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FAR Part 45

Government PropertyOverview

FAR Case 2004-025

1 Some material in this presentation is based on Tom Ruckdaschel’s NCMA Presentation, dated April 25, 2007.2 Much material used with permission from Mark Olague of Boeing World Headquarters

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Highlights of New Rule• Effective 14 June 2007• Over 80% of current FAR (property) language

eliminated, including 14 clauses;• Only 3 clauses with 2 alternates

– One basic Government property clause for all contractor requirements

• Part 45 is now strictly limited to requirements placed upon the Government

• Greater justification for furnishing GP (45.102)• Contractor managed self-assessment programs• No more property control system approvals

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Why Change?• No Major changes in Government Property rules in 50

years• Simplify procedures• Clarify and delete obsolete definitions• Eliminate Obsolete Requirements• Establish a life-cycle approach to Property Management• Use Voluntary Consensus Standards and Industry

Leading Practices vs Government unique requirements• FAR Part 11 describes Agency needs & Use of VCS’s• OMB Circular A-119 mandates use of VCS’s vs

Government unique standards• Limited Risk of loss provision becomes default on most

negotiated fixed price contracts

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What’s Out• 52.245-6 - Liability for Government Property (Demolition Services

Contracts)• 52.245-7 Government Property (Consolidated Facilities)• 52.245-8 Liability for the Facilities• 52.245-10 Government Property (Facilities Acquisition)• 52.245-11 Government Property (Facilities Use)• 52.245-12 Contract Purpose (Nonprofit Educational Institutions)• 52.245-13 Accountable Facilities (Nonprofit Educational Institutions)• 52.245-14 Use of Government Facilities• 52.245-15 Transfer of Title to the Facilities• 52.245-16 Facilities Equipment Modernization• 52.245-17 Special Tooling• 52.245-18 Special Test Equipment

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Greater justification for furnishing GP (45.102)

• All prongs of the rule must be met to provide government property.“Contracting officers shall provide property to contractors only when it is clearly demonstrated --

(1) To be in the Government's best interest;(2) That the overall benefit to the procurement

significantly outweighs the increased cost of administration, including ultimate property disposal;

(3) That providing the property does not substantially increase the Government's assumption of risk; and

(4) That Government requirements cannot otherwise be met.”

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IMPACT OF NO ST/STE CLAUSES

• Absent ST or STE clause, Government must have a separately priced CLIN if they want title to ST or STE on a negotiated fixed price contract

• Contractor retains title to ST/STE on negotiated FP contracts• Check cost accounting disclosure statement regarding

accounting treatment for such charges; e.g. charged indirect as capital equipment; program specific ST/STE charged as “cost of goods sold”, etc.

• Risk of loss now with Contractor on FP contracts, may impact insurance costs, etc.

• Government still obtains title to “equipment” charged direct to Cost Reimbursement contracts

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Government Property

• Government Property is:– Real Property– Equipment– Special Tooling– Special test Equipment– Repairables– Material– Intellectual Property is not covered by this rule

(see FAR Part 27)

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Applicability of the Property Clause

– 52.245-1 – Government Property– Used in:

• All cost-reimbursement, time and material, and labor hour type solicitations and contracts

• All fixed-price solicitations and contracts when the Government will provide Government Property (e.g. FP contract awarded on the basis of submission of cost or pricing data)

• All Contracts or modifications awarded under FAR Part 12 procedures where Government Property that exceeds the simplified acquisition threshold

– Note: Service contracts for repair are not excluded--they still require the property clause!

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FLOW DOWN

• No longer need to have prior Contracting Officer approval to flow down the “limited risk of loss”provision to subcontractors.

• Greater responsibility to manage the subcontractor as Government may find that inadequate sub control constitutes an inadequate prime contractor control system

• In such cases, Government may withdraw assumption of risk for prime contractor.

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Applicability of the Property Clause cont.

Note: the Clause 52.245-1 has two Alternates:– ALTERNATE I: used in contracts with adequate price

competition, i.e., Fixed Price.• Different liability provision. For such contracts, the contractor

is liable for loss, damage, destruction, theft• Contractor not responsible for normal wear and tear or

consumption in performing the contract• Government position is that it has already paid for any

insurance required by the award – any additional coverage for loss, damage, destruction, or theft would require

– ALTERNATE II: used in contracts involving basic or applied research at non profit institutions of higher education or non profit organizations involved in scientific research

• Different title vesting provisions (statutory)

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Applicability of the Property Clause cont.

– 52.245-2 - Government Property Installations Operation Services

• Used in service contracts to be performed on a Government installation when Government-Furnished property will be provided

• This Clause provides for the initial provisioning of property; the Government is not responsible for repair or replacement

• Property provided “as-is”

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Applicability of the Property Clause cont.

• 52.245-9 Use and Charges– Describes the amount of rent that will be

charged for use of government property.– Removes the term “equipment” and

substitutes it with “plant equipment”• Personal property of a capital nature, including

equipment, machine tools, test equipment, furniture and vehicles.

• Special tooling and Special Test Equipment are not included

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Contractor Responsibilities

• 52.245-1 Government Property– “The Contractor shall have a system to manage

(control, use, preserve, protect, repair and maintain Government property in its possession.”

