1
DoD 4161.2-M, December 1991

2 FOREWORD
TABLE OF CONTENTS

Page

FOREWORD 2

 

TABLE OF CONTENTS 3

 

REFERENCES 5

 

DEFINITIONS 6

 

ABBREVIATIONS AND/OR ACRONYMS 18

 

CHAPTER 1 - GENERAL INFORMATION 20

 

 C1.1. PURPOSE OF MANUAL 20

 C1.2. OBJECTIVES OF PROPERTY ADMINISTRATION 21

 C1.3. DUTIES AND RESPONSIBILITIES OF THE PROPERTY

 ADMINISTRATOR

22

 C1.4. PROPERTY ADMINISTRATOR ROLE IN THE CONTRACT

 ADMINISTRATION MISSION

24

 C1.5. APPOINTMENT OF PROPERTY ADMINISTRATORS 24

 

CHAPTER 2 - CONTRACTUAL ELEMENTS OF THE PROPERTY ADMINISTRATION

 PROCESS

25

 

 C2.1. INTRODUCTION 25

 C2.2. INITIATION OF PROPERTY ADMINISTRATION 26

 C2.3. ADMINISTRATION OF PROPERTY-RELATED CONTRACT PROVISIONS 28

 C2.4. TITLE TO GOVERNMENT PROPERTY 28

 C2.5. LIABILITY FOR LOSS, DAMAGE, OR DESTRUCTION OF

 GOVERNMENT PROPERTY

30

 C2.6. OTHER CONTRACTUAL ACTIONS 36

 C2.7. CLOSEOUT OF PROPERTY ADMINISTRATION 36

 

CHAPTER 3 - TECHNICAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS 39

 

 C3.1. SCOPE 39

 C3.2. GENERAL 39

 C3.3. POLICY ON PROVIDING GOVERNMENT PROPERTY 41

 C3.4. CONTRACTOR MANAGEMENT OF GOVERNMENT PROPERTY 43

 C3.5. ACQUISITION OF GOVERNMENT PROPERTY 44

 C3.6. RECEIPT OF GOVERNMENT PROPERTY 52

 C3.7. IDENTIFICATION OF GOVERNMENT PROPERTY 56

 C3.8. RECORDS OF GOVERNMENT PROPERTY 56

DoD 4161.2-M, December 1991

3 TABLE OF CONTENTS
 C3.9. MOVEMENT OF GOVERNMENT 58

 C3.10. STORAGE OF GOVERNMENT PROPERTY 59

 C3.11. PHYSICAL INVENTORIES OF GOVERNMENT PROPERTY 60

 C3.12. REPORTS OF GOVERNMENT PROPERTY 65

 C3.13. CONSUMPTION OF MATERIALS 69

 C3.14. UTILIZATION OF GOVERNMENT PROPERTY 70

 C3.15. MAINTENANCE OF GOVERNMENT PROPERTY 74

 C3.16. SUBCONTRACTOR AND ALTERNATE LOCATION PROPERTY MANAGEMENT 77

 C3.17. DISPOSITION OF GOVERNMENT PROPERTY 86

 C3.18. CLOSURE OF CONTRACTS FOR PROPERTY ADMINISTRATION 87

 C3.19. INFORMATION REQUIREMENTS 88

 

CHAPTER 4 - SYSTEMS ANALYSIS ELEMENTS OF THE PROPERTY ADMINISTRATION

 PROCESS

89

 

 C4.1. PROPERTY CONTROL SYSTEM ANALYSES 89

 C4.2. SAMPLING 100

 C4.3. SYSTEM ANALYSIS TECHNIQUES BY PROPERTY FUNCTION 105

 

CHAPTER 5 - SPECIAL TOPICS RELATED TO THE PROPERTY ADMINISTRATION

 PROCESS

115

 

 C5.1. PROPERTY ADMINISTRATOR SUPPORT TO PROGRAM MANAGERS AND

 LOGISTICS PERSONNEL

115

 C5.2. MANAGEMENT CONTROL ACTIVITY 116

 C5.3. MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM (MMAS) 118

 C5.4. PROGRESS PAYMENTS INVENTORY 120

 C5.5. ADMINISTRATION OF SPECIAL TOOLING CLAUSE PROVISIONS 121

 C5.6. AUTOMATED DATA PROCESSING EQUIPMENT 123

 C5.7. GOVERNMENT-OWNED REUSABLE CONTAINERS 125

 C5.8. SENSITIVE PROPERTY 126

 C5.9. PROPERTY AT NON-PROFIT CONTRACTORS 129

 C5.10. MILITARY STANDARDS REQUISITION AND ISSUE PROCEDURES 131

 C5.11. NASA PROPERTY 133

 

APPENDICES

 

 AP1. FUNCTIONS, FUNCTIONAL SEGMENTS, AND CRITERIA 137

 AP2. DOUBLE SAMPLING PLAN 148

 AP3. TABLE OF RANDOM NUMBERS 149

 AP4. CONSUMPTIONS ANALYSIS WORKSHEET AND INSTRUCTIONS 156

 AP5. INSTRUCTION FOR THE USE, COMPLETION, AND DISTRIBUTION OF DD

 FORM 1149, "REQUISITION AND INVOICE/SHIPPING DOCUMENT"

163

 

DoD 4161.2-M, December 1991

4 TABLE OF CONTENTS
REFERENCES

(a) Federal Acquisition Regulation (FAR), December 1990

(b) Department of Defense Federal Acquisition Regulation Supplement (DFARS), 

November 1988

(c) Joint Service Regulation, AR 55-38, NAVSUPINST 4610.33C, AFR 75-18, MCO 

P4610-19D, and DLAR 4500.15, "Reporting of Transportation Discrepancies in 

Shipment," April 15, 1985

(d) Joint Service Regulation, DLAR 4140.55, AR 735-11-2, SECNAVINST 4355.18, 

AFR 400-54, MCO 4430-3E, "Reporting of Item and Packaging Discrepancies," 

October 1, 1986

(e) DLAH 4105.4, "DoD Directory of Contract Administration Services Components," 

July 1990

(f) DoD Instruction 4140.48, "Control and Access to DoD Material Inventories 

Required by Defense Contracts," March 6, 1984

(g) DoD 7950.1-M, "Defense Automation Resources Management Manual," September 

1988

(h) DoD 5100.76-M, "Physical Security of Sensitive Conventional Arms, Ammunition 

and Explosives at Contractor Facilities," February 1983

(i) DoD 4145.26-M, "Contractor's Safety Manual for Ammunition and Explosives," 

March 1986

(j) DoD 4000.25-1-M, "Military Standard Requisition and Issue Procedures," May 1, 

1987

(k) National Aeronautics and Space Administration Federal Acquisition Regulation 

Supplement

DoD 4161.2-M, December 1991

5 REFERENCES
DL1. DEFINITIONS

DL1.1.1. ACCESSORY ITEM. See FAR 45.501.

DL1.1.2. ACQUISITION. See FAR 2.1.

DL1.1.3. AGENCY. See FAR 9.403.

DL1.1.4. AGENCY-PECULIAR PROPERTY. See FAR 45.301.

DL1.1.5. ALTERNATE LOCATION. Another location of the prime contractor 

differing from its primary place of performance either geographically or 

organizationally.

DL1.1.6. ARMS, AMMUNITION, AND EXPLOSIVES. See DFARS 223.7001.

DL1.1.7. ASSIST WORK AUTHORIZATION. See Interorganization Transfer.

DL1.1.8. AUTOMATIC DATA PROCESSING EQUIPMENT. See FAR 31.001.

DL1.1.9. AUXILLARY ITEM. See FAR 45.501.

DL1.1.10. AWARD FEE. See FAR 16.404-2.

DL1.1.11. BAILMENT. A delivery of Government property to a contractor for a 

specified purpose normally related to a prime contract. Bailed property is usually 

returned to the Government when no longer required by the contractor. Bailment does 

not include sale, donation, lease, the furnishing of property to a contractor under 

facilities contracts, or the furnishing of property for consumption or for incorporation 

in such a manner as to lose its identity in an end product delivered to the Government.

DL1.1.12. BAILMENT AGREEMENT. A contractual arrangement that 

accomplishes the actual bailment of Government property and contains all of the 

information concerning the bailment. Included are an adequate description of the 

property, the purpose of the bailment, use of the property, authorization for 

modifications that may be made to the property, the period of the bailment, the place 

from or to which the property is to be delivered or returned, maintenance requirement, 

if any, and any other provisions considered necessary.

DL1.1.13. BASIC ORDERING AGREEMENT. See FAR 16.703.

DoD 4161.2-M, December 1991

6 DEFINITIONS
DL1.1.14. BENCH STOCK. Low cost, high usage, non-sensitive consumable 

material issued to work areas for contract performance. Quantities of such stock shall 

not exceed that amount that would normally be consumed within a 30 day period, or as 

established in the contractor's approved property control system.

DL1.1.15. BILL OF MATERIAL. See DFARS 210.001.

DL1.1.16. BLANKET PURCHASE AGREEMENT. See FAR 13.201.

DL1.1.17. CAGE CODE. A unique number identifying the Commercial and 

Government Entity.

DL1.1.18. CALIBRATION. See DFARS 246.101.

DL1.1.19. CAPITAL TYPE REHABILITATION. Work that is clearly above and 

beyond normal recurring maintenance, such as major repairs, replacement, and 

rehabilitation of deteriorated property.

