[Federal Register Volume 77, Number 42 (Friday, March 2, 2012)]
[Rules and Regulations]
[Pages 12937-12947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-4499]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 31, 32, 45, 49, 51, 52, and 53

[FAC 2005-56; FAR Case 2010-009; Item VII; Docket 2010-0009, Sequence 
1]
RIN 9000-AL95


Federal Acquisition Regulation; Government Property

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: DoD, GSA, and NASA are issuing a final rule amending the 
Federal Acquisition Regulation (FAR) to clarify reporting, 
reutilization, and disposal of Government property.

DATES: Effective Date: April 2, 2012.

FOR FURTHER INFORMATION CONTACT: Mr. Curtis E. Glover, Sr., Procurement 
Analyst, at 202-501-1448 for clarification of content. For information 
pertaining to status or publication schedules, contact the Regulatory 
Secretariat at 202-501-4755. Please cite FAC 2005-56, FAR Case 2010-
009.

SUPPLEMENTARY INFORMATION:

I. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 76 FR 18497 on April 4, 2011. Eight respondents submitted 
comments on the proposed rule. The comments received were grouped by 
topic area.

II. Discussion and Analysis

    The Civilian Agency Acquisition Council and the Defense Acquisition 
Regulations Council (the Councils) reviewed the comments in the 
development of the final rule. A discussion of the comments and the 
changes made to the rule as a result of those comments are provided as 
follows:

A. Summary of Significant Changes

    1. A definition of ``surplus property'' is added at FAR 2.101 to 
apply throughout the FAR.
    2. Terminology used is updated and used consistently throughout the 
FAR, e.g., ``loss of Government property'' is defined at FAR 45.101, 
and ``loss'' is used consistently in lieu of ``loss, damage, 
destruction, or theft.''
    3. Clarified, and distinguished among, the responsibilities and 
authorities of the contracting officer, property administrator, plant 
clearance officer, and contractor.
    4. Reorganized and clarified procedures and responsibilities for 
Government property disposal (see FAR subpart 45.6).
    5. Reorganized, clarified, and updated the Government property 
clause at FAR 52.245-1 to conform with revisions to FAR part 45.

B. Government Responsibilities

    Comments: A respondent recommended a number of revisions to the 
Government responsibilities, primarily those in FAR subpart 45.6, 
Reporting, Reutilization, and Disposal. The respondent recommended 
revising FAR 45.606-1(a) to require that the property administrator 
work in coordination with the plant clearance officer to ensure that 
contractor scrap disposal processes are effective and properly 
documented. Another recommendation was to revert to the current 
regulation's use of ``should'' in lieu of ``may'' at FAR 45.602-1(c)(1) 
in order to ensure the Government's agreement before Government 
property is removed from a contractor's inventory schedule. The 
respondent recommended modifying FAR 45.606-1(b) to require that any 
deviation from the contractor's standard property plan and processes be 
identified as early as possible in the procurement process.
    Response: The first two recommendations are adopted in this final 
rule. The final recommendation is not adopted because the Property 
Administrator can make that determination at any time.
    Comments: The same respondent recommended a number of other 
revisions to the Government responsibilities, also primarily in FAR 
subpart 45.6, Reporting, Reutilization, and Disposal. The respondent 
proposed to revise FAR 45.600, Scope of subpart (which was not included 
in the proposed rule) to allow for either the contracting officer or 
the plant clearance officer to perform plant clearance officer duties. 
The respondent recommended removing the proposed rule's requirement, at 
FAR 45.603(b), for the plant clearance officer to obtain approval at 
one level higher than the contracting officer before allowing the 
abandonment of sensitive property that does not require 
demilitarization. The respondent requested the addition of more 
examples of items considered to be incidental to the place of 
performance (see FAR 45.000).
    Response: The above recommendations are not incorporated into the 
final rule because (1) contracting officers generally rely on the 
Government property expertise of plant clearance officers, (2) 
additional review and approval requirements can provide a broader 
perspective, and (3) too often, lists of examples are treated 
inappropriately as exhaustive lists.

C. Contractor Property Management Systems

    Comments: Two respondents recommended revisions to FAR subpart 
45.1, General. One recommendation was to revise FAR 45.105(b) to 
prevent the Government from notifying a contractor of deficiencies in 
its property management system unless the deficiencies were 
``material.'' The other recommendation was to modify FAR 45.104(b) to 
add the following: ``When determining noncompliance, FAR part 1 
concepts apply, e.g., risk management, materiality, best value, and 
benefits of changes must justify their cost''.
    Response: FAR part 1 is always applicable to all parts of the FAR. 
There is no need to repeat the statement in FAR part 45. 
``Materiality'' is not defined in FAR part 2. If the Government 
determines that

[[Page 12938]]

deficiencies in a contractor's property management system are 
significant enough to warrant a correction letter, then the contractor 
should treat those deficiencies as material.
    Comments: A number of respondents proposed changes to the clause at 
FAR 52.245-1 that were associated with contractors' property management 
systems. These included the following:
    <bullet> FAR 52.245-1(b)(1): Add ``internal controls,'' 
``efficient,'' and ``a new;'' and delete ``except where inconsistent 
with law or regulation.''
    <bullet> FAR 52.245-1(b)(4): Change ``property'' to ``asset.''
    <bullet> FAR 52.245-1(f)(1)(iii)(A): Substitute ``as appropriate to 
the circumstances'' in place of ``auditable.''
    <bullet> FAR 52.245-1(f)(1)(iii)(A)(1): Do not use ``description;'' 
instead, retain ``manufacturer and model number (if applicable) for 
Equipment, ST, and STE.''
    <bullet> FAR 52.245-1(f)(1)(v)(A): Change ``assets'' to ``items'' 
and revise to read ``shall have a process to manage Government property 
in the possession of subcontractors including identification and 
reporting of reportable items, as required in the contract as 
Government furnished or contractor acquired items.''
    <bullet> FAR 52.245-1(f)(1)(vii)(C)(1): Clarify what is included in 
``consumed'' and that the property administrator is the official 
determining the reasonableness of adjustments.
    <bullet> FAR 52.245-1(g): Change ``analysis'' to ``audit.''
    <bullet> FAR 52.245-1(j): Delete, at FAR 52.245-1(j)(1)(i), ``in 
consultation with the Property Administrator,'' and retain existing 
language at (j)(2). Add ``in accordance with agency procedures if 
included in the contract.''
    <bullet> FAR 52.245-1(j): Delete (j)(3)(i)(B) and replace it with 
(j)(3)(i)(C). Revise the time allotted for contractor submission from 
``30 days'' to ``60 days or such other time frame agreed to by the 
PLCO.''
    <bullet> FAR 52.245-1: Add a dollar threshold for the contractor's 
reporting and tracking, i.e., ``* * * property in excess of $5,000 or 
in accordance with risk levels in voluntary consensus standards or 
industry leading practices.'' The respondent suggested allowing 
contractors to defer any reporting of certain low-risk or low-value 
items until contract termination.
    Response:
    <bullet> FAR 52.245-1(b)(1): Two of the recommended additions to 
FAR 52.245-1(b)(1) are incorporated into the final rule because they 
better explain the Government's requirements for the contractor's 
property management system. However, ``a new'' was not added because of 
the associated element related to ``time.'' The phrase ``except where 
inconsistent with law or regulation'' is not deleted because 
contractors are never authorized to employ commercial practices, 
voluntary consensus standards, or industry-leading practices if the 
former do not comply with law or regulation.
    <bullet> FAR 52.245-1(b)(4): The term ``property'' is retained to 
maintain consistency in terminology.
    <bullet> FAR 52.245-1(f)(1)(iii)(A) and (A)(1): The Councils did 
not revise ``auditable'' to ``as appropriate for the circumstances'' 
because the proposed change is too vague and does not provide an 
understandable or consistent standard. The final rule does not revert 
back to the use of ``manufacturer and model number * * *'' because this 
is a reasonable number of data elements at the Federal level.
    <bullet> FAR 52.245-1(f)(1)(v)(A): Applying the same principle as 
is used at the beginning of this response results in revising 
``assets'' to ``items'' at FAR 52.245-1(f)(1)(v)(A). The language 
regarding the management of Government property in subcontractors' 
possession is not added to paragraph (f)(1)(v)(A) because it would be 
redundant to the requirement already at FAR 52.245-1(f)(1)(v)(B).
    <bullet> FAR 52.245-1(f)(1)(vii)(C)(1): It is not necessary to 
revise FAR 52.245-1(f)(1)(vii)(C)(1) because the text already clearly 
designates the property administrator as the deciding official, and the 
use of the term ``consumed'' is clear in the context of (C)(1) (``Such 
property is consumed or expended, reasonably and properly, or otherwise 
accounted for, in the performance of the contract, including reasonable 
inventory adjustments of material as determined by the Property 
Administrator'').
    <bullet> FAR 52.245-1(g): ``Analysis,'' not ``audit,'' is the 
proper term.
    <bullet> FAR 52.245-1(j): Paragraph (j) of the clause addresses 
contractor inventory disposal. The lead-in to paragraph (j) makes all 
contractor inventory disposal decisions subject to the authorization of 
the plant clearance officer; therefore, it is unnecessary to restate 
the qualifier in subordinate paragraphs of paragraph (j). Paragraph 
(j)(2) of the clause addresses inventory disposal schedules. The 
existing text had elicited many questions over time, so a revision was 
determined necessary to provide additional clarity; reverting to the 
current paragraph (j)(2) would be a step backward.
    The authority to revise a contractor's use and receipt system for 
Government material (see FAR 52.245-1(f)(1)(iii)(B)) ``in accordance 
with agency procedures * * *'' is not included in the final rule 
because it would result in inconsistencies in treatment and problems 
when more than one Government agency had authorized the use of 
Government property in a single contractor facility.
    <bullet> FAR 52.245-1(j): Effectively, the request to delete 
52.245-1(j)(3)(i)(B) and replace it with (C) of the same paragraph 
would eliminate a 60-day period for submission of the contractor's 
inventory disposal schedule and replace it with a 120-day submission 
schedule. Allowing an extra two months for the contractor's submission 
is unnecessary if the contractor has an acceptable property management 
system. For the same reasons, the extension of the submission period 
from 30 days to 60 days is not made.
    <bullet> FAR 52.245-1: The final recommendation would have 
established a dollar threshold and allowed contractors to defer any 
reporting of low-dollar items during contract performance. However, the 
Government property management principles have departed from the use of 
dollar thresholds and recognized that some low-dollar items may be 
sensitive and require closer management.

