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DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement to expand the prescription for use of Federal Acquisition Regulation (FAR) clause 52.245-1, Government Property, to apply to all purchase orders for repair, maintenance, overhaul, or modification to Government property regardless of the acquisition cost of the items to be repaired.   Currently, the FAR clause is optional for use in purchase orders for repair when the acquisition cost of the item to be repaired is less than the simplified acquisition threshold; however, acquisition cost alone is not an indicator of the criticality or sensitivity of the property.  The acquisition cost of individual items of firearms, body armor, night-vision equipment, computers, or cryptologic devices may be below the simplified acquisition threshold, but the accountability requirements for these items are fairly stringent.  Requiring the clause in all purchase orders for repair, regardless of the acquisition cost of the item to be repaired, will ensure DoD has better accountability and insight into military reparable assets. 

One respondent submitted comments on the proposed rule.  This rule will increase costs for contractors, including small entities, who receive purchase orders for repair of Government property, because these contractors will be required to comply with the reporting requirements associated with Government property clause.  However, the rule also provides the contractors with the protections of the Government Property clause (where the Government self-insures the property provided to the contractor), and provides DoD better accountability of its property. 

Statement of Need:

The rule is required to achieve greater accountability of Government furnished property (GFP) and decrease the risk of misuse or loss of Government property. Accountability of assets is an important part of audit readiness. This rule facilitates DoD’s goal of achieving full accountability and visibility of equipment provided to contractors as GFP, including critical and sensitive equipment items. This rule closes an existing accountability gap by treating purchase orders for repair, maintenance, overhaul, or modification of GFP no different from other contractual instruments involving repair of GFP, such as delivery orders awarded under Basic Ordering Agreements or issued under Indefinite Delivery Contracts.

The rule also enables compliance with DoD Instruction 4161.02 entitled Accountability and Management of Government Contract Property, which requires DoD components to use electronic transactions when transferring GFP to a contractor and upon the return of the property to DoD. Use of FAR clause 52.245-1, Government Property, in conjunction with associated DFARS clauses, creates an electronic end-to-end process for GFP management.

Summary of the Legal Basis:

This rule is proposed under the authority at 41 U.S.C. 1303, Functions and authority, which provides the authority to issue and maintain the Federal Acquisition Regulation and executive agency implementing regulations. 

Alternatives:

There are no viable alternatives that would provide tracking and accountability of GFP provided to contractors for repair that would provide full visibility of Government assets and integrate with existing GFP procedures and electronic systems. The rule reflects marketplace practices, which limits the consideration of alternatives. Many of the requirements contained in FAR 52.245-1, e.g., receiving reports, discrepancy reports and property records, are typical commercial practices, and so not unduly burdensome. For example, customary commercial practice is to create receiving reports and keep records for incoming assets regardless of the source of such assets. In addition, the policy at FAR 45.103(b) permits contractors to use their own existing property management procedures, practices, and systems to account for and manage Government property.

Anticipated Costs and Benefits:

The annual estimated cost to the public is based on Federal Procurement Data System transaction data for fiscal year 2015 for purchase orders for repairs of Government equipment. Using this baseline, costs were calculated for contractor reporting, record keeping, and compliance costs. Some contractors may be required to setup a property management system; however, this impact is minimal since contractors may use their own existing practices and systems. The annualized cost is estimated to be approximately $350,000.

Benefits of this rule accrue to both contractors and the Government resulting from improved accountability of GFP, which should reduce losses and mitigate potential property ownership issues. This will serve to minimize contract disputes, claims, and litigation; thereby reducing administrative costs for both contractors and the Government. Accountability of GFP facilitates proper disposition and adjudication of all property during contract closeout and should result in prompt contract payment.

Risks:

This rule addresses an accountability gap in managing and accounting for Government assets and should mitigate the risk of loss of Government property. Some equipment requiring repairs that would now be covered by this rule are deemed critical and sensitive, e.g., firearms, body armor, night-vision equipment, computers, and cryptologic devices. Loss or theft of such devices could have far reaching consequences.