DL1.1.20. CHANGE ORDER. See FAR 43.101.

DL1.1.21. COMMON ITEM. See FAR 45.601.

DL1.1.22. CONFIDENCE LEVEL. A measure of how well the sample represents 

the status of a lot. A 90 percent confidence level means that a sample will be an 

accurate representation 90 out of a 100 times.

DL1.1.23. CONTRACT. See FAR 2.1.

DL1.1.24. CONTRACT ADMINISTRATION OFFICE. See FAR 2.1 and DFARS 

204.670-2.

DL1.1.25. CONTRACTING OFFICER. See FAR 2.1.

DL1.1.26. CONTRACTOR. See FAR 9.403 and 44.100.

DL1.1.27. CONTRACTOR-ACQUIRED MATERIAL. Material that is acquired for 

the Government by the contractor. Title is vested by the provisions contained in FAR 

52.245-2 or 52.245-5.

DL1.1.28. CONTRACTOR-ACQUIRED PROPERTY. See FAR 45.101.

DL1.1.29. CONTRACTOR INVENTORY. See FAR 45.601.

DoD 4161.2-M, December 1991

7 DEFINITIONS
DL1.1.30. CONTROLLED SUBSTANCES. See DFARS 245.601.

DL1.1.31. CORRECTIVE MAINTENANCE. Maintenance required to return 

property to such condition that it may be effectively utilized for its designated purpose.

DL1.1.32. COST CONTRACT. See FAR 16.302.

DL1.1.33. COST-PLUS-AWARD-FEE CONTRACT. See FAR 16.404-2.

DL1.1.34. COST-PLUS-FIXED-FEE CONTRACT. See FAR 16.306.

DL1.1.35. COST-PLUS-INCENTIVE-FEE CONTRACT. See FAR 16.404- 1.

DL1.1.36. COST REIMBURSEMENT CONTRACT. See FAR 16.301-1.

DL1.1.37. CRITERION. An evaluative item of a property system function subject 

to analysis by the appropriate method.

DL1.1.38. CUSTODIAL RECORDS. See FAR 45.501.

DL1.1.39. DEFECT. A condition in which a functional segment, a sample item or 

sample item element of a contractor's property control system contains one or more 

deficiencies.

DL1.1.40. DEMILITARIZATION. See DFARS 245.601.

DL1.1.41. DISCREPANCIES INCIDENT TO SHIPMENT. See FAR 45.501.

DL1.1.42. DoDAAC. Department of Defense Address Activity Code. A unique 

number incorporated into a MILSTRIP document number, used by any activity 

requisitioning through the DoD supply system.

DL1.1.43. DoDAAD. Department of Defense Address Activity Directory. A 

listing of DoDAACs.

DL1.1.44. ELEMENT DEFECT. A single sample item element of data that is 

either erroneous or omitted as part of a criterion.

DL1.1.45. ENCOURAGE. See Qualifiers.

DL1.1.46. EXCESS PROPERTY. Property no longer required in the performance 

of the contract for which it was acquired.

DoD 4161.2-M, December 1991

8 DEFINITIONS
DL1.1.47. FACILITIES. See FAR 45.301.

DL1.1.48. FACILITIES CONTRACT. See FAR 45.301.

DL1.1.49. FIRM-FIXED-PRICE CONTRACT. See FAR 16.202.

DL1.1.50. FIXED-PRICE-INCENTIVE CONTRACT. See FAR 16.403.

DL1.1.51. GOVERNMENT-FURNISHED MATERIAL. Material owned by the 

Government and furnished to a contractor for utilization for specific contract 

purposes. Title to all material furnished by the Government will remain in the 

Government.

DL1.1.52. GOVERNMENT-FURNISHED PROPERTY. See FAR 45.101.

DL1.1.53. GOVERNMENT PROPERTY. See FAR 45.101.

DL1.1.54. HAZARDOUS MATERIAL. Any used or unused personal property, 

including scrap and waste, that is ignitable, corrosive, reactive, or toxic because of its 

quantity, concentration, or physical, chemical, or infectious characteristics. The 

property can be in a solid, liquid, semi-liquid, or contained gas form and may cause or 

significantly contribute to an increase in mortality or serious illness, or pose a 

substantial present or potential hazard to human health or the environment when 

improperly treated, stored, transported, disposed of, or otherwise managed.

DL1.1.55. HAZARDOUS WASTE. Any used or unused hazardous material that has 

no known utility and, therefore, must be discarded. This includes hazardous material 

not otherwise disposed of through plant clearance that the contractor has been 

authorized by the Plant Clearance Officer to dispose of as a hazardous waste.

DL1.1.56. INDIVIDUAL ITEM RECORD. See FAR 45.501.

DL1.1.57. INDUSTRIAL PLANT EQUIPMENT. See DFARS 245.301.

DL1.1.58. INDUSTRIAL PREPAREDNESS PLANNING. See DFARS 208.0-3.

DL1.1.59. INSPECTION. See FAR 45.101.

DL1.1.60. INTERDIVISIONAL WORK AUTHORIZATION. See 

Interorganizational Transfer.

DoD 4161.2-M, December 1991

9 DEFINITIONS
DL1.1.61. INTERORGANIZATIONAL TRANSFER (IOT). Those materials, 

supplies, and services that are, or will be, transferred to a performing division from 

other divisions, subsidiaries, or affiliates under the control of the same parent entity as 

the performing division. IOTs are also referred to as Interdivisional Work 

Authorization (IDWA) or Assist Work Authorization (AWA).

DL1.1.62. INVENTORY CONTROL POINT. An organizational unit or activity 

within the DoD supply system that is assigned primary responsibility for material 

management for a group of items, either for a particular service or for the Department 

of Defense as a whole. Material management includes cataloging direction, requisition 

computation, procurement direction, distribution management, disposal direction, and 

generally rebuild direction.

DL1.1.63. ITEM DEFECT. A reviewed sample item containing single or multiple 

element discrepancies having significant impact.

DL1.1.64. ITEM MANAGER. An individual within the organization of an inventory 

control point or other such organization assigned the management responsibility for one 

or more specific items of material.

DL1.1.65. JUDGMENT SAMPLING. The process by which a number of items or 

areas are selected from the population for analysis without meeting the random 

selection and sample size criteria in Appendix 4.

DL1.1.66. LACK OF GOOD FAITH. Failure to honestly carry out a duty including 

gross neglect or disregard of the terms of the Government property clause or of 

appropriate directions from the Property Administrator (PA).

DL1.1.67. LEASE. Grant or rights by a lessor to a lessee to possess and use real 

or personal property for a period of time in exchange for rent or other consideration.

DL1.1.68. LINE ITEM. See FAR 45.601.

DL1.1.69. LOT. An aggregation of documents, records, articles, or actions 

selected for review due to common characteristics. Also referred to as universe or 

population. For evaluation of the lot, all characteristics for which a lot is tested must 

be common to all units within the lot.

DoD 4161.2-M, December 1991

10 DEFINITIONS
DL1.1.70. MANAGEMENT CONTROL ACTIVITY. DoD Component-designated 

activity that initially receives and controls requisitions for Government-furnished 

material supplied from the wholesale DoD supply system to support defense contracts 

or requirements.

DL1.1.71. MANAGERIAL PERSONNEL. Includes the contractor's directors, 

officers, and any of the contractor's managers, superintendents, or equivalent 

representatives who have supervision or direction of all or substantially all of the 

contractor's business, all or substantially all of the contractor's operation at any one 

plant or separate location at which the contract is being performed, or a separate and 

complete major industrial operation connected with performing the contract.

DL1.1.72. MASTER GOVERNMENT-FURNISHED EQUIPMENT LIST. A listing 

of Government-furnished equipment to be furnished a contractor in support of a 

particular weapon system. The listing identifies Government-furnished equipment by 

quantity and nomenclature for the production of one fully configured fly away aircraft. 

The listings are developed each fiscal year, through Government and/or Contractor 

negotiations, and are specific to a type, model, and series of production aircraft.

DL1.1.73. MATERIAL. See FAR 45.301.

DL1.1.74. MATERIAL REQUIREMENTS LIST. A type of bill of material used in 

material requirements planning systems.

DL1.1.75. MATERIAL REQUIREMENTS PLANNING. A purchasing system that 

provides for the efficient acquisition of materials by analyzing, timing, and combining 

purchases required for all work performed by a contractor.

DL1.1.76. MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM. See 

DFARS 242.7202 and 242.7203.

DL1.1.77. MAY. See FAR 2.101.

DL1.1.78. MILITARY STANDARD REQUISITIONING AND ISSUE PROCEDURE.

 A requisitioning and issue procedure for use by the Military Departments and 

contractors authorized by the terms of a contract to requisition or move Government 

material to supply control cognizance. MILSTRIP is a system with uniform codes and 

punchcard formats designed to provide standard procedures of requisitioning, receiving, 

and returning Government material and to permit the maximum use of automatic data 

processing equipment.

DoD 4161.2-M, December 1991

11 DEFINITIONS
DL1.1.79. MIN-MAX. A system of maintaining stock control levels of material by 

establishing maximum stock levels and minimum reorder points, determined by the 

contractor based on production schedule requirements plus pipeline time.

DL1.1.80. NATIONAL STOCK NUMBER. A thirteen-digit catalog code 

consisting of a four-digit Federal supply class code and a nine-digit national item 

identification number.

DL1.1.81. NONSEVERABLE. See FAR 45.301.

