FAR 42.901—General.
Plain-English Summary
FAR 42.901 is a short but important risk-management provision focused on contractor bankruptcy. It assigns the contract administration office the duty to act quickly when a contractor appears to be insolvent, has filed for bankruptcy, or otherwise may be heading into bankruptcy, so the Government can assess the effect on ongoing contracts and protect its interests. In practice, this means identifying whether performance, delivery schedules, payments, property, records, or other contract rights may be disrupted, and then taking timely steps to preserve the Government’s position. The section is about early detection and prompt response, not about resolving bankruptcy law issues in detail; it serves as the trigger for closer review, coordination, and protective action. For contracting personnel, it underscores that bankruptcy is not just a legal event for the contractor—it is an immediate contract administration concern that can affect performance continuity, recovery of Government property, and the Government’s financial exposure.
Key Rules
Prompt impact assessment
The contract administration office must act without delay to determine how a contractor bankruptcy may affect the Government. The emphasis is on speed, because delay can reduce the Government’s ability to protect payments, property, and ongoing performance.
Protect Government interests
The purpose of the assessment is to safeguard the Government’s interests, not merely to document the bankruptcy. This includes evaluating risks to contract performance, deliverables, funds, and any Government-owned or Government-furnished property.
Contract administration responsibility
The duty is placed on the contract administration office, meaning the office responsible for administering the contract must lead the response. This is an administrative action tied to contract oversight, not a passive or optional review.
Potential impact focus
The rule requires determining the potential impact of the bankruptcy, which means looking at likely consequences rather than waiting for actual default or termination. The office should consider both immediate and downstream effects on the contract and the Government’s position.
Responsibilities
Contract Administration Office
Promptly assess the potential impact of a contractor bankruptcy on the Government, identify risks to contract performance and Government interests, and take timely administrative steps to protect those interests.
Contracting Officer
Support or direct the contract administration response as needed, coordinate protective actions, and ensure the Government’s contractual rights and remedies are preserved.
Agency
Provide the administrative structure and coordination needed to respond quickly to bankruptcy-related risks, including communication among legal, finance, property, and program personnel when necessary.
Contractor
While not assigned a duty by this section, the contractor’s bankruptcy status triggers the Government’s review and may require the contractor to continue complying with contract and bankruptcy-related obligations.
Practical Implications
This section is an early-warning requirement: once bankruptcy risk appears, the Government should not wait for performance to collapse before acting.
Common pitfalls include slow internal escalation, failing to coordinate with legal counsel, and overlooking property, payment, or subcontracting issues that can be affected by bankruptcy.
Contract administration teams should quickly review open invoices, progress payments, Government property, deliverables, and schedule risk to understand exposure.
The section is intentionally broad, so agencies should treat it as a trigger for immediate fact-finding and protective planning rather than a complete bankruptcy procedure.
For contractors, bankruptcy can prompt heightened Government scrutiny and faster administrative action, so timely communication and accurate status information are critical.
Official Regulatory Text
The contract administration office shall take prompt action to determine the potential impact of a contractor bankruptcy on the Government in order to protect the interests of the Government.