D. Disposal

    Comment: One respondent recommended adding, at FAR 45.201, a 
requirement that the solicitation indicate how the contractor's 
property management system plan would be utilized for disposal.
    Response: FAR 45.201(c)(4) requires that the solicitation include a 
description of the offeror's property management system, plan, and 
practices and standards used by the offeror in managing Government 
property. In addition, the clause at 52.245-1, Government Property, 
which is required to be included in solicitations, thoroughly addresses 
the Government's uses of contractors' property management systems.
    Comment: One respondent suggested that any additional instructions 
to offerors on management of Government property, currently allowed 
only in the statement of work, could also be included in a special 
provision of the contract.
    Response: The allowance for including this information in a special 
provision is added at FAR 45.201(d).
    Comment: One respondent suggested that it was not clear at FAR 
52.245-1(j)(1)(i) that, in disposing of certain property, the 
contractor is limited to transferring the property to another

[[Page 12939]]

Government contract, as opposed to any contract.
    Response: The referenced section of the clause is revised to add 
``Government'' in front of ``contract'' in two places.
    Comment: One respondent suggested adding ``with contractor's 
consent'' at FAR 45.603(a)(2).
    Response: The proposed change would require the Government to 
obtain the contractor's consent prior to abandoning non-sensitive 
property at the contractor's or subcontractor's premises. In order to 
minimize administrative burden, contractor consent is required only 
prior to abandoning sensitive property.
    Comment: One respondent suggested revising FAR 45.604-1 to 
differentiate between formal and informal sales and ``scrap'' sales.
    Response: The recommended change would require the creation of 
additional definitions. Any such distinctions are more appropriately 
located in the contractor's property management procedures.
    Comment: One respondent suggested revising FAR 45.606-1(c) to 
ensure that the disposition of scrap items is addressed in the 
contractor's standard scrap processes and procedures.
    Response: The decision on whether to abandon scrap (the subject of 
FAR 45.606-1) is a Government decision; it is not a subject to be 
included in the contractor's scrap procedures.

E. Exceptions and applicability

    Comment: One respondent suggested that FAR 45.102(b) be clarified 
to demonstrate when cost-reimbursement contracts are used.
    Response: There is no need to revise FAR 45.102, Policy, because 
that section addresses the circumstances under which it is appropriate 
to provide property to contractors. The limitations and requirements 
for contract types, e.g., cost-reimbursement contracts, are found in 
FAR part 16 and are not related to whether Government property is 
provided.
    Comment: The proposed rule included a new paragraph FAR 45.102(e) 
that would prohibit the installation, with certain exceptions, of 
Government property in such fashion as to become nonseverable, ``unless 
the head of the contracting activity determines that such installation 
or construction is necessary and in the Government's interest.'' One 
respondent recommended deleting the exception and creating a flat 
prohibition.
    Response: Because there are instances when nonseverable 
installation of Government property may be appropriate, a flat 
prohibition is not adopted. The bar to nonseverable installation of 
Government property is set sufficiently high, requiring the head of the 
contracting activity to make a determination to waive the requirement, 
that it is unlikely to become a common occurrence.

F. Crediting Monies Received

    Comment: One respondent suggested adding a paragraph on crediting 
disposal proceeds to the clause at FAR 52.245-1, as follows: ``Disposal 
proceeds. If the contractor's practice is to comingle scrap from a 
variety of contract sources and ownership, the Contractor may credit 
net scrap proceeds to a contractor overhead account.''
    Response: FAR 45.604-3 (formerly 45.604-4), Proceeds from sales of 
surplus property, requires that such monies be credited to the U.S. 
Treasury as miscellaneous receipts. Deposit of sales proceeds is 
already covered under FAR 45.604-3. No further regulatory amplification 
is needed.
    Comment: Three respondents suggested various ways of crediting 
financial restitution to the contract, not back to the Treasury, as is 
required at FAR 45.104(e).
    Response: With few statutory exceptions, monies received for the 
use of the United States, from whatever source, must be paid into the 
U.S. Treasury without deduction. The statute is the authoritative 
source.

G. Definitions

    Comment: One respondent suggested revising the definition of 
``production scrap,'' changing the term to ``material scrap,'' and 
including scrap from non-production activities in the definition at FAR 
45.101 and 52.245-1(a).
    Response: The term ``production scrap'' is the recognized and 
consistent term used throughout the FAR, but the additional text is 
added to clarify what is included in the term.
    Comment: Two respondents suggested changing the term ``unit 
acquisition cost'' to ``item acquisition cost'' at FAR 45.101 and 
52.245-1(a). One of these respondents also suggested adding ``fair 
value at the time of loss'' to the definition.
    Response: The Councils prefer the term ``unit acquisition cost'' 
versus ``item acquisition cost.'' The unit acquisition cost, provided 
by the Government, is the actual cost at the time of purchase and is 
the proper measure of value.
    Comments: Four recommendations were received for revising the 
definition of ``loss of Government property.'' Two of these suggested 
adding ``in the possession of a contractor under terms of a contract'' 
to the definition. Another recommended adding ``material'' prior to 
``harm'' to denote that damage should not include ordinary repairs due 
to normal wear and tear. A third recommendation was to add 
``occurrences such as'' to the definition in order to make it 
consistent with Defense Federal Acquisition Regulation Supplement 
252.245-7002.
    Response: The first change is not made as it would be superfluous; 
i.e., the entire FAR part 45 refers to Government Property in 
contractor's possession. ``Material'' is not added to the definition 
because the definition already excludes normal wear and tear. The 
phrase ``occurrences such as'' is added to the definition for 
additional clarity.
    Comment: One respondent suggested adding a definition for ``repair, 
maintenance, and overhaul scrap'' at FAR 45.606-1.
    Response: The essence of the proposed definition is included in the 
authority given to the contracting officer at FAR 45.603. There is no 
need to include a separate definition.