DL1.1.82. OFF-THE-SHELF ITEM. See FAR 46.101.

DL1.1.83. OPERATOR MAINTENANCE. Maintenance tasks of a minor nature, 

including preventive maintenance, performed by equipment operators at the most 

convenient time; i.e., before, during, and after operations.

DL1.1.84. OTHER PLANT EQUIPMENT. See DFARS 245.301.

DL1.1.85. PLANT CLEARANCE. See FAR 45.601.

DL1.1.86. PLANT CLEARANCE OFFICER. See FAR 45.601.

DL1.1.87. PLANT EQUIPMENT. See FAR 45.101.

DL1.1.88. POPULATION. An aggregation of documents, records, assets, or 

actions selected for review due to common characteristics. See Lot.

DL1.1.89. PRE-AWARD SURVEY. See FAR 9.101.

DL1.1.90. PRECIOUS METALS. See FAR 45.601.

DL1.1.91. PREVENTIVE MAINTENANCE. See FAR 45.509-1(b).

DL1.1.92. PRIME CONTRACTOR. See DFARS 246.770.1.

DL1.1.93. PRIVITY OF CONTRACT. The contractual relationship that exists 

between two parties; i.e., Government and prime contractor, or prime contractor and 

subcontractor.

DL1.1.94. PROCEDURES. A detailed written description of the contractor's 

operation for the control, use, and care of property while in the contractor's 

possession. It should identify individuals or components of the contractor's 

DoD 4161.2-M, December 1991

12 DEFINITIONS
organization having specified and delineated functions and authorities for property 

management, precisely what must be done by whom. It should provide coverage for 

each element of control that applies to the type and use of the property provided under 

the contract. Suspense controls should exist for time-phased obligations, submission 

of reports, time-scheduled maintenance, and/or physical inventory.

DL1.1.95. PRODUCTION SCRAP. See DFARS 245.601.

DL1.1.96. PRODUCTION SPECIAL TEST EQUIPMENT. See DFARS 215.873.

DL1.1.97. PRODUCTION SPECIAL TOOLING. See DFARS 215.873.

DL1.1.98. PROGRESS PAYMENT INVENTORY. That property acquired by the 

contractor to which the Government has a vested interest solely through FAR 

52.232-16, the Progress Payment Clause provisions.

DL1.1.99. PROPERTY. See FAR 45.101.

DL1.1.100. PROPERTY ADMINISTRATOR. See FAR 45.501.

DL1.1.101. PROPERTY CONTROL SYSTEM. The system that identifies a 

contractor's internal management program encompassing the protection, preservation, 

accounting for, and control of property from its acquisition through disposition.

DL1.1.102. PROPERTY RECORDS. Records that are construed to include all 

documents reflecting the status of property and are not restricted to stock record cards 

or other forms used as an inventory record.

DL1.1.103. PROPERTY SYSTEM FUNCTION. A major portion of a contractor's 

property control system; e.g., property management, acquisition, receiving, 

identification, records, movement, storage, physical inventories, reports, consumption, 

utilization, maintenance, subcontractor and/or alternate location control, disposition, and 

contract close out.

DL1.1.104. PROPERTY SYSTEM FUNCTIONAL SEGMENT. A portion of a 

property system function of property control that may be separately identified and 

contains similar properties, procedures, and conditions of control that can be isolated 

for purpose of analysis.

DoD 4161.2-M, December 1991

13 DEFINITIONS
DL1.1.105. PURPOSEFUL SAMPLING. The process by which known, suspected, 

or reported conditions of a critical or substantial nature are used to select areas, items, 

or actions for review to determine the possible adverse systemic impact. It is closely 

related to judgment sampling in that a purely random sample is not drawn.

DL1.1.106. QUALIFIERS

DL1.1.106.1. ENCOURAGED. Used where it is recommended an action be 

taken but not imperative. Factors affecting whether the action is to be taken or not may 

include:

DL1.1.106.1.1. PA is not in residence.

DL1.1.106.1.2. Time constraints or workload.

DL1.1.106.1.3. Non-applicability of the item being reviewed.

DL1.1.106.2. MAY. See FAR 2.101.

DL1.1.106.3. SHALL. See FAR 2.101.

DL1.1.107. QUALITY ASSURANCE REPRESENTATIVE. See DLAH 8200.1, AR 

7002-4-1, AFP 74-17.

DL1.1.108. REAL PROPERTY. See FAR 45.101.

DL1.1.109. REPAIRABLE ITEM. An unserviceable item that can be reconditioned 

or economically repaired for reuse.

DL1.1.110. RESIDUAL VALUE. See FAR 31.001.

DL1.1.111. RISK. A measure of those instances where a sample will not be an 

accurate representation of the lot. For example, a sampling plan having a 90 percent 

confidence level means that a sample will not be an accurate representation of the lot 

10 out of 100 times.

DL1.1.112. RISK OF LOSS. Liability or responsibility for bearing the cost of 

loss, damage, or destruction of Government property.

DL1.1.113. SALVAGE. See FAR 45.501.

DoD 4161.2-M, December 1991

14 DEFINITIONS
DL1.1.114. SAMPLE. A number of items; e.g., documents, records, articles, or 

actions, selected from a lot for a review in order to draw inferences regarding and 

generalizable to the status of the lot.

DL1.1.115. SAMPLE ITEM. A single document, record, article or action from the 

sample.

DL1.1.116. SAMPLE ITEM ELEMENT. A single element from a sample item 

subject to evaluation; e.g., name or nomenclature, description, National Stock Number, 

quantity received, quantity issued, balance on hand, etc.

DL1.1.117. SCRAP. See FAR 45.501.

DL1.1.118. SELF INSURANCE. See FAR 31.001.

DL1.1.119. SENSITIVE. Property for which the theft, loss, or misplacement could 

be potentially dangerous to the public safety or community security, and which must be 

subject to exceptional physical security, protection, control, and accountability. The 

following types of property should be designated as "sensitive" in the contractor's 

property management system:

DL1.1.119.1. Weapons such as carbines, grenade launchers, rocket launchers, 

machine-guns, pistols, recoilless weapons, revolvers, rifles, or shotguns.

DL1.1.119.2. Ammunition for the above weapons.

DL1.1.119.3. Explosives including demolition material; e.g., detonators, 

charges, blasting caps, firing devices, fuses, primers, timers, grenades, mines (hand 

placed), and explosive waste developed from the manufacture of the foregoing.

DL1.1.119.4. Narcotics and dangerous drugs.

DL1.1.119.5. Radioactive Material. Any item or material that is, in itself, 

radioactive or that is contaminated with radioactive material giving readings in excess of 

background radiation as measured on an instrument designed specifically for the type of 

radiation being emitted.

DL1.1.119.6. Hazardous Material. Any used or unused personal property, 

including scrap and waste, that is ignitable, corrosive, reactive, or toxic because of its 

quantity, concentration, or physical, chemical, or infectious characteristics. The 

property can be in a solid, liquid, semi-liquid, or contained gas form and may cause or 

DoD 4161.2-M, December 1991

15 DEFINITIONS
significantly contribute to an increase in mortality or serious illness, or pose a 

substantial present or potential hazard to human health or the environment when 

improperly treated, stored, transported, disposed of, or otherwise managed.

DL1.1.119.7. Hazardous Waste. Any material that is a solid waste, as defined 

under the Resource Conservation and Recovery Act (RCRA), and has also been 

classified as hazardous in conformity with the provisions of RCRA. The Environmental 

Protection Agency (EPA) criteria for hazardous waste classification are specified in 40 

CFR 261 and will be used to decide whether to deal with a solid waste as hazardous. 

Also, EPA-approved State hazardous waste programs may identify additional solid 

wastes as hazardous. These State designations will also be complied with.

DL1.1.119.8. Precious Metals. Uncommon and highly valuable metals 

characterized by their superior resistance to corrosion and oxidation.

DL1.1.119.9. Any other item designated by a Defense Agency to be sensitive.

DL1.1.120. SERVICEABLE OR USABLE PROPERTY. See FAR 45.601 and 

DFARS 245.601.

DL1.1.121. SHALL. See Qualifiers. See FAR 2.101.

DL1.1.122. SOURCE DOCUMENT. A document that serves as a basis for posting 

information to the records of property to provide an auditable record of all transactions, 

evidencing acquisition, receipt, consumption, utilization, maintenance, physical 

inventory, and disposition; e.g., purchase or fabrication order, receiving report, stores 

requisition, record of equipment usage, record of maintenance performed, inventory 

ticket, and shipping documentation.

DL1.1.123. SPECIAL TEST EQUIPMENT. See FAR 45.101.

DL1.1.124. SPECIAL TOOLING. See FAR 45.101.

DL1.1.125. STATISTICAL SAMPLING. A technique by which evaluation of 

attributes or transactions, or facts or conditions obtained from randomly selected 

samples forms the basis for determining the degree to which an entire lot conforms to 

standards.

DL1.1.126. STOCK RECORD. See FAR 45.501.

DL1.1.127. STRATIFICATION. A method of establishing a dollar threshold for 

the purpose of physical inventory of material; e.g., material under $25.00, items 

DoD 4161.2-M, December 1991

16 DEFINITIONS
between $25.01 and $99.99, and all items $100 and above as the upper and lower limits 

by which property is stratified.

DL1.1.128. SUBCONTRACT. See FAR 44.101.

DL1.1.129. SUBCONTRACTOR. See FAR 44.101.

