Government and Contractor Responsibilities for Loss of Government - - PowerPoint PPT Presentation

IND 105 - LESSON 8

Government and Contractor Responsibilities for Loss of Government Property

Government and Contractor Responsibilities for Loss of Government Property

TLO 8- Given an incident of loss involving contract Government property, demonstrate the contractor’s and Government’s responsibilities under the contract.

• 1. Distinguish limited risk of loss from full risk of loss.
• 2. Identify contractor responsibilities for reporting loss of

Government property under FAR and DFARS.

• 3. Identify Property Administrator responsibilities when loss of

Government property has been reported by the contractor.

• 4. Identify the conditions under which the Property Administrator

shall determine relief of stewardship responsibility and/or recommend liability.

• 5. Identify property loss provisions under the Government Flight

Risk Clause DFARS 252.228-7001.

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Loss of Government Property

Government Policy

• FAR 45.107 Contractors’ PMS Compliance
• FAR 45.104 Responsibility and Liability for Government Property
• DFARS 245.104 Responsibility and Liability for Government Property
• DFARS 228.370 Insurance -- Additional Clauses
• Contract Clauses
• 52.245-1 (f)(1)(vii) Relief of Stewardship and Responsibility
• 52.245-1 (h)(1) Contractor Liability for Government Property
• 252.245-7002 Reporting Loss of Government Property
• DFARS 252.228-7001 Ground and Flight Risk Clause

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“Loss of Government property” means unintended, unforeseen

• r accidental loss, damage or destruction to Government property

that reduces the Government’s expected economic benefits of the property. Loss of Government property does not include –

• 1. purposeful destructive testing,
• 2. obsolescence,
• 3. normal wear and tear, or
• 4. manufacturing defects

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Government as a Self-Insurer ELO1

FAR 52.245-1 & DFARS 252.245- 7002

Government Property Loss

Loss of Government property includes, but is not limited to— (1) Items that cannot be found after a reasonable search; (2) Theft; (3) Damage resulting in unexpected harm to property requiring repair to restore the item to usable condition; or (4) Destruction resulting from incidents that render the item useless for its intended purpose or beyond economical repair.

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FAR 52.245-1 & DFARS 252.245- 7002

Government as a Self-Insurer ELO1

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Why does the Government act as a Self-Insurer?

• The Government assumes the risk in order to reduce overall contract cost

Why does the Government assume the risk?

• We leverage the contractor’s Acceptable Property Management System to

manage loss.

Limited vs Full Risk of Loss ELO 1

Limited Risk of Loss Typically the contractor is not held liable for the loss of Government property. The Government assumes the liability for risk of loss. The contractor may be held liable under the conditions of paragraph (h). Full Risk of Loss The contractor is liable for any loss of or damage to Government property provided under the contract except for reasonable wear and tear or for consumption in performing the contract.

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Limited Risk of Loss ELO 1

(h) Contractor Liability for Government Property.

(1) Unless otherwise provided for in the contract, the Contractor shall not be liable for loss of Government property furnished or acquired under this contract, except when any one of the following applies—

(i) The risk is covered by insurance or the Contractor is otherwise reimbursed (to the extent

• f such insurance or reimbursement). The allowability of insurance costs shall be

determined in accordance with 31.205-19. (ii) Loss of Government property that is the result of willful misconduct or lack of good faith on the part of the Contractor's managerial personnel. 8

FAR 52.245-1

(h) Contractor Liability for Government Property. (cont.)

(iii) The Contracting Officer has, in writing, revoked the Government's assumption of risk for loss of Government property due to a determination under paragraph (g) of this clause that the Contractor's property management practices are inadequate, and/or present an undue risk to the Government, and the Contractor failed to take timely corrective action. If the Contractor can establish by clear and convincing evidence that the loss of Government property occurred while the Contractor had adequate property management practices or the loss did not result from the Contractor's failure to maintain adequate property management practices, the Contractor shall not be held liable.

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FAR 52.245-1

Limited vs. Full Risk of Loss ELO 1

(f)(vii) Relief of Stewardship responsibility and liability (c) Unless the contract provides otherwise, the Contractor shall be relieved of stewardship responsibility and liability for property when—

(1) Such property is consumed or expended, reasonably and properly, or

• therwise accounted for, in the performance of the contract, including

reasonable inventory adjustments of material as determined by the PA; (2) PA grants relief of responsibility and liability for loss of Government property; (3) Property is delivered or shipped from the Contractor’s plant, under Government instructions, except when shipment is to a subcontractor or other location of the Contractor; or (4) Property is disposed of IAW paragraphs (j) & (k) of the Government Property Clause at FAR 52.245-1.

