Daily Rules, Proposed Rules, and Notices of the Federal Government
DoD, GSA, and NASA published a proposed rule in the
The Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council (the Councils) reviewed the comments in the development of the final rule. A discussion of the comments and the changes made to the rule as a result of those comments are provided as follows:
1. A definition of “surplus property” is added at FAR 2.101 to apply throughout the FAR.
2. Terminology used is updated and used consistently throughout the FAR,
3. Clarified, and distinguished among, the responsibilities and authorities of the contracting officer, property administrator, plant clearance officer, and contractor.
4. Reorganized and clarified procedures and responsibilities for Government property disposal (see FAR subpart 45.6).
5. Reorganized, clarified, and updated the Government property clause at FAR 52.245-1 to conform with revisions to FAR part 45.
• FAR 52.245-1(b)(1): Add “internal controls,” “efficient,” and “a new;” and delete “except where inconsistent with law or regulation.”
• FAR 52.245-1(b)(4): Change “property” to “asset.”
• FAR 52.245-1(f)(1)(iii)(A): Substitute “as appropriate to the circumstances” in place of “auditable.”
• FAR 52.245-1(f)(1)(iii)(A)(
• FAR 52.245-1(f)(1)(v)(A): Change “assets” to “items” and revise to read “shall have a process to manage Government property in the possession of subcontractors including identification and reporting of reportable items, as required in the contract as Government furnished or contractor acquired items.”
• FAR 52.245-1(f)(1)(vii)(C)(
• FAR 52.245-1(g): Change “analysis” to “audit.”
• FAR 52.245-1(j): Delete, at FAR 52.245-1(j)(1)(i), “in consultation with the Property Administrator,” and retain existing language at (j)(2). Add “in accordance with agency procedures if included in the contract.”
• FAR 52.245-1(j): Delete (j)(3)(i)(B) and replace it with (j)(3)(i)(C). Revise the time allotted for contractor submission from “30 days” to “60 days or such other time frame agreed to by the PLCO.”
• FAR 52.245-1: Add a dollar threshold for the contractor's reporting and tracking,
• FAR 52.245-1(b)(1): Two of the recommended additions to FAR 52.245-1(b)(1) are incorporated into the final rule because they better explain the Government's requirements for the contractor's property management system. However, “a new” was not added because of the associated element related to “time.” The phrase “except where inconsistent with law or regulation” is not deleted because contractors are never authorized to employ commercial practices, voluntary consensus standards, or industry-leading practices if the former do not comply with law or regulation.
• FAR 52.245-1(b)(4): The term “property” is retained to maintain consistency in terminology.
• FAR 52.245-1(f)(1)(iii)(A) and (A)(
• FAR 52.245-1(f)(1)(v)(A): Applying the same principle as is used at the beginning of this response results in revising “assets” to “items” at FAR 52.245-1(f)(1)(v)(A). The language regarding the management of Government property in subcontractors' possession is not added to paragraph (f)(1)(v)(A) because it would be redundant to the requirement already at FAR 52.245-1(f)(1)(v)(B).
• FAR 52.245-1(f)(1)(vii)(C)(
• FAR 52.245-1(g): “Analysis,” not “audit,” is the proper term.
• FAR 52.245-1(j): Paragraph (j) of the clause addresses contractor inventory disposal. The lead-in to paragraph (j) makes all contractor inventory disposal decisions subject to the authorization of the plant clearance officer; therefore, it is unnecessary to restate the qualifier in subordinate paragraphs of paragraph (j). Paragraph (j)(2) of the clause addresses inventory disposal schedules. The existing text had elicited many questions over time, so a revision was determined necessary to provide additional clarity; reverting to the current paragraph (j)(2) would be a step backward.
The authority to revise a contractor's use and receipt system for Government material (see FAR 52.245-1(f)(1)(iii)(B)) “in accordance with agency procedures * * *” is not included in the final rule because it would result in inconsistencies in treatment and problems when more than one Government agency had authorized the use of Government property in a single contractor facility.
• FAR 52.245-1(j): Effectively, the request to delete 52.245-1(j)(3)(i)(B) and replace it with (C) of the same paragraph would eliminate a 60-day period for submission of the contractor's inventory disposal schedule and replace it with a 120-day submission schedule. Allowing an extra two months for the contractor's submission is unnecessary if the contractor has an acceptable property management system. For the same reasons, the extension of the submission period from 30 days to 60 days is not made.
• FAR 52.245-1: The final recommendation would have established a dollar threshold and allowed contractors to defer any reporting of low-dollar items during contract performance. However, the Government property management principles have departed from the use of dollar thresholds and recognized that some low-dollar items may be sensitive and require closer management.
The editorial comments are grouped by the FAR section they address.
Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is a significant regulatory action and, therefore, was subject to review under section 6(b) of E.O. 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.
DoD, GSA, and NASA prepared a Final Regulatory Flexibility Analysis (FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. The FRFA is summarized as follows:
DoD, GSA, and NASA are revising FAR parts 45 and 52. The focus of this effort is to clarify FAR subpart 45.6, Reporting, Reutilization, and Disposal, and the contractor requirements under the clause at FAR 52.245-1, Government Property.
The revisions include technical corrections to align the FAR with the requirements of the Federal Management Regulation. Also included is new and expanded policy language on the disposal of scrap, new language for contracting officers and contract specialists on depositing of monies received from contractors for property that is lost, damaged, destroyed, or stolen, and new language prohibiting personal property from being installed or constructed on contractor-owned real property in such fashion as to become nonseverable.
DoD, GSA, and NASA published a proposed rule at 76 FR 18497 on April 4, 2011. The rule does not place new requirements on contractors; rather, it clarifies existing policies and procedures and should simplify compliance for contractors and enable consistent Government oversight.
No comments were received on the initial regulatory flexibility analysis in the proposed rule.
Approximately 5,000 contractors have Federal property in their possession. DoD has approximately 3,000 contractors with potential contract-property reporting requirements. Approximately 60 percent of all DoD contractors are small businesses. Given that property in the possession of contractors is over-whelmingly DoD property, it is estimated the DoD ratio of small businesses to total businesses having such property is a reasonable approximation for all Government contractors. Therefore, approximately 3,000 small businesses have Government property in their possession.
FAR Case 2004-025 streamlined the requirements concerning property management in FAR part 45. FAR Case 2008-011 continued that philosophy. This final rule provides continuous improvement to property management by streamlining and clarifying the policies for the disposition of contractor inventory.
It should be noted that these recommended changes are consistent with the Office of the Under Secretary of Defense, Acquisition, Technology and Logistics, recent statements emphasizing the need to improve the productivity of the defense industry and remove Government impediments to efficiency.
There are four reports currently required to assure appropriate use and disposition of contract property (SF 1423, Inventory Verification Survey; SF 1424, Inventory Disposal Report; SF 1428, Inventory Disposal Schedule; and SF 1429, Inventory Disposal Schedule Continuation Sheet). All of these forms are available online and may be submitted by the contractor using electronic means. It should be noted that DoD no longer requires the use of the SF 1428 and 1429 forms and instead uses the Web-enabled Plant Clearance Automated Reutilization and Reporting System (PCARRS). NASA and other Federal agency contractors use PCARRS when their contracts are delegated to Defense Contract Management Agency (DCMA) for plant clearance. Use of PCARRS reduces burdens on small businesses as well as other businesses by providing an easily accessible Web-based reporting mechanism.
This rule does not duplicate, overlap, or conflict with any other Federal rules.
There are no known alternatives that would meet the objectives of this rule. However, this rule is not expected to have a significant economic impact on a substantial number of small entities. In fact, the current impact to both large and small contractors will be reduced. For example, the current FAR requires Government approval of contractor scrap procedures prior to allowing the contractor to dispose of ordinary production scrap. In addition, the current practice of requiring contractors (without approved scrap procedures) to submit inventory schedules or scrap lists for production scrap assumes that such practice is in all cases economically or otherwise justified. This practice unnecessarily burdens small contractors that generate only small amounts of scrap.
The final rule removes the requirement for Government approvals of contractor scrap procedures and submission of inventory schedules and scrap lists, thus easing the burden on large and small contractors alike. It should be noted that contractor procedures would still be required and evaluated by the agency responsible for contract administration, as a normal part of contract property administration. The new rule will also result in more consistent levels of Government oversight, further easing the burden on small entities.
The collection of information required by this rule has been reduced to the minimum necessary to assure compliance with the Government's statutory accountability requirements.
Interested parties may obtain a copy of the FRFA from the Regulatory Secretariat. The Regulatory Secretariat has submitted a copy of the Final Regulatory Flexibility Analysis (FRFA) to the Chief Counsel for Advocacy of the Small Business Administration.
The Paperwork Reduction Act (44 U.S.C. chapter 35) applies. The rule contains information collection requirements. OMB has cleared this information collection requirement under OMB Control Number 9000-0075, titled: Government Property.
Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 31, 32, 45, 49, 51, 52, and 53 as set forth below:
40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c).
(b) * * *
(e) * * *
(2) * * *
(iv) Costs of insurance for the risk of loss of Government property are allowable to the extent that—
(A) The contractor is liable for such loss;
(C) Such insurance does not cover loss of Government property that results from willful misconduct or lack of good faith on the part of any of the contractor's managerial personnel (as described in FAR 52.245-1 (h)(1)(ii)).
