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[Federal Register: June 8, 2010 (Volume 75, Number 109)]
[Rules and Regulations]               
[Page 32642-32647]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jn10-26]                         

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DEPARTMENT OF DEFENSE

Defense Acquisition Regulations System

48 CFR Parts 228, 231, and 252

RIN 0750-AF72

 
Defense Federal Acquisition Regulation Supplement; Ground and 
Flight Risk Clause (DFARS Case 2007-D009)

AGENCY: Defense Acquisition Regulations System, Department of Defense 
(DoD).

ACTION: Final rule.

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SUMMARY: DoD is issuing a final rule amending the Defense Federal 
Acquisition Regulation Supplement (DFARS) to revise and combine 
contract clauses addressing assumption of risk of loss under contracts 
that furnish aircraft to the Government. The final rule establishes 
requirements that apply consistently to all contract types.

DATES: Effective Date: June 8, 2010.

FOR FURTHER INFORMATION CONTACT: Julian Thrash, 703-602-0310.

SUPPLEMENTARY INFORMATION:

A. Background

    The DFARS clauses at 252.228-7001, Ground and Flight Risk, and 
252.228-7002, Aircraft Flight Risk, are presently used in contracts 
that involve the furnishing of aircraft to the Government. The clause 
at 252.228-7001 is used in negotiated fixed-price contracts, and the 
clause at 252.228-7002 is used in cost-reimbursement contracts. A 
proposed rule was published in the Federal Register at 72 FR 69177 on 
December 7, 2007. This final rule revises and combines the two clauses 
into a single ground and flight risk clause, applying requirements 
consistently to all contract types. In addition, a new subsection is 
added at DFARS 231.205-19 to explain the treatment of insurance costs 
under the new clause and all similar clauses.
    The final rule changes include--
    [cir] Applying the clause to all contracts for the purchase, 
development, production, maintenance, repair, flight, or overhaul of 
aircraft, with exceptions for contracts for activities incidental to 
the normal operations of aircraft, FAR Part 12 contracts, and contracts 
where a non-DoD customer has declined to accept the risk of loss for 
its aircraft asset;
    [cir] Adding a requirement for inclusion of the clause in 
subcontracts at all tiers;
    [cir] Adding a statement that the Government property clause is not 
applicable if the Government withdraws its self-insurance coverage;
    [cir] Adding a statement that commercial insurance costs or self-
insurance charges that duplicate the Government's self- insurance are 
unallowable; and
    [cir] Establishing a share of loss for the contractor that is the 
lesser of $100,000 or twenty percent of the estimated contract cost or 
price. This is consistent with the contractor's share of loss presently 
specified in the clause at 252.228-7002. The clause at 252.228-7001 
presently prescribes a share of loss of $25,000 for the contractor.

B. Public Comments

    Three respondents submitted comments on the proposed rule. Specific 
comments received are addressed in paragraphs 1 through 8 of this 
section.

1. Applicability

    Comment: The respondent recommended adding an additional exception 
to the requirement for inclusion of the Ground and Flight Risk clause 
by inserting a new paragraph (b)(1)(iv) in DFARS 228.370 to read: ``For 
Commercial Derivative Aircraft that continue to be maintained to FAA 
Airworthiness Standards and the work will be conducted at a licensed 
FAA Repair Station.''
    Response: Commercial Derivative Aircraft are militarized versions 
of commercial aircraft platforms. Their repair at FAA repair stations 
most often denotes a commercial services contract. Normal commercial 
terms and conditions would apply and, thus, payment for insurance and 
acceptance of FAA standards is appropriate. In addition to adding the 
recommended new exception, DoD is changing DFARS 228.370(b)(1)(ii) to 
read: ``Awarded under FAR Part 12 for the acquisition, development, 
production, modification, maintenance, repair, flight, or overhaul of 
aircraft, or otherwise involving the furnishing of aircraft.''