H. Contractor Use of Government Supply Sources

    Comment: One respondent recommended revising the second sentence of 
the clause at FAR 52.251-1, Government Supply Sources, to state that 
title to such purchases vested in the Government ``except when the 
transaction is based upon a cash sale to the Contractor.''
    Response: There is no need to make distinctions in title vesting in 
this clause as long as the clause contains the phrase ``unless 
otherwise specified in the contract.'' Every contract must contain a 
payment clause, and it is the payment clause that determines when, and 
with whom, title vests.

I. Editorial Comments

    The editorial comments are grouped by the FAR section they address.
    Comments on FAR 45.104(d): This paragraph addresses contractor 
liability and the appropriate form of restitution once a loss of 
property has been established. One respondent recommended changing 
``lost property'' to ``property loss,'' and another respondent 
suggested adding ``fair value'' and replacing ``restitution'' with 
``compensation.''
    Response: The final rule uses ``property loss'' in lieu of ``lost 
property.'' The other recommendations are not incorporated in the final 
rule because (1) substituting ``compensation''

[[Page 12940]]

for ``restitution'' does not add clarity, and (2) the use of ``fair 
value'' would introduce a new concept of valuation.
    Comments on FAR 45.105: Three comments were received on this 
section. One recommended substituting ``liability'' for ``and 
liability;'' another suggested deleting either ``and'' or ``or'' in 
paragraph (b)(1); and a third recommended adding ``under the Government 
property clause'' in paragraph (d).
    Response: These edits are not incorporated in the final rule 
because they do not further clarify the coverage.
    Comments on FAR 45.201: One respondent suggested deleting either 
``and'' or ``or'' at FAR 45.201(a)(1). Another respondent suggested 
adding the contractor's property management ``plan'' to the list at FAR 
45.201(c)(4), because the plan depicts the standard way a contractor 
does business.
    Response: The final rule incorporates the recommended revisions 
because they increase clarity.
    Comment on FAR 45.202: A respondent suggested that the rules for 
evaluating offers when one offeror possessed Government property, and 
other offerors did not, would be improved by adding the phrase ``using 
the FAR 52.245-9 Rental Calculation process'' in this section.
    Response: FAR 45.202(a) is revised to read ``a rental equivalent 
evaluation factor as specified in FAR 52.245-9.''
    Comment on FAR 45.602: One respondent suggested changing ``may 
entitle'' to ``entitles'' at FAR 45.602-1(b)(4).
    Response: This change, had it been incorporated in the final rule, 
would have been a policy change that effectively gave a contractor an 
absolute entitlement to an equitable adjustment if the Government did 
not provide timely disposition instructions. Contracting officers 
require discretion and flexibility in determining whether an equitable 
adjustment is warranted.
    Comments on FAR 45.603: One respondent recommended relocating FAR 
45.603(c) to 45.603(a)(1). A respondent recommended inserting 
``recipients'' at FAR 45.603(c), and another respondent suggested 
adding ``as applicable'' to FAR 45.603(b).
    Response: None of the recommendations is incorporated into the 
final rule. The Councils elected not to relocate FAR 45.603(c) because 
it would distort the proper sequence of events. ``Recipient's'' was not 
added to paragraph (c) because the Government will not bear any of the 
costs incident to such donations, regardless of who incurred them. ``As 
applicable'' is not added to paragraph (b) because review at a level 
higher than the plant clearance officer is required in cases of other 
contractor inventory.
    Comment on FAR 45.606: One respondent suggested inserting ``in 
coordination with the plant clearance officer'' at FAR 45.606(a).
    Response: The revision is incorporated in the final rule.
    Comments on FAR 52.245-1(b): Several editorial revisions were 
recommended for this paragraph. One respondent suggested revising FAR 
52.245-1(b)(4) by adding ``surveillance, self-assessments, or'' and 
deleting ``and'' in ``and/or.''
    Response: The final rule incorporates these edits, such that the 
contractor must perform periodic internal reviews, surveillances, self 
assessments, or audits.
    Comments on FAR 52.245-1(f)(1)(vii): Five editorial recommendations 
were proposed for this paragraph of the Government Property clause, 
which addresses ``Relief of stewardship responsibilities.'' One 
recommendation was to revise 52.245-1(f)(1)(vii)(A) from ``necessary'' 
corrective actions to ``any necessary,'' and another was to delete 
``all'' at paragraph 52.245-1(f)(1)(vii)(B)(10). Other recommendations 
were to amend paragraph 52.245-1(f)(1)(vii)(B)(8) to add ``and 
preventive actions,'' change ``reimbursement'' to ``compensation,'' 
insert ``export controlled'' and ``and authorities'' and delete ``if 
so,'' and amend paragraph 52.245-1(f)(1)(vii)(C)(3) so as not to 
unnecessarily limit the contractor's discretion to dispose of property 
in accordance with other paragraphs of the Government Property clause.
    Response: The first two recommendations are not incorporated in the 
final rule because they would have introduced ambiguity and 
unintentionally introduced a lower standard. The next two 
recommendations starting at ``other recommendations'' are incorporated 
in the final rule. The last recommendation is not incorporated in the 
final rule because the proposed language does not limit the 
contractor's discretion.
    Comments on FAR 52.245-1(h): One respondent suggested deleting 
``and/or'' at paragraph (h)(1). A respondent suggested that paragraph 
(h)(3) should be revised to be more consistent with the policy intent. 
Another respondent recommended changing ``directed'' to ``determined'' 
at paragraph (h)(4).
    Response: Paragraph (h)(1) is not changed because the intent is 
clear--either one or the other or both is acceptable. Paragraph (h)(3) 
is not revised because it is consistent with the policy. Paragraph 
(h)(4) was revised to adopt ``determined'' as a more consistent use of 
terminology.
    Comment on FAR 52.245-1(k): One respondent recommended adding 
``non-sensitive.''
    Response: The applicability of this paragraph is clear without the 
addition.

J. Out of Scope

    Comment: One respondent suggested that small businesses should use 
Systems Applications Products to track scrap material as large 
businesses do.
    Response: The Government does not recommend any particular 
commercial product.

III. Executive Orders 12866 and 13563

    Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). E.O. 
13563 emphasizes the importance of quantifying both costs and benefits, 
of reducing costs, of harmonizing rules, and of promoting flexibility. 
This is a significant regulatory action and, therefore, was subject to 
review under section 6(b) of E.O. 12866, Regulatory Planning and 
Review, dated September 30, 1993. This rule is not a major rule under 5 
U.S.C. 804.

IV. Regulatory Flexibility Act

    DoD, GSA, and NASA prepared a Final Regulatory Flexibility Analysis 
(FRFA) consistent with the Regulatory Flexibility Act, 5 U.S.C. 601, et 
seq. The FRFA is summarized as follows:

    DoD, GSA, and NASA are revising FAR parts 45 and 52. The focus 
of this effort is to clarify FAR subpart 45.6, Reporting, 
Reutilization, and Disposal, and the contractor requirements under 
the clause at FAR 52.245-1, Government Property.
    The revisions include technical corrections to align the FAR 
with the requirements of the Federal Management Regulation. Also 
included is new and expanded policy language on the disposal of 
scrap, new language for contracting officers and contract 
specialists on depositing of monies received from contractors for 
property that is lost, damaged, destroyed, or stolen, and new 
language prohibiting personal property from being installed or 
constructed on contractor-owned real property in such fashion as to 
become nonseverable.
    DoD, GSA, and NASA published a proposed rule at 76 FR 18497 on 
April 4, 2011. The rule does not place new requirements on 
contractors; rather, it clarifies existing policies and procedures 
and should simplify compliance for contractors and enable consistent 
Government oversight.