– “The Contractor shall initiate and maintain the processes, systems, records, and methodologies necessary for effective control of Government property…consistent with voluntary consensus standards and/or industry-leading practices and standards for Government property management.”

52.245-1(b)(1)

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Contractor Responsibilities

• When Property is provided “as-is”:– Government makes no warranty regarding the

suitability for use of the Government property specified in the contract

– Must be carefully inspected prior to acceptance– May be rejected if unsuitable– Once accepted, contractor is responsible for

replacement of the property at Contractor expense– The Contractor shall have title to all replacement

property and shall continue to be responsible for contract performance

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Government Responsibilities– 45.105 Analysis of Contractor’s Property

Management System• a) “The agency responsible for contract administration shall

conduct an analysis of the contractor’s property management policies, procedures, practices, and system

• b) The property administrator shall notify the contractor in writing when the contractor’s property management system does not comply with contractual requirements, and shall request prompt correction of deficiencies…” Failure to take corrective action may result in:

– Revocation of the Government’s assumption of risk– Other rights and remedies available to the Contracting Officer

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Government Responsibilities (cont.)

– The Contracting Officer can revoke the Government’s assumption of risk when contractor’s property management practices are inadequate or present an undue risk to the Government

– This is equivalent to the old concept of “withdrawing” the approval of a contractor’s property control system

Major change: the Government will no longer “approve”a contractor’s property control system

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Solicitation Requirements and Evaluation

• “The contracting officer shall insert a listing of the Government property [available] to be offered in all solicitations where Government-furnished property is anticipated (see FAR 45.102).

SAME REQUIREMENT BUT…PROVIDES GREATER SPECIFICITY IN THE DATA REQUIRED ON THE PART OF THE GOVERNMENT

45.201(a)

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Solicitation Requirements and Evaluation (cont.)

• “The solicitation shall describe the evaluation procedures to be followed, including rental charges or equivalents and other costs or savings to be evaluated, and shall require all offerors to submit the following information with their offers:

CO MUST DESCRIBE EVALUATION PROCEDURES IN REGARD TO GPCO MUST ALSO INCLUDE IN SOLICITATION A REQUEST FOR

INFORMATION - EACH CO IS GOING TO NEED TO CRAFT CONTRACTUAL LANGUAGE TO ACCOMPLISH THIS.

45.201(c)

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Solicitation Requirements and Evaluation. (cont.)

• “A list or description of all Government property that the offeror or its subcontractors propose to use on a rent-free basis. The list shall identify the accountable contract under which the property is held and the authorization for its use (from the contracting officer having cognizance of the property).”

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Solicitation Requirements and Evaluation (cont.)

• “The dates during which the property will be available for use (including the first, last, and all intervening months) and, for any property that will be used concurrently in performing two or more contracts, the amounts of the respective uses in sufficient detail to support prorating the rent.”

• “The amount of rent that would otherwise be charged in accordance with the clause at 52.245-9, Use and Charges.”

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Solicitation Requirements and Evaluation (Cont.)

• “The voluntary consensus standard or industry leading practices and standards may be used in the management of Government property (e.g.ISO 9000)

• Contractor can also use existing property management plans, methods, practices, or procedures for accounting for property.”– Must be able to pass a Government audit

•CONTRACTOR WILL BE REQUIRED TO PROVIDE A PROPERTY MANAGEMENT PLAN, NOTE – WE ARE NOT ASKING CONTRACTORS TO SUBMIT THEIR PROCEDURES!!!

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Solicitation Requirements and Eval. (cont.)

• “When use of property on more than one contract is anticipated, any additional instructions to the contractor regarding property management, accountability, and use, not addressed in FAR Clause 52.245-1, Government Property, should be specifically addressed in the statement of work on the contract providing property.”

AGENCIES MAY IMPOSE OTHER PROPERTY RELATED REQUIREMENTS. THESE MUST BE SPELLED OUT IN THE SOW!

e.g., Army, Navy, Air Force Regs., ARMS ACT issues for the Army Ammo Plants, GOCO requirements, etc.

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Solicitation Requirements and Eval. (cont.)

• Agencies may impose other property related requirements. these must be spelled out in the sow!– e.g., Army, Navy, Air Force Regs., ARMS ACT issues

for the Army Ammo Plants, GOCO requirements, etc.

WHILE IN THE PAST THIS WAS AN IMPLICIT REQUIREMENT IT IS NOW A SPECIFIC TASK IMPOSED UPON THE CO.

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Requests for Equitable Adjustment

• If government property is not received in the condition suitable for its intended use, or by the dates stated in the contract:– Contractor must submit a request for

equitable adjustment.– CO shall only consider an equitable

adjustment

IN THE PAST IT STATED THAT THE CO “SHALL” MAKE AN EQUITABLE ADJUSTMENT

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DoD Policy

• DoD Policy letter issued 10/26/2007• Gives guidance to implement new Gov’t

Property Rule via Block Change if it is in the Government’s best interest.

• Acknowledges “new policy” is beneficial to both Gov’t and Contractors.

• Consideration may be inherent operational and process efficiency.

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DoD Policy Letter

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