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    Can the contractor use the funds received from UPS to replace the GFP item that was lost during shipping?


    No, it should not – but it may.


    When the item was lost in shipping and then processed as an item of loss under and in accordance with FAR 52.245-1(f)(1)(vii), “Relief of stewardship responsibility and liability,” it technically went through a disposition process.  Basically, the lost unit was written off as lost.  As a result, the company was first, appropriately relieved of stewardship responsibility for that lost item; then, inappropriately relieved of liability for it (I’ll get to last item a little later…).


    While replacing it might seem both easier and logical, doing so creates potential problems. 


    ·       What happens if the “lost” item shows up after it’s been replaced?  The Government accountable property officer has an unaccountable overage.  Or it’s returned to the company and they have an unaccountable overage.  Though if no consideration exchanged hands – then that lost item is STILL Government property and if FOUND has to be returned to the Government/the Government’s Books.  Which pragmatically gets really messy if this was an item that had a Unique Identifier applied to it and entered into the registry. See next response for more on this.

    ·       What if the lost item is serialized?  Again, one serialized item is missing (shortage) (…and since this item requires calibration – we may assume that it is a serially managed item) but the Government accountable property officer has an extra serialized item (overage).  Think of an apoplectic auto dealer who is missing a white Ford pickup truck with one VIN but finds another white Ford pickup truck on the lot with a completely different VIN – shortage/over!


    About that inappropriate relief of liability I noted above….


    Technically, under FAR clause 52.245-1(h)(1)(i) the company should have been held liable.  (Trust me, it all works out fine, though…)


    Here’s why based upon a reading of the above referenced paragraph as captured below:


    (h) Contractor Liability for Government Property


    (1) Unless otherwise provided for in the contract, the Contractor shall not be liable for loss of Government property furnished or acquired under this contract, except when any one of the following applies


    (i) The risk is covered by insurance or the Contractor is otherwise reimbursed (to the extent of such insurance or reimbursement). The allowability of insurance costs shall be determined in accordance with 31.205-19.


    Since the contractor was reimbursed by UPS for the loss of the item, the contractor’s liability for that loss is discharged when that payment is turned over to the Government.  It would be inappropriate from the contractor to retain “proceeds” from UPS as this would be unjust enrichment.  The contractor suffered no harm – it was the Government that suffered the loss and therefore is owed the money collected by the contractor.


    Resolution of this is relatively simple – have the contractor write a check to the U.S. Treasury in the amount of reimbursement.


    One final note.  While it may seem easier to simply have the contractor replace the item, the Government has a FAR-based acquisition process for acquiring supply items.  Being “gifted” an item is not one of the acceptable methods and could be construed as unjust enrichment.  Now, if the Government DID WANT the item replaced – then the Contract could have been modified to create a deliverable LINE ITEM whereby the contractor acquired or fabricated a NEW item that would then go through the “delivery process” such that the Government could enter this new item onto ITS records as a serialized item. 


    Government contract property is easy, right?



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