71824 Federal Register / Vol. 76, No. 223 / Friday, November 18, 2011 / Rules and Regulations 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Part 245 

RIN 0750–AG94 

Defense Federal Acquisition 

Regulation Supplement: Responsibility 

and Liability for Government Property 

(DFARS Case 2010–D018) 

AGENCY: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Final rule. 

SUMMARY: DoD is issuing a final rule 

amending the Defense Federal 

Acquisition Regulation Supplement 

(DFARS) to extend the Government selfinsurance policy to Government 

property provided under negotiated 

fixed-price contracts that are awarded 

on a basis other than submission of 

certified cost or pricing data. 

DATES: Effective Date: November 18, 

2011. 

FOR FURTHER INFORMATION CONTACT: 

Meredith Murphy, telephone (703) 602– 

1302. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD published a proposed rule at 76 

FR 21852 on April 19, 2011. Twenty 

comments were received from one 

respondent in response to the proposed 

rule. None of the comments took issue 

with the regulatory flexibility analysis 

in the proposed rule. 

II. Discussion and Analysis of the 

Public Comments 

DoD reviewed the public comments in 

the formation of the final rule. A 

discussion of the comments is provided 

below. No changes were made in the 

rule as a result of those comments. 

A. Change Should Be Made at the FAR 

Level 

Comment: The respondent concluded 

that the proposed revision is being 

improperly undertaken at the agency 

level and should instead be undertaken 

by the FAR Council. 

Response: FAR subpart 1.3 authorizes 

agency regulations that supplement the 

FAR. These agency regulations may 

provide additional policies to satisfy the 

specific needs of the agency. Further, 

FAR 1.404 authorizes DoD to deviate 

from the FAR in accordance with the 

DFARS. DoD has complied with the 

requirements of FAR subparts 1.3 and 

1.4 and DFARS subparts 201.3 and 

201.4. 

B. The Proposed Rule Is Inconsistent 

With the FAR 

Comment: According to the 

respondent, the proposed rule violates 

FAR 16.202–1 and 1.304. The 

respondent stated that FAR 45.104(a) 

and FAR 45.201(b) are clearly coupled, 

while the proposed rule uncouples 

them. 

Response: FAR 16.202–1 states that a 

firm-fixed-price contract places 

maximum risk on the contractor and full 

responsibility for all costs and resulting 

profit and loss. The FAR already 

provides that contractors are not liable 

for loss of Government property under 

fixed-price contracts awarded on the 

basis of submission of certified cost or 

pricing data. The purpose of the DFARS 

rule is to standardize policy for 

negotiated fixed-price contracts, 

whether or not the contract involved the 

submission of certified cost or pricing 

data. DoD does not intend to eliminate 

the need for Alternate I of the clause at 

FAR 52.245–1. The Government’s 

general practice of self-insuring its risks 

of loss or damage to Governmentfurnished property is based on policy, 

not statute (55 Comp Gen 1321 (1976)), 

and Government self-insurance of 

Government property is not universal. 

There are many examples of contractors 

retaining responsibility and liability for 

property loss, e.g., property acquired by 

contractors by virtue of progress 

payments is tied to the Government’s 

financing of the contract under the 

provisions of FAR part 32. It is a wellestablished and acceptable practice for 

contractors to retain responsibility and 

liability for progress payment inventory, 

because it would make little sense for 

the Government to both finance the 

contract and self-insure against property 

loss. 

There is no regulation that 

affirmatively prohibits the purchase of 

insurance. The Government 

Accountability Office (GAO) has held 

that exceptions to the general rule can 

be made when (1) the economy sought 

to be obtained under this policy would 

be defeated; (2) sound business practice 

indicates that a savings can be effected; 

or (3) services or benefits not otherwise 

available can be obtained by purchasing 

insurance (see GAO–04–261SP, 

Principles of Appropriations Law, 

Volume I, section 10a, ‘‘The SelfInsurance Rule’’). The DFARS language 

is not inconsistent with established 

practice; i.e., to self-insure Government 

property where it makes sense to do so. 

To the extent that 245.104 may be 

inconsistent with FAR 45.104, such 

inconsistency is authorized by FAR 

1.304, in accordance with FAR subpart 

1.4 and DFARS subpart 201.4. 

With regard to the comment on 

‘‘coupling’’ FAR 45.104(a) and FAR 

45.201(b), the former reference reads as 

follows: 

(a) Generally, contractors are not held 

liable for ‘‘loss, theft, damage or 

destruction of Government property’’ 

under the following types of contracts: 

(1) Cost-reimbursement contracts. 

(2) Time-and-material contracts. 

(3) Labor-hour contracts. 

(4) Fixed-price contracts awarded on 

the basis of submission of certified cost 

or pricing data. 

