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    The question is since the contractor has been found liable and has paid restitution, is he allowed to scrap the damaged property instead of putting the items into PCARRS for screening? The contractor is saying that since he paid for the damage, the property is now theirs and PCARRS would be inapproriate. I disagree. Thank you, Nicole


    Answer

    You’ve asked a great question!  According to the question background, the accountable contract included FAR 52.245-1 Alt I, which addresses liability and substitutes paragraph (h)(1) of the basic clause.  It states,
     
    “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.”
     
    In other words, it changes liability from limited risk of loss to full risk of loss; meaning the contractor is liable for all instances of loss, damage, and destruction of Government property.  This does not include reasonable wear and tear or consumption during contract performance. 
     
    Through supplemental information provided we know items damaged are Government-furnished property (GFP) and that the contractor was held liable for the acquisition cost due to the full risk of loss provision.  These two facts get to the heart of the question.  The contractor believes that because it paid the acquisition cost as restitution, it has title to the damaged GFP and it is their decision as to how the property is disposed.  This leads us to the topic of title.  FAR 52.245-1(e)(1) states,
     
    “All Government-furnished property and all property acquired by the Contractor, title to which vests in the Government under this paragraph (collectively referred to as “Government property”), is subject to the provisions of this clause. The Government shall retain title to all Government-furnished property. Title to Government property shall not be affected by its incorporation into or attachment to any property not owned by the Government, nor shall Government property become a fixture or lose its identity as personal property by being attached to any real property.”
     
    Therefore, despite the fact that the contractor paid restitution equal to the acquisition cost, it did not “purchase” the GFP from the Government and still needs authorization from the plant clearance officer or authorized official to dispose of the property.  Since the Government retains title of the GFP, the contractor must dispose of it in accordance with FAR 52.245-1(j) Contractor inventory disposal; except as otherwise provided for in the contract.  Now, I would be remiss if I did not address the fact that the contractor was held liable for the acquisition cost.  There are more options to consider than acquisition cost when recommending or determining the liability value.  The intrinsic value should be considered; that is to say, the value of the property to the owner.  To determine the intrinsic value there are a few things that should be taken into consideration.
     
    • If the property is lost, is there a current or probable future need for it?
      • If not, liability for scrap  value should be considered
      • If so, the replacement value should be considered
    • If the property is damaged, is there a current or probable future need?
      • If not, consider using the salvage value
      • If so, the cost to repair the property should be considered
     
    Supplemental background information revealed that there is no current or probable future need for the damaged property for the performance of the contract.  Therefore, it is “contractor inventory” and should be disposed of in accordance with FAR 52.245-1(j) Contractor inventory disposal. 
     
    In summary, the contractor does not have title to the damaged GFP.  Therefore, the property is to be disposed of in accordance with the terms and conditions of the contract.  When determining liability value the property administrator and contracting officer should consider the current or probable need of the property and at a minimum, the use of scrap, salvage, repair, and replacement cost for liability valuation.   For more information about the use of intrinsic value reference AAP question https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=5&cgiQuestionID=17463.


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