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FAR 52.245-1

Limited vs. Full Risk of Loss ELO 1

Alternate I (Apr 2012). As prescribed in 45.107 (a)(2), substitute the following for paragraph (h)(1) of the basic clause: (h)(1) The Contractor assumes the risk of, and shall be responsible for, any loss of Government property upon its delivery to the Contractor as Government-furnished property. However, the Contractor is not responsible for reasonable wear and tear to Government property or for Government property properly consumed in performing this contract.

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FAR 52.245-1 Alt I

Full Risk of Loss ELO 1

(h) Contractor Liability for Government Property.

(2) The Contractor shall take all reasonable actions necessary to protect the property from further loss. The Contractor shall separate the damaged and undamaged property, place all the affected property in the best possible order, and take such other action as the Property Administrator directs. (3) The Contractor shall do nothing to prejudice the Government's rights to recover against third parties for any loss of Government property. (4) The Contractor shall reimburse the Government for loss of Government property, to the extent that the Contractor is financially liable for such loss, as directed by the Contracting Officer. (5) Upon the request of the Contracting Officer, the Contractor shall, at the Government's expense, furnish to the Government all reasonable assistance and cooperation, including the prosecution of suit and the execution of instruments of assignment in favor of the Government in obtaining recovery.

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FAR 52.245-1

Contractor Reporting Requirements

ELO 2

Process of Reporting Loss of Government property (vi) Reports. The Contractor shall have a process to create and provide reports of discrepancies, loss of Government property, physical inventory, audits and self-assessments, corrective actions, and other property related reports as directed by the CO. Contractors shall establish and implement property management plans, systems, and procedures for reporting loss of Government Property at the contract, program, site or entity level.

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FAR 52.245-1 (f)(1)

Contractors Reporting Requirements

ELO 2

(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. This must be included in the Contactor’s PMS. (A) This process shall include the corrective actions necessary to prevent recurrence. (B) Unless otherwise directed by the PA, the Contractor shall investigate and report to the Government all incidents of property loss as soon as the facts become known…

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Contractors Reporting Requirements

ELO 2

FAR 52.245-1 (f)(1)

The Reporting Requirements for Loss of Government Property:

(iiv)(B) …Such reports shall, at a minimum, contain the following information: (1) Date of incident (if known). (2) The data elements required under (f)(1)(iii)(A). (3) Quantity. (4) Accountable contract number. (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 or which includes Government material.

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Contractors Reporting Requirements ELO 2

FAR 52.245-1 (f)(1)

The Reporting Requirements for Loss of Government Property: (8). Cause and corrective action taken and preventive actions to be taken. (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 appropriate agencies and authorities were notified.

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FAR 52.245-1

Contractors Reporting Requirements ELO 2

Provides the Requirement for Using eTools by the Contractor: (1) The Contractor shall use the Defense Contract Management Agency (DCMA) eTools software application for reporting loss of Government property. Reporting value shall be at unit acquisition cost. The Property Loss eTool can be accessed from the DCMA home page External Web Access Management application at http://www.dcma.mil/aboutetools. eTools is a software application for reporting loss of Government Property and is available on the internet

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Contractors Reporting Requirements ELO 2

DFARS 252.245- 7002

PA Responsibilities when Loss is Reported ELO 3

Determine and/or recommend to the Contracting Officer

• The Contractors extent of liability if applicable
• The appropriate form and method of Government Recovery (repair,

replacement, or other restitution)

• Content provided within the contractors property loss report is accurate
• Root cause and corrective actions are adequate for the prevention of loss

reoccurrence

• Relief of liability when applicable
• Contractor Liability and appropriate amount when applicable
• Provide the Contracting Officer with copy of contractor’s relief letter

Close out the property loss case in the Property Loss eTool.

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If Reporting Loss of Government Property clause, is NOT included in the contract, the Contractor shall report the loss in accordance with the contract terms and conditions.

• The PA shall upload the Property Loss report into the Property Loss eTool

if the DFARS 252.245-7002 is not included in the contract.

• The Government’s responsibility for reporting loss of Government Property

are found in, (f)(vii) Relief of Stewardship Responsibility and Liability.