[[Page 12941]]

    No comments were received on the initial regulatory flexibility 
analysis in the proposed rule.
    Approximately 5,000 contractors have Federal property in their 
possession. DoD has approximately 3,000 contractors with potential 
contract-property reporting requirements. Approximately 60 percent 
of all DoD contractors are small businesses. Given that property in 
the possession of contractors is over-whelmingly DoD property, it is 
estimated the DoD ratio of small businesses to total businesses 
having such property is a reasonable approximation for all 
Government contractors. Therefore, approximately 3,000 small 
businesses have Government property in their possession.
    FAR Case 2004-025 streamlined the requirements concerning 
property management in FAR part 45. FAR Case 2008-011 continued that 
philosophy. This final rule provides continuous improvement to 
property management by streamlining and clarifying the policies for 
the disposition of contractor inventory.
    It should be noted that these recommended changes are consistent 
with the Office of the Under Secretary of Defense, Acquisition, 
Technology and Logistics, recent statements emphasizing the need to 
improve the productivity of the defense industry and remove 
Government impediments to efficiency.
    There are four reports currently required to assure appropriate 
use and disposition of contract property (SF 1423, Inventory 
Verification Survey; SF 1424, Inventory Disposal Report; SF 1428, 
Inventory Disposal Schedule; and SF 1429, Inventory Disposal 
Schedule Continuation Sheet). All of these forms are available 
online and may be submitted by the contractor using electronic 
means. It should be noted that DoD no longer requires the use of the 
SF 1428 and 1429 forms and instead uses the Web-enabled Plant 
Clearance Automated Reutilization and Reporting System (PCARRS). 
NASA and other Federal agency contractors use PCARRS when their 
contracts are delegated to Defense Contract Management Agency (DCMA) 
for plant clearance. Use of PCARRS reduces burdens on small 
businesses as well as other businesses by providing an easily 
accessible Web-based reporting mechanism.
    This rule does not duplicate, overlap, or conflict with any 
other Federal rules.
    There are no known alternatives that would meet the objectives 
of this rule. However, this rule is not expected to have a 
significant economic impact on a substantial number of small 
entities. In fact, the current impact to both large and small 
contractors will be reduced. For example, the current FAR requires 
Government approval of contractor scrap procedures prior to allowing 
the contractor to dispose of ordinary production scrap. In addition, 
the current practice of requiring contractors (without approved 
scrap procedures) to submit inventory schedules or scrap lists for 
production scrap assumes that such practice is in all cases 
economically or otherwise justified. This practice unnecessarily 
burdens small contractors that generate only small amounts of scrap.
    The final rule removes the requirement for Government approvals 
of contractor scrap procedures and submission of inventory schedules 
and scrap lists, thus easing the burden on large and small 
contractors alike. It should be noted that contractor procedures 
would still be required and evaluated by the agency responsible for 
contract administration, as a normal part of contract property 
administration. The new rule will also result in more consistent 
levels of Government oversight, further easing the burden on small 
entities.
    The collection of information required by this rule has been 
reduced to the minimum necessary to assure compliance with the 
Government's statutory accountability requirements.

    Interested parties may obtain a copy of the FRFA from the 
Regulatory Secretariat. The Regulatory Secretariat has submitted a copy 
of the Final Regulatory Flexibility Analysis (FRFA) to the Chief 
Counsel for Advocacy of the Small Business Administration.

V. Paperwork Reduction Act

    The Paperwork Reduction Act (44 U.S.C. chapter 35) applies. The 
rule contains information collection requirements. OMB has cleared this 
information collection requirement under OMB Control Number 9000-0075, 
titled: Government Property.

List of Subjects in 48 CFR Parts 2, 31, 32, 45, 49, 51, 52, and 53

    Government procurement.

    Dated: February 21, 2012.
Laura Auletta,
Director, Office of Governmentwide Acquisition Policy, Office of 
Acquisition Policy, Office of Governmentwide Policy.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 31, 32, 45, 49, 
51, 52, and 53 as set forth below:

0
1. The authority citation for 48 CFR parts 2, 31, 32, 45, 49, 51, 52, 
and 53 continues to read as follows:

    Authority:  40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 2--DEFINITIONS OF WORDS AND TERMS

0
2. Amend section 2.101 in paragraph (b) by adding, in alphabetical 
order, the definition ``Surplus property'' to read as follows:


2.101  Definitions.

* * * * *
    (b) * * *
    Surplus property means excess personal property not required by any 
Federal agency as determined by the Administrator of the General 
Services Administration (GSA). (See 41 CFR 102-36.40).
* * * * *

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES

0
3. Amend section 31.205-19 by revising paragraphs (e)(2)(iv) 
introductory text, (e)(2)(iv)(A), and (e)(2)(iv)(C) to read as follows:


31.205-19  Insurance and indemnification.

* * * * *
    (e) * * *
    (2) * * *
    (iv) Costs of insurance for the risk of loss of Government property 
are allowable to the extent that--
    (A) The contractor is liable for such loss;
* * * * *
    (C) Such insurance does not cover loss of Government property that 
results from willful misconduct or lack of good faith on the part of 
any of the contractor's managerial personnel (as described in FAR 
52.245-1 (h)(1)(ii)).
* * * * *

PART 32--CONTRACT FINANCING

0
4. Amend section 32.503-16 by revising the first sentence of paragraph 
(a) to read as follows:


32.503-16  Risk of loss.

    (a) Under the Progress Payments clause, and except for normal 
spoilage, the contractor bears the risk of loss for Government property 
under the clause, even though title is vested in the Government, unless 
the Government has expressly assumed this risk. * * *
* * * * *

0
5. Amend section 32.1010 by revising the first sentence of paragraph 
(a) to read as follows:


32.1010  Risk of loss.

    (a) Under the clause at 52.232-32, Performance-Based Payments, and 
except for normal spoilage, the contractor bears the risk of loss for 
Government property, even though title is vested in the Government, 
unless the Government has expressly assumed this risk. * * *
* * * * *

PART 45--GOVERNMENT PROPERTY

0
6. Revise section 45.000 to read as follows:


45.000  Scope of part.

    (a) This part prescribes policies and procedures for providing 
Government property to contractors; contractors' management and use of 
Government property; and reporting, redistributing, and disposing of 
contractor inventory.
    (b) It does not apply to--

[[Page 12942]]

    (1) Government property provided under any statutory leasing 
authority, except as to non-Government use of property under 45.301(f);
    (2) Property to which the Government has acquired a lien or title 
solely because of partial, advance, progress, or performance based 
payments;
    (3) Disposal of real property;
    (4) Software and intellectual property; or
    (5) Government property that is incidental to the place of 
performance, when the contract requires contractor personnel to be 
located on a Government site or installation, and when the property 
used by the contractor within the location remains accountable to the 
Government. Items considered to be incidental to the place of 
performance include, for example, office space, desks, chairs, 
telephones, computers, and fax machines.

