accordance with the Federal Acquisition Regulations (48 CFR chapter 1). SBA will have no liability for termination costs or reprocurement costs.

(b) Termination for convenience. After consulting with SBA, the procuring activity contracting officer may terminate an 8(a) contract for convenience when it is in the best interests of the Government to do so. A termination for convenience is appropriate if any disadvantaged owner of the Participant performing the contract relinquishes ownership or control of such concern, or enters into any agreement to relinquish such ownership or control, unless a waiver is granted pursuant to § 124.515.

(c) Substitution of one 8(a) contractor for another. SBA may authorize another Participant to complete performance and, in conjunction with the procuring activity, permit novation of an 8(a) contract where a procuring activity contracting officer demonstrates to SBA that the Participant that was awarded the 8(a) contract is unable to complete performance, where an 8(a) contract will otherwise be terminated for default, or where SBA determines that substitution would serve the business development needs of both 8(a) Participants. In determining whether a substitution would serve the business development needs of both 8(a) Participants, SBA will consider whether the substitution would allow a Participant to circumvent program policies or impede the interests of the program.

Example 1 to paragraph (c):Participant A anticipates it will not meet its applicable business activity target (BAT). Participant A seeks to transfer an 8(a) contract to another eligible 8(a) Participant through the substitution process and then perform a significant portion of that contract as a subcontractor to the new 8(a) Participant because the revenue from the subcontract will accrue to Participant A as non-8(a) revenue. SBA would not approve such a substitution because doing so would allow Participant X to circumvent the BAT requirement. Example 2 to paragraph (c):Participant B is performing the last option period of performance under an 8(a) contract it won through competition. Participant B has graduated from the 8(a) Business Development (BD) program and will therefore not be eligible to receive the contract for the follow-on requirement. Participant B seeks to transfer its contract to Participant C, a sister company owned by the same Tribe/Alaska Native Corporation/Native Hawaiian Organization/Community Development Corporation, to allow Participant C to be the incumbent contractor when the procuring agency seeks to procure the follow-on procurement as an 8(a) sole source contract. SBA regulations governing entity participation in the 8(a) BD program prohibit a Participant from receiving an 8(a) sole source contract that is a follow-on contract to an 8(a) contract that was performed immediately previously by a sister company. Participant C would therefore not be eligible to receive the sole source follow-on contract to Participant B's 8(a) contract if contract performance ended under Participant B. SBA would not approve such a substitution because doing so would impede these policies. Example 3 to paragraph (c):Participant D competed for and won a spot on a multiple award, Indefinite Quantity, Indefinite Delivery 8(a) contract. Participant D has exceeded the size standard under the NAICS code assigned to the contract and is therefore no longer eligible to receive sole source task orders issued under the contract; Participant D may, however, continue to receive competitive orders. Participant D seeks to transfer the contract to another eligible 8(a) Participant through the substitution process. SBA would not approve such a substitution because doing so would not serve its business development needs.

(d) Novation to the lead partner to an 8(a) joint venture. A joint venture that was awarded an 8(a) contract may seek to novate the 8(a) contract to the lead 8(a) Participant to the joint venture, provided each member of the joint venture agrees to such novation and the non-lead 8(a) joint venture partner will transfer all assets needed to perform the contract to the lead 8(a) Participant. In order for SBA to authorize novation, SBA must determine that the 8(a) Participant seeking to be novated the contract continues to meet all 8(a) eligibility requirements as if for a new 8(a) contract at the time of novation and the procuring agency must determine that the 8(a) firm is capable and responsible to perform the contract.

[63 FR 35739, June 30, 1998, as amended at 85 FR 66191, Oct. 16, 2020; 89 FR 102490, Dec. 17, 2024]