(a) Under the Progress Payments clause, and except for normal spoilage, the contractor bears the risk of loss for Government property under the clause, even though title is vested in the Government, unless the Government has expressly assumed this risk. * * *
(a) Under the clause at 52.232-32, Performance-Based Payments, and except for normal spoilage, the contractor bears the risk of loss for Government property, even though title is vested in the Government, unless the Government has expressly assumed this risk. * * *
(a) This part prescribes policies and procedures for providing Government property to contractors; contractors' management and use of Government property; and reporting, redistributing, and disposing of contractor inventory.
(b) It does not apply to—
(1) Government property provided under any statutory leasing authority, except as to non-Government use of property under 45.301(f);
(2) Property to which the Government has acquired a lien or title solely because of partial, advance, progress, or performance based payments;
(3) Disposal of real property;
(4) Software and intellectual property; or
(5) Government property that is incidental to the place of performance, when the contract requires contractor personnel to be located on a Government site or installation, and when the property used by the contractor within the location remains accountable to the Government. Items considered to be incidental to the place of performance include, for example, office space, desks, chairs, telephones, computers, and fax machines.
(1) Items that cannot be found after a reasonable search;
(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.
(1) For Government-furnished property, the dollar value assigned by the Government and identified in the contract; and
(2) For contractor-acquired property, the cost derived from the contractor's records that reflect consistently applied generally accepted accounting principles.
(e) Government property, other than foundations and similar improvements necessary for installing special tooling, special test equipment, or equipment, shall not be installed or constructed on contractor-owned real property in such fashion as to become nonseverable, unless the head of the contracting activity determines that such installation or construction is necessary and in the Government's interest.
The revised and added text reads as follows:
(a) Generally, contractors are not held liable for loss of Government property under the following types of contracts:
(b) The contracting officer may revoke the Government's assumption of risk when the property administrator determines that the contractor's property management practices are noncompliant with contract requirements.
(d) With respect to loss of Government property, the contracting officer, in consultation with the property administrator, shall determine—
(1) The extent, if any, of contractor liability based upon the amount of damages corresponding to the associated property loss; and
(2) The appropriate form and method of Government recovery (may include repair, replacement, or other restitution).
(e) Any monies received as financial restitution shall be credited to the Treasury of the United States as miscellaneous receipts, unless otherwise authorized by statute (31 U.S.C. 3302(b)).
(b) The property administrator shall notify the contractor in writing when the contractor's property management system does not comply with contractual requirements, shall request prompt correction of deficiencies, and shall request from the contractor a corrective action plan, including a schedule for correction of the deficiencies. * * *
(1) Revocation of the Government's assumption of risk for loss of Government property; and/or
(d) When the property administrator determines that a reported case of loss of Government property is a risk assumed by the Government, the property administrator shall notify the contractor in writing that it is granted relief of stewardship responsibility and liability in accordance with 52.245-1(f)(1)(vii). Where the property administrator determines that the risk of loss of Government property is not assumed by the Government, the property administrator shall request that the contracting officer hold the contractor responsible and liable.
The revised text reads as follows:
(a)(1) * * *
(i) All cost-reimbursement and time-and-material type solicitations and contracts, and labor-hour solicitations when property is expected to be furnished for the labor-hour contracts.
The revised text reads as follows:
(c) * * *
(4) A description of the offeror's property management system, plan, and any customary commercial practices, voluntary consensus standards, or industry-leading practices and standards to be used by the offeror in managing Government property.
(a) The contracting officer shall consider any potentially unfair competitive advantage that may result from an offeror or contractor possessing Government property. This shall be done by adjusting the offers by applying, for evaluation purposes only, a rental equivalent evaluation factor as specified in FAR 52.245-9.
The revised text reads as follows:
(c) The contractor may request the plant clearance officer's approval to remove the Government property from an inventory schedule.
(1) Plant clearance officers should approve removal of Government property from an inventory schedule when—
(iv) The contractor has requested continued use of the Government property, and the contracting officer has authorized its retention and further use.
Plant clearance officers shall initiate reutilization actions for all property not meeting the abandonment or destruction criteria of 45.603(b). Authorized methods, listed in descending order from highest to lowest priority, are—
(a) Reuse within the owning agency;
(b) Transfer of educationally useful equipment to schools and nonprofit organizations (see Executive Order 12999, Educational Technology: Ensuring Opportunity For All Children In The Next Century, April 17, 1996, and 15 U.S.C. 3710(i));
(c) Report to GSA for reuse within the Federal Government or donation as surplus property;
(d) Dispose of the following property in accordance with agency procedures without reporting to GSA:
(1) Property determined appropriate for abandonment or destruction (see Federal Management Regulation (FMR) 102-36.305, 41 CFR 102-36.305).