0
7. Amend section 45.101 by--
0
a. Removing the definition ``Acquisition cost'';
0
b. Adding, in alphabetical order, the definitions ``Loss of Government 
property'' and ``Production scrap'';
0
c. Removing the definition ``Surplus property''; and
0
d. Adding, in alphabetical order, the definition ``Unit acquisition 
cost''. The added text reads as follows:


45.101  Definitions.

* * * * *
    Loss of Government property means unintended, unforeseen or 
accidental loss, damage, or destruction of Government property that 
reduces the Government's expected economic benefits of the property. 
Loss of Government property does not include occurrences such as 
purposeful destructive testing, obsolescence, normal wear and tear, or 
manufacturing defects. Loss of Government property includes, but is not 
limited to--
    (1) Items that cannot be found after a reasonable search;
    (2) Theft;
    (3) Damage resulting in unexpected harm to property requiring 
repair to restore the item to usable condition; or
    (4) Destruction resulting from incidents that render the item 
useless for its intended purpose or beyond economical repair.
* * * * *
    Production scrap means unusable material resulting from production, 
engineering, operations and maintenance, repair, and research and 
development contract activities. Production scrap may have value when 
re-melted or reprocessed, e.g., textile and metal clippings, borings, 
and faulty castings and forgings.
* * * * *
    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.

0
8. Amend section 45.102 by adding paragraph (e) to read as follows:


45.102  Policy.

* * * * *
    (e) Government property, other than foundations and similar 
improvements necessary for installing special tooling, special test 
equipment, or equipment, shall not be installed or constructed on 
contractor-owned real property in such fashion as to become 
nonseverable, unless the head of the contracting activity determines 
that such installation or construction is necessary and in the 
Government's interest.

0
9. Amend section 45.104 by--
0
a. Revising the introductory text of paragraph (a);
0
b. Revising paragraph (b); and
0
c. Adding paragraphs (d) and (e).
    The revised and added text reads as follows:


45.104  Responsibility and liability for Government property.

    (a) Generally, contractors are not held liable for loss of 
Government property under the following types of contracts:
* * * * *
    (b) The contracting officer may revoke the Government's assumption 
of risk when the property administrator determines that the 
contractor's property management practices are noncompliant with 
contract requirements.
* * * * *
    (d) With respect to loss of Government property, the contracting 
officer, in consultation with the property administrator, shall 
determine--
    (1) The extent, if any, of contractor liability based upon the 
amount of damages corresponding to the associated property loss; and
    (2) The appropriate form and method of Government recovery (may 
include repair, replacement, or other restitution).
    (e) Any monies received as financial restitution shall be credited 
to the Treasury of the United States as miscellaneous receipts, unless 
otherwise authorized by statute (31 U.S.C. 3302(b)).

0
10. Amend section 45.105, by revising the first sentence of the 
introductory text of paragraph (b), and paragraphs (b)(1) and (d) to 
read as follows:


45.105  Contractor's property management system compliance.

* * * * *
    (b) The property administrator shall notify the contractor in 
writing when the contractor's property management system does not 
comply with contractual requirements, shall request prompt correction 
of deficiencies, and shall request from the contractor a corrective 
action plan, including a schedule for correction of the deficiencies. * 
* *
    (1) Revocation of the Government's assumption of risk for loss of 
Government property; and/or
* * * * *
    (d) When the property administrator determines that a reported case 
of loss of Government property is a risk assumed by the Government, the 
property administrator shall notify the contractor in writing that it 
is granted relief of stewardship responsibility and liability in 
accordance with 52.245-1(f)(1)(vii). Where the property administrator 
determines that the risk of loss of Government property is not assumed 
by the Government, the property administrator shall request that the 
contracting officer hold the contractor responsible and liable.

0
11. Amend section 45.107 by--
0
a. Revising paragraph (a)(1)(i);
0
b. Removing from paragraph (b) ``service contracts'' and adding 
``fixed-price service contracts'' in its place; and
0
c. Removing from paragraph (d) ``acquisition cost'' and adding ``unit 
acquisition cost'' in its place.
    The revised text reads as follows:


45.107  Contract clauses.

    (a)(1) * * *
    (i) All cost-reimbursement and time-and-material type solicitations 
and contracts, and labor-hour solicitations when property is expected 
to be furnished for the labor-hour contracts.
* * * * *

0
12. Amend section 45.201 by--
0
a. Removing from paragraph (a)(1) ``tracking and/or'' and adding 
``tracking and management, and'' in its place;
0
b. Removing from paragraph (a)(4) ``tracking); and'' and adding 
``tracking and management); and'' in its place;
0
c. Revising paragraph (c)(4); and
0
d. Removing from paragraph (d) ``providing property.'' and adding 
``providing property or in a special provision.'' in its place.

[[Page 12943]]

    The revised text reads as follows:


45.201  Solicitation.

* * * * *
    (c) * * *
    (4) A description of the offeror's property management system, 
plan, and any customary commercial practices, voluntary consensus 
standards, or industry-leading practices and standards to be used by 
the offeror in managing Government property.
* * * * *

0
13. Amend section 45.202 by revising paragraph (a) to read as follows:


45.202  Evaluation procedures.

    (a) The contracting officer shall consider any potentially unfair 
competitive advantage that may result from an offeror or contractor 
possessing Government property. This shall be done by adjusting the 
offers by applying, for evaluation purposes only, a rental equivalent 
evaluation factor as specified in FAR 52.245-9.
* * * * *

0
14. Amend section 45.602-1 by--
0
a. Removing from paragraphs (b)(2) and (b)(3) ``Require a contractor'' 
and adding ``Require the contractor'' in its place;
0
b. Removing from paragraph (b)(4) ``might entitle'' and adding ``may 
entitle'' in its place;
0
c. Revising the introductory text of paragraph (c) and the introductory 
text of paragraph (c)(1);
0
d. Removing from paragraph (c)(1)(i) ``acquisition cost'' and adding 
``unit acquisition cost'' in its place; and
0
e. Revising paragraph (c)(1)(iv).
    The revised text reads as follows:


45.602-1  Inventory disposal schedules.

* * * * *
    (c) The contractor may request the plant clearance officer's 
approval to remove the Government property from an inventory schedule.
    (1) Plant clearance officers should approve removal of Government 
property from an inventory schedule when--
* * * * *
    (iv) The contractor has requested continued use of the Government 
property, and the contracting officer has authorized its retention and 
further use.
* * * * *

0
15. Revise section 45.602-2 to read as follows:


45.602-2  Reutilization priorities.

    Plant clearance officers shall initiate reutilization actions for 
all property not meeting the abandonment or destruction criteria of 
45.603(b). Authorized methods, listed in descending order from highest 
to lowest priority, are--
    (a) Reuse within the owning agency;
    (b) Transfer of educationally useful equipment to schools and 
nonprofit organizations (see Executive Order 12999, Educational 
Technology: Ensuring Opportunity For All Children In The Next Century, 
April 17, 1996, and 15 U.S.C. 3710(i));
    (c) Report to GSA for reuse within the Federal Government or 
donation as surplus property;
    (d) Dispose of the following property in accordance with agency 
procedures without reporting to GSA:
    (1) Property determined appropriate for abandonment or destruction 
(see Federal Management Regulation (FMR) 102-36.305, 41 CFR 102-
36.305).
    (2) Property furnished to nonappropriated fund activities (see FMR 
102-36.165, 41 CFR 102-36.165).
    (3) Foreign excess personal property (see FMR 102-36.380, 41 CFR 
102-36.380).
    (4) Scrap, except aircraft in scrap condition.
    (5) Perishables, defined for the purposes of this section as any 
personal property subject to spoilage or decay.
    (6) Trading stamps and bonus goods.
    (7) Hazardous waste or toxic and hazardous materials.
    (8) Controlled substances.
    (9) Property dangerous to public health and safety.
    (10) Classified items or property determined to be sensitive for 
reasons of national security; and
    (e) Dispose of nuclear materials (see 45.603-3(b)(5)) in accordance 
with the Nuclear Regulatory Commission, applicable state licenses, 
applicable Federal regulations, and agency regulations.