2. Compliance

    Comment: Two comments addressed potentially confusing language on 
compliance and the cost of compliance. One respondent indicated that 
paragraph (b)(2)(iii) of DFARS 228.370 was confusing as to intent and 
purpose. The respondent was concerned that, when a contracting officer 
expressly defines ``contractor premises,'' the contractor might be able 
to avoid compliance with DCMAI 8210.1 (the Joint Instruction) by moving 
performance to a different location. Another respondent commented that 
DFARS 228.370 appears to require the Ground and Flight Risk clause for 
all aircraft, including unmanned aerial vehicles, without taking into 
account significant variations in size, cost, or vehicle ceiling. The 
respondent expressed concern that use of the clause constitutes costly 
overkill in cases of small/micro unmanned aerial vehicles (UAVs).
    Response: DoD believes the language is clear and unambiguous as is, 
and it presents no meaningful basis for a contractor to avoid 
compliance with the DCMAI 8210.1. The definition of ``contractor 
premises'' is applicable solely to the determination of the 
Government's acceptance of the risk of loss. DFARS 252.228-7001(b) 
requires the contractor to assure compliance with DCMAI 8210.1 
regardless of the location of the aircraft.
    With regard to the cost of compliance, DFARS 228.370(b)(2)(i) 
allows tailoring of the definition of ``aircraft'' to appropriately 
cover atypical and ``nonconventional'' aircraft. If contracting 
officers wish to omit small/micro UAVs, the clause allows that 
flexibility. The contracting officer is required to make this 
determination on a case-by-case basis in coordination with the program 
office. While the respondent's concerns could be legitimate in some 
cases, these concerns should be addressed during the preaward phase on 
an individual contract basis. There is sufficient flexibility in the 
approval process for the clause to recognize unique requirements or the 
absence of standard

[[Page 32643]]

ground and flight operation requirements for small/micro UAVs.

3. Definitions

    Comment: Two respondents expressed concerns in this area. One 
requested inclusion of a new definition for ``temporarily removed,'' as 
follows: ``Those items removed for the duration of the contracted work 
with the intent to add the item back to the same aircraft.'' Another 
respondent recommended revising the definition of ``in the open'' so 
that it includes ``located on the Contractor's premises or other places 
described in the Schedule.''
    Response: DoD does not believe that it is necessary to define 
``temporarily removed'' because, as long as a removed item retains its 
relationship with a particular tail number or aircraft, the clause 
covers the method for determining risk of loss. If an item intended for 
reinstallation is found to be unsuitable for re-introduction onto the 
aircraft, it loses its relationship with the aircraft; it will be 
handled under the property clause from that point forward. DoD declines 
to revise the definition of ``in the open,'' which is substantially 
unchanged from prior versions. The respondent's recommended language 
would significantly expand the Government's acceptance of risk for new 
production aircraft. It would shift the triggering event for Government 
liability to the production line and potentially expose the Government 
to claims for the cost of rework and production mishaps.

4. Conditions Under Which the Government Retains Risk

    Comment: Three comments were submitted on this topic. One 
respondent recommended revising DFARS 252-228.7001(e)(5) to read 
``Consists of wear and tear; deterioration (including rust and 
corrosion) * * * (This exclusion does not apply to Government-furnished 
property if damage consists of reasonable wear and tear or 
deterioration, damage caused by or relating to wear and tear or 
deterioration, or results from inherent vice (e.g., a known condition 
or design defect in the property).'' As an example of ``damage caused 
by or relating to wear and tear or deterioration,'' the respondent 
refers to a situation where a defect in the aircraft allows rain water 
to enter the aircraft and damage its electronic systems.
    In a similar vein, another comment was to change DFARS 252.228-
7001(f)(1)(i) to read as follows: ``The first $100,000 of loss or 
damage to aircraft in the open, during operation in flight resulting 
from each separate event, except for reasonable wear and tear or 
deterioration, damage caused by or relating to wear and tear or 
deterioration, or to the extent the loss or damage is caused by 
negligence of Government Personnel.'' A third comment suggested that 
the language at DFARS 252.228-7001(e)(6), which provides that the 
Government does not accept the risk for losses that occur as a result 
of work on the aircraft unless such losses would have been covered by 
commercial insurance in the absence of the Ground and Flight Risk 
clause, is confusing and a source of frequent disputes.
    Response: While the contractor should not be liable for reasonable 
wear and tear, handling of the aircraft to prevent damage related to 
wear and tear is something within the contractor's control. If rain 
water is allowed to damage electronics, the contractor has failed to 
take necessary precautions to store the aircraft under reasonable 
conditions. The damage may have been avoided via closer intake 
inspection, storing the aircraft indoors, or covering certain areas to 
avoid water damage. The recommended change would diminish the 
contractor's incentive to take timely and appropriate action to protect 
Government assets, and therefore neither paragraph (e) nor (f) of the 
clause is changed. DoD also disagrees that the language at paragraph 
(e)(6) of the clause is confusing; it is unchanged from previous 
versions of the Ground and Flight Risk clause, and DoD is unaware of 
any disputes arising from the language.

