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  • Question

    What actions should the Contracting Officer take to mitigate the losses? What action should the Property Administrator take to mitigate the losses?


    Answer

    Ensuring that the Government Property clause FAR 52.245-1 is in the contract is one way that the Contracting Officer has already mitigated the risk of loss of Government property. The Government property clause requires the Contractor to establish a system of internal controls to manage Government property. The contractor is required to establish and maintain the system. Ensuring that the Contractor’s system of internal controls is both effective and efficient and corrective action is taken when processes are inadequate is how the Contracting Officer and the Property Administrator mitigate loss of Government property. The Property Administrator accomplishes this by thoroughly evaluating the Contractor’s written property management procedures as well as the Contractor’s implementation through the performance of a property management system analysis.  Processes for establishing and maintaining records, receiving, storage, and movement often contribute to loss of Government property.
     
    With regard to loss of Government property, the Contracting Officer and the Property Administrator should place emphasis on the Contractor’s corrective action plan. Since the Government self-insures and contractors are generally not held liable for loss of Government property, often the Government’s only available option is to try to ensure that the Contractor develops and implements an effective corrective action plan that does not merely address the symptoms associated with the loss (e.g., contractor employee error), but corrects the problem that caused the symptoms. The corrective action request should include direction to the Contractor to perform a root cause analysis that will reveal the actual problem that can be directly tied to loss of property (e.g., inadequate controls or lack of implementation of procedures). Prior to accepting the Contractor’s corrective action plan the Contracting Officer and/or the Property Administrator should perform a thorough review for effectiveness and the potential to prevent recurrence. Keep in mind that at times the root cause may exist within a segment of the Contractor’s organization outside of property management. That is for the Contractor to figure out. Lastly, if the conditions of Contractor’s (or subcontractor’s) property management practices are inadequate or not acceptable for the effective management and control of Government property under the contract, or present an undue risk to the Government, and the Contractor fails to take timely corrective action, the Contracting Officer can, in writing, revoke the Government’s assumption of risk (see FAR 52.245-1(h)(1)(iii) and 52.245-1(g)(3)). See DFARS 242.7000 for direction concerning Contractor business system “significant deficiencies” and DFARS 252.245-7003 for information specific to Contractor property management systems “significant deficiencies” and corrective actions.
     
    Additional Reference:
    FAR 45.104 Responsibility and liability for Government property

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