While government contract accounting certainly presents its share of challenges, contractors should not overlook the government property clause at FAR 52.245-1. Depending on your contract type and contracting environment, you may be exposed to parts or all of this clause with the resulting administrative costs to comply. It is fair to say that government property management in many respects is as confusing and fraught with potential missteps as government contract accounting.
Firm Fixed-Price Contracts
The administrative burden for contractors is limited for firm fixed price (FFP) contracts since the contractor retains title, or ownership, of material purchased for the contract. However, often times contract performance depends on the government sending property to the contractor, be it tooling, an interface template, or some other tangible asset. This is considered Government Furnished Property (GFP). The Government Property (GP) clause requires a number of actions from the contractor in this case, including safeguarding the GP, keeping specified records, and providing other notifications to the government. The GP clause has specific language that makes the contractor liable for loss or damage to GFP if compliance with the rules for managing GFP are not followed.
Many contractors are surprised when it comes to GP requirements, especially those working on Small Business Innovation Research (SBIR & STTR) contracts that are cost-plus. Material purchased for the contracts fall under the term “contractor-acquired” property, meaning while the contractor buys, stores, and uses this material, the government retains title (ownership) of the property. As the owner, it’s only natural that the government specifies through the GP clause requirements to record, track, report, and dispose of the property.
Government Property Management Plan
In order to protect the government’s interest and reduce its risk, the GP clause specifies that contractors “… establish and implement property management plans, systems, and procedures”, regardless of the contract type. Major sections of the plan should address:
- Acquisition of Property
- Receipt of Government Property
- Records of Government property
- Physical inventory
- Subcontractor control
- Utilizing Government property
- Property closeout
As one might expect, this can be a rigorous process. Add to that the language in the GP clause that stipulates the government has the right to review the plan and make site visits to you and your subcontractors. Should the government not feel comfortable with your plan or its execution, your plan and its implementation will be subject to corrective action.
The Defense Contract Management Agency (DCMA) manages the GP process for the government. You may already be familiar with the ACO (Administrative Contracting Officer), contract specialists, or even inspectors from the DCMA who may visit your business. The DCMA also assigns a Property Administrator (PA) to each contract in their region. It’s the PA’s job to track contractor compliance with the appropriate parts of the GP clause.
Any contract change that is executed from a price, schedule, to no-cost extension, is routed through the DCMA before it is executed. In addition to reviewing and managing government property, the DCMA is also responsible for reviewing Earned Value Management Systems, Integrated Master Schedules, Inventory Management Programs, Cost Accounting Standards, Equipment or Software control, Purchasing Systems, Contract Close-out, etc.
Awareness is key
Look for the government property clause FAR 52.245-1 in section I of your contract. The entire text may also be incorporated in total in section H or other sections just for emphasis. If it is, and especially for cost-plus contracts, expect a message from the DCMA asking for your government property plan. Be advised that the plan should not be a one-pager, but a comprehensive set of instructions meeting the requirements of the regulation.
Rely on ReliAscent
We have successfully assisted many contractors with their government property issues, including property management plans, closeout, and reporting. Let us know how we can help you.