5. Avoidance of Liability

    Comment: Three comments were received on this subject. One 
respondent expressed concern that the frequent necessity for Government 
Flight Representatives to approve flight crew members via telephone 
call or e-mail message may violate the DFARS 252.228-7001(e)(2) 
requirement for approval ``in writing.'' Also, DFARS 252.228-7001(e)(4) 
provides that the Government will not accept the liability for losses 
covered by insurance. The respondent expressed concern that contractors 
could avoid application of the clause's requirements by purchasing 
insurance. The respondent recommended inclusion of the following 
language currently found in DFARS 252.228.7002: ``The Contractor shall 
not be reimbursed for liability to third persons for loss or damage to 
property, or for death or bodily injury, caused by aircraft during 
flight unless the flight crew members previously have been approved in 
writing by the Government Flight Representative, who has been 
authorized in accordance with the combined regulation entitled 
`Contractor's Flight and Ground Operations'.''
    Response: DoD believes that telephonic and e-mail approvals are 
adequate as long as the Government Flight Representative follows up 
with a formal written approval as soon as practicable. The language at 
252.228-7001(e)(4) is included to prevent a duplicate recovery for a 
single loss. In no case does the purchase of insurance relieve the 
contractor of its obligation to comply with the clause requirements. 
While DoD agrees that contractors should not be reimbursed for third-
party liability if the Government Flight Representative had not 
approved the flight crew members, it does not concur in the 
respondent's assumption that Government acceptance of third-party 
liability arises from the cited language in DFARS 252.228-7002, 
Aircraft Flight Risk. The current language merely establishes a 
condition precedent to the Government's express acceptance of third-
party liability under other provisions of the contract (e.g., FAR 
52.228-7, Insurance--Liability to Third Persons). DoD has added a 
paragraph to the Ground and Flight Risk clause as follows: ``To the 
extent that the Government has accepted such liability under other 
provisions of this contract, the Contractor shall not be reimbursed for 
liability to third persons for loss or damage to property, or for death 
or bodily injury caused by aircraft during flight, unless the flight 
crew members previously have been approved for this flight in writing 
by the Government Flight Representative, who has been authorized in 
accordance with the combined regulation entitled `Contractor's Flight 
and Ground Operations'.''

6. Contractor's Share of Loss

    Comment: One respondent recommended revising DFARS 252.228-7001(f) 
to reduce the maximum share of loss to $50,000 for all contracts. The 
respondent suggested that the increase may negatively impact small 
businesses that do not have the resources to absorb an increased share 
of loss. The respondent also recommended separate language addressing 
the contractor's share of loss on firm-fixed price contracts and 
flexibly-priced contracts. Another respondent cited concerns that the 
use of the phrase ``twenty percent of the estimated price or cost of 
this contract'' creates confusion because prices on firm fixed-price 
contracts are not usually ``estimated.'' The respondent recommended 
that the language in the current DFARS clause defining the contractor's 
share of loss on cost-type

[[Page 32644]]

contracts as ``Twenty percent of the estimated cost of the contract'' 
remain unchanged.
    Response: While DoD's review indicates a fairly even split between 
fixed-price and flexibly-priced aircraft contracts, there is a decided 
weighting toward flexibly-priced contracts for aircraft repair, 
overhaul, and maintenance. Such contracts are typically where the bulk 
of damage arises that results in liability assessments. Therefore, the 
majority of contracts where liability arises already contain a $100,000 
maximum share of loss, consistent with the previous DFARS 252.228-7002 
language. Lowering the share of loss on all contracts to $50,000 would 
produce an inequitable and counter-productive result. Further, DoD 
disagrees that raising the liability to $100,000 will 
disproportionately disadvantage small businesses. Most of the small 
businesses participating in these contracts do so as repair, overhaul, 
and maintenance prime contractors or as commercial subcontractors.
    DoD does not agree that separate language is necessary to address 
firm- and flexibly-priced contracts. However, DoD is revising the 
proposed language of DFARS 252.228-7001(f) to clarify the language 
cited by the respondent and provide guidance for determination of the 
contractor's share of loss on task or delivery order contracts. The 
recommended revision defines the contractor's share of loss as the 
lesser of ``(i) the first $100,000 * * *, or (ii) twenty percent of the 
price or estimated cost of the contract'' and adds a statement that 
``for task order and delivery order contracts, the DoD's share of loss 
shall be the lesser of $100,000 or twenty percent of the combined total 
price or estimated cost of those orders to which the clause applies.''