FAR 45.201(b) states that, (w)hen 

Government property is offered for use 

in a competitive acquisition, 

solicitations should specify that the 

contractor is responsible for all ‘‘costs 

related to making the property available 

for use, such as payment of all 

transportation, installation, or 

rehabilitation costs.’’ The latter 

paragraph makes no reference to 

liability for loss or damage to 

Government property and is, therefore, 

not coupled or inconsistent with the 

former reference, FAR 45.104(a). Each 

FAR subpart describes policy for 

different aspects of procurement. 

C. The Change Would Eliminate the 

$700,000 Threshold 

Comment: The respondent stated that 

‘‘(c)learly the wording indicates that the 

proposed rule would only apply 

additionally to negotiated fixed-price 

contracts awarded below the current 

certified cost/price data submittal 

threshold of $700,000.’’ Therefore, 

according to the respondent, ‘‘the intent 

of FAR 45.104(a)(4) is that contractors 

awarded fixed-price contracts on the 

basis * * * of submission of certified 

cost or pricing data (all awards over 

$700,000) will not be held liable for 

loss, theft, damage, destruction of 

Government property.’’ 

Response: The intent of the proposed 

rule was to standardize Governmentproperty policy for negotiated fixedprice contracts, whether or not the 

submission of certified cost or pricing 

data was required. The rule does not 

impact the threshold for submission of 

certified cost or pricing data either 

positively or negatively. 

D. The Proposed Rule Would Revise 

Applicability 

Comment: According to the 

respondent, the proposed policy change 

omitted ‘‘all of the competitively 

awarded contracts that may include 

Government property.’’ The respondent 

said that ‘‘it should not be assumed that 

these contracts will require ‘negotiation’ 


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Federal Register / Vol. 76, No. 223 / Friday, November 18, 2011 / Rules and Regulations 71825 

and therefore fall under the proposed 

rule. Contracts may in fact be awarded 

without discussion (negotiations) if so 

stipulated in the solicitation even if 

Government property is included in the 

solicitation and anticipated contract.’’ 

Response: Whether or not discussions 

are held, a contract awarded using FAR 

part 15 procedures is still a negotiated 

contract. Reference is made to (1) The 

title of FAR part 15, ‘‘Contracting by 

Negotiation,’’ and (2) the instructions at 

FAR 15.209, particularly paragraph (a) 

of that section: ‘‘When contracting by 

negotiation * * * the contracting officer 

shall insert the provision at 52.215–1, 

Instructions to Offerors—Competitive 

Acquisition, in all competitive 

solicitations where the Government 

intends to award a contract without 

discussions.’’ 

Comment: According to the 

respondent, it ‘‘would make more sense 

if this proposed rule banned provision 

of Government property under firmfixed-price contracts, thereby upholding 

the integrity of the contact type and 

being more consistent with FAR * * * 

45.102(a) & (b).’’ 

Response: The respondent proposed 

prohibiting the use of Governmentfurnished property on all firm-fixedprice contracts, which is outside the 

scope of this rule. The proposed rule 

did not address the provision of, or need 

for, Government-furnished property, but 

rather whether responsibility and 

liability for loss of, or damage to, 

Government property should be treated 

differently depending on whether a 

negotiated fixed-price contract was 

awarded with, or without, submission of 

certified cost or pricing data. Regardless 

of contract type, contracting officers are 

still required to consider the risk of loss 

or damage prior to providing 

Government-furnished property (see PGI 

245.103–70). 

E. The Proposed Rule Would Shift Risk 

to the Government 

Comment: The respondent stated that 

the proposed rule shifted risk away from 

the contractor and onto the Government 

by requiring that DoD competitive fixedprice contracts bearing Government 

property would be required to convey 

Limited Risk of Loss, thereby shifting 

this risk to the Government. 

Response: The intent of this rule is to 

standardize the treatment of negotiated 

fixed-price contracts, whether or not 

certified cost or pricing data was 

required. The contract type used can 

never completely eliminate the 

Government’s inherent risk of providing 

property to contractors. Contracting 

officers are still required to consider 

risks prior to providing Governmentfurnished property. 

The Government retains the option of 

revoking its assumption of risk under 

FAR 45.105(b)(1). DoD’s policy, 

consistent with FAR 45.104 (see PGI 

245.103–70), is to provide Government 

property only after determining that (1) 

It is in the Government’s best interest 

and (2) providing the property does not 

substantially increase the Government’s 

risk. 

F. The Change Would Increase the 

Government’s Administrative Burden 

Comment: The respondent stated that 

the proposed rule would increase 

administrative burden rather than 

minimize it, as conceptualized in FAR 

16.202–1, Description (of fixed-price 

contracts). Further, according to the 

respondent, the proposed rule is outside 

of, and therefore inconsistent with, the 

intent of a firm-fixed price contract 

instrument. 