0
16. Revise section 45.603 to read as follows:


45.603  Abandonment or destruction of personal property.

    (a) When contractor inventory is processed through the 
reutilization screening process prescribed in 45.602-2 without success, 
and provided the property has no commercial value, does not require 
demilitarization, and does not constitute a danger to public health or 
welfare, plant clearance officers or other authorized officials may 
without further approval--
    (1) Direct the contractor to destroy the property;
    (2) Abandon non-sensitive property at the contractor's or 
subcontractor's premises; or
    (3) Abandon sensitive property at the contractor's or 
subcontractor's premises, with contractor consent.
    (b) Provided a Government reviewing official at least one level 
higher than the plant clearance officer or other agency authorized 
official approves, plant clearance officers or other agency authorized 
officials may authorize the abandonment, or order the destruction of 
other contractor inventory at the contractor's or subcontractor's 
premises, in accordance with FMR 102-36.305 through 325 (41 CFR 102-
36.305-325) and consistent with the following:
    (1) The property is not considered sensitive, does not require 
demilitarization, has no commercial value or reutilization, transfer or 
donation potential, and does not constitute a danger to public health 
or welfare.
    (2) The estimated cost of continued care and handling of the 
property (including advertising, storage and other costs associated 
with making the sale), exceed the estimated proceeds from its sale.
    (c) In lieu of abandonment or its authorized destruction, the plant 
clearance officer or authorized official may authorize the donation of 
property including unsold surplus property to public bodies, provided 
that the property is not sensitive property, does not require 
demilitarization, and it does not constitute a danger to public health 
or welfare. The Government will not bear any of the costs incident to 
such donations.
    (d) Unless the property qualifies for one of the exceptions under 
FMR 102-36.330 (41 CFR 102-36.330), the plant clearance officer or 
requesting official will ensure prior public notice of such actions of 
abandonment or destruction consistent with FMR 102-36.325 (41 CFR 102-
36.325).

0
17. Revise the section heading of 45.604 to read as follows:


45.604  Sale of surplus personal property.

* * * * *

0
18. Revise section 45.604-1 to read as follows:


45.604-1  Sales procedures.

    Surplus personal property that has completed screening in 
accordance with 45.602-3(a) shall be sold in accordance with the policy 
for the sale of surplus personal property contained in the Federal 
Management Regulation, at part 102-38 (41 CFR part 102-38). Agencies 
may specify implementing procedures.


45.604-2  [Removed]

0
19. Remove section 45.604-2.

[[Page 12944]]

45.604-3 and 45.604-4  [Redesignated as 45.604-2 and 45.604-3]

0
20. Redesignate sections 45.604-3 and 45.604-4 as sections 45.604-2 and 
45.604-3, respectively.

0
21. Revise the newly redesignated section 45.604-2 to read as follows:


45.604-2  Use of GSA sponsored sales centers.

    Agencies may use sales center services. Use of such centers for 
sale of surplus property is authorized when in the best interest of the 
Government, consistent with contract terms and conditions.

0
22. Add section 45.604-4 to read as follows:


45.604-4  Sale of property pursuant to the exchange/sale authority.

    Agencies should consider the sale of property pursuant to the 
exchange/sale authority in FMR 102-39 (41 CFR part 102-39) when 
agencies are acquiring or plan to acquire similar products and other 
requirements of the authority are satisfied.

0
23. Revise section 45.605 to read as follows:


45.605  Inventory disposal reports.

    The plant clearance officer shall promptly prepare an SF 1424, 
Inventory Disposal Report, following disposition of the property 
identified on an inventory disposal schedule and the crediting of any 
related proceeds. The report shall identify any lost or otherwise 
unaccounted for property and any changes in quantity or value of the 
property made by the contractor after submission of the initial 
inventory disposal schedule. The report shall be provided to the 
administrative contracting officer or, for termination inventory, to 
the termination contracting officer, with a copy to the property 
administrator.


45.606  [Removed]

0
24. Remove section 45.606.

0
25. Redesignate section 45.606-1 as section 45.606; and revise the 
newly designated section 45.606 to read as follows:


45.606  Contractor scrap procedures.

    (a) The property administrator should, in coordination with the 
plant clearance officer, ensure that contractor scrap disposal 
processes, methods, and practices allow for effective, efficient, and 
proper disposition and are properly documented in the contractor's 
property management procedures.
    (b) The property administrator should determine the extent to which 
separate disposal processing or physical segregation for different 
scrap types is or may be required. Such scrap may require physical 
segregation, unique disposal processing, or separate plant clearance 
reporting. For example, the scope of work may create scrap--
    (1) Consisting of sensitive items;
    (2) Containing hazardous materials or wastes;
    (3) Contaminated with hazardous materials or wastes;
    (4) That is classified or otherwise controlled;
    (5) Containing precious or strategic metals; or
    (6) That is dangerous to public health or safety.
    (c) Absent contract terms and conditions to the contrary, the 
Government may abandon parts removed and replaced from property as a 
result of normal maintenance actions or removed from property as a 
result of the repair, maintenance, overhaul, or modification process.


45.606-2 and 45.606-3  [Removed]

0
26. Remove sections 45.606-2 and 45.606-3.

PART 49--TERMINATION OF CONTRACTS


49.204  [Amended]

0
27. Amend section 49.204 by removing from paragraph (b) ``destroyed, 
lost, stolen, or'' and adding ``lost or'' in its place.

PART 51--USE OF GOVERNMENT SOURCES BY CONTRACTORS


51.106  [Amended]

0
28. Amend section 51.106 by removing from paragraph (b) ``having an'' 
and adding ``having a unit'' in its place.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
29. Amend section 52.232-16 by revising the date of the clause, and the 
last sentence of paragraph (e) to read as follows:


52.232-16  Progress Payments.

* * * * *

PROGRESS PAYMENTS (APR 2012)

* * * * *
    (e) * * * The Contractor shall repay the Government an amount 
equal to the unliquidated progress payments that are based on costs 
allocable to property that is lost (see 45.101).
* * * * *

0
30. Amend section 52.232-32 by revising the date of the clause, and the 
last sentence of paragraph (g) to read as follows:


52.232-32  Performance-Based Payments.

* * * * *

PERFORMANCE-BASED PAYMENTS (APR 2012)

* * * * *
    (g) * * * If any property is lost (see 45.101), the basis of 
payment (the events or performance criteria) to which the property 
is related shall be deemed to be not in compliance with the terms of 
the contract and not payable (if the property is part of or needed 
for performance), and the Contractor shall refund the related 
performance-based payments in accordance with paragraph (d) of this 
clause.
* * * * *

0
31. Amend section 52.245-1 by--
0
a. Revising the date of the clause;
0
b. In paragraph (a) by--
0
i. Removing the definition ``Acquisition cost'';
0
ii. Adding, in alphabetical order, the definitions, ``Loss of 
Government property'', and ``Production scrap;
0
iii. Removing the definition ``Surplus property''; and
0
iv. Adding, in alphabetical order, the definition ``Unit acquisition 
cost''.
0
c. Revising paragraph (b)(1);
0
d. Removing from paragraph (b)(2) ``, stolen, damaged, or destroyed'';
0
e. Adding paragraph (b)(4);
0
f. Revising paragraph (e);
0
g. Removing from the introductory text of paragraph (f)(1)(ii) 
``property (document the receipt)'' and adding ``property and document 
the receipt'' in its place;
0
h. Revising paragraphs (f)(1)(iii)(A)(1), (f)(1)(iii)(A)(10), 
(f)(1)(v)(A), (f)(1)(vi), and (f)(1)(vii);
0
i. Removing from paragraph (f)(1)(x) ``loss, theft, damage, or 
destruction'' and adding ``loss of Government property'' in its place;
0
j. Removing from paragraph (f)(2) ``acquisitions and dispositions of'' 
and adding ``acquisitions, loss of Government property, and disposition 
of'' in its place;
0
k. Removing paragraph (f)(3);
0
l. Removing from the introductory text of paragraph (h)(1) ``loss, 
theft, damage or destruction to the'' and adding ``loss of'' in its 
place;
0
m. Revising paragraphs (h)(1)(ii), (h)(1)(iii), (h)(2), and (h)(3);
0
n. Redesignating paragraph (h)(4) as paragraph (h)(5);
0
o. Adding a new paragraph (h)(4);
0
p. Adding the words ``or authorizing official'' to the end of the 
introductory text of paragraph (j);
0
q. Removing paragraph (j)(1);
0
r. Redesignating paragraphs (j)(2) through (j)(10) as paragraphs (j)(1) 
through (j)(9), respectively;
0
s. Revising the newly redesignated paragraph (j)(1), the introductory 
text of