DL1.1.130. SUPPLIES. See FAR 2.101.

DL1.1.131. SUPPORTING PROPERTY ADMINISTRATION. Performance of 

specific property administration functions by another Contract Administration Office 

(CAO) as requested by the assigned CAO, or the contracting office retaining contract 

administration responsibility.

DL1.1.132. SURPLUS PROPERTY. See FAR 45.601.

DL1.1.133. SYSTEM ANALYSIS. An analysis of all applicable functions of a 

contractor's property control system for the purpose of obtaining overall knowledge of 

the contractor's performance in complying with the approved property control system 

and contractual obligations as they pertain to property.

DL1.1.134. SYSTEMIC. Pertaining to, affecting, or found throughout a 

contractor's overall property control system.

DL1.1.135. TERMINATION INVENTORY. See FAR 45.601.

DL1.1.136. TIME-AND-MATERIALS CONTRACT. See FAR 16.601.

DL1.1.137. UNALLOWABLE COST. See FAR 31.001.

DL1.1.138. WILLFUL MISCONDUCT. Either a deliberate act or failure to act 

that causes or results in Loss, Damage or Destruction to Government property.

DL1.1.139. WORK-IN-PROCESS. See FAR 45.501.

DoD 4161.2-M, December 1991

17 DEFINITIONS
AL1. ABBREVIATIONS AND/OR ACRONYMS

AL1.1. AA&E Arms, Ammunition, and Explosives

AL1.2. ACO Administrative Contracting Officer

AL1.3. ADPE Automated Data Processing Equipment

AL1.4. APP Agency-Peculiar Property

AL1.5. ASBCA Armed Services Board of Contract Appeals

AL1.6. AWA Assist Work Authorization

AL1.7. CAM Contractor-Acquired Material

AL1.8. CAO Contract Administrative Office

AL1.9. CAP Contractor-Acquired Property

AL1.10. CNA Certificate of Non-Availability

AL1.11. CO Contracting Officer

AL1.12. CRAG Contractor Risk Assessment Guide Program

AL1.13. CRE Centrally Reportable Equipment

AL1.14. CTR Capital Type Rehabilitation

AL1.15. DARIC Defense Automation Resources Information Center

AL1.16. DFARS DoD Federal Acquisition Regulation Supplement

AL1.17. DIPEC Defense Industrial Plant Equipment Center

AL1.18. DIS Defense Investigative Service

AL1.19. DoD Department of Defense

AL1.20. DoDAAC DoD Activity Address Code

AL1.21. DoDAAD DoD Activity Address Directory

AL1.22. FAR Federal Acquisition Regulation

AL1.23. FBI Federal Bureau of Investigation

AL1.24. FFP Firm-Fixed Price

AL1.25. FIFO First-in, First-out

AL1.26. FPI Fixed-Price Incentive

AL1.27. FSC Federal Supply Class

AL1.28. GAO General Accounting Office

AL1.29. GBL Government Bill of Lading

AL1.30. GCAHB Grant and Cooperative Agreement Handbook

AL1.31. GFM Government-Furnished Material

AL1.32. GFP Government-Furnished Property

AL1.33. GP Government Property

AL1.34. GSA General Services Administration

DoD 4161.2-M, December 1991

18 ABBREVIATIONS AND/OR ACRONYMS
AL1.35. IDWA Inter-Divisional Work Authorization

AL1.36. IG Inspector General

AL1.37. IPE Industrial Plant Equipment

AL1.38. IPMS Industrial Property Management Specialist

AL1.39. IOT Inter-Organizational Transfer

AL1.40. LDD Loss, Damage, and Destruction

AL1.41. MCA Management Control Activity

AL1.42. MDR Material Deficiency Report

AL1.43. MGFEL Master Government-Furnished Equipment List

AL1.44. MMAS Material Management and Accounting System

AL1.45. MILSTRIP Military Standard Requisitioning and Issue Procedure

AL1.46. NASA National Aeronautics and Space Administration

AL1.47. NEMS NASA Equipment Management System

AL1.48. NEVS NASA Equipment Visibility System

AL1.49. NFS NASA FAR Supplement

AL1.50. OM Operator Maintenance

AL1.51. O&R Overhaul and Repair

AL1.52. OMR Overhaul, Maintenance, and Repair

AL1.53. OPE Other Plant Equipment

AL1.54. OSD Office of the Secretary of Defense

AL1.55. PA Property Administrator

AL1.56. PCO Procuring Contracting Officer

AL1.57. PE Plant Equipment

AL1.58. PEP Plant Equipment Package

AL1.59. PLCO Plant Clearance Officer

AL1.60. PM Preventive Maintenance

AL1.61. PO Purchase Order

AL1.62. PR Purchase Request

AL1.63. QAR Quality Assurance Representative

AL1.64. QDR Quality Deficiency Report

AL1.65. R&D Research and Development

AL1.66. RoD Report of Discrepancy

AL1.67. RTTST Right to Title Special Tooling

AL1.68. SPA Support Property Administration

AL1.69. ST Special Tooling

AL1.70. STE Special Test Equipment

AL1.71. TDR Transportation Discrepancy Report

DoD 4161.2-M, December 1991

19 ABBREVIATIONS AND/OR ACRONYMS
C1. CHAPTER 1

GENERAL INFORMATION

C1.1. PURPOSE

C1.1.1. This Manual sets forth instructions to ensure uniformity and consistency in 

the administration of contract provisions relating to Government property in the 

possession of contractors. It also provides direction for Property Administrators (PAs) 

to perform other specific responsibilities. This Manual is applicable to all DoD 

personnel having responsibilities in this area. It prescribes procedures and techniques 

to:

C1.1.1.1. Meet management data requirements of the Government.

C1.1.1.2. Ensure performance of property management to protect the 

interests of the Government at minimum cost through a uniform DoD contract property 

administration program.

C1.1.2. The scope of the program shall be determined by the complexity of the 

contractor's property control system, the amount of Government property, and other 

conditions revealed by review of the contracts and correlation of their provisions with 

the property control system.

C1.1.3. Management of Government property must be based on the objective of 

maximizing return on investment in property. It must consider the types and amounts of 

property, program criticality, an assessment of areas of greatest risk to the Government, 

and past contractor performance. It must also minimize the administrative burden for 

the Government and contractor. Use of commercially established property management 

practices are encouraged unless they are in conflict with contractual requirements or 

create an unacceptable risk to the Government.

C1.1.4. It is the Government's policy to rely upon Government contractors to be 

accountable for and maintain official records of Government property in their 

possession. Contractor records are essential for contract property management. 

Maintenance of duplicate records by the Government is discouraged as it is costly and 

creates significant administrative burden for both the Government and contractor to 

reconcile records. The efficacy of contractor records and other aspects of contractor 

property control systems will be reviewed through Government-conducted property 

system analyses with augmentation by contractor audit personnel when determined 

DoD 4161.2-M, December 1991

20 CHAPTER 1
appropriate by the Government. The PA is responsible for the adequacy of these 

Government reviews. The extent of documentation needed is to be determined by the 

PA as long as it can be demonstrated that evaluation methods are effective in identifying 

and resolving significant problems. System analyses documentation is secondary in 

importance to the quality of technical aspects of the reviews. PAs are cautioned to 

avoid compromise of other responsibilities for the sake of cosmetic improvements in 

systems analyses documentation.

C1.1.5. It is the Government's objective to clearly establish contractor 

requirements for management of Government property. The Government encourages 

contractor internal audits and systems analyses to identify the need for and to 

implement improved property management practices. The PA shall consider the extent 

and effectiveness of these reviews in determining the extent of Government review.

C1.1.6. All facets of Government property management require the highest degree 

of ethical standards to be applied by both Government and contractor personnel. 

Contractors are encouraged to develop and implement policies and procedures 

addressing ethics in Government property management. Questionable and unethical 

property practices must be immediately reported through appropriate management levels 

and disciplinary action taken.

C1.1.7. The primary responsibility of the PA is to administer the provisions of 

Government contracts that deal with Government property. As such, Government 

property personnel must also emphasize providing support and assistance to contracting 

officers, program offices and logisticians, as well as direction to contractors.

C1.2. OBJECTIVES OF PROPERTY ADMINISTRATION

The primary objective of the property administration function is to attain efficient, 

economic, and uniform management of all Government property required for the 

performance of contracts. The function is mainly to administer the terms of contract 

provisions that specify the contractor's obligations to acquire, control, use, care for, 

report, and dispose of Government property, and to advise contracting activities and 

other DoD officials of the known level of efficiency of the contractor's management of 

Government property.

DoD 4161.2-M, December 1991

21 CHAPTER 1
C1.3. DUTIES AND RESPONSIBILITIES OF THE PROPERTY ADMINISTRATOR

The PA shall be responsible for:

C1.3.1. Administering contract provisions, requirements, and obligations relating to 

Government property in the possession of contractors. General clauses include the 

FAR 52.245 clauses.

C1.3.2. Participating in pre-award surveys and post-award reviews.

C1.3.3. Reviewing contracts assigned for property administration to assure that 

property is identified in the contract and that general and special contract provisions 

dealing with property are included, when applicable.

C1.3.4. Ensuring that contractor property organizations are aware of and understand 

applicable provisions of Government contracts dealing with property including FAR 

45.5.

C1.3.5. Establishing contract property control data files.

C1.3.6. Providing the contractor officer with recommendations concerning liability 

for loss, damage, or destruction (LDD) of property on the basis of contract terms and 

conditions.

