Overview of Govt. Property LiabilityOverview of Govt. Property Liability

Presented By:Presented By:

Henry Pielaet, Property Group, DCMA-AQBYEHenry Pielaet, Property Group, DCMA-AQBYE

April 3, 2014April 3, 2014

Purpose of Today’s BriefingPurpose of Today’s Briefing

Provide an overview of:

• Policy related to Government property (as defined in FAR part 52.245-1, April 2012 &DFARS 245)

• What is Government property loss

• Contractor, Property Administrator and Contracting Officer

responsibilities • The Ground and Flight Risk Clause (GFRC)

Regulatory GuidanceRegulatory Guidance

• Federal Acquisition Regulation (Part 45-Policy)• Main clause at 52.245-1 (April 2012)

• Specific contract terms and conditions

• DFARS (245-Policy)• 252.211-7007 (Reporting of GFE to the DoD UID registry)

• 252.245-7001 (Tagging, Labeling and Marking of GFP)

• 252.245-7002 (Reporting Loss of Government Property)

• 252.245-7003 (Contractor Property Mgmt. System Admin.)

• 252.245-7004 (Reporting, Reutilization, and Disposal)

• ILPs, Procedures, Guidance & Information

Federal Acquisition Regulation Federal Acquisition Regulation 52.245-1(f)(1)52.245-1(f)(1)

• (vi) Reports. The Contractor shall have a process to create and provide

reports of discrepancies, loss of Government property, physical

inventory results, audits and self-assessments, corrective actions, and

other property-related reports as directed by the Contracting Officer.

• (vii) Relief of stewardship responsibility and liability. The Contractor

shall have a process to enable the prompt recognition, investigation,

disclosure and reporting of loss of Government property, including

losses that occur at subcontractor or alternate site locations.

(A) This process shall include the corrective actions necessary

to prevent recurrence.

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Federal Acquisition Regulation 52.245-1(Cont.)Federal Acquisition Regulation 52.245-1(Cont.)

(B) Unless otherwise directed by the Property

Administrator, the Contractor shall investigate and

report to the Government all incidents of property

loss as soon as the facts become known. Such

reports shall, at a minimum, contain the following

information [FAR 52.245-1(f)(1)(vii)(B)(1) Through

(12)]:

(1) Date of incident (if known).

(2) The data elements required under (f)(1)(iii)(A).

(3) Quantity.

(4) Accountable contract number.

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Federal Acquisition Regulation 52.245-1(Cont.)Federal Acquisition Regulation 52.245-1(Cont.)

(5) A statement indicating current or future

need.

(6) Unit acquisition cost, or if applicable,

estimated sales proceeds, estimated repair or

replacement costs.

(7) All known interests in commingled material

of which includes Government material.

(8) Cause and corrective action taken or to be

taken to prevent recurrence.

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Federal Acquisition Regulation 52.245-1(Cont.)Federal Acquisition Regulation 52.245-1(Cont.)

(9) A statement that the Government will receive

compensation covering the loss of Government

property, in the event the Contractor was or will be

reimbursed or compensated.

(10) Copies of all supporting documentation.

(11) Last known location.

(12) A statement that the property did or did not

contain sensitive, export controlled, hazardous, or

toxic material, and that the appropriate agencies

and authorities were notified.

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What If the Loss Occurred at a Sub?What If the Loss Occurred at a Sub?

• It does not matter where the loss occurred• The prime contractor is responsible for its subs

• The contract terms and conditions for liability are between Government and prime contractor.

• What matters is who signed the contract.

• However…• The prime is required to flow down to its subs the “appropriate”

risk of loss provision.• If the prime flowed down full risk of loss and held its

subcontractor financially responsible, the Government would be entitled to the monies received (“otherwise reimbursed”).

When is a loss a “loss”?When is a loss a “loss”?

• All losses are not the same. Depends upon:• Type of property (equipment or material)

• Facts: “What happened?”

• Context (inventory adjustment or loss?)• Circumstances (due to inadequate storage? Lack of physical

security?)

• Losses are: “Unintended, unforeseen, or accidental loss, damage, destruction of GP that reduces the Government’s expected economic benefits.” [DFARs clause 252.245-7002]

Now in the FAR!

When is a loss a “loss”? (cont.)When is a loss a “loss”? (cont.)

•Property loss includes :• Property that can’t be found after a reasonable search, theft.

• Damage/destruction from unexpected incidents—rendering the item useless for its intended purpose.

•Losses are not:• Reasonable inventory adjustments [non-sensitive material,

common hardware]

• Destructive testing

• Obsolescence

• Normal wear and tear

• Manufacturing defects

When is a loss…etc.When is a loss…etc.

This is also a loss“Act of Nature”

(DFARS 252.245-7002)

When is a loss…etc.When is a loss…etc.

“…reasonable inventory adjustments of material typically a result of normal variation.” (DFARS 252.245-7002)

?

This is probably not a loss

Contractor Reporting RequirementsContractor Reporting Requirements

• Report property loss to the Property

Administrator:

• As soon as facts are known or

• Requested by the Government

• Data requirements: name, quantity, contract

number, etc.