[[Page 12945]]

paragraph (j)(2)(i), (j)(2)(i)(A), (j)(2)(ii), (j)(2)(iii), 
(j)(2)(iv)(C), and (j)(3);
0
t. Removing from the first sentence of the newly redesignated paragraph 
(j)(6)(ii) the words ``Government property'' and adding ``property'' in 
its place;
0
u. Removing the newly redesignated paragraph (j)(7)(i);
0
v. Further redesignating newly redesignated paragraphs (j)(7)(ii) and 
(j)(7)(iii) as (j)(7)(i) and (j)(7)(ii), respectively;
0
w. Removing from the newly redesignated paragraph (j)(9) ``paragraph 
(j)(4)'' and adding ``paragraph (j)(3)'' in its place;
0
x. Removing from paragraphs (k)(1) and (k)(2) ``Government property'', 
and adding ``property'' in its place;
0
y. Redesignating paragraph (k)(3) as paragraph (k)(4); and adding a new 
paragraph (k)(3);
0
z. Removing from Alternate I ``(AUG 2010)'' and adding ''(APR 2012)'' 
in its place; and removing from paragraph (h)(1) of Alternate I ``loss, 
theft, damage, or destruction'' and adding ``loss'' in its place; and
0
aa. Removing from Alternate II ``(JUN 2007)'' and adding ''(APR 2012)'' 
in its place; and removing from the first and second sentences of 
paragraph (e)(3) of Alternate II ``having an'' and adding ``having a 
unit'' in its place (two times).
    The added and revised text reads as follows:


52.245-1   Government Property.

* * * * *

GOVERNMENT PROPERTY (APR 2012)

    (a) * * *
    Loss of Government property means unintended, unforeseen or 
accidental loss, damage or destruction to Government property that 
reduces the Government's expected economic benefits of the property. 
Loss of Government property does not include purposeful destructive 
testing, obsolescence, normal wear and tear or manufacturing 
defects. Loss of Government property includes, but is not limited 
to--
    (1) Items that cannot be found after a reasonable search;
    (2) Theft;
    (3) Damage resulting in unexpected harm to property requiring 
repair to restore the item to usable condition; or
    (4) Destruction resulting from incidents that render the item 
useless for its intended purpose or beyond economical repair.
* * * * *
    Production scrap means unusable material resulting from 
production, engineering, operations and maintenance, repair, and 
research and development contract activities. Production scrap may 
have value when re-melted or reprocessed, e.g., textile and metal 
clippings, borings, and faulty castings and forgings.
* * * * *
    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.
* * * * *
    (b) * * *
    (1) The Contractor shall have a system of internal controls to 
manage (control, use, preserve, protect, repair, and maintain) 
Government property in its possession. The system shall be adequate 
to satisfy the requirements of this clause. In doing so, the 
Contractor shall initiate and maintain the processes, systems, 
procedures, records, and methodologies necessary for effective and 
efficient control of Government property. The Contractor shall 
disclose any significant changes to its property management system 
to the Property Administrator prior to implementation of the 
changes. The Contractor may employ customary commercial practices, 
voluntary consensus standards, or industry-leading practices and 
standards that provide effective and efficient Government property 
management that are necessary and appropriate for the performance of 
this contract (except where inconsistent with law or regulation).
* * * * *
    (4) The Contractor shall establish and maintain procedures 
necessary to assess its property management system effectiveness and 
shall perform periodic internal reviews, surveillances, self 
assessments, or audits. Significant findings or results of such 
reviews and audits pertaining to Government property shall be made 
available to the Property Administrator.
* * * * *
    (e) Title to Government property. (1) All Government-furnished 
property and all property acquired by the Contractor, title to which 
vests in the Government under this paragraph (collectively referred 
to as ``Government property''), is subject to the provisions of this 
clause. The Government shall retain title to all Government-
furnished property. Title to Government property shall not be 
affected by its incorporation into or attachment to any property not 
owned by the Government, nor shall Government property become a 
fixture or lose its identity as personal property by being attached 
to any real property.
    (2) Title vests in the Government for all property acquired or 
fabricated by the Contractor in accordance with the financing 
provisions or other specific requirements for passage of title in 
the contract. Under fixed price type contracts, in the absence of 
financing provisions or other specific requirements for passage of 
title in the contract, the Contractor retains title to all property 
acquired by the Contractor for use on the contract, except for 
property identified as a deliverable end item. If a deliverable item 
is to be retained by the Contractor for use after inspection and 
acceptance by the Government, it shall be made accountable to the 
contract through a contract modification listing the item as 
Government-furnished property.
    (3) Title under Cost-Reimbursement or Time-and-Material 
Contracts or Cost-Reimbursable contract line items under Fixed-Price 
contracts. (i) Title to all property purchased by the Contractor for 
which the Contractor is entitled to be reimbursed as a direct item 
of cost under this contract shall pass to and vest in the Government 
upon the vendor's delivery of such property.
    (ii) Title to all other property, the cost of which is 
reimbursable to the Contractor, shall pass to and vest in the 
Government upon--
    (A) Issuance of the property for use in contract performance;
    (B) Commencement of processing of the property for use in 
contract performance; or
    (C) Reimbursement of the cost of the property by the Government, 
whichever occurs first.
    (f) * * *
    (1) * * *
    (iii) * * *
    (A) * * *
    (1) The name, part number and description, National Stock Number 
(if needed for additional item identification tracking and/or 
disposition), and other data elements as necessary and required in 
accordance with the terms and conditions of the contract.
* * * * *
    (10) Date placed in service (if required in accordance with the 
terms and conditions of the contract).
* * * * *
    (v) * * *
    (A) The Contractor shall award subcontracts that clearly 
identify items to be provided and the extent of any restrictions or 
limitations on their use. The Contractor shall ensure appropriate 
flow down of contract terms and conditions (e.g., extent of 
liability for loss of Government property.
* * * * *
    (vi) Reports. The Contractor shall have a process to create and 
provide reports of discrepancies, loss of Government property, 
physical inventory results, audits and self-assessments, corrective 
actions, and other property-related reports as directed by the 
Contracting Officer.
    (vii) Relief of stewardship responsibility and liability. The 
Contractor shall have a process to enable the prompt recognition, 
investigation, disclosure and reporting of loss of Government 
property, including losses that occur at subcontractor or alternate 
site locations.
    (A) This process shall include the corrective actions necessary 
to prevent recurrence.
    (B) Unless otherwise directed by the Property Administrator, the 
Contractor shall investigate and report to the Government all 
incidents of property loss as soon as the facts become known. Such 
reports shall, at a minimum, contain the following information:
    (1) Date of incident (if known).
    (2) The data elements required under paragraph (f)(1)(iii)(A) of 
this clause.
    (3) Quantity.
    (4) Accountable contract number.
    (5) A statement indicating current or future need.

