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    Most parts are purchased, issued and tracked using a MRP system; however, when a part is needed that does not have a company part number the item is purchased from an online source such as Amazon using a PO and paid for with a PCard. These parts are received and delivered to the requestor without having an official record created in the property management system. Should these items also be brought to record? Can a secondary tracking system such as a spreadsheet be used instead to track the receipt and usage of the items purchased with a PCard as long as the necessary information per paragraph (f)(1)(iii)(A)(1) through (10) is captured? Would it be appropriate to use manual entries when you already have an property management system? Is such IRAD inventory subject to physical inventory requirements? How would your response be altered if this were a FFP type contract with progress payments?


    Answer

    You referenced a “Cost Reimbursable type IRAD Contract” within the title of your question.  There is a difference between Independent Research and Development (IRAD or IR&D) and Research and Development (R&D).  Independent Research and Development cost means the cost of an effort which is neither sponsored by a grant, nor required in performing a contract, and which falls within any of the following four areas -- basic research, applied research, development, and systems and other concept formulation studies.  It follows then that Research and Development is sponsored by a grant, or is required in the performance of a contract.

    IR&D costs are recovered in the same manner as other indirect costs, through application of an indirect cost rate.  IR&D costs must be allocated over the same base as a company’s General and Administrative Rate, since both costs benefit the company as a whole.  For more information on IR&D costs, please refer to FAR 31.205-18, DFARS 231.205-18, and CAS 420.  


    Under a cost-reimbursable contract, when a contractor purchases property and is entitled to reimbursement as a direct item of cost, title passes to and vests in the Government upon delivery of the property.   Property purchased for an IR&D effort should not be charged as a direct item of cost.  Therefore, the Government does not have title of such property and the requirements of FAR 52.245-1 Government Property would not apply.  However, Government property as defined at FAR 52.245-1(a) may be used for IR&D if authorized by the contracting officer under the following conditions:  (1) use will not conflict with the primary use of the property or enable the contractor to retain property that could otherwise be released; (2) the contractor agrees not to claim reimbursement against any Government contract for the rental value of the property; and (3) a rental charge for the portion of the contractor’s IR&D program cost allocated to commercial work is deducted from the claim for reimbursement of any agreed-upon Government share of the contractor’s IR&D costs (FAR 45.303). 


    FAR 52.245-1
    applies if the property referenced in the background information and question is truly Government property.  FAR 52.245-1(f)(1)(iii) states the Contractor shall create and maintain records of all Government property accountable to the contract, including Government-furnished and Contractor-acquired property.  

    Therefore, the data items listed in FAR 52.245-1(f)(1)(iii)(A)(1) through (10) must be captured and formally recorded for all Government property. The exception would be if the Government property administrator (GPA) has approved the use of a receipt and issue system.  FAR 52.245-1(f)(1)(iii)(b) Use of a Receipt and Issue System for Government Material “When approved by the Property Administrator, the Contractor may maintain, in lieu of formal property records, a file of appropriately cross-referenced documents evidencing receipt, issue, and use of material that is issued for immediate consumption.”  However, the GPA should not approve a receipt and issue system if the contract includes DFARS 252.242-7004 Material Management and Accounting System (MMAS).  I strongly urge you to read the contract to see if DFARS 252.242-7004 is in it. 


    You asked a series of questions that are highly dependent upon contractor written property management procedures
    and contract terms and conditions. 

    (1)  “Can a secondary tracking system such as a spreadsheet be used instead to track the receipt and usage of the items purchased with a PCard as long as the necessary information per paragraph (f)(1)(iii)(A)(1) through (10) is captured?”
    (2)  “Would it be appropriate to use manual entries when you already have a property management system?”
    The Government Property clause identifies outcomes that the contractor is required to meet, which includes Records.  It does not prescribe how to achieve the outcomes.  The Government Property clause states that processes, systems, procedures, records, and methodologies used to meet the requirements of the clause are required to provide effective and efficient control of Government property.  The means by which a contractor maintain records and meets the requirements of the clause should be documented in the contractor’s written property management procedures.  (Note:  The MMAS clause allows for manual or electronic system)
    (3)  “Is such IRAD inventory subject to physical inventory requirements?”

    The physical inventory requirements apply to Government property as defined by FAR 52.245-1(a).  IRAD inventory is not Government property.  Therefore, it is not subject to the physical inventory requirements at FAR 52.245-1.

    (4)  “How would your response be altered if this were a FFP type contract with progress payments?”
     
    Under a FFP contract with progress payments
    FAR 52.232-16 would apply.  Title of the progress payment inventory vests in the Government during the life of the contract.  During that time the contractor is required to control and manage progress payment inventory using sound industrial practice.  Progress payment inventory is not required to be included in the contractor's property management system required by FAR 52.245-1.  Title of residual progress payment inventory passes to the contractor upon completion of contractual obligations.  The Government retains title to Government-furnished property that has been provided. 

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