7. Compliance With DCMA Regulation

    Comment: The respondent expressed concern that DFARS 252.228-
7001(b) imposes an absolute requirement for contractor compliance with 
DCMAI 8210.1, Combined Regulation/Instruction. Under certain 
circumstances, the respondent claims that imposition of this 
requirement is inappropriate. The respondent recommends modifying the 
initial sentence of the paragraph to provide some flexibility, as 
follows: ``Unless specified otherwise in the contract Schedule, the 
Contractor shall be bound * * *''
    Response: The requirement to comply with the Joint Instruction is 
not a substantive change; paragraph (k) of the existing clause imposes 
the identical requirement. The Joint Instruction itself provides 
adequate flexibility to address the commenter's concern. With few 
exceptions, the Instruction's standard for contractor procedures is 
simply that they be ``safe and effective.''

8. Flowdown

    Comment: One respondent recommended revising DFARS 252.228-7001(g) 
to add: ``The Contractor is required to ensure that each of its 
subcontractors also complies with the combined regulation/instruction 
entitled ``Contractor's Flight and Ground Operations.'' Another 
respondent, noting that DFARS 228.252-7001(l) requires contractors to 
assure that subcontractors at all tiers comply with the clause, 
recommended that the clause provide some flexibility in the imposition 
of flowdown requirements.
    Response: The addition recommended by the first respondent is 
unnecessary because the effect of the suggested change is already 
provided for at DFARS 252.228-7001(b), Combined Regulation/Instruction, 
which requires flowdown to subcontracts at all tiers.
    As to providing flexibility in the flowdown requirement, DoD 
considers the Joint Instruction itself to provide adequate flexibility 
to address the commenter's concern. With few exceptions, the 
Instruction's standard for contractor procedures is simply that they be 
``safe and effective.'' Any subcontractor in possession or control of a 
Government aircraft should have ``safe and effective'' procedures in 
place.
    This rule was subject to Office of Management and Budget review 
under Executive Order 12866, dated September 30, 1993. This is not a 
major rule under 5 U.S.C. 804.

C. Regulatory Flexibility Act

    DoD has prepared a final regulatory flexibility analysis consistent 
with 5 U.S.C. 604. A copy of the analysis may be obtained from the 
individual specified in the contact-information section of this notice. 
The analysis is summarized as follows:
    The objective of the rule is to clearly and consistently address 
the responsibilities of the Government and the contractor with regard 
to incidents that may occur under contracts involving the furnishing of 
aircraft to the Government. The rule applies to DoD contractors and 
their subcontractors under contracts for the acquisition, development, 
production, or servicing of aircraft. Excluded are contracts for 
activities strictly incidental to the normal operations of an aircraft; 
contracts awarded under FAR Part 12, Acquisition of Commercial Items; 
and contracts where a non-DoD customer does not assume risk for loss of 
or damage to the aircraft. The impact on small entities is expected to 
be minimal based on the fact that most contractors engaged in this type 
of business have historically been large businesses.

D. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the rule does 
not impose any information collection requirements that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

List of Subjects in 48 CFR Parts 228, 231, and 252

    Government procurement.

Ynette R. Shelkin,
Editor, Defense Acquisition Regulations System.

0
Therefore, 48 CFR parts 228, 231, and 252 are amended as follows:
0
1. The authority citation for 48 CFR parts 228, 231, and 252 continues 
to read as follows:

    Authority:  41 U.S.C. 421 and 48 CFR chapter 1.

PART 228--BONDS AND INSURANCE

0
2. Section 228.370 is amended as follows:
0
a. By revising paragraph (b);
0
b. By removing paragraph (c); and
0
c. By redesignating paragraphs (d) through (f) as paragraphs (c) 
through (e) respectively.
    The revised text reads as follows:

228.370  Additional clauses.

* * * * *
    (b)(1) Use the clause at 252.228-7001, Ground and Flight Risk, in 
all solicitations and contracts for the acquisition, development, 
production, modification, maintenance, repair, flight, or overhaul of 
aircraft, except those solicitations and contracts--
    (i) That are strictly for activities incidental to the normal 
operations of the aircraft (e.g., refueling operations, minor non-
structural actions not requiring towing such as replacing aircraft 
tires due to wear and tear);
    (ii) That are awarded under FAR Part 12 procedures and are for the 
development, production, modification, maintenance, repair, flight, or 
overhaul of aircraft; or otherwise involving the furnishing of 
aircraft;
    (iii) For which a non-DoD customer (including a foreign military 
sales customer) has not agreed to assume the risk for loss or 
destruction of, or damages to, the aircraft; or
    (iv) For commercial derivative aircraft that are to be maintained 
to Federal

[[Page 32645]]