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Guidebook for Contract Property Administration

PA Responsibilities when Loss is Reported ELO 3

In order for the PA to provide relief of liability the PA must investigate and ensure:

• The Government asset reported as a loss, is accountable to a Government

contract

• The contract contains the 52.245-1 Government Property clause
• Ensure limited risk has not been withdrawn by the Contracting Officer due

to noncompliance issues or the inclusion of the Alt I within the contract

• If loss occurred at a subcontractor site, the Prime Contractor flowed limited

risk down to the subcontractor

• Validate the cost of repair provided by Contractor
• Validate the acquisition cost provided by Contractor

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FAR 52.245-1

Conditions for Relief of Liability ELO 4

(h) Contractor Liability for Government Property.

(2) PA grants relief of responsibility and liability for loss of Government property; (3) Property is delivered or shipped from the Contractor’s plant, under Government instructions, except when shipment is to a subcontractor or

• ther location of the Contractor; or

(4) Property is disposed of IAW paragraphs (j) & (k) of the Government Property Clause at FAR 52.245-1.

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FAR 52.245-1

Conditions for Relief of Stewardship ELO 4

Government Flight Risk Clause ELO5

What is the Ground Flight Risk Clause?

• Provides federal requirements on the relationship between contractors and

Defense Contract Management Agency (DCMA), performing work on Aircraft being manufactured, disassembled, or reassembled.

• Gives specific definitions of who is liable for loss during the critical period
• f initial tests and test flights of a government airplane, helicopter,

unmanned vehicle, or other aerial vehicle.

• Applies a shared risk of loss between the contractor and the Government.

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DFARS 252.228- 7001 DFARS 228.370 DCMA INST 8210.1C

Government Flight Risk Clause ELO5

Prescribed by DFARS 228.370:

“Use the clause at 252.228-7001, Ground and Flight Risk, in all solicitations and contracts for the acquisition, development, production, modification, maintenance, repair, flight, or overhaul of aircraft…” Invokes the Combined Instruction, DCMA INST 8210.1C * , “Contractor’s Flight and Ground Operations”.

(b)(3) DFARS 252.228-7001, Ground and Flight Risk Clause, requires the assignment

• f a Government Flight Representative (GFR) to administer the requirements of the

combined instruction

* aka AR95-20 (Army), AFI 10-220 (Air Force), NAVAIRINST 3710.1G (Navy), and COMDTINST M13020.3A (Coast Guard) 23

DFARS 228.370 & DFARS 252.228- 7001

Government Flight Risk Clause ELO5

Contractor must establish and maintain a separate set of Contractor Flight and Ground Operations Procedures; approved by the GFR annually. IMPORTANT!!! The Ground Operation Procedures are not the same as the Property Management System Procedures. Contractor is liable for the first $100K of damage or 20% of the contract cost; whichever is less. Incentivizes Contractor to assure safe and effective operations, thus assuring “Better Acquisitions Outcomes”

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DFARS 252.228- 7001 & DCMA INST 8210.1C

Government Flight Risk Clause ELO5

(c) Government as self-insurer. Subject to the conditions in paragraph (d) of this clause, the Government self-insures and assumes the risk of damage to, or loss or destruction of aircraft “in the open,” during “operation,” and in “flight,” except as may be specifically provided in the Schedule as an exception to this clause. The Contractor shall not be liable to the Government for such damage, loss,

• r destruction beyond the Contractor’s share of loss amount under the

Government’s self-insurance.

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(a)(1) “Aircraft,” unless otherwise provided in the contract Schedule, means— (i) 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 a fuselage of the aircraft;

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(a)(1) “Aircraft,” (cont.) (ii) Aircraft, whether in a state of disassembly or reassembly, furnished by the Government to the Contractor under this contract, including all Government property installed, in the process of installation, or temporarily removed; provided that the aircraft and property are not covered by a separate bailment agreement; (iii) Aircraft furnished by the Contractor under this contract (either before or after Government acceptance); or (iv) Conventional winged aircraft, as well as helicopters, vertical take-off or landing aircraft, lighter-than-air airships, unmanned aerial vehicles, or other non-conventional aircraft specified in this contract.

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(a)(6) “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,

• r control.