C1.3.7. Granting relief of responsibility for LDD of Government property on the 

basis of contract terms and conditions when authorized through the PA's certificate of 

appointment.

C1.3.8. Performing functions as prescribed by FAR 45.5.

C1.3.9. Developing and applying a property systems analysis program to assess the 

effectiveness of contractor Government property management systems.

C1.3.10. Evaluating the contractor's property management system; approving the 

system or recommending disapproval where systems create an unacceptable risk of loss, 

damage, or destruction of property.

C1.3.11. Advising the Contracting Officer (CO) and other affected Government 

managers regarding the contractor's noncompliance with approved procedures, 

contractual requirements, and other significant problem areas.

DoD 4161.2-M, December 1991

22 CHAPTER 1
C1.3.12. Notifying the CO in the event of excessive acquisition by the contractor 

and recommending cost disallowance, or other appropriate remedy.

C1.3.13. Performing program or Agency-oriented reviews of property acquisition, 

control, management, use, and disposition as dictated by contracting conditions where 

applicable.

C1.3.14. Supporting and assisting contractor's management, contracting officers, 

program managers, and other functions in resolution of property administration matters.

C1.3.15. Reviewing Government-furnished material for receipt and reconciliation 

in accordance with FAR 45.5 and the reports provided by the Management Control 

Activity (MCA) in accordance with DoD Instruction 4140.48.

C1.3.16. Providing guidance, counsel, and direction to Government and contractor 

managers and technicians related to regulatory and contractual requirements for 

management of Government property.

C1.3.17. Ensuring that the contractor promptly reports excess Government 

property for disposition in accordance with contract provisions.

C1.3.18. Supporting the assigned Plant Clearance Officer to ensure prompt and 

proper disposition of contractor inventory.

C1.3.19. Obtaining and reviewing contractually required reports of property for all 

assigned contracts.

C1.3.20. Preparing and submitting other reports prescribed by higher headquarters.

C1.3.21. Requesting supporting property administration.

C1.3.22. Performing supporting property administration.

C1.3.23. Recognizing the functions of other Government personnel having 

cognizance of property, and obtaining their assistance when required. (These functions 

include, but are not limited to, contract administration, plant clearance, contract audit, 

quality assurance, engineering, pricing, subcontracting, production, transportation, and 

other technical areas. Assistance and advice on matters involving analyses of the 

contractor's accounting records, financial aspects of contractor property reports, and on 

any other appropriate financial audit matters shall be obtained from the Defense 

Contract Audit Agency auditor, through the CO.)

DoD 4161.2-M, December 1991

23 CHAPTER 1
C1.4. PROPERTY ADMINISTRATOR ROLE IN THE CONTRACT ADMINISTRATION 

MISSION

The role of the PA is to support the contract administration function. The PA is an 

authorized representative of the CO regarding the contractual and technical aspects of 

Government property. The PA is part of the contract administration team that includes 

the CO, Price Analyst, Industrial Specialist, Transportation Specialist and Quality 

Assurance Representative (QAR). As a team member, the PA must establish effective 

communications with these other functional elements.

C1.5. APPOINTMENT OF PROPERTY ADMINISTRATORS

The PA acts on behalf of the CO and is appointed in writing by a "Certificate of 

Appointment" in accordance with Agency directions. Direction for appointment of PAs 

is provided in DFARS 245.7001. Specific procedures for appointment and the issuance 

of a certificate of appointment shall be established by the individual Agencies.

DoD 4161.2-M, December 1991

24 CHAPTER 1
C2. CHAPTER 2

CONTRACTUAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS

C2.1. INTRODUCTION

C2.1.1. PAs have a variety of responsibilities to ensure that Government property 

in the possession of Government contractors is properly managed. The most critical 

and basic of these responsibilities is the administration of specific contract provisions 

relating to Government property. Most other responsibilities, including property 

system analyses, are intended to support this primary responsibility.

C2.1.2. PAs are responsible for having a thorough understanding of all contract 

provisions pertaining to Government property. These include:

C2.1.2.1. The contract clauses in FAR 52.245 and DFARS 252.245, and other 

applicable clauses, as well as any special contract provisions.

C2.1.2.2. The requirements of FAR Part 45, DFARS 245, and as supplemented 

by agency-unique regulations.

C2.1.2.3. The PA is responsible for the enforcement of those provisions in 

the FAR, DFARS, and Agency supplements that are binding upon the contractor either 

through incorporation by reference of an appropriate Government property clause, or by 

direct incorporation in the contract.

C2.1.2.4. The Government property clauses at FAR 52.245-2, 52.245-5, and 

other clauses in FAR 52.245, are the most important for PAs to understand and properly 

administer. They establish the title, property control, risk of loss, and disposition 

provisions that generally apply to all Government property. Clauses, such as FAR 

52.232-16, 52.249-2, 52.249-6, 52.252-1, etc., may impact the control of other 

property accountable to Government contracts at various times. The PA shall be 

familiar with the implications of these clauses and their application where appropriate.

C2.1.2.5. PAs must be similarly familiar with special contract requirements 

relating to Government property. These include the amount of authorized 

Government-furnished property (GFP), contractor-acquired property (CAP) specified as 

a line item, authorized use of Military Standard Requisitioning and Issue Procedures 

(MILSTRIP) for ordering Government property, warranty provisions, and other special 

provisions.

DoD 4161.2-M, December 1991

25 CHAPTER 2
C2.2. INITIATION OF PROPERTY ADMINISTRATION

C2.2.1. Control of Assignments. The Contract Administration Office (CAO) shall 

establish and maintain a Contract Assignment Control Register, or automated equivalent, 

for each contractor, showing:

C2.2.1.1. Contractor's name and address.

C2.2.1.2. Procurement instrument identification (PII)(contract) number.

C2.2.1.3. Type of contract.

C2.2.1.4. Name of the assigned PA and date of assignment.

C2.2.1.5. Date of completion or rescission of the contract, or reassignment 

of the PA.

C2.2.2. Contract Review. The PA shall review each contract providing for 

Government property to estimate the property administration effort that must be 

applied. The analysis shall be sufficient to determine the types and amounts of 

Government property to be provided, the administrative effort required, and the 

management controls necessary for ensuring compliance with contract requirements and 

development of an appropriate property management plan.

C2.2.3. Establishment of Contract Property Control Data Files

C2.2.3.1. A Property Summary Data Record shall be established by the PA 

containing as a minimum the following information:

C2.2.3.1.1. Contractor's name and address.

C2.2.3.1.2. Contract number.

C2.2.3.1.3. Type of contract and applicable property clauses, including 

special or nonstandard clauses, pertaining to Government property.

C2.2.3.1.4. Date of final review and date of execution and transmittal of 

the DD Form 1593, "Contract Administration Completion Record," or automated 

equivalent.

C2.2.3.1.5. Supporting property administration assignments.

DoD 4161.2-M, December 1991

26 CHAPTER 2
C2.2.3.1.6. Name(s) of the PA(s).

C2.2.3.2. The PA shall establish a Contract Property Control Data File that 

shall include as a minimum:

C2.2.3.2.1. Property Summary Data Record.

C2.2.3.2.2. Copy of the contract or extract of provisions thereof 

pertinent to property administration, including modification(s) and change orders, 

relating to Government property, and comparable data regarding any subcontracts 

involving Government property.

C2.2.3.2.3. Record of property system analyses performed, deficiencies 

disclosed, and corrective actions taken.

C2.2.3.2.4. Record of final review and execution of the PA's statement of 

closure of the contract property account.

C2.2.3.2.5. Other pertinent correspondence and documents, including, as 

applicable, inventory adjustments, investigations, recommendations, and liability 

determinations.

C2.2.3.2.6. Records concerning supporting property administration 

delegations, assist actions involving special reviews, and other applicable reviews at 

subcontractor plants.

C2.2.3.2.7. Records of inspection and audits pertaining to the pertinent 

contract that are performed by other activities.

C2.2.3.2.8. Reports relating to Government property prepared by the 

contractor pursuant to the contracts.

C2.2.3.3. When a contractor is performing multiple Government contracts, 

records and other data relating to more than one contract shall be maintained in a 

general property management file for the contractor.

C2.2.3.4. In instances where an improper clause pertaining to Government 

property is incorporated within the contract, or the appropriate Government property 

clause is omitted, action shall be taken to resolve the matter with the CO; e.g., issue a 

"Contract Data Package Recommendation/Deficiency Report" (DD Form 1716) or letter.

DoD 4161.2-M, December 1991

27 CHAPTER 2
C2.2.3.5. Property reported to have been received by the contractor without 

contractual coverage shall be documented in a suspense file by the PA, pending 

investigation and resolution.

C2.2.3.6. When the PA determines that property is accountable to a contract 

but property administration has not been delegated, the PA shall determine if contract 

administration has been delegated. If contract administration has been delegated, the PA 

shall initiate property administration and establish a Property Control Data File, unless 

specifically excluded by the CAO delegation. Where contract administration has not 

been delegated, the PA shall coordinate with the CO for resolution.

C2.3. ADMINISTRATION OF PROPERTY RELATED CONTRACT PROVISIONS

The PA is directed to FAR 45.106 for discussion on the use of the various Government 

property clauses. The text of these clauses is found in FAR 52.245 and the 

corresponding DFARS. It is imperative that PAs become familiar, knowledgeable and 

conversant with these clauses and their application.

