The prime contract has the rent free use provision for Government Property (GP) to be used on other DoD contracts and COMMERCIAL contracts not associated with the Government, including work at subcontractors. The prime contractor furnishes GP to a subcontractor strictly for commercial subcontract work only. In other words, there are no subcontracts with the subcontractor under a prime Government contract, yet the prime contractor furnishes GP to the sub under a commercial contract. Is this appropriate? And if so, how is liability for Property Loss (PL) determined? Since risk of loss provisions are flowed down based on the pricing arrangement of the prime contract and Government subcontract, it would appear that the flow down of PL liability would be affected and not appropriately administered. How can GP be accountable to a commercial only subcontract? This seems highly irregular and inappropriate. I believe that when the prime contract authorizes the prime contractor to use the GP on commercial subcontracts, it is implied that there is Government subcontracts also in place at that subcontractor, and the property is accountable to THOSE subcontracts, not the commercial subcontract. I have GP at subcontractors clearly identified (per the property clause) on commercial only subcontracts not associated whatsoever with work against a Government prime contract. And in fact, the subcontractor has no active subcontracts with the prime associated with a prime Government contract. Should the Government take on the risk of having GP located at a subcontractor, and assume the costs of the prime contractor administering the Government property clause, for property at a subcontractor location strictly for commercial gain? Shouldn't the GP be returned to the prime when it is no longer required at the sub facility for Government work?
The following response is based solely on the question and background information provided. As we do not have the entire facts particular to your contract, program, and situation, we suggest you discuss with your contracting team, program manager, and legal department as appropriate.
First, as discussed at DFARS PGI 245.102-70 the property is accountable ONLY to the PRIME contract (and not to the subcontract(s)) until it is transferred IAW FAR 45.106 and DFARS PGI 245.103-70.
Once the property is no longer required for performance of the Prime contract, the Government Property clause (GPC) FAR 52.245-1(f)(1)(viii)(A) and (j)(1)-(3) state the required reporting actions for the Prime contractor. These requirements are flowed down to the subcontractor as required at GPC (f)(1)(v) and (j)(9).
If the property is still required on the Prime contract, the process for authorizing rental for commercial work is governed by FAR 52.245-9 (contractor and USG) and FAR 45.301 (USG).
Specifically, FAR 52.249-9(d)(2) states “(t)he Contractor shall not use Government property for nongovernmental purposes, including Independent Research and Development, until a rental charge for real property, or estimated rental charge for other property, is agreed upon. Rented property shall be used only on a non-interference basis.”
Additionally, FAR 45.301(f) states “in exchange for consideration as determined by the cognizant contracting officer, the contractor may use Government property for commercial use. Prior approval of the Head of the Contracting Activity is required where non-Government use is expected to exceed 25 percent of the total use of Government and commercial work performed.”
With respect to liability, the Government has the right to the property in pre-rental condition at ANY time during the rental period as detailed in FAR 52.245-9 (also highlights Government's unilateral right to limit nongovernmental use):
(g) Use revocation. At any time during the rental period, the Government may revoke nongovernmental use authorization and require the Contractor, at the Contractor’s expense, to return the property to the Government, restore the property to its prerental condition (less normal wear and tear), or both.
Because of the risk of unauthorized use of Government property, the clause expressly lists potential criminal penalties (conversion of public property; maximum punishment is 10 years confinement and a $10,000 fine):
52.245-9(h) Unauthorized use. The unauthorized use of Government property can subject a person to fines, imprisonment, or both, under 18 U.S.C. 641.
In general, the Government MUST receive consideration for allowing its property to be used for nongovernmental work.