Response: The intent of this rule is to 

standardize policy treatment for 

negotiated FAR part 15 fixed-price 

contracts. This change decreases the 

administrative burden associated with 

the current non-standard treatment of 

negotiated fixed-price contracts. 

G. Insurance Is an Unallowable Cost 

Comment: The respondent stated that 

the cost of insurance is an unallowable 

cost unless otherwise agreed to in the 

contract, and, by the very nature of a 

fixed-price contract, this fact would 

minimize, if not negate, insurance costs 

passed on to the Government. 

Response: Paragraph (d) of the cost 

principle at FAR 31.205–19, Insurance 

and indemnification, states that 

purchased insurance costs are 

allowable, subject to certain limitations. 

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 

A final regulatory flexibility analysis 

has been prepared consistent with the 

Regulatory Flexibility Act, 5 U.S.C. 601, 

et seq., and is summarized as follows: 

DoD is amending the Defense Federal 

Acquisition Regulation Supplement 

(DFARS) to address the inclusion of 

negotiated fixed-price contracts 

awarded on the basis of adequate 

competition to the list of contract types 

in which contractors are not held liable 

for loss, damage, destruction, or theft of 

Government property. The Government 

generally self-insures against contractor 

loss, damage, destruction, or theft of 

Government-furnished property 

acquired or provided under Government 

contracts (‘‘assumption of risk’’). The 

current exception to this policy (see 

FAR 45.104) is for negotiated fixed-price 

contracts awarded based on adequate 

competition, i.e., without submission of 

certified cost or pricing data. For 

negotiated fixed-price competitive 

contracts, the contractor, in the past, has 

been held liable for loss (except for 

reasonable fair wear and tear). This 

policy was invoked by use of the clause 

at FAR 52.245–1, Government Property, 

with its Alternate I. Government 

Accountability Office (GAO) decisions 

(see GAO–04–261SP, Principles of 

Appropriations Law, Volume I, section 

10a, ‘‘The Self-Insurance Rule’’) support 

the basic premise that the Government 

should self-insure Governmentfurnished property. Any impact to small 

entities is expected to be beneficial in 

the form of lower insurance costs and 

higher deductibles. 

No public comments were received in 

response to the publication of the initial 

regulatory flexibility analysis. No 

comments were received from the Chief 

Counsel for Advocacy of the Small 

Business Administration in response to 

the rule. There are no reporting, 

recordkeeping, or other compliance 

requirements associated with this rule. 

This rule will align DoD policy on 

assumption of risk with the GAO policy. 

There are no known alternatives to this 

final rule. The rule will not have a 

significant economic impact on a 

substantial number of small entities. 

V. Paperwork Reduction Act 

The rule does not contain any 

information collection requirements that 

require the approval of the Office of 

Management and Budget under the 

Paperwork Reduction Act (44 U.S.C. 

chapter 35). 


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71826 Federal Register / Vol. 76, No. 223 / Friday, November 18, 2011 / Rules and Regulations 

List of Subjects in 48 CFR Part 245 

Government procurement. 

Ynette R. Shelkin, 

Editor, Defense Acquisition Regulations 

System. 

Therefore, 48 CFR part 245 is 

amended as follows: 

PART 245—GOVERNMENT PROPERTY 

■ 1. The authority citation for 48 CFR 

part 245 continues to read as follows: 

Authority: 41 U.S.C. 1303 and 48 CFR 

chapter 1. 

■ 2. Add section 245.104 to read as 

follows: 

245.104 Responsibility and liability for 

Government property. 

In addition to the contract types listed 

at FAR 45.104, contractors are not held 

liable for loss of Government property 

under negotiated fixed-price contracts 

awarded on a basis other than 

submission of certified cost or pricing 

data. 

■ 3. Amend section 245.107 by 

redesignating paragraphs (a) through (e) 

as paragraphs (1) through (5) and adding 

paragraph (6) to read as follows: 

245.107 Contract clauses. 

* * * * * 

(6) For negotiated fixed-price 

contracts awarded on a basis other than 

submission of certified cost or pricing 

data for which Government property is 

provided, use the clause at FAR 52.245– 

1, Government Property, without its 

Alternate I. 

[FR Doc. 2011–29416 Filed 11–17–11; 8:45 am] 

BILLING CODE 5001–06–P 

DEPARTMENT OF DEFENSE 

Defense Acquisition Regulations 

System 

48 CFR Parts 203 and 252 

RIN 0750–AG99 

Defense Federal Acquisition 

Regulation Supplement: 

Representation Relating to 

Compensation of Former DoD Officials 

(DFARS Case 2010–D020) 

AGENCIES: Defense Acquisition 

Regulations System, Department of 

Defense (DoD). 

