How is contractor acquired property handled if purchased under a cost sharing contract?
This is a GREAT question – and one that has very little discussion in regard to the handling of Government Property!
Open full Question Details
O.k., as stated -- today as we speak you will find very little in the FAR regarding Cost sharing contracts. Are you ready? Here it is…
FAR 16.303 Cost-sharing contracts.
(a) Description. A cost-sharing contract is a cost-reimbursement contract in which the contractor receives no fee and is reimbursed only for an agreed-upon portion of its allowable costs.
(b) Application. A cost-sharing contract may be used when the contractor agrees to absorb a portion of the costs, in the expectation of substantial compensating benefits.
Well, that doesn’t tell you much – does it? And yes, there are a few references to Cost Sharing contracts in FAR 35.003 and 42.707.
But if we were to go back to some very OLD regulations there was GREATER and more in depth guidance. Specifically if we go back to the DAR/ASPR and the Federal Procurement Regulations from the 1970s and early 1980s, i.e., that is a time BEFORE the FAR. And that sort of tells you that if I have to cite a regulation from before 1984 (over 26 years ago) I am pushing the envelope on knowing old regulations! :)
Generally, Cost sharing type contracts provide for some allocation of a share ratio – which may be as simple as splitting it 50/50. Or it may be some other ratio or formula. So understand that the Government is NOT paying for all costs for the property acquired – rather the Government and the contractor SHARE in paying for these costs.
So, let me walk you through the various thoughts relating to property acquired under a Cost Sharing contract.
- Since this is a cost SHARING arrangement – there was a SHARE ratio established at the time of contract award. You’ll need to read the contract to see what this share ratio was.
- If the contractor acquires property in accordance with the Government Property clause at FAR 52.245-1 – then title, for the purposes of property management (And stewardship) vests in the Government. NOTE – yes, even though the contractor can claim, “Hey, wait… some of that is ours because we SHARED in the cost!” The GP clause says that the Government has title (As Contractor Acquired Property as defined in 52.245-1) and the contractor shall MANAGE that Government property in accordance with its Property Management System. I wanted to reinforce this issue – that the property acquired IS Government Property and must be MANAGED as Government Property!
O.k., but let’s assume that we reach contract completion and there is Government Property remaining that was acquired by the contractor!
- If the Government Contracting Activity wants to PERFECT its title to this remaining “stuff” (Since it only reimbursed the contractor for ITS share of the property) then the Government must reimbursement the contractor for that delta, i.e., the difference between the Government’s original share of the acquisition cost – and what the contractor’s share was of the acquisition cost.
- If the Government DOES NOT want this remaining “stuff” -- and the contractor DOES – then the contractor can acquire the Government’s “share” by reimbursing the Government for the GOVERNMENT’s share of the acquisition cost. And the contractor would have clear title to this property.
- If neither party wants the remaining property– it needs to be processed through the Government Property disposal Process, i.e., FAR 52.245-1(j) for the contractor and FAR 45.6 for the Government. With the Contractor listing the property on an SF 1428 (Or through the electronic Plant Clearance Automated Reutilization Screening System (PCARSS)) and then the Plant Clearance Officer (PLCO) – the authorized Government representative who can effect and provide disposition direction – will screen to see if other Government activities may want this asset (NOTE: And if another Government activity wants the item it will have to reimburse the contractor for its share of the equipment.).
- If no one in the Government wants that equipment, as determined by the appropriate screening performed by the PLCO, then the PLCO may direct the contractor to sell the equipment – with the proceeds realized from the sale being distributed in accordance with the share ratio, i.e., the Government’s share being paid to the General Treasury (Or back to the contract if authorized) and the contractor’s share being returned to the contractor for whatever use it desires.
Once again, COST SHARING contracts are a strange beast – and one that DOES NOT have much regulation nor literature discussing the fine points – especially in regard to Property Management! This would be a GREAT topic for the Department of Defense to amplify through the writing of a DFARS PGI – to explain this process. I hope that this has helped in that regard!