• Facts surrounding the loss

• Prevent Loss from Reoccurrence, How?

Use of DCMA Property Loss 3.0 eTOOL is required per DFARS 252.245-7002

PA ResponsibilitiesPA Responsibilities •Review:

• Contract terms and conditions. Note: the Gov’t typically self-insures (assumption of risk/FAR 45.104) except for willful misconduct or lack of good faith (by managerial personnel).

•Examine facts and circumstances•Determine:

• Context/type of loss; causality & link to the property management system.• Appropriateness and effectiveness of any required corrective actions.

•Relieve contractor of responsibility and liability, or•Recommend the CO hold contractor responsible:

• Financially liable• Repair or replace• Obtain other consideration from the contractor

• REMINDER:• If the contractor’s submittal is not complete, the PA should reject the case in eTOOLS

Contracting Officer Resp.Contracting Officer Resp. •Review PA’s recommendation•Determine:

• Extent of contractor liability—what does the contract say?• “Intrinsic” value (value to the owner)

• Dynalectron Corp vs. U.S. (ASBCA No 29,831; 85-3 BCA para 18,320)

• Appropriate form and method of recovery• Repair• Replace• Other ($)

•Make the call; inform contractor•Update DCMA Loss eTOOL

GP is Lost or destroyed.Government STILL has a

current or probable Future need.LIABILITY VALUATION:

REPLACEMENTREPLACEMENT

GP is Lost or destroyed.Government has NO current or probable Future need.LIABILITY VALUATION:

SCRAP VALUESCRAP VALUE

GP is damagedGovernment still has a current or probable Future need.

VALUATION:REPAIR

GP is damagedGovernment has NO current or probable

Future need. VALUATION:

SALVAGESALVAGE

Intrinsic ValueIntrinsic Value

It’s A Matter of LawIt’s A Matter of Law

• The magnitude of the government’s resources The magnitude of the government’s resources

obviously makes it more advantageous for the obviously makes it more advantageous for the

Government to carry its own risks than to shift them Government to carry its own risks than to shift them

to private insurers at rates sufficient to cover all to private insurers at rates sufficient to cover all

costs, to pay their operating expenses, including costs, to pay their operating expenses, including

agency of broker’s commissions, and to leave such agency of broker’s commissions, and to leave such

insurers a profit [19 Comp. Gen 211, 214 (1939)]insurers a profit [19 Comp. Gen 211, 214 (1939)]

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Ground Flight Risk Clause Government (GFRC) & Flight Representative(GFR) Responsibilities

DFARS 228.370• Government should self insure its aircraft through the GFRC/AFRC:

228.370 requires DFARS 252.228-7001, The Ground Flight Risk

Clause (GFRC) and recommends DFARS 252.228.7005, The Aircraft

Accident Reporting and Investigation clause.

• GFR ensures compliance with Contractor’s Combined Instructions

and Operations Procedures, and the Contractor will cooperate in

mishap investigations involving Aircraft.

• GFRC (2010), Indemnification

• The new GFRC, dated 8 June 2010, is used in all non-commercial

DoD aircraft contracts for aircraft production, modifications,

maintenance, repair, or overhaul. The GFRC indemnifies contractors

from absorbing mishap costs ($100,000 or 20% of contract price,

deductible).

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GFRC Definitions GFRC Definitions

Aircraft to be delivered to the Government under this contract

(either before or after Government acceptance), including complete

aircraft and aircraft in the process of being manufactured,

disassembled, or reassembled; provided that an engine, portion of

a wing, or a wing is attached to the fuselage of the aircraft.

(a)(6) ‘In the Open’ (APT Reference Book Volume I – TAB E)

In the Open means located wholly outside of buildings on the

Contractor’s premises or other places described in the Schedule as

being “in the open.” Government-furnished aircraft shall be

considered to be located “in the open” at all times while in the

Contractor’s possession, care, custody, or control.

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GFRC Definitions (Cont.)GFRC Definitions (Cont.)

• Workmanship Loss Example:

During modification of a GFE aircraft, a contractor’s worker

cuts a hole into the wing spar twice the appropriate

diameter. The wing spar with the hole must be replaced

at a cost of $200K. The contract is valued at $75M.

What is the extent of the Government’s liability? How

much is the contractor responsible for?

-Contractor is liable for all $200,000.

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The Ground & Flight Risk Clause/GFR The Ground & Flight Risk Clause/GFR Determines Loss Determines Loss

• The GFRC establishes the Government’s assumption of

risk for aircraft damage, loss, or destruction while in

possession of the contractor. This includes leased

(contractor to the Government) and bailed aircraft. This

clause also establishes GFR authority to approve

contractor flights, flight crewmembers, and flight and

ground operations Procedures.

• Only the GFR has authority determine Loss when aircraft

is in flight or out in the open, not the PA.

• The GFRC is usually found in section H or section I of

the contract.

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Overview of Govt. Property LiabilityOverview of Govt. Property Liability

Questions and Discussion

Thank You!

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