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Government Property Use and Charges

ACON 034

DAU GLOSSARY DEFINITION

Alternate Definition
  • “Equipment” means a tangible item that is functionally complete for its intended purpose, durable, nonexpendable, and needed for the performance of a contract. Equipment is not intended for sale, and does not ordinarily lose its identity or become a component part of another article when put into use. Equipment does not include material, real property, special test equipment or special tooling.
  • “Government property” means all property owned or leased by the Government. Government property includes both Government-furnished property and contractor-acquired property. Government property includes material, equipment, special tooling, special test equipment, and real property. Government property does not include intellectual property and software.
  • “Material” means property that may be consumed or expended during the performance of a contract, component parts of a higher assembly, or items that lose their individual identity through incorporation into an end-item. Material does not include equipment, special tooling, and special test equipment or real property.
  • “Rental period” means the calendar period during which Government property is made available for nongovernmental purposes.
  • “Rental time” means the number of hours, to the nearest whole hour, rented property is actually used for nongovernmental purposes. It includes time to set up the property for such purposes, perform required maintenance, and restore the property to its condition prior to rental (less normal wear and tear).
  • “Unit acquisition cost” means—(1) For Government-furnished property, the dollar value assigned by the Government and identified in the contract; and (2) For contractor-acquired property, the cost derived from the contractor’s records that reflect consistently applied generally accepted accounting principles. Note – The term “unit acquisition cost” replaced “acquisition cost” in 2012. However Federal Acquisition Regulation 52.245-9 -- Use and Charges was not updated to reflect the change.
Alternate Definition Source

FAR 45.101 FAR 52.245-9

General Information

Federal Acquisition Regulation (FAR) Subpart 45.3 -- Authorizing the Use and Rental of Government Property includes the policies and procedures used by contracting officers when making determinations whether contractor use of Government property will be rent-free or if rental charges will apply. When Government property is provided to a contractor for contract performance in accordance with FAR 45.102 -- Policy, DFARS Procedures, Guidance, and Information (PGI) 245.103-70 -- Furnishing Government property to contractors, and DFARS PGI 245.103-74 -- Contracting office responsibilities, the property becomes accountable to the contract. Contractors are normally allowed to use the property on the accountable contract rent-free. Contracting officers may also authorize use of the property on other Government contracts on a rent-free basis if the contracts are cost-reimbursable. Authorization for use on contracts other than the accountable contract must be in writing in accordance with FAR 52.245-9 -- Use and Charges. FAR 45.3 and FAR 52.245-9 are clear in identifying the circumstances under which a contracting officer may authorize rent-free use regarding the use of Government property on accountable contracts, subcontracts, and other Government work.

The subject that draws more questions is the rental of Government property. The first question one might ask is “When is it appropriate to charge a contractor a rental fee for the use of Government property?” First, it is important to know that rental of Government property excludes “material.” Material is generally consumed whereas equipment is utilized. In accordance with FAR 45.301 rental charges, or consideration as determined by the cognizant contracting officer(s), apply when Government property is authorized for use on fixed-price contracts other than the accountable contract. Rental charges or other considerations also apply when a contractor requests the use of Government property after the award of a fixed-price contract. Perhaps the most common application of rental charges is when a contractor is authorized use of Government property for commercial purposes on a non-interference basis. Prior to authorizing use and rental of Government property the contracting officer should evaluate the benefits and impacts of doing so. Some reasons that may justify authorizing use and rental for commercial purposes are:

  • Equipment may be kept in a high state of operational readiness through regular use;
  • Accrual of substantial savings for the Government through overhead cost sharing and receipt of rental; and
  • Avoiding an inequity to a contractor who is required by the Government to retain the equipment in place.

That brings us to the second question “How are rental charges calculated?” FAR 52.245-9 provides two formulas for calculating rental charges. One is based on [unit] acquisition cost and the other is based on an appraisal of the property that the contractor obtains at their own expense. The latter, which can be found in FAR 52.245-9(e)(1)(ii), always applies to real property and associated fixtures, but can also be used for other Government property. The computation in FAR 52.245-9(e)(2), using [unit] acquisition cost is simplistic and likely to be the more commonly used of the two since contractors are responsible for appraisal related expenses. It states “The hourly rental charge is calculated by multiplying 2 percent of the acquisition cost by the hours of rental time, and dividing by 720.” Both calculations will be illustrated using the data below. Notice that both computations begin with calculating the monthly rental for the entire month. Although, this terminology is not specifically included in the clause, rather inferred, you will see that it is necessary to calculate the hourly rental charge.

[Unit] acquisition cost x Flat rate = Monthly rental if property is used for the entire month (720 hours)  

$75,000 x .02 = $1,500 

1500 x 80 = $120,000

$120,000/720 = $166.66 hourly rental charge

$166.66 x 12 = $1,999.92 for the entire rental period

The contractor has requested use of an item of Government property that has a unit acquisition cost of $75,000. The contractor has identified the rental period as 12 months. Actual rental time will be 80 hours per month. The rental appraisal rate is 2 percent. There are 720 hours of availability within a month.

As previously mentioned, the FAR52.245-9(e)(1) computation that is used for real property and associated fixtures can also be used for other Government property. FAR52.245-9(e)(1)(ii) states Rental charges shall be determined by multiplying the rental time by the appraisal rental rate expressed as a rate per hour. Monthly or daily appraisal rental rates shall be divided by 720 or 24, respectively, to determine an hourly rental rate.

[Unit] acquisition cost x Rental appraisal rate = Monthly rental if property is used for the entire month (720 hours)

$75,000 x .02 = $1,500

Next, the rental rate for the entire month needs to be converted to an hourly rental rate.

Rental for entire month/720 = Hourly rental rate

$1,500/720 = $2.08 per hour

Then, the hourly rate has to be converted to monthly rental charge for the actual rental time.

Rental time x Hourly rental rate = Monthly rental charge

80 hours per month x $2.08 = $166.40 Monthly rental charge

To compute rental charges for the entire rental period multiply the monthly rental charge by 12 months.

$166.40 x 12 = $1,996.80 for the entire rental period

For these examples, the flat rate and the appraisal rate were the same for consistency. However, that most likely will not be the case in practice. Keep in mind that when the contracting officer believes the appraisal rental rate is unreasonable, he/she shall promptly notify the Contractor and the parties may agree on an alternative means for computing a reasonable rental charge.

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