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(4) “Flight” means any flight demonstration, flight test, taxi test, or other flight made in the performance of this contract, or for the purpose of safeguarding the aircraft, or previously approved in writing by the Contracting Officer. (i) For land based aircraft, “flight” begins with the taxi roll from a flight line on the Contractor's premises and continues until the aircraft has completed the taxi roll in returning to a flight line on the Contractor's premises; (ii) For seaplanes, “flight” begins with the launching from a ramp on the Contractor's premises and continues until the aircraft has completed its landing run and is beached at a ramp on the Contractor's premises;

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(4) “Flight” (cont.) (iii) For helicopters, “flight” begins upon engagement of the rotors for the purpose of take-off from the Contractor's premises and continues until the aircraft has returned to the ground on the Contractor's premises and the rotors are disengaged. (iv) For vertical take-off or landing aircraft, “flight” begins upon disengagement from any launching platform or device on the Contractor's premises and continues until the aircraft has been engaged to any launching platform or device

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the Contractor's premises. (v) All aircraft off the Contractor's premises shall be considered to be in flight when on the ground or water for reasonable periods of time following emergency landings, landings made in performance of this contract, or landings approved in writing by the Contracting Officer.

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(e) Exclusions from the Government’s assumption of risk. The Government's assumption of risk shall not extend to damage, loss, or destruction of aircraft which— (1) Results from failure of the Contractor, due to willful misconduct or lack of good faith of any of the Contractor's managerial personnel, to maintain and administer a program for the protection and preservation of aircraft in the open and during

• peration in accordance with sound industrial practice, including oversight of

subcontractor’s program. (2) Is sustained during flight if either the flight or the flight crew members have not been approved in advance of any flight writing by the Government Flight Representative, who has been authorized in accordance with the combined regulation/instruction entitled “Contractor’s Flight and Ground Operations”; (3) Occurs in the course of transportation by rail, or by conveyance on public streets, highways, or waterways, except for Government-furnished property;

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

(e) Exclusions from the Government’s assumption of risk. (cont.) (4) Is covered by insurance; (5) Consists of wear and tear; deterioration (including rust and corrosion); freezing;

• r mechanical, structural, or electrical breakdown or failure, unless these are the

result of other loss, damage or destruction covered by this clause. (This exclusion does not apply to Government-furnished property if damage consists of reasonable wear and tear or deterioration, or results from inherent vice, e.g., a known condition or design defect, in the property); or (6) Is sustained while the aircraft is being worked on and is a direct result of the work unless such damage, loss, or destruction would be covered by insurance which would have been maintained by the Contractor, but for the Government's assumption of risk.

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DFARS 252.228- 7001

Government Flight Risk Clause ELO5

The contractor is responsible for reporting all property loss in accordance with their documented procedures; this includes those that may be covered under the GFRC.

Who is responsible for investigating and providing determination recommendations to the Contracting Officer?

1.8.9.13. Investigation and Determination - The GFR along with the PA SHALL review ALL Loss Damage/Destruction incidents involving aircraft under the GFRC and provide RECOMMENDATIONS to the ACO concerning the applicability of the GFRs deductible for each relevant incident.

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DCMA INST 8210-2

Property Loss Reporting Summary

• What were some challenges writing the report?
• What were some challenges reviewing the report?
• Are there any requirements that you don’t feel are important?
• What are the most critical aspects of the property loss

reporting?

Special Loss considerations and open discussion

Liability provisions associated with Transportation - Free on Board (FOB) F.O.B. Destination

• Contractor bears the expense of transporting the item to the government’s desired location
• Risk of loss and damage passes to the government on arrival after acceptance

F.O.B. Origin

• Government will pick up the deliverable from the contractor facility
• Risk of loss and damage passes to the government immediately upon delivery of properly

prepared item to the carrier

IMPORTANT!!! Acceptance is not the same as Inspection!

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FAR 52.247- xx

Government and Contractor Responsibilities for Loss of Government Property

TLO 8- Given an incident of loss involving contract Government property, demonstrate the contractor’s and Property Administrator's responsibilities under the contract.

• 1. Distinguish limited risk of loss from full risk of loss.
• 2. Identify contractor responsibilities for reporting loss of

Government property under FAR and DFARS.

• 3. Identify Property Administrator responsibilities when loss of

Government property has been reported by the contractor.

• 4. Identify the conditions under which the Property Administrator

shall determine relief of stewardship responsibility and/or recommend liability.

• 5. Identify property loss provisions under the Government Flight

Risk Clause DFARS 252.228-7001.

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