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  • Question

    Because there are periodic payments for each task (line item) and the clause 52-232-2, does the Government have a lien on residual material and equipment that will require final disposition at the completion of the contract?


    Answer

    Unless the contract contains a contractual agreement between the parties that the Government will take title via a CLIN to “material, equipment and possibly special test equipment acquired,” such items belong to the contractor upon completion of the contract and the contractor may either retain them or disposition them as they see fit.
     
    Here’s what happens and why…
     
    Under a fixed-price contract the Government only takes title to the deliverable end item(s).  Now that is the simplest answer.  And since you only referenced FAR 52.232-2 – which only addresses payment upon delivery – one need go no further.  When the contractor delivers – the Government pays and has title as set forth in the contract.
     
    But, we can go a little further in regard to your question and address what MAY occur under Fixed Price Contracts – WHEN THERE IS FINANCING!  (Even though you did not mention this in your question it bears discussion.)
     
    That said, when financing in the form of a progress payment clause, e.g., FAR 52.232-16, is involved here’s what takes place:
    ·  During the life of the contract, TITLE for such things acquired by the contractor such as parts, materials, special tooling, special test equipment vests in the Government.
    WHY?  In a situation where progress payments are made, the Government has a claim on such acquired items in the event that the contractor either does not deliver the end items as contractually stipulated; or, in case of loss of such acquired items before contract completion; or, if there are adverse financial conditions or even bankruptcy.
    ·  Upon completion of the contract, TITLE to any residual beyond the contractually agreed deliverables (in the instant case the deliverables are reports, a prototype and software) vests in the Contractor.
    WHY?  Once the contractor completes the contract by delivering the contractually stipulated line items, the progress payment “debt” is liquidated.  The Government has what it contracted for and the contractor keeps all residual.
     
    You may be wondering whether the Government has “title to” or merely “a lien on” such items acquired with Progress Payments funding before contract completion? 
     
    ALAS!! The courts have ruled both ways! 
     
    But suffice it to say that at the end of the contract, if all deliveries are satisfactorily made, the Government has TITLE to what it wanted – the deliverables -- and has no claim (unless otherwise contractually stated to the contrary) on ANY residual!
     
    Some final thoughts. 
     
    1.  Whether a Government property clause is or was necessary can’t be determined based upon the scenario provided. 
    2.  A cautionary note - thoroughly review the contract document language and deliverables before coming to or taking any conclusive action!
     
     
    References:
    FAR clause 52.232-2
     

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