Policy on Providing Government Property to Contractors
DAU GLOSSARY DEFINITION
“Government-furnished property” means property in the possession of, or directly acquired by, the Government and subsequently furnished to the Contractor for performance of a contract.
“Contractor-acquired property” means property acquired, fabricated, or otherwise provided by the Contractor for performing a contract, and to which the Government has title.
“Provide” means to furnish, as in Government-furnished property, or to acquire, as in contractor-acquired property.
Reference: FAR 52.245-1
When doing work (providing goods and services) for the Federal Government under a contract the Contractor is required to provide their own property unless they meet the policy exceptions. This includes property that the Government would normally classify as Real Property (RP), Equipment, Special Tooling (ST), Special Test Equipment (STE), and Material. The Government’s official policy is stated in section 45.102 of the Federal Acquisition Regulation (FAR). This section of the FAR states:
- Contractors are ordinarily required to furnish all property necessary to perform Government contracts.
- Contracting officers shall provide property to contractors only when it is clearly demonstrated—
- To be in the Government’s best interest;
- That the overall benefit to the acquisition significantly outweighs the increased cost of administration, including ultimate property disposal;
- That providing the property does not substantially increase the Government’s assumption of risk; and
- That Government requirements cannot otherwise be met.
- The contractor’s inability or unwillingness to supply its own resources is not sufficient reason for the furnishing or acquisition of property.
- "Exception”- Property provided under contracts for repair, maintenance,overhaul, or modification is not subject to the requirements of paragraph (b)of this section.
The Government Contracting Officer is responsible for determining whether or not Government Property should be provided to a Contractor. In providing Government Property to a Contractor the Contracting Officer must also make sure that a Contractor is not given an unfair competitive advantage over another Contractor who may not have Government Property. Contractors who are provided Government Property can obtain an economic advantage over competitors because their money and resources would not have to be spent on purchasing real property or personal property to support the contract.
In most situations the Government includes a warranty in the contract that states that the property will be suitable for the intended use. It also states that it will be provided in a timely manner so as not to impede contract performance. The Government requires the Contractor to maintain a Property Management System in accordance with FAR 52.245-1. The costs of this system are typically born by the Government. In general, the Government incurs the cost for any property that is subject to loss, damage, destruction, or theft. The Government is responsible for major maintenance expenses such as Capital Type Rehabilitation. The Contracting Officer must consider all these extra costs and make a determination that all Contractors are treated in an equitable manner with respect to Government Property being provided.
In accordance with Defense Federal Acquisition Regulation Supplement (DFARS) Procedures, Guidance, and Information (PGI) 245.103-70, Furnishing Government property to contractors, Contracting Officers must ensure that each of the requirements of FAR 45.102 are addressed and documented in the contract file. This includes a determination that furnishing Government property is in the Government’s best interest. Examples of situations where furnishing Government property may be justified include-
- Economy – Furnishing Government property is the lowest cost or price alternative.
- Standardization – There is a critical need for precise replication.
- Security – Government property is needed due to national security issues/concerns.
- Expedite production – Government property is crucial to achieving timely or accelerated delivery of a supply item or service.
- Scarcity – The Government can obtain scarce items, or is the only source of property necessary for successful execution of a contract.
- Maintain the industrial base – Government property is needed to ensure future capability to obtain a particular supply item or service.
- Contract type – Government property will enable the Government to obtain a more favorable contract type.
Where the Contracting Officer determines that “the overall benefit to the procurement significantly outweighs the increased cost of administration including ultimate property disposal” additional costs must be considered. Contracting Officers must consider the costs to repair Government Property over its useful life based upon the age and condition of the Government Property that may be furnished. They must consider the potential cost to replace lost, damaged, or destroyed Government Property as well as the cost associated with disposing of the property including such items as hazardous wastes, explosives, demilitarization, etc. Providing Government Property should not substantially increase the Government’s risk. In order to help the Contracting Officer make this decision they should obtain information from the cognizant Property Administrator concerning the potential Contractor’s Risk Assessment Rating as it applies to the management of Government Property.
The policy statement that “Government requirements cannot otherwise be met” may include sole source procurements, contingency contracting, or where Government Property is required to support emergency situations where resources are limited. It is insufficient for the Contracting Officer to provide Government Property because “it is in the Government’s best interest.” Along with this statement the Contracting Officer must provide sufficient justification as to why it is in the Government’s best interest.