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    1. When is material to be owned by the government being fabricated under a cost reimbursement contract? I was always under the impression that is was from the time CP contract was signed. As time and material costs are incurred for this material the government is billed monthly thru progress payments. 2. Is it okay as long as its stickered to be comingled with common inventory or should it be separated.


    Answer

    There are two different types of property that you may be referring to as “cost reimbursement material.”  One is “Property” purchased under the Progress Payment clause at Federal Acquisition Regulation (FAR) 52.232-16 and the other is “Contractor-acquired property” (CAP) as defined by FAR Part 45 and the Government property clause at FAR 52.245-1.  To ensure that we are speaking the same language a few of the relevant definitions follows.
    “Property,” as used in FAR 52.232-16 includes all of the below-described items acquired or produced by the Contractor that are or should be allocable or properly chargeable to this contract under sound and generally accepted accounting principles and practices.
    (i) Parts, materials, inventories, and work in process;
    (ii) Special tooling and special test equipment to which the Government is to acquire title;
    (iii) Nondurable (i.e., noncapital) tools, jigs, dies, fixtures, molds, patterns, taps, gauges, test equipment, and other similar manufacturing aids, title to which would not be obtained as special tooling under subparagraph (ii) above; and
    (iv) Drawings and technical data, to the extent the Contractor or subcontractors are required to deliver them to the Government by other clauses of this contract. (FAR 52.232-16(d) and FAR 52.232-16(f))

    “Contractor-acquired property” means property acquired, fabricated, or otherwise provided by the Contractor for performing a contract, and to which the Government has title. (FAR Part 45 and FAR 52.245-1)

    “Government property” means all property owned or leased by the Government. Government property includes both Government-furnished and Contractor-acquired property. Government property includes material, equipment, special tooling, special test equipment, and real property. Government property does not include intellectual property and software. (FAR Part 45 and FAR 52.245-1)

    Before going any further I suggest reading the Ask A Professor question and answer at https://dap.dau.mil/aap/pages/qdetails.aspx?cgiSubjectAreaID=5&cgiQuestionID=112239.  It discusses the use of the term “title” versus “ownership” in the Progress Payment and Government Property clauses.

    Question 1.  “When is material to be owned by the government being fabricated under a cost reimbursement contract?”  If you are referring to material purchased under the Progress Payment clause (such material is commonly referred as progress payment inventory) you are partially correct in your impression that title to property fabricated (or purchased) under a cost-reimbursement contract vests in the Government  as of the date of the contract.  However, that’s not where it ends.  Paragraph (d)(1) of the  Progress Payment clause further states that the title vests in the Government when the property is or should have been allocable or properly chargeable to the contract. 
    52.232-16(d) Progress Payments - Title.
    (1) Title to the property described in this paragraph (d) shall vest in the Government. Vestiture shall be immediately upon the date of this contract, for property acquired or produced before that date. Otherwise, vestiture shall occur when the property is or should have been allocable or properly chargeable to this contract.
    If you are referring to property covered by FAR Part 45 and FAR 52.245-1 we need to refer to FAR 52.245-1(e) Title to Government property.  It begins by stating that title vests in the Government for all property acquired or fabricated by the Contractor in accordance with the financing provisions (e.g., progress payments, performance based payments) or other specific requirements for passage of title in the contract.  Please note that FAR Part 45 does not apply to property that the Government has a lien or title to solely because of partial, advance, progress, or performance-based payments.  FAR 52.245-1(e)(3) specifically addresses title under cost-reimbursement contracts.  FAR 52.245-1(e)(i) applies to the property that your company has purchased if there is entitlement to be reimbursed as a direct item of cost to the contract.  The Government has title upon delivery of the property.  For the property that is fabricated and the cost is reimbursable, FAR 52.245-1(e)(ii) applies.  Note that paragraph (e)(ii)(C) ends with “whichever occurs first.”

    FAR 52.245-1(e)(3) Title under Cost-Reimbursement or Time-and-Material Contracts or Cost-Reimbursable contract line items under Fixed-Price contracts.
    (i) 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.
    (ii) Title to all other property, the cost of which is reimbursable to the Contractor, shall pass to and vest in the Government upon—
    (A) Issuance of the property for use in contract performance;
    (B) Commencement of processing of the property for use in contract performance; or
    (C) Reimbursement of the cost of the property by the Government, whichever occurs first.
     
    Question 2.  Is it okay as long as it’s stickered to be comingled with common inventory or should it be separated?  Paragraph (f) of the Progress Payment clause states with regard to control of costs and property “The Contractor shall maintain an accounting system and controls adequate for the proper administration of this clause.”  Therefore, control of the property would be based on your organization’s sound business practices.  The commingling of material covered by the Government Property Clause is addressed in FAR 52.245-1(f)(1)(viii).  Authorization to commingle material must be in the contract or granted by the Government Property Administrator. As for identification, FAR 52.245-1(f)(1)(ii) requires contractors to identify Government property as Government owned in a manner appropriate to the type of property (e.g., stamp, tag, mark, or other identification).

    FAR 52.245-1(f)(1)(viii) Utilizing Government property.
    (A) The Contractor shall utilize, consume, move, and store Government Property only as authorized under this contract. The Contractor shall promptly disclose and report Government property in its possession that is excess to contract performance.
    (B) Unless otherwise authorized in this contract or by the Property Administrator the Contractor shall not commingle Government material with material not owned by the Government.

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