C2.4. TITLE TO GOVERNMENT PROPERTY

C2.4.1. Material

C2.4.1.1. Title to all material furnished by the Government remains with the 

Government.

C2.4.1.2. Title to material acquired by the contractor is governed by various 

contract clauses. The title provisions of FAR 52.245-5 contain two provisions about 

passage of title of materials to the Government for contractor-acquired materials on 

cost-reimbursement type contracts.

C2.4.1.2.1. When material is purchased by the contractor, the cost of 

which is reimbursed as a direct item of cost under the contract, title passes to and vests 

in the Government on delivery of such material by the vendor.

C2.4.1.2.2. Title to other material, the cost of which is reimbursable to 

the contractor, shall pass to and vest in the Government upon:

C2.4.1.2.2.1. Issuance of the property for use in contract 

performance;

DoD 4161.2-M, December 1991

28 CHAPTER 2
C2.4.1.2.2.2. Commencement of processing of the property or use 

in contract performance; or

C2.4.1.2.2.3. Reimbursement of the cost of the property by the 

Government, whichever occurs first.

C2.4.1.2.3. The title provisions of FAR 52.245-2 provide that the 

Government may similarly take title to materials acquired on fixed-price contracts, but 

only if the contract contains specific provisions for the Government to reimburse the 

contractor for materials as a direct item of cost under the contract.

C2.4.2. Agency-Peculiar Property. APP is generally Government furnished where 

title remains with the Government.

C2.4.3. Special Test Equipment (STE). Acquisition of STE under cost-type 

contracts. The Government acquires title to all STE purchased or fabricated by the 

contractor because this acquisition is reimbursable to the contractor. The title to STE 

shall vest with the Government at the time of acquisition or acceptance according to 

Government property clauses (52.245-2/5) and STE clause (52.245-18).

C2.4.4. Special Tooling. The following are methods by which title to special 

tooling may be acquired and the differences in contractual requirements that apply to 

each method of acquisition:

C2.4.4.1. Special tooling that is provided as GFP, acquired or manufactured by 

the contractor under a cost-type contract or acquired for the Government as a line item 

under a fixed-price contract, is Government property. This special tooling is subject to 

the provisions of the applicable Government property clauses.

C2.4.4.2. The Government may reserve the right to take title to other special 

tooling acquired or fabricated on fixed-price contracts by incorporation of the special 

tooling clause (FAR 52.245-17) in the contract. This special tooling is often referred 

to as right-to-title special tooling. It is recognized that the Government has a vested 

interest in this tooling and may acquire title to the tooling at a later date to maintain 

production, support, or spare parts capability for a program. Normally, the Government 

should avoid taking title to this right-to-title special tooling if it is no longer required 

by the accountable contract and the Government has not identified a firm or probable 

requirement for the special tooling. If the Government takes title to this special 

tooling, it will generally increase the Government's liability and administrative burden 

associated with Government ownership.

DoD 4161.2-M, December 1991

29 CHAPTER 2
C2.4.4.3. Special tooling may also be acquired or manufactured by a 

contractor for the performance of a fixed-price contract that does not contain the 

special tooling clause and does not specify that special tooling is to be acquired for the 

Government. When this occurs, the Government has no rights to the tooling.

C2.4.4.4. Production Special Tooling. In these cases, special contract 

provisions may provide the Government the option to take title to production special 

tooling acquired by the contractor. The PA shall follow the directions in the special 

clause on title and control.

C2.4.5. Facilities. Facilities may be either Government-furnished or 

contractor-acquired. The facilities contract clauses, FAR 52.245-7, - 10, and - 11 set 

forth the title provisions. Facilities may also be acquired on contracts other than 

facilities contracts. In this instance, the title provisions in the Government property 

clause included in that instant contract will prevail.

C2.5. LIABILITY FOR LOSS, DAMAGE, OR DESTRUCTION OF GOVERNMENT 

PROPERTY

C2.5.1. Scope. This section provides policy and guidance to the PA and other 

Government and contractor personnel regarding loss, damage, or destruction (LDD) of 

Government property provided to contractors.

C2.5.2. General. Definitions:

C2.5.2.1. "Lack of Good Faith." Failure to honestly carry out a duty including 

gross neglect or disregard of the terms of the Government property clause or of 

appropriate directions from the PA. Examples are a failure to establish and maintain 

proper training and supervision of employees, or failure to apply adequate controls to 

ensure compliance with contract terms.

C2.5.2.2. "Willful Misconduct." Includes either a deliberate act or failure to 

act that causes or results in loss, damage, or destruction to Government property.

C2.5.2.3. "Managerial Personnel." Includes the contractor's directors, 

officers, and any of the contractor's managers, superintendents, or equivalent 

representatives who have supervision or direction of:

C2.5.2.3.1. All or substantially all of the contractor's business.

DoD 4161.2-M, December 1991

30 CHAPTER 2
C2.5.2.3.2. All or substantially all of the contractor's operation at any one 

plant or separate location at which the contact is being performed; or

C2.5.2.3.3. A separate and complete major industrial operation connected 

with performing this contract. This usually refers to the top person in charge of a plant 

location and is normally the chief executive officer or a vice president or general 

manager.

C2.5.3. Policy. DoD policy generally provides for the Government to act as a self 

insurer of Government property provided under certain contractual arrangements. This 

is largely due to DoD studies that have concluded it is more economical for the 

Government to be a self insurer than to allow a contractor to purchase insurance as an 

allowable cost (direct or indirect) under a contract. The studies estimated the extent of 

cost savings to the Government by comparing the cost of a commercial insurance 

policy to the amount of property losses plus the cost of employing Industrial Property 

Management Specialists (IPMSs). This means that one of the PA's roles is to 

represent the Government's interests as a self insurer by determining, through 

surveillance of the contractor's property control system, whether the contractor is an 

acceptable insurance risk. However, there are certain situations in which the 

Government is not a self insurer. An example of this would be under fixed-price 

contracts awarded through full and open competition (See FAR 52.245-2(g)). In such 

cases, the contractor is liable for all LDD of Government property with the exceptions 

of reasonable wear and tear to Government property or for Government property 

properly consumed in performing the contract.

C2.5.4. Contractor Requirements

C2.5.4.1. FAR 45.504 requires the contractor to promptly investigate and 

report all cases of loss, damage, or destruction of Government property to the PA. The 

PA shall ensure that the contractor's procedures and property control system provide for:

C2.5.4.1.1. Internal reporting of any LDD to the responsible contractor 

property control organization.

C2.5.4.1.2. Investigation of such LDD in accordance with the Government 

property clauses and FAR 45.504.

C2.5.4.1.3. Prompt reporting by the responsible contractor organization 

to the PA, in accordance with FAR 45.504(b) and FAR 45-508-2.

DoD 4161.2-M, December 1991

31 CHAPTER 2
C2.5.4.1.4. Additional reporting may be imposed by specific Agency 

requirements for other types of property, including precious metals, explosives, 

firearms, hazardous materials, controlled substances, etc.

C2.5.4.2. The following information should be requested from the contractor, 

where applicable, for each case of LDD of Government property:

C2.5.4.2.1. Date of incident.

C2.5.4.2.2. Description of property including National Stock Number or 

applicable Part Number or Identification number.

C2.5.4.2.3. Contract number.

C2.5.4.2.4. Acquisition cost.

C2.5.4.2.5. Full narrative of the incident, location, etc.

C2.5.4.2.6. Cause and corrective action taken or to be taken to prevent 

recurrence.

C2.5.4.2.7. Estimated scrap proceeds (when applicable).

C2.5.4.2.8. Repair direct-labor and material costs (when applicable).

C2.5.4.2.9. Estimated cost to replace (when applicable).

C2.5.4.2.10. Copies of supporting documentation.

C2.5.4.2.11. The contract provision under which relief of responsibility 

is sought.

C2.5.4.2.12. Date of report.

C2.5.4.2.13. Statement that no insurance costs or other means of 

covering LDD of Government property were charged to the contract, if applicable.

C2.5.4.2.14. Statement that, in the event the contractor was or will be 

reimbursed or compensated for LDD of Government property; e.g., reimbursement by a 

subcontractor, the Government shall receive equitable reimbursement.

DoD 4161.2-M, December 1991

32 CHAPTER 2
C2.5.5. PA Requirements

C2.5.5.1. Investigation. It is the PA's responsibility to investigate the 

circumstances of LDD of Government property and review the risk of loss and other 

contract provisions to determine which party assumes the risk of loss. When the 

Government assumes the risk of loss, investigations, in some circumstances, may be 

limited to verifying whether the contractor's report of LDD is accurate. Extensive 

investigations should only be performed when dollar amounts, nature of the property, 

and circumstances of the incident warrant it. The assistance of other CAO technical 

personnel should be requested when appropriate. Where the PA's investigation reveals 

that the loss or damage was caused by deficiencies in the contractor's property control 

system, the PA will ensure that:

C2.5.5.1.1. The deficiencies are well documented.

C2.5.5.1.2. The contractor is notified of the deficiencies.

C2.5.5.1.3. Appropriate corrective action's are implemented. If the 

contractor fails to correct deficiencies in its property control system within a 

reasonable period of time, the PA must then advise the CO to initiate action under FAR 

45.104(c).

C2.5.5.2. Records. Each PA shall maintain LDD records that include, as a 

minimum, the following:

C2.5.5.2.1. A log or register of all events of LDD.

C2.5.5.2.2. A copy of the contractor's loss report.