Aviation Administration (FAA) airworthiness when the work will be 
performed at a licensed FAA repair station.
    (2) The clause at 252.228-7001 may be modified only as follows:
    (i) Include a modified definition of ``aircraft'' if the contract 
covers other than conventional types of winged aircraft, i.e., 
helicopters, vertical take-off or landing aircraft, lighter-than-air 
airships, unmanned aerial vehicles, or other nonconventional aircraft. 
The modified definition should describe a stage of manufacture 
comparable to the standard definition.
    (ii) Modify ``in the open'' to include ``hush houses,'' test 
hangars and comparable structures, and other designated areas.
    (iii) Expressly define the ``contractor's premises'' where the 
aircraft will be located during and for contract performance. These 
locations may include contract premises which are owned or leased by 
the contractor or subcontractor, or premises where the contractor or 
subcontractor is a permittee or licensee or has a right to use, 
including Government airfields.
    (iv) Revise paragraph (e)(3) of the clause to provide Government 
assumption of risk for transportation by conveyance on streets or 
highways when transportation is--
    (A) Limited to the vicinity of contractor premises; and
    (B) Incidental to work performed under the contract.
    (3) Follow the procedures at PGI 228.370(b) when using the clause 
at 252.228-7001.
* * * * *

PART 231--CONTRACT COST PRINCIPLES AND PROCEDURES

0
3. Section 231.205-19 is added to read as follows:

231.205-19  Insurance and indemnification.

    (e) In addition to the cost limitations in FAR 31.205-19(e), self-
insurance and purchased insurance costs are subject to the requirements 
of the clauses at 252.217-7012, Liability and Insurance, and 252.228-
7001, Ground and Flight Risk.

PART 252--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

0
4. Section 252.228-7001 is revised to read as follows:

252.228-7001  Ground and flight risk.

    As prescribed in 228.370(b), use the following clause:

GROUND AND FLIGHT RISK (JUN 2010)

    (a) Definitions. As used in this clause--
    (1) Aircraft, unless otherwise provided in the contract
    Schedule, means--
    (i) Aircraft to be delivered to the Government under this 
contract (either before or after Government acceptance), including 
complete aircraft and aircraft in the process of being manufactured, 
disassembled, or reassembled; provided that an engine, portion of a 
wing, or a wing is attached to a fuselage of the aircraft;
    (ii) Aircraft, whether in a state of disassembly or reassembly, 
furnished by the Government to the Contractor under this contract, 
including all Government property installed, in the process of 
installation, or temporarily removed; provided that the aircraft and 
property are not covered by a separate bailment agreement;
    (iii) Aircraft furnished by the Contractor under this contract 
(either before or after Government acceptance); or
    (iv) Conventional winged aircraft, as well as helicopters, 
vertical take-off or landing aircraft, lighter-than-air airships, 
unmanned aerial vehicles, or other nonconventional aircraft 
specified in this contract.
    (2) Contractor's managerial personnel means the Contractor's 
directors, officers, and any of the Contractor's managers, 
superintendents, or other equivalent representatives who have 
supervision or direction of--
    (i) All or substantially all of the Contractor's business;
    (ii) All or substantially all of the Contractor's operation at 
any one plant or separate location; or
    (iii) A separate and complete major industrial operation.
    (3) Contractor's premises means those premises, including 
subcontractors' premises, designated in the Schedule or in writing 
by the Contracting Officer, and any other place the aircraft is 
moved for safeguarding.
    (4) Flight means any flight demonstration, flight test, taxi 
test, or other flight made in the performance of this contract, or 
for the purpose of safeguarding the aircraft, or previously approved 
in writing by the Contracting Officer.
    (i) For land-based aircraft, ``flight'' begins with the taxi 
roll from a flight line on the Contractor's premises and continues 
until the aircraft has completed the taxi roll in returning to a 
flight line on the Contractor's premises.
    (ii) For seaplanes, ``flight'' begins with the launching from a 
ramp on the Contractor's premises and continues until the aircraft 
has completed its landing run and is beached at a ramp on the 
Contractor's premises.
    (iii) For helicopters, ``flight'' begins upon engagement of the 
rotors for the purpose of take-off from the Contractor's premises 
and continues until the aircraft has returned to the ground on the 
Contractor's premises and the rotors are disengaged.
    (iv) For vertical take-off or landing aircraft, ``flight'' 
begins upon disengagement from any launching platform or device on 
the Contractor's premises and continues until the aircraft has been 
engaged to any launching platform or device on the Contractor's 
premises.
    (v) All aircraft off the Contractor's premises shall be 
considered to be in flight when on the ground or water for 
reasonable periods of time following emergency landings, landings 
made in performance of this contract, or landings approved in 
writing by the Contracting Officer.
    (5) Flight crew member means the pilot, the co-pilot, and, 
unless otherwise provided in the Schedule, the flight engineer, 
navigator, and bombardier-navigator when assigned to their 
respective crew positions for the purpose of conducting any flight 
on behalf of the Contractor. It also includes any pilot or operator 
of an unmanned aerial vehicle. If required, a defense systems 
operator may also be assigned as a flight crew member.
    (6) In the open means located wholly outside of buildings on the 
Contractor's premises or other places described in the Schedule as 
being ``in the open.'' Government-furnished aircraft shall be 
considered to be located ``in the open'' at all times while in the 
Contractor's possession, care, custody, or control.
    (7) Operation means operations and tests of the aircraft and its 
installed equipment, accessories, and power plants, while the 
aircraft is in the open or in motion. The term does not apply to 
aircraft on any production line or in flight.
    (b) Combined regulation/instruction. The Contractor shall be 
bound by the operating procedures contained in the combined 
regulation/instruction entitled ``Contractor's Flight and Ground 
Operations'' (Air Force Instruction 10-220, Army Regulation 95-20, 
NAVAIR Instruction 3710.1 (Series), Coast Guard Instruction 
M13020.3, and Defense Contract Management Agency Instruction 8210.1) 
in effect on the date of contract award.
    (c) Government as self-insurer. Subject to the conditions in 
paragraph (d) of this clause, the Government self-insures and 
assumes the risk of damage to, or loss or destruction of aircraft 
``in the open,'' during ``operation,'' and in ``flight,'' except as 
may be specifically provided in the Schedule as an exception to this 
clause. The Contractor shall not be liable to the Government for 
such damage, loss, or destruction beyond the Contractor's share of 
loss amount under the Government's self-insurance.
    (d) Conditions for Government's self-insurance. The Government's 
assumption of risk for aircraft in the open shall continue unless 
the Contracting Officer finds that the Contractor has failed to 
comply with paragraph (b) of this clause, or that the aircraft is in 
the open under unreasonable conditions, and the Contractor fails to 
take prompt corrective action.
    (1) The Contracting Officer, when finding that the Contractor 
has failed to comply with paragraph (b) of this clause or that the 
aircraft is in the open under unreasonable conditions, shall notify 
the Contractor in writing and shall require the Contractor to make 
corrections within a reasonable time.
    (2) Upon receipt of the notice, the Contractor shall promptly 
correct the cited

