Don't Jump the Gun with Your Government Property
Whenever a contractor receives or uses Government Furnished Property (“GFP”), there are important rules to follow. In Snowdon, Inc., ASBCA No. 59705, May 20, 2015, a contractor sold government property and failed to send or credit the net proceeds of the sale back to the Government. The case shows how you can make a big mistake by not complying with the Government Property clause works with respect to ownership (title) of the property.
Whenever the Government intends to furnish property to a contractor for use in a contract, Federal Acquisition Regulation (“FAR”) 45.107 requires the inclusion of the Government Property clause, FAR 52.245-1. This clause is required not only where the Government furnishes property, but also where the contractor is directed to acquire property for use in a contract. The Government Property clause sets forth a required internal control system that contractors must use to manage the property, including definitions, prohibitions on use/misuse, title to property, recordkeeping, liability, storage and disposal. Contractors are required to have a system to control, use, preserve, protect, repair and maintain government property.
With respect to ownership of government property, title normally vests in the Government for all property acquired or fabricated by the Contractor, in accordance with the financing provisions or other specific requirements for passage of title in the contract. FAR 52.245-(e)(2). Except for fixed priced type contracts, if the Government buys the property, the Government generally owns it. These are some important elements of the clause concerning title, depending on contract type:
1.For Fixed Price Type Contracts: Unless there are specific financing provisions or other specific requirements for passage of title in the contract, the Contractor retains title to all property acquired for use on the contract, except for property that is identified as a deliverable end-item. FAR 52.245(e)(3).
2. For Cost Reimbursement or Time And Material Contracts or Cost-reimbursement contract line items under Fixed Price Contracts: If the Government pays for the property, title to such property shall vest in the Government: “Title to all property purchased by the Contractor for which the Contractor is entitled to be reimbursed as a direct item of cost under this contract shall pass to and vest in the Government upon the vendor’s delivery of such property.” FAR 52.245-1(e)(3)(i).
3. Contractor inventory: Contractor inventory is “any property acquired by and in the possession of a contractor…under a contract for which title is vested in the Government and which exceeds the amounts needed to complete full performance under the contract.” FAR 52.245-1(a)(1).
4. Disposition: “As directed by the Contracting Officer, [if directed to dispose of contractor inventory] the Contractor shall credit the net proceeds from the disposal of contractor inventory to the contract, or to the Treasury of the U.S. as miscellaneous receipts. FAR 52.245-1(h)(8).
5. Abandonment: “The Government, upon notice to the Contractor, may abandon any nonsensitive property in place…” FAR 52.245-1(k)(2).
In Snowdon, Inc., the contractor entered into a research and development contract that included FAR 52.245-1. During performance, Snowdon purchased two pieces of equipment for which the Government reimbursed Snowdon, thereby vesting title in the equipment to the Government. Performance of the contract ended in August 2011, and in 2012 Snowdon inquired about the disposition of the Government-owned equipment. The Government did not give Snowdon specific instructions, and Snowdon shortly thereafter requested disposition instructions because it was vacating its facility at the end of June 2012.
Hearing nothing specific from the Government, Snowdon sold the Government owned equipment to TAXIS Pharmaceuticals for $47,500, and did not offer nor did it remit the proceeds to the Government. Two years later, the government inquired about the equipment, and Snowdon advised that he had sold it. The Government contracting officer issued a final decision demanding payment of $47,500 to the Government, finding that Snowdon had sold the equipment for that amount, without Government approval.
In a two paragraph decision, the Board held that Snowdon owed the government $47,500 plus interest, based on the Government property clause. While Snowdon said the Government had abandoned the property, the Board disagreed. The Government never gave Snowdon the “notice” required by FAR 52.245-1(k)(2) stating that the Government had abandoned it. While the Board noted Snowdon’s request for disposition instructions, it concluded that “without any instructions or guidance from the government, Snowdon took matters into its own hands and sold the equipment to a third party.”
Jumping the gun on disposition of Government owned property is a big mistake. Snowdon could have advised the contracting officer, in writing, that he intended to sell the property. Snowdon could have insisted on some reply, or at least stated in his writing “if Snowdon does not hear from the contracting officer by (a specific date) we shall assume that you either have abandoned the property or concur in its sale. The Government would then have been on notice of the sale, and the case might have turned out differently. (Indeed, the most likely result would have been that the contracting officer would have stated in writing that “I concur in your disposal of contractor inventory, and direct you to credit the net proceeds from such disposal to the Treasury of the U.S. as miscellaneous receipts in accordance with FAR 52.245-1(h)(8), which is included in your contract”). If a contracting officer does not respond to you, don’t assume he or she agrees with you—force the issue in writing and comply with the requirements of the FAR.
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