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OPERATING STATUS

FULLY OPERATIONAL

Question
Does DCMA need to provide disposition instructions on all rejected material once issued to production line (WIP) and would any scrap material be required to be processed through PCARSS for disposition?
Answer
With regard to clarification of property ownership, FAR 52.245-1(e) – Government Property –Title to Government property states that the Government retains title to Government-furnished property. FAR 52.245-1(e) further states “Title vests in the Government for all property acquired or fabricated by the Contractor in accordance with the financing provisions or other specific requirements for passage of title in the contract.” Under cost type contracts, when the Contractor purchases property and is entitled to be reimbursed as a direct item of cost under the contract, title vests in the Government upon vendor delivery of the property. When the Contractor acquires property by means other than purchasing, e.g., fabrication, and is entitled to reimbursement, title vests in the Government upon whichever of the following actions occurs first:

· Issuance of the property for use in contract performance;
· Commencement of processing of the property for use in contract performance; or
· Reimbursement of the cost of the property by the Government.

If the rejected material falls within any of the scenarios described above (which it most likely does since it is a cost type contract) and it is serviceable or useable it needs to be removed from work-in- process and returned to stock. If it is no longer needed for contract performance, except as otherwise provided for in the contract, the Contractor is not dispose of the property (i.e., “contractor inventory” as defined in paragraph (a) of the Government property clause) until authorized to do so by the Plant Clearance Officer (PLCO) or authorizing official. FAR 52.245-1(j) includes pre-disposal requirements. If the pre-disposal requirements cannot be executed, then the material must be reported on an inventory disposal schedule and submitted to the PLCO for disposition instructions. The Contractor is also required to identify the rejected material on an inventory disposal schedule and submit it to the PLCO for disposition instructions if it is “scrap” as defined by FAR 2.101. Scrap should be reported by “lot” along with metal content, estimated weight and estimated value. If the contract includes DFARS 252.245-7004 Reporting, Reutilization, and Disposal the Contractor is required to submit the inventory disposal schedule using the Plant Clearance Automated Screening System (PCARSS). DFARS 252.245-7004 also includes a definition of “scrap” and specifically requires the Contractor to include a process for the accountability and management of Government-owned scrap within its property management procedure.

There is a similar question relative to a firm-fixed-priced contract that addresses production scrap at https://www.dau.mil/aap/Pages/qdetails.aspx?cgiSubjectAreaID=15&cgiQuestionID=130393.

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