[[Page 12946]]

    (6) Unit acquisition cost, or if applicable, estimated sales 
proceeds, estimated repair or replacement costs.
    (7) All known interests in commingled material of which includes 
Government material.
    (8) Cause and corrective action taken or to be taken to prevent 
recurrence.
    (9) A statement that the Government will receive compensation 
covering the loss of Government property, in the event the 
Contractor was or will be reimbursed or compensated.
    (10) Copies of all supporting documentation.
    (11) Last known location.
    (12) A statement that the property did or did not contain 
sensitive, export controlled, hazardous, or toxic material, and that 
the appropriate agencies and authorities were notified.
    (C) Unless the contract provides otherwise, the Contractor shall 
be relieved of stewardship responsibility and liability for property 
when--
    (1) Such property is consumed or expended, reasonably and 
properly, or otherwise accounted for, in the performance of the 
contract, including reasonable inventory adjustments of material as 
determined by the Property Administrator;
    (2) Property Administrator grants relief of responsibility and 
liability for loss of Government property;
    (3) Property is delivered or shipped from the Contractor's 
plant, under Government instructions, except when shipment is to a 
subcontractor or other location of the Contractor; or
    (4) Property is disposed of in accordance with paragraphs (j) 
and (k) of this clause.
* * * * *
    (h) * * *
    (1) * * *
    (ii) Loss of Government property that is the result of willful 
misconduct or lack of good faith on the part of the Contractor's 
managerial personnel.
    (iii) The Contracting Officer has, in writing, revoked the 
Government's assumption of risk for loss of Government property due 
to a determination under paragraph (g) of this clause that the 
Contractor's property management practices are inadequate, and/or 
present an undue risk to the Government, and the Contractor failed 
to take timely corrective action. If the Contractor can establish by 
clear and convincing evidence that the loss of Government property 
occurred while the Contractor had adequate property management 
practices or the loss did not result from the Contractor's failure 
to maintain adequate property management practices, the Contractor 
shall not be held liable.
    (2) The Contractor shall take all reasonable actions necessary 
to protect the property from further loss. The Contractor shall 
separate the damaged and undamaged property, place all the affected 
property in the best possible order, and take such other action as 
the Property Administrator directs.
    (3) The Contractor shall do nothing to prejudice the 
Government's rights to recover against third parties for any loss of 
Government property.
    (4) The Contractor shall reimburse the Government for loss of 
Government property, to the extent that the Contractor is 
financially liable for such loss, as directed by the Contracting 
Officer.
* * * * *
    (j) * * *
    (1) Predisposal requirements. (i) If the Contractor determines 
that the property has the potential to fulfill requirements under 
other contracts, the Contractor, in consultation with the Property 
Administrator, shall request that the Contracting Officer transfer 
the property to the contract in question, or provide authorization 
for use, as appropriate. In lieu of transferring the property, the 
Contracting Officer may authorize the Contractor to credit the costs 
of Contractor-acquired property (material only) to the losing 
contract, and debit the gaining contract with the corresponding 
cost, when such material is needed for use on another contract. 
Property no longer needed shall be considered contractor inventory.
    (ii) For any remaining Contractor-acquired property, the 
Contractor may purchase the property at the unit acquisition cost if 
desired or make reasonable efforts to return unused property to the 
appropriate supplier at fair market value (less, if applicable, a 
reasonable restocking fee that is consistent with the supplier's 
customary practices.)
    (2) Inventory disposal schedules. (i) Absent separate contract 
terms and conditions for property disposition, and provided the 
property was not reutilized, transferred, or otherwise disposed of, 
the Contractor, as directed by the Plant Clearance Officer or 
authorizing official, shall use Standard Form 1428, Inventory 
Disposal Schedule or electronic equivalent, to identify and report--
    (A) Government-furnished property that is no longer required for 
performance of this contract;
* * * * *
    (ii) The Contractor may annotate inventory disposal schedules to 
identify property the Contractor wishes to purchase from the 
Government, in the event that the property is offered for sale.
    (iii) Separate inventory disposal schedules are required for 
aircraft in any condition, flight safety critical aircraft parts, 
and other items as directed by the Plant Clearance Officer.
    (iv) * * *
    (C) For precious metals in raw or bulk form, the type of metal 
and estimated weight.
* * * * *
    (3) Submission requirements. (i) The Contractor shall submit 
inventory disposal schedules to the Plant Clearance Officer no later 
than--
    (A) 30 days following the Contractor's determination that a 
property item is no longer required for performance of this 
contract;
    (B) 60 days, or such longer period as may be approved by the 
Plant Clearance Officer, following completion of contract deliveries 
or performance; or
    (C) 120 days, or such longer period as may be approved by the 
Termination Contracting Officer, following contract termination in 
whole or in part.
    (ii) Unless the Plant Clearance Officer determines otherwise, 
the Contractor need not identify or report production scrap on 
inventory disposal schedules, and may process and dispose of 
production scrap in accordance with its own internal scrap 
procedures. The processing and disposal of other types of 
Government-owned scrap will be conducted in accordance with the 
terms and conditions of the contract or Plant Clearance Officer 
direction, as appropriate.
* * * * *
    (k) * * *
    (3) Absent contract terms and conditions to the contrary, the 
Government may abandon parts removed and replaced from property as a 
result of normal maintenance actions, or removed from property as a 
result of the repair, maintenance, overhaul, or modification 
process.
* * * * *

0
32. Amend section 52.245-2 by revising the date of the clause and 
paragraph (b) to read as follows:


52.245-2   Government Property Installation Operation Services.

* * * * *

GOVERNMENT PROPERTY INSTALLATION OPERATION SERVICES (APR 2012)

* * * * *
    (b) The Government bears no responsibility for repair or 
replacement of any lost Government property. If any or all of the 
Government property is lost or becomes no longer usable, the 
Contractor shall be responsible for replacement of the property at 
Contractor expense. The Contractor shall have title to all 
replacement property and shall continue to be responsible for 
contract performance.
* * * * *

0
33. Amend section 52.245-9 by revising the date of the clause; and 
removing from paragraph (e)(2) ``The rental charge is'' and adding 
``The hourly rental charge is'' in its place.


52.245-9   Use and Charges.

* * * * *

USE AND CHARGES (APR 2012)

* * * * *

0
34. Amend section 52.249-2 by revising the date of the clause and 
paragraph (h) to read as follows:


52.249-2   Termination for Convenience of the Government (Fixed-Price).

* * * * *

TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (FIXED-PRICE) (APR 2012)

* * * * *
    (h) Except for normal spoilage, and except to the extent that 
the Government expressly assumed the risk of loss, the Contracting

[[Page 12947]]

Officer shall exclude from the amounts payable to the Contractor 
under paragraph (g) of this clause, the fair value as determined by 
the Contracting Officer, for the loss of the Government property.
* * * * *

0
35. Amend section 52.249-3 by revising the date of the clause and 
paragraph (h) to read as follows:


52.249-3   Termination for Convenience of the Government (Dismantling, 
Demolition, or Removal of Improvements).

* * * * *

TERMINATION FOR CONVENIENCE OF THE GOVERNMENT (DISMANTLING, DEMOLITION, 
OR REMOVAL OF IMPROVEMENTS) (APR 2012)



* * * * *
    (h) Except for normal spoilage, and except to the extent that 
the Government expressly assumed the risk of loss, the Contracting 
Officer shall exclude from the amounts payable to the Contractor 
under paragraph (g) of this clause, the fair value, as determined by 
the Contracting Officer, for the loss of the Government property.
* * * * *

0
36. Revise section 52.251-1 to read as follows:

52.251-1 Government Supply Sources.

    As prescribed in 51.107, insert the following clause:

GOVERNMENT SUPPLY SOURCES (APR 2012)

    The Contracting Officer may issue the Contractor an 
authorization to use Government supply sources in the performance of 
this contract. Title to all property acquired by the Contractor 
under such an authorization shall vest in the Government unless 
otherwise specified in the contract. The provisions of the clause at 
FAR 52.245-1, Government Property, apply to all property acquired 
under such authorization.
(End of clause)

PART 53--FORMS

0
37. Amend section 53.245 by revising paragraph (c) to read as follows:


53.245   Government property.

* * * * *
    (c) SF 1423 (Rev. 5/04), Inventory Verification Survey. (See 
45.602-1(b)(1).)
* * * * *
[FR Doc. 2012-4499 Filed 3-1-12; 8:45 am]
BILLING CODE 6820-EP-P