C2.5.5.2.3. PA investigative report that summarizes the circumstances, 

causal factors, trends, contract provisions, and recommendation.

C2.5.5.2.4. Final resolution.

C2.5.6. Determining Contractor Liability

C2.5.6.1. Full Risk-of-Loss Provision. This provision is contained in the 

FAR 52.245-2 Government Property Clause. It specifies that the contractor is liable 

for any loss of or damage to Government property provided under the contract except 

for reasonable wear and tear or for consumption in performing the contract.

DoD 4161.2-M, December 1991

33 CHAPTER 2
C2.5.6.2. Limited Risk-of-Loss Provision. This provision is contained in the 

FAR 52.245-2 (ALT 1), 52.245-5 Government Property Clauses and the Liability for 

Facilities Clause, 52.245-8. One of the circumstances for which the contractor is 

liable for loss of or damage to Government property is if it is the result of "willful 

misconduct" or "lack of good faith" on the part of contractor "managerial personnel." 

Additional circumstances for which the contractor is liable for loss of or damage to 

Government property would be if it is the result of a risk required to be insured, or a 

risk that was in fact insured, or where the contractor was responsible under another 

contract clause. It is important to note that this provision also specifies that when a 

contractor has failed to establish and maintain an acceptable system for the management 

of Government property in accordance with the above clauses, and has been notified by 

certified mail of withdrawal of system approval by the CO, it shall be conclusively 

presumed that such failure was due to "willful misconduct" or "lack of good faith" on the 

part of contractor "managerial personnel." Under an approved property control system, 

the burden of proof rests with the Government to prove that the LDD of Government 

property resulted from willful misconduct or lack of good faith on the part of the 

contractor's top-level managerial personnel. However, under a property management 

system in which approval has been withdrawn, the burden of proof shifts to the 

contractor who must prove that the LDD of Government property was not connected 

with any deficiency that caused withdrawal of system approval, or that the loss occurred 

before withdrawal of system approval. Similarly, under a property management system 

in which approval has been withheld due to deficiencies discovered in the initial 

evaluation, the burden of proof rests with the contractor to prove that the LDD of 

Government property was not connected with any deficiency that caused initial approval 

of the property control system to be withheld.

C2.5.6.3. Risk of Loss Assumed by the Government. If authorized through the 

PA's Certificate of Appointment, the PA may take direct action as described below if the 

Government has assumed the risk of loss. The contractor must identify the 

circumstances that led to the incident, and the provisions under the contract through 

which risk of loss was assumed. If the PA determines that the LDD of Government 

property constitute risks assumed by the Government, the PA shall notify the contractor 

in writing, that the risk of loss is the responsibility of the Government. A copy of the 

documentation and notification to the contractor shall be retained in the Contract 

Property Control Data File for the contract. An informational copy shall be provided to 

the CO. Additional reporting may be prescribed by Agencies.

C2.5.6.4. Recommending Liability. If the PA concludes that the contractor 

should be liable, a fully documented and detailed case file, including the PA's

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34 CHAPTER 2
recommendation, will be forwarded to the CO for review and determination. The file 

shall contain the following:

C2.5.6.4.1. A statement of facts as supported by the investigation.

C2.5.6.4.2. Recommendations as to the contractor's liability and the 

amount thereof.

C2.5.6.4.3. Recommendations as to actions to be taken with regard to 

third-party liability, if appropriate.

C2.5.6.4.4. Requirements for disposition, repair, replacement of the 

damaged property.

C2.5.6.4.5. Other pertinent comments.

 

A copy of the CO's determination shall be furnished to the contractor, to the PA, and a 

copy shall be retained in the files of the CO. The PA's copy shall be filed in the 

Contract Property Control Data File for the contract when all pertinent actions, such as 

compensation to the Government or repair or replacement of the property, have been 

completed. In the event that the contractor acknowledges liability, the PA will notify 

the CO in writing requesting a decision as to course of action required for equitable 

settlement.

C2.5.6.5. Quantification of Liability. When the contractor is liable for LDD 

of Government property, the PA is responsible for providing the CO a recommended 

amount for which the contractor should be held liable. Historically, the maximum 

amount that the Government could recover was the asset's original acquisition cost. 

Generally, the Government can recover the market value of the item. However, 

depending on the circumstances, replacement value or value to the Government may be 

recovered. In a case where the PA determines that the lost, damaged, or destroyed item 

would have had no reasonable prospect of continued use by the Government, the 

contractor would only be liable for the sales or scrap value the Government would have 

received if the item had been properly processed through plant clearance.

C2.5.6.6. Special Contract Provisions. The contracting officer may insert 

nonstandard risk-of-loss provisions in the contractor where the Government does not 

assume the risk of loss for Government property provided under the contract. 

Therefore, nonstandard risk-of-loss provisions shall be thoroughly reviewed by the PA 

before a determination of liability is made by the CO. In such cases, the CO should 

obtain legal assistance before determining liability.

DoD 4161.2-M, December 1991

35 CHAPTER 2
C2.6. OTHER CONTRACTUAL ACTIONS

C2.6.1. In addition to the non-acceptance or disapproval of the contractor's 

property control system, the PA may recommend to the CO the following:

C2.6.1.1. Suspension or Reduction of Progress Payments under Fixed-Price 

Contracts. If deficiencies affecting Government property identified by the PA have a 

known or perceived impact on fixed-price contract performance, the PA shall report the 

condition to the CO for possible reduction of progress payments, if appropriate.

C2.6.1.2. Disallowance or Reimbursement of Costs Under Cost-Type 

Contracts. When the PA believes there may be grounds for disallowance of costs under 

cost-type contracts, the PA's recommendation and supporting documentation to suspend 

reimbursement or disallow costs on the contracts shall be forwarded to the CO for a 

decision.

C2.6.1.3. Award Fee Determinations. The criteria in the contract for 

determining the amount of award fee is sufficiently flexible so that unsatisfactory 

conditions in the contractor's property control system may be a factor for reducing the 

amount of the award fee. The PA may take the following steps affecting the amount of 

award fee:

C2.6.1.3.1. Prepare and document the proposed action, including brief 

descriptions of each action previously taken to resolve problem areas.

C2.6.1.3.2. Forward the proposed action to the CO for incorporation into 

their recommendations to the Award Review Board.

C2.7. CLOSE OUT OF PROPERTY ADMINISTRATION

C2.7.1. Final Review and Closing of Contracts for Property Administration

C2.7.1.1. When informed that disposition of Government property under a 

contract has been completed, the PA shall perform a final review, which shall determine 

whether:

C2.7.1.1.1. Disposition of Government property has been properly 

accomplished and documented.

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36 CHAPTER 2
C2.7.1.1.2. Adjustment documents, including request of the contractor 

for relief from responsibility, have been processed and completed.

C2.7.1.1.3. Proceeds from disposals or other property transactions, 

including adjustments, have been properly credited to the contract or paid to the 

Government as directed by the contracting officer.

C2.7.1.1.4. All questions regarding title to property fabricated or acquired 

under the contract have been resolved and appropriately documented.

C2.7.1.1.5. The close out DD Form 1662, "DoD Property in the Custody 

of Contractors," or comparable document prescribed for non-DoD Agencies (e.g., NASA 

1018), has been prepared and submitted to the PA.

C2.7.1.1.6. The Contract Property Control Data File is complete and 

ready for closure.

C2.7.1.2. When final review pursuant to paragraph C2.7.1.1., above, reveals 

that property-related actions for contracts are complete, the PA shall sign or process a 

"Contract Administration Completion Record" (DD Form 1593), or automated 

equivalent, and attest that:

C2.7.1.2.1. All Government property provided under the contract has 

been properly accounted for.

C2.7.1.2.2. There are no unresolved questions related to contractor 

liability for Government property and/or title to property acquired or fabricated under 

the terms of the contract.

C2.7.1.2.3. The PA has accomplished all pertinent duties and 

responsibilities as required by the FAR, the contract, and this Manual.

C2.7.1.3. The completed DD Form 1593, or automated equivalent, shall be 

provided to the CO and the Property Summary Data Record shall be so annotated.

C2.7.2. PA Interface with Other Contract Administration Personnel During 

Contract Closure

C2.7.2.1. The PA shall interface with the CO and other technical personnel, as 

required, during contract closure to ensure that all Government property accountable to 

the contract is promptly transferred to other contracts or otherwise disposed of.

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37 CHAPTER 2
C2.7.2.2. Closure of property records is required before final contract 

closeout and may be completed significantly before contract closeout.

C2.7.3. Premature Closeout of Contracts. The PA shall take action to have any 

prematurely closed contract reopened by the cognizant CO. When this is impractical, a 

suspense file shall be maintained for that contract by the PA to ensure that all property 

is properly disposed of without creating an undue risk to the Government.

DoD 4161.2-M, December 1991

38 CHAPTER 2
C3. CHAPTER 3

TECHNICAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS

C3.1. SCOPE.

This chapter provides policy and guidance for PAs in performing the technical elements 

of the property administration process.

C3.2. GENERAL

C3.2.1. Material. Material is defined in FAR 45.301. Material is further 

subdivided into Government-furnished material (GFM) and Contractor-acquired material 

(CAM).

C3.2.1.1. GFM is material that is owned by the Government and furnished to a 

contractor for utilization for specific contract purposes.

C3.2.1.2. CAM is material acquired for the Government by the contractor.