[[Page 32646]]

conditions, regardless of whether there is agreement that the 
conditions are unreasonable.
    (i) If the Contracting Officer later determines that the cited 
conditions were not unreasonable, an equitable adjustment shall be 
made in the contract price for any additional costs incurred in 
correcting the conditions.
    (ii) Any dispute as to the unreasonableness of the conditions or 
the equitable adjustment shall be considered a dispute under the 
Disputes clause of this contract.
    (3) If the Contracting Officer finds that the Contractor failed 
to act promptly to correct the cited conditions or failed to correct 
the conditions within a reasonable time, the Contracting Officer may 
terminate the Government's assumption of risk for any aircraft in 
the open under the cited conditions. The termination will be 
effective at 12:01 a.m. on the fifteenth day following the day the 
written notice is received by the Contractor.
    (i) If the Contracting Officer later determines that the 
Contractor acted promptly to correct the cited conditions or that 
the time taken by the Contractor was not unreasonable, an equitable 
adjustment shall be made in the contract price for any additional 
costs incurred as a result of termination of the Government's 
assumption of risk.
    (ii) Any dispute as to the timeliness of the Contractor's action 
or the equitable adjustment shall be considered a dispute under the 
Disputes clause of this contract.
    (4) If the Government terminates its assumption of risk pursuant 
to the terms of this clause--
    (i) The Contractor shall thereafter assume the entire risk for 
damage, loss, or destruction of the affected aircraft;
    (ii) Any costs incurred by the Contractor (including the costs 
of the Contractor's self-insurance, insurance premiums paid to 
insure the Contractor's assumption of risk, deductibles associated 
with such purchased insurance, etc.) to mitigate its assumption of 
risk are unallowable costs; and
    (iii) The liability provisions of the Government Property clause 
of this contract are not applicable to the affected aircraft.
    (5) The Contractor shall promptly notify the Contracting Officer 
when unreasonable conditions have been corrected.
    (i) If, upon receipt of the Contractor's notice of the 
correction of the unreasonable conditions, the Government elects to 
again assume the risk of loss and relieve the Contractor of its 
liability for damage, loss, or destruction of the aircraft, the 
Contracting Officer will notify the Contractor of the Contracting 
Officer's decision to resume the Government's risk of loss. The 
Contractor shall be entitled to an equitable adjustment in the 
contract price for any insurance costs extending from the end of the 
third working day after the Government's receipt of the Contractor's 
notice of correction until the Contractor is notified that the 
Government will resume the risk of loss.
    (ii) If the Government does not again assume the risk of loss 
and the unreasonable conditions have been corrected, the Contractor 
shall be entitled to an equitable adjustment for insurance costs, if 
any, extending after the third working day after the Government's 
receipt of the Contractor's notice of correction.
    (6) The Government's termination of its assumption of risk of 
loss does not relieve the Contractor of its obligation to comply 
with all other provisions of this clause, including the combined 
regulation/instruction entitled ``Contractor's Flight and Ground 
Operations.''
    (e) Exclusions from the Government's assumption of risk. The 
Government's assumption of risk shall not extend to damage, loss, or 
destruction of aircraft which--
    (1) Results from failure of the Contractor, due to willful 
misconduct or lack of good faith of any of the Contractor's 
managerial personnel, to maintain and administer a program for the 
protection and preservation of aircraft in the open and during 
operation in accordance with sound industrial practice, including 
oversight of a subcontractor's program;
    (2) Is sustained during flight if either the flight or the 
flight crew members have not been approved in advance of any flight 
in writing by the Government Flight Representative, who has been 
authorized in accordance with the combined regulation/instruction 
entitled ``Contractor's Flight and Ground Operations'';
    (3) Occurs in the course of transportation by rail, or by 
conveyance on public streets, highways, or waterways, except for 
Government-furnished property;
    (4) Is covered by insurance;
    (5) Consists of wear and tear; deterioration (including rust and 