ACTION: Final rule. 

SUMMARY: DoD is amending the DFARS 

to require offerors to represent whether 

former DoD officials who are employees 

of the offeror are in compliance with 

post-employment restrictions. 

DATES: Effective Date: November 18, 

2011. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Meredith Murphy, 703–602–1302. 

SUPPLEMENTARY INFORMATION: 

I. Background 

DoD published a proposed rule at 76 

FR 32846 on June 6, 2011, that proposed 

adding a requirement for offerors 

submitting proposals to DoD to 

represent whether former DoD officials 

employed by the offeror are in 

compliance with post-employment 

restrictions. Four respondents submitted 

public comments on the proposed rule. 

A. Post-Employment Statutory 

Restrictions and Regulatory 

Implementation 

The principal statutory restrictions 

concerning post-Government 

employment for DoD officials after 

leaving Government employment are at 

18 U.S.C. 207 and 41 U.S.C. 2104 

(formerly 41 U.S.C. 423) and 5 CFR 

parts 2637 and 2641. 

1. FAR 3.104 implements 41 U.S.C 

2104 and 18 U.S.C. 207. 

2. DFARS 203.104 implements the 

Procurement Integrity Act for DoD. 

3. DFARS 203.171–3 implements 

section 847 of the National Defense 

Authorization Act (NDAA) for Fiscal 

Year (FY) 2008. 

B. General Accountability Office (GAO) 

Study GAO–08–485 

The Congress included a provision in 

the NDAA for FY 2007 (section 851 of 

Pub. L. 109–364) requiring the GAO to 

report on recent employment of former 

DoD officials by major defense 

contractors. In May 2008, the GAO 

issued its report, entitled ‘‘Defense 

Contracting: Post-Government 

Employment of Former DoD Officials 

Needs Greater Transparency’’ (GAO–08– 

485). The GAO found that contractors 

significantly under-reported the 

employment of former DoD officials and 

concluded that defense contractors may 

employ a substantial number of former 

DoD officials on assignments related to 

their former positions. GAO further 

concluded that greater transparency is 

needed by DoD with respect to former 

senior and acquisition executives to 

ensure compliance with applicable postemployment restrictions. The GAO 

recommended that DoD ask potential 

offerors to certify that the former DoD 

officials employed by the offeror are in 

compliance with post-employment 

restrictions when contracts are being 

awarded and that contracting officers 

consider continuing certifications 

throughout the performance of the 

contract. 

C. DFARS Rule 

This DFARS rule implements the 

recommendation of the GAO by adding 

a new representation for offerors to 

complete and provide as part of each 

proposal, including proposals for 

commercial items. DoD elected to 

employ a representation rather than a 

certification and have the representation 

submitted by offerors as part of the 

proposal process. The representation 

will be required only one time rather 

than continuously throughout contract 

performance. The provision will not be 

included in the annual representations 

and certifications. 

The solicitation provision at DFARS 

252.203–7005, entitled ‘‘Representation 

Relating to Compensation of Former 

DoD Officials,’’ is a representation that 

all of the offeror’s employees who are 

former DoD officials are in compliance 

with the post-employment restrictions 

at 18 U.S.C. 207, 41 U.S.C. 2101–2107, 

and 5 CFR parts 2637 and 2641, as well 

as FAR 3.104–2. 

II. Discussion and Analysis of the 

Public Comments 

DoD reviewed the public comments 

received in response to the proposed 

rule in the formation of the final rule. 

A discussion of the comments and the 

changes made to the rule as a result of 

those comments follows. 

A. Contractor Compliance 

Responsibility 

Comment: Two respondents noted 

that compliance with ethics rules is the 

responsibility of the covered officials, 

not the contractor employing them. 

According to the respondents, although 

contractors instruct and train employees 

to observe all post-government 

employment restrictions, contractors 

have no official compliance 

responsibility regarding employees’ 

post-government employment 

restrictions. 

Response: FAR subpart 3.10, entitled 

‘‘Contractor Code of Business Ethics and 

Conduct,’’ requires, among other things, 

that contractors exercise due diligence 

to prevent and detect criminal conduct 

and otherwise promote an 

organizational culture that encourages 

ethical conduct and a commitment to 

compliance with the law. Contractors 

must also timely disclose to the 

Government any credible evidence of a 

violation of criminal law, which would 

include, for example, a violation of 18 

U.S.C. 207 (post-Government 

employment restrictions). Accordingly, 

contractors, as employers of covered 

officials, have an affirmative compliance 

responsibility regarding employees’ 


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