Government Property: The New Hot Button

R o b b y R a g o s C P P A

This Presentation Will Cover

• What is Government Property?• 5 Classifications of GP• Importance of having an approved Property

Management System• Frequency of a Property Management System

Audit (PMSA)• Relevant GP FAR and DFARS Clauses

DFARS 252.211-7007 Reporting GFE in the DoD IUID Registry

Scenario• Joe Snuffy the engineer works at Sikorsky• He uses special test equipment (STE) and

special tooling (ST) to work on DoD helicopters• Joe then gets assigned to work on a

commercial contract, and uses the same STE and ST he used on DoD work

Could there be a problem?

YES! The USG pays for those tools to be used on that contract, and that contract alone.

Raytheon was charged $18 million by the USAF for working on commercial products

Used tools on a separate contract.

What is Government Property?• I’m often asked “What exactly is GFE, or GFP,

or CAP, etc?”

• Good question!!

• What are the requirements to call something Government property?

FAR 45.101 States:"Government Property means all property 1. OWNED or 2. LEASED to the Government. Government property includes both Government-furnished and Contractor-acquired

Property.”

• DEFINITIONS– 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.

TITLE ALWAYS VESTS IN

GOVERNMENT

Contractor Acquired Property (CAP)

• means property acquired, fabricated, or otherwise provided by the contractor for performing a contract and to which the Government has

title.

NOTE: So when you get right down to it…There is either GFP or CAP!!!

• To give a general illustration:– GFE (Government Furnished Equipment)

• Items such as those used for testing and evaluation. (All gadgets and widgets engineers use!)

– GFM (Government Furnished Material) • Consumable materials are expected to be consumed or expended

during performance. Once consumed, it’s gone.

– GFP (Government Furnished Property) regardless of “stuff” being materials or tools, it’s all the same!

Government Property• 1.“Stuff” the Government owns.

– Items to which the Government has clear TITLE – Title evidencing the issue of OWNERSHIP. – Made available to the Contractor for use or consumption in the

performance of the contract.

Government Property

2.“Stuff” the Government LEASES. The Government leases and then provides/furnishes to the contractor for use (NOT consumption) .

• Even though it’s LEASED, it’s still GP!.

“Wait, the Government doesn’t have title to that stuff while leasing. How can you say it is

Government property?”

• The Government wants the contractor to MANAGE, CONTROL AND PROTECT that “stuff” in the same fashion as Government property.

If you loaned me a lawn mower to cut my grass, you would want me to take care of that item as

if it were my own, right?

Of course!!!!

• Why? Because, the Government has a responsibility to return it to the leasing company.

Was this managed and controlled properly?

Speaking of Management and Control…..

Classes of Government PropertyMATERIAL52.245-1(a)

45.101

EQUIPMENT52.245-1(a)

45.101

SPECIALTOOLING

2.101

SPECIALTEST

EQUIPMENT2.101

REALPROPERTY52.245-1(a)

45.101

Material– Does not include equipment, ST, or STE

• Consumed, expended, and incorporated• Uses a percentage of the remaining balance• Nuts, bolts, screws, washers, batteries, gas, silver, paint

Special Tooling• Jigs, dies, fixtures, molds, gauges…Specialized nature• Used to the performance of particular services

Special Test Equipment• FAR 2.101 “either single or multipurpose integrated test units

engineered, designed, fabricated, or modified to accomplish special purpose testing in performing a contract…”

Equipment…tangible asset that is functionally complete for its intended purpose, durable, nonexpendable, and needed for the performance of a contract.”

Real Property• Land, rights in land (Mineral rights or riparian rights, ground

improvements), sidewalks, utility distribution systems, and buildings.

• Pretty simple, right?

So why should I be concerned with having an adequate property system and stay in compliance with DCMA regulations?

DFARS 252.245-7005 (FEB 2012)

• (d) Significant deficiencies• (e)…the Contracting Officer will withhold 5% of

amounts due from progress payments and performance-based payments…

• …direct contractor to withhold 5% from its billings on interim cost vouchers on CR, labor-hour, T&M until the CO has determined that the Ktr has corrected…

Don’t panic!

• Steps need to take place before withholds start happening

• DCMA CARS Level I-IV

6 Business Systems• The USG expects that every responsible contractor has 6 Business Systems that are

competent and auditable to be compliant and do business.

– 6 Business Systems:

• Material Management and Accounting (252.242-7004)

• Cost Estimating (252.215-7002)

• Earned Value (252.234-7002)

• Contractor Purchasing (252.244-7001)

• Accounting (252.242-7706)

• Contractor Property Management System (252.245-7003)

Importance of an Approved/Adequate Property System• If the Government revokes assumption of risk,• Contractor is accountable and financially liable for ALL lost,

damaged, destroyed or stolen property, at FULL cost to the contractor.

VERY Time Consuming and VERY COSTLY !

How often does an audit occur?

Authority to Audit

• The FAR GP Clause 52.245-1(g) provides us detailed guidance as to the Government’s authorities and

the contractor’s responsibilities in regard to a PMSA (Property Management System Audit). It says…..

Authority to Audit

• The Government shall have access to the contractor’s premises and all Government property, AT REASONABLE TIMES, for the purposes of reviewing, inspecting and evaluating the Contractor’s property management plan(s), systems, procedures, records, and supporting documentation that pertains to Gov’t property…..

• What constitutes reasonable?

Authority to Audit• (g) Systems analysis.