corrosion); freezing; or mechanical, structural, or electrical 
breakdown or failure, unless these are the result of other loss, 
damage or destruction covered by this clause. (This exclusion does 
not apply to Government-furnished property if damage consists of 
reasonable wear and tear or deterioration, or results from inherent 
vice, e.g., a known condition or design defect in the property); or
    (6) Is sustained while the aircraft is being worked on and is a 
direct result of the work unless such damage, loss, or destruction 
would be covered by insurance which would have been maintained by 
the Contractor, but for the Government's assumption of risk.
    (f) Contractor's share of loss and Contractor's deductible under 
the Government's self-insurance.
    (1) The Contractor assumes the risk of loss and shall be 
responsible for the Contractor's share of loss under the 
Government's self-insurance. That share is the lesser of--
    (i) The first $100,000 of loss or damage to aircraft in the 
open, during operation, or in flight resulting from each separate 
event, except for reasonable wear and tear and to the extent the 
loss or damage is caused by negligence of Government personnel; or
    (ii) Twenty percent of the price or estimated cost of this 
contract.
    (2) If the Government elects to require that the aircraft be 
replaced or restored by the Contractor to its condition immediately 
prior to the damage, the equitable adjustment in the price 
authorized by paragraph (j) of this clause shall not include the 
dollar amount of the risk assumed by the Contractor.
    (3) In the event the Government does not elect repair or 
replacement, the Contractor agrees to credit the contract price or 
pay the Government, as directed by the Contracting Officer, the 
lesser of--
    (i) $100,000;
    (ii) Twenty percent of the price or estimated cost of this 
contract; or
    (iii) The amount of the loss.
    (4) For task order and delivery order contracts, the 
Contractor's share of the loss shall be the lesser of $100,000 or 
twenty percent of the combined total price or total estimated cost 
of those orders issued to date to which the clause applies.
    (5) The costs incurred by the Contractor for its share of the 
loss and for insuring against that loss are unallowable costs, 
including but not limited to--
    (i) The Contractor's share of loss under the Government's self-
insurance;
    (ii) The costs of the Contractor's self-insurance;
    (iii) The deductible for any Contractor-purchased insurance;
    (iv) Insurance premiums paid for Contractor-purchased insurance; 
and
    (v) Costs associated with determining, litigating, and defending 
against the Contractor's liability.
    (g) Subcontractor possession or control. The Contractor shall 
not be relieved from liability for damage, loss, or destruction of 
aircraft while such aircraft is in the possession or control of its 
subcontractors, except to the extent that the subcontract, with the 
written approval of the Contracting Officer, provides for relief 
from each liability. In the absence of approval, the subcontract 
shall contain provisions requiring the return of aircraft in as good 
condition as when received, except for reasonable wear and tear or 
for the utilization of the property in accordance with the 
provisions of this contract.
    (h) Contractor's exclusion of insurance costs. The Contractor 
warrants that the contract price does not and will not include, 
except as may be authorized in this clause, any charge or 
contingency reserve for insurance covering damage, loss, or 
destruction of aircraft while in the open, during operation, or in 
flight when the risk has been assumed by the Government, including 
the Contractor share of loss in this clause, even if the assumption 
may be terminated for aircraft in the open.
    (i) Procedures in the event of loss.
    (1) In the event of damage, loss, or destruction of aircraft in 
the open, during operation, or in flight, the Contractor shall take 
all reasonable steps to protect the aircraft from further damage, to 
separate damaged and undamaged aircraft, and to put all aircraft in 
the best possible order. Except in cases covered by paragraph (f)(2) 
of this clause, the Contractor shall furnish to the Contracting 
Officer a statement of--
    (i) The damaged, lost, or destroyed aircraft;
    (ii) The time and origin of the damage, loss, or destruction;
    (iii) All known interests in commingled property of which 
aircraft are a part; and
    (iv) The insurance, if any, covering the interest in commingled 
property.
    (2) The Contracting Officer will make an equitable adjustment 
for expenditures made