(2) Property furnished to nonappropriated fund activities (see FMR 102-36.165, 41 CFR 102-36.165).
(3) Foreign excess personal property (see FMR 102-36.380, 41 CFR 102-36.380).
(4) Scrap, except aircraft in scrap condition.
(5) Perishables, defined for the purposes of this section as any personal property subject to spoilage or decay.
(6) Trading stamps and bonus goods.
(7) Hazardous waste or toxic and hazardous materials.
(8) Controlled substances.
(9) Property dangerous to public health and safety.
(10) Classified items or property determined to be sensitive for reasons of national security; and
(e) Dispose of nuclear materials (see 45.603-3(b)(5)) in accordance with the Nuclear Regulatory Commission, applicable state licenses, applicable Federal regulations, and agency regulations.
(a) When contractor inventory is processed through the reutilization screening process prescribed in 45.602-2 without success, and provided the property has no commercial value, does not require demilitarization, and does not constitute a danger to public health or welfare, plant clearance officers or other authorized officials may without further approval—
(1) Direct the contractor to destroy the property;
(2) Abandon non-sensitive property at the contractor's or subcontractor's premises; or
(3) Abandon sensitive property at the contractor's or subcontractor's premises, with contractor consent.
(b) Provided a Government reviewing official at least one level higher than the plant clearance officer or other agency authorized official approves, plant clearance officers or other agency authorized officials may authorize the abandonment, or order the destruction of other contractor inventory at the contractor's or subcontractor's premises, in accordance with FMR 102-36.305 through 325 (41 CFR 102-36.305-325) and consistent with the following:
(1) The property is not considered sensitive, does not require demilitarization, has no commercial value or reutilization, transfer or donation potential, and does not constitute a danger to public health or welfare.
(2) The estimated cost of continued care and handling of the property (including advertising, storage and other costs associated with making the sale), exceed the estimated proceeds from its sale.
(c) In lieu of abandonment or its authorized destruction, the plant clearance officer or authorized official may authorize the donation of property including unsold surplus property to public bodies, provided that the property is not sensitive property, does not require demilitarization, and it does not constitute a danger to public health or welfare. The Government will not bear any of the costs incident to such donations.
(d) Unless the property qualifies for one of the exceptions under FMR 102-36.330 (41 CFR 102-36.330), the plant clearance officer or requesting official will ensure prior public notice of such actions of abandonment or destruction consistent with FMR 102-36.325 (41 CFR 102-36.325).
Surplus personal property that has completed screening in accordance with 45.602-3(a) shall be sold in accordance with the policy for the sale of surplus personal property contained in the Federal Management Regulation, at part 102-38 (41 CFR part 102-38). Agencies may specify implementing procedures.
Agencies may use sales center services. Use of such centers for sale of surplus property is authorized when in the best interest of the Government, consistent with contract terms and conditions.
Agencies should consider the sale of property pursuant to the exchange/sale authority in FMR 102-39 (41 CFR part 102-39) when agencies are acquiring or plan to acquire similar products and other requirements of the authority are satisfied.
The plant clearance officer shall promptly prepare an SF 1424, Inventory Disposal Report, following disposition of the property identified on an inventory disposal schedule and the crediting of any related proceeds. The report shall identify any lost or otherwise unaccounted for property and any changes in quantity or value of the property made by the contractor after submission of the initial inventory disposal schedule. The report shall be provided to the administrative contracting officer or, for termination inventory, to the termination contracting officer, with a copy to the property administrator.
(a) The property administrator should, in coordination with the plant clearance officer, ensure that contractor scrap disposal processes, methods, and practices allow for effective, efficient, and proper disposition and are properly documented in the contractor's property management procedures.
(b) The property administrator should determine the extent to which separate disposal processing or physical segregation for different scrap types is or may be required. Such scrap may require physical segregation, unique disposal processing, or separate plant clearance reporting. For example, the scope of work may create scrap—
(1) Consisting of sensitive items;
(2) Containing hazardous materials or wastes;
(3) Contaminated with hazardous materials or wastes;
(4) That is classified or otherwise controlled;
(5) Containing precious or strategic metals; or
(6) That is dangerous to public health or safety.
(c) Absent contract terms and conditions to the contrary, the Government may abandon parts removed and replaced from property as a result of normal maintenance actions or removed from property as a result of the repair, maintenance, overhaul, or modification process.
(e) * * * The Contractor shall repay the Government an amount equal to the unliquidated progress payments that are based on costs allocable to property that is lost (see 45.101).
(g) * * * If any property is lost (see 45.101), the basis of payment (the events or performance criteria) to which the property is related shall be deemed to be not in compliance with the terms of the contract and not payable (if the property is part of or needed for performance), and the Contractor shall refund the related performance-based payments in accordance with paragraph (d) of this clause.