– (2) Records of Government property shall be readily available (Upon request) to authorized Government personnel and shall be appropriately safeguarded.

Requirements for Performing Audits

• FAR 45.105 address the GOVERNMENT’S REQUIREMENT to audit the contractor.

• FAR 52.245-1 addresses the CONTRACTOR’S REQUIREMENT to assess their PMS.

How frequently SHALL a Government PA perform a PMS audit??

IT DEPENDS!!

Frequency of PMSA

• The Risk Assessment and Rating affect how FREQUENTLY the Government PA will perform a PMSA: – The type of PMSA they will perform,– The Processes subject to review if a PMSA is performed

Levels of Risk• High Risk. Perform a Standard PMSA at least annually until such

time as the contractor improves to at least the moderate risk level and the PA determines that the status of the contractor's system justifies a reduced level of oversight.

• Moderate Risk. Perform a Standard, Limited PMSA or site visit as

frequently as conditions warrant, but at least once every two years. • Low Risk. Perform a Standard, Limited PMSA or site visit as

frequently as conditions warrant, but at least once every three years. http://guidebook.dcma.mil/34/INDEX.CFM

Frequency of PMSA• Criteria for assignment of a risk category may include:

– Dollar value of Government Property accountable to that contractor (Higher value, higher risk).

– Historical occurrences of Loss, Theft, Damage, or Destruction.– Physical inventory adjustments– Unauthorized use of Government Property(Scenario 1!)

Processes and OutcomesThe primary Government Property Clause at 52.245-1

requires the Contractor to develop property management plans, systems, and procedures at the contract, program, site or entity level to enable the ten outcomes/ processes (listed i to x):

(i) Acquisition of Property(ii) Receiving of Government Property(iii) Records(iv) Physical Inventory(v) Subcontractor Control(vi) Reports

Processes and Outcomes(vi) Relief of Stewardship Responsibility (Liability)

(vi) Disposition(vii) Cannibalization(viii)Shipping

(vii) Utilization

(vi) Storage(vii) Consumption of Material(viii)Movement

(viii) Maintenance(ix) Property Closeout

Acquisition

• Far 52.245-1 (f)• (i) Acquisition of Property. The Contractor shall

document that all property was acquired consistent with its engineering, production planning, and material control operations.

• Is the Ktr following the PROCESS for managing the ACQUISITION of PROPERTY that IS or BECOMES Government Property??

Receiving

• Far 52.245-1 (f)• Are you adjusting for overages, shortages,

damages/discrepancies discovered upon receipt?

• How are you handling hazardous materials?– Properly qualified personnel handling it?

• Are you properly documenting all incoming deliveries?

Records

• FAR 52.245-1(f)• Records of Government Property. The Contractor shall create and maintain

records of ALL Government property accountable to the contract,

including Government-furnished and Contractor-acquired property.

Regardless of $$ value!!!

Physical Inventory• Physically locating and counting Government property?• Comparing the results to the records?• Posting the findings and adjustments?• Reporting the adjustments to the PA (ND and DCMA)?

Subcontractor Control• Important!!!

– The flow down of proper clauses, provisions, and requirements, e.g., the requirements of the GP Clause FAR 52.245-1.

– Proper liability provisions- either the FULL risk of loss or the LIMITED risk of loss requirements depending upon the type of contract, listings of GFP, etc.

– The adequacy of the prime contractor’s system of surveillance incorporated in its PMS and applied throughout the life of the subcontract.

Relief Stewardship (Liability)• Disposition

– LTDD(Loss, Theft, Damage, Destruction) incidents been reported IAW 52.245-1?

• Cannibalization-NOT the eating of human flesh

• Shipping– Proper paperwork documented? (DD Form 1149)

Utilization• Storage

– GP separate from NON GP??– Adequate facilities? (Temperature, size, security, labeled, etc.)

• Consumption-materials– Disclose and report if in excess of contract performance?

• Movement– Contractor moving GP that is authorized only under the contract it’s

authorized for?

Maintenance

• Identification, disclosure, and performance of normal and routine preventative maintenance and repair?

• Disclosure and report to the Property Administrator the need for replacement and/or capital rehabilitation

• See the difference?

Property Closeout

• Reporting, investigating, and securing closure of all LTDD (Loss, Theft, Damage, and Destruction) cases.

• Physically inventorying all property upon termination or completion of the contract.

• Disposing of items at the time they are determined to be excess to contractual needs.

Relevant FAR Property Clauses• 9.104-1 (e) Ktr must have adequate systems• 30.201 Cost Accounting Standards (disclosure

statements)• 31.201-2, -3 &-4 Determining reasonableness,

allowability and allocability• 45.104&107 Which property clause to use• 52.244-2 Subcontracts (ACO approval requirements

to subcontract)

Relevant FAR Property Clauses• 52.245-1 Limited risk of loss• 52.245-1 Alt 1• 52.245-9 Use and charges

Relevant DFARS Property Clauses• 245.107 When to use DFARS property clauses• 252.211-7007 Reporting GFE in the DoD IUID Registry

(JANUARY 2014!!!!) Word Document• 252.245-7001 Tagging, labeling, and Marking of GFP• 252.245-7002 Reporting Loss of GFP• 252.245-7003 Contractor PMS Administration• 252.245-7004 Reporting, Reutilization, and Disposal• 252.242-7004 Material Management and Accounting

System

Was this movement done with “law & regs” in mind?

• Questions????