[[Page 32647]]

by the Contractor in performing the obligations under this 
paragraph.
    (j) Loss prior to delivery.
    (1) If prior to delivery and acceptance by the Government, 
aircraft is damaged, lost, or destroyed and the Government assumed 
the risk, the Government shall either--
    (i) Require that the aircraft be replaced or restored by the 
Contractor to the condition immediately prior to the damage, in 
which event the Contracting Officer will make an equitable 
adjustment in the contract price and the time for contract 
performance; or
    (ii) Terminate this contract with respect to the aircraft. 
Notwithstanding the provisions in any other termination clause under 
this contract, in the event of termination, the Contractor shall be 
paid the contract price for the aircraft (or, if applicable, any 
work to be performed on the aircraft) less any amount the 
Contracting Officer determines--
    (A) It would have cost the Contractor to complete the aircraft 
(or any work to be performed on the aircraft) together with 
anticipated profit on uncompleted work; and
    (B) Would be the value of the damaged aircraft or any salvage 
retained by the Contractor.
    (2) The Contracting Officer shall prescribe the manner of 
disposition of the damaged, lost, or destroyed aircraft, or any 
parts of the aircraft. If any additional costs of such disposition 
are incurred by the Contractor, a further equitable adjustment will 
be made in the amount due the Contractor. Failure of the parties to 
agree upon termination costs or an equitable adjustment with respect 
to any aircraft shall be considered a dispute under the Disputes 
clause of this contract.
    (k) Reimbursement from a third party. In the event the 
Contractor is reimbursed or compensated by a third party for damage, 
loss, or destruction of aircraft and has also been compensated by 
the Government, the Contractor shall equitably reimburse the 
Government. The Contractor shall do nothing to prejudice the 
Government's right to recover against third parties for damage, 
loss, or destruction. Upon the request of the Contracting Officer or 
authorized representative, the Contractor shall at Government 
expense furnish to the Government all reasonable assistance and 
cooperation (including the prosecution of suit and the execution of 
instruments of assignment or subrogation) in obtaining recovery.
    (l) Government acceptance of liability. To the extent the 
Government has accepted such liability under other provisions of 
this contract, the Contractor shall not be reimbursed for liability 
to third persons for loss or damage to property or for death or 
bodily injury caused by aircraft during flight unless the flight 
crew members previously have been approved for this flight in 
writing by the Government Flight Representative, who has been 
authorized in accordance with the combined regulation entitled 
``Contractor's Flight and Ground Operations''.
    (m) Subcontracts. The Contractor shall incorporate the 
requirements of this clause, including this paragraph (m), in all 
subcontracts.
    (End of clause)

252.228-7002  [Removed and Reserved]

0
5. Section 252.228-7002 is removed and reserved.

252.228-7003  [Amended]

0
6. Section 252.228-7003 is amended in the introductory text by removing 
``228.370(d)'' and adding in its place ``228.370(c)''.

252.228-7005  [Amended]

0
7. Section 252.228-7005 is amended in the introductory text by removing 
``228.370(e)'' and adding in its place ``228.370(d)''.

252.228-7006  [Amended]

0
8. Section 252.228-7006 is amended in the introductory text by removing 
``228.370(f)'' and adding in its place ``228.370(e)''.
[FR Doc. 2010-13528 Filed 6-7-10; 8:45 am]
BILLING CODE 5001-08-P
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