Some contracts put government equipment, tools, materials or vehicles in a contractor’s hands. Others allow the contractor to buy items with contract funds that become government property. Either way, the contractor takes on obligations that are easy to overlook in the rush of starting work. With fourth-quarter awards approaching, and with year-end a common time for agencies to issue equipment and materials, it is a good moment to understand the basics.
Two kinds of government property
FAR Part 45 uses a few key terms. Government property includes all property owned or leased by the government, and it is generally divided into two categories:
- Government-furnished property is property in the government’s possession, or acquired directly by the government, that is then furnished to the contractor for performance of a contract.
- Contractor-acquired property is property acquired, fabricated or otherwise provided by the contractor for performing a contract, to which the government has title.
Under many cost-reimbursement contracts, title to property the contractor purchases for the contract passes to the government. Under fixed-price contracts, the government generally takes title to contractor-acquired property only in particular situations, such as when the contract calls for it to be delivered. The property clause in your contract decides these questions.
The contractor’s responsibilities
The FAR’s main government property clause requires contractors to manage the government property in their possession through a property management system appropriate to the contract. In general terms, the system should address:
- Receiving property and creating records of it
- Identifying and marking property where required
- Maintaining records that show what the property is, where it is and its condition
- Periodic physical inventories
- Proper care, maintenance and use, consistent with sound business practice
- Reporting loss, theft, damage or destruction promptly
- Using the property only for the contract work the government has authorized
- Disposition at the end of the contract, following government instructions
Contracting officers may delegate oversight to a property administrator who reviews the contractor’s system, and defense contracts may involve additional reporting in the department’s electronic property systems.
Liability and loss
Under the standard property clause, the government generally assumes the risk of loss, theft, damage or destruction of government property, with important exceptions, such as when a loss is covered by the contractor’s insurance or results from willful misconduct or lack of good faith by the contractor’s managerial personnel. The contracting officer may also revoke the government’s assumption of risk if the contractor’s property management practices are found inadequate. That is one more reason a working property system matters. The specific terms vary by contract, so read your contract’s property clause carefully.
Practical steps
When an award includes government property, identify every item at the kickoff meeting and confirm how the government expects it to be tracked. Assign a property custodian. Record items as they arrive, including serial numbers and condition, and reconcile your records with the government’s list. Keep property separate from your own equipment where practical, and never use it for other customers’ work without authorization. When the contract ends, follow disposition instructions exactly; unaccounted-for property can delay closeout and final payment.
The rules are in FAR Part 45 and its related clauses at acquisition.gov. A firm that expects to manage significant government property should consider written procedures, training for the staff who handle it and advice from a professional experienced in property compliance.