1. Overview of Govt. Property Liability
Presented By:
Henry Pielaet, Property Group, DCMA-AQBYE
April 3, 2014

2. Purpose of Today’s Briefing
Provide an overview of:
Policy related to Government property (as defined in FAR part , April 2012 &DFARS 245)
What is Government property loss
Contractor, Property Administrator and Contracting Officer responsibilities
The Ground and Flight Risk Clause (GFRC)

3. Regulatory Guidance Federal Acquisition Regulation (Part 45-Policy)
Main clause at (April 2012)
Specific contract terms and conditions
DFARS (245-Policy)
(Reporting of GFE to the DoD UID registry)
(Tagging, Labeling and Marking of GFP)
(Reporting Loss of Government Property)
(Contractor Property Mgmt. System Admin.)
(Reporting, Reutilization, and Disposal)
ILPs, Procedures, Guidance & Information

4. Federal Acquisition Regulation 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. 4

5. 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 (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. 5

6. 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. 6

7. 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. 7

8. 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”).

9. 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 ]
Now in the FAR!

10. 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

11. This is also a loss “Act of Nature” When is a loss…etc.
(DFARS )

12. When is a loss…etc. This is probably not a loss?
This is probably not a loss
“…reasonable inventory adjustments of material typically a result of normal variation.”
(DFARS )

13. Contractor 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

14. PA Responsibilities Review:
Contract terms and conditions. Note: the Gov’t typically self-insures (assumption of risk/FAR ) 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

15. 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

16. Intrinsic Value REPLACEMENT SCRAP VALUE GP is Lost or destroyed.
Government STILL has a
current or probable
Future need.
LIABILITY VALUATION:
REPLACEMENT
Government has NO
SCRAP VALUE
GP is damaged
Government still has a
VALUATION:
REPAIR
SALVAGE
Intrinsic Value

17. It’s A Matter of Law
The magnitude of the government’s resources obviously makes it more advantageous for the Government to carry its own risks than to shift them to private insurers at rates sufficient to cover all costs, to pay their operating expenses, including agency of broker’s commissions, and to leave such insurers a profit [19 Comp. Gen 211, 214 (1939)] 17

18. Ground Flight Risk Clause Government (GFRC) & Flight Representative(GFR) Responsibilities
DFARS
Government should self insure its aircraft through the GFRC/AFRC: requires DFARS , The Ground Flight Risk Clause (GFRC) and recommends DFARS , 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). 18

19. 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. 19

20. 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. 20

21. The Ground & Flight Risk Clause/GFR 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. 21

22. Overview of Govt. Property Liability
Questions and Discussion Thank You! 22