C3.2.1.3. Material management is the process of providing the required 

quantity and quality of material needed for contract performance, at the required time 

and place, with the minimum overall investment. Material control includes planning of 

material requirements, initiating transfers, requisitioning of GFM, ordering materials and 

parts from vendors, ordering fabrication of parts, receiving and incoming inspection, 

recordkeeping of materials on hand to determine when and what to reorder, and the 

storing and issuing of raw materials and component parts. It pertains to research and 

development operations as well as production. Management of material is essential to 

effective contract performance.

C3.2.2. Agency-Peculiar Property (APP). APP is defined in FAR 45.301 and 

DFARS 245.301.

C3.2.2.1. Special reusable containers for transportation or storage of end 

items, equipment, or materials will normally be controlled as APP. Containers for 

storage or transportation of special tooling and special test equipment are generally 

considered as an accessory to the special tool or special test equipment.

DoD 4161.2-M, December 1991

39 CHAPTER 3
C3.2.2.2. Items returned for rework or repair under warranty provisions of 

Government contracts will be controlled as APP until repaired or replaced and returned 

to the Government.

C3.2.2.3. Items returned as exhibits on material deficiency reports (MDRs) or 

quality discrepancy reports (QDRs) shall be controlled in accordance with agency 

procedures.

C3.2.3. Special Test Equipment (STE). STE is defined in FAR 45.101. STE units 

or assemblies generally consist of interconnected special or general purpose electrical, 

hydraulic, pneumatic, mechanical, or other items. This arrangement causes the 

individual items to become a unified assembly used in the performance of special 

testing. Unless otherwise specifically provided by terms of a contract, STE includes all 

dedicated components of any STE assembly. General purpose plant equipment used for 

common tests on products do not qualify as STE.

C3.2.4. Special Tooling (ST)

C3.2.4.1. ST is defined in FAR 45.101. Management of special tooling 

includes the specific areas of acquisition, identification, control, maintenance, and 

disposition. The area of special tooling also involves nonstandard clauses that impact 

and affect Government title and ownership. PAs should become thoroughly familiar 

with the requirements and controls to be exerted over special tooling.

C3.2.4.2. Contractor's Procedures. The contractor's procedures concerning 

storage, movement, and maintenance of special tooling must be complete and adequate 

to protect the Government's interests. When the management of special tooling will 

not provide adequate control of tooling, significant losses of tooling may occur and 

costly work delays could result. An effective move order system is essential to 

maintain the integrity of the location system. The contractor's system must also 

provide for proper maintenance and preservation of the tooling, depending on the nature 

of the items.

C3.2.5. Facilities. Definitions of facilities, and facilities contracts are found at 

FAR 45.301. The definition of a facilities project is found at DFARS 245.301. 

Facilities consist of plant equipment and real property (see FAR 45. 101). The 

Department of Defense further subdivides plant equipment as Industrial Plant 

Equipment (IPE) and Other Plant Equipment (OPE) (see DFARS 245.301). PAs should 

be thoroughly familiar with the basic Government regulations and directives applicable 

to the management of facilities. PAs are also involved in the preparation and 

DoD 4161.2-M, December 1991

40 CHAPTER 3
submission of various accounting reports to procurement activities and higher 

headquarters for administrative and budgetary control purposes.

C3.2.5.1. Control of IPE can be enhanced by reconciliation between 

contractor records and records maintained by the Defense Industrial Plant Equipment 

Center (DIPEC). DIPEC publishes a computer printout report by DoD activity showing 

what IPE they have on record. This printout can be requested from DIPEC/OAC, 2163 

Airways Blvd., Memphis TN 38114-5051.

C3.2.5.2. The DIPEC Handbook (DLAM 4215.1, AR 700-43, NAVSUP PUB 

5009, and AFM 78-9) shall be used for guidance and direction in completing any DIPEC 

required forms or reporting.

C3.3. POLICY ON PROVIDING GOVERNMENT PROPERTY

C3.3.1. Policy on Providing Material. See FAR 45.303-1.

C3.3.2. Policy for Providing Agency Peculiar Property. See FAR 45.310.

C3.3.2.1. APP is ordinarily furnished under a facilities, supply or service 

contract but may be furnished under a contract, lease, or bailment agreement.

C3.3.2.2. A bailment consists of the delivery of Government property to a 

contractor for a specific purpose normally related to a prime contract. Bailed property 

is usually returned to the Government when no longer required by the contractor. 

Bailment does not include sale, donation, lease, the furnishing of property to a 

contractor under facilities contracts, or the furnishing of property for consumption or 

for incorporation in such a manner as to lose its identity in an end product delivered to 

the Government. A bailment agreement is a contractual agreement that accomplishes 

the actual bailment of Government property and contains all of the information 

concerning the bailment. Included are an adequate description of the property, the 

purpose of the bailment, the use of the property, authorization for modifications that 

may be made to the property, the period of the bailment, the place from and/or to which 

the property is to be delivered and/or returned, maintenance requirements, if any, and 

any other provisions considered necessary.

C3.3.2.3. Under 10 U.S.C. 2667, APP, generally major weapon systems, may 

also be leased to contractors when it is determined that the property is not, for the 

period of the lease, needed for public use; is not excess property; and the lease will 

promote the national defense or be in the public interest. It is the Government's policy 

that leases of military property (Agency-peculiar) will not be made when a counterpart 

DoD 4161.2-M, December 1991

41 CHAPTER 3
exists on the commercial market. Leases of Government property are awarded to 

contractors for use as a standard or model for testing their end item, to establish 

compatibility, commercial sales, Independent Research and Development (IR&D) or for 

Government improvement and/or developmental programs. The lease shall include all 

the provisions necessary to describe the property, the purpose of the lease, use of the 

property, period of the lease, maintenance requirements, inspections upon receipt and 

return, and other controls deemed necessary.

C3.3.3. Policy for Providing Special Test Equipment. See FAR 45.307.

C3.3.4. Policy for Providing Special Tooling. See FAR 45.306.

C3.3.5. Policy for Providing Facilities. See FAR 45.302. The Government's 

policy on providing facilities is that contractors shall furnish all facilities required to 

perform Government contracts. There are very specific policy exceptions, set forth in 

FAR 45.302-1, where facilities may be furnished to a contractor or a contractor may be 

authorized to acquire facilities. For example, general purpose plant equipment may be 

furnished to a contractor for use as a component of STE, or the contractor may be 

operating a Government-owned plant on a cost reimbursement basis where the 

contractor is directed to acquire an item of facilities for the Government. As a general 

policy, facilities shall be provided to a contractor only under a facilities contract. 

Exceptions to this policy are set forth in FAR 45.302-3. If facilities are provided under 

a contract other than a facilities contract as set forth in FAR 45.302-3, they will be 

managed in the same manner as prescribed in this chapter. Conversely, other types of 

property are normally provided to a contractor under a supply or services type contract 

but may also be provided under a facilities ontract. Contractors are not allowed profit 

or fee on the acquisition of facility items, as set forth in FAR 45.302-2.

C3.3.5.1. FAR 45.301 describes the three forms of facilities contracts:

C3.3.5.1.1. Facilities acquisition contracts that provide for the 

acquisition, construction, and installation of facilities.

C3.3.5.1.2. Facilities use contracts that provide for the use, maintenance, 

accountability, and disposition of facilities.

C3.3.5.1.3. Consolidated facilities contracts that cover both forms 

described above in C3.3.5.1.1. and C3.3.5.1.2., above.

C3.3.5.2. PAs should read and become familiar with all facilities contract 

clauses, FAR 52.245-7, 8, 9, 10, and 11. Specific attention should be given to clauses 

applicable to location of facilities, use and rental charges, maintenance, property 

DoD 4161.2-M, December 1991

42 CHAPTER 3
control, liability for facilities, notice of use, disposition, and facilities equipment 

modernization. A facilities contract may also include appropriate provisions for 

maintenance and storage of Government facilities in standby or layaway status such as a 

Plant Equipment Package (PEP). Such provisions include specifications for the care 

and maintenance of the property appropriate for its intended use and may be the same 

as, or different from, the standard maintenance provisions of the FAR clauses. 

Facilities contracts normally cover a period of 5 years and may be extended when 

conditions warrant renewal of such contracts. The facilities to be acquired by the 

contractor at Government expense and furnished by the Government will be described in 

the schedule attached to the contract. The authorization for use of such facilities will 

also be identified by a related procurement contract under the definitions provision of 

the FAR clauses. This is referred to as the primary purpose for which facilities are 

provided. Upon completion of the primary purpose, facilities should be declared excess 

unless a new primary purpose is established, justified, and approved by the Government.

C3.3.5.3. Approvals for Facility Projects. See DFARS 245.302-70.

C3.3.6. Policy on DoD-Provided Motor Vehicles. See FAR 45.304. When 

contractors are furnished motor vehicles, the terms of the contract that authorized the 

vehicles should be carefully reviewed ensure it includes how the vehicles are to be 

maintained and identified. As a minimum, the contract should reference guidance 

contained in DoD 4500.36-R, "Management, Acquisition, and Use of Motor Vehicles." 

If the contract does not provide appropriate instructions for exercising management 

control of the utilization, operation, maintenance, and recordkeeping of vehicles, the CO 

should be notified and requested to incorporate in the contract the requirements of DoD 

4500.36-R.

C3.4. CONTRACTOR MANAGEMENT OF GOVERNMENT PROPERTY

C3.4.1. The contractor's management personnel are required to establish and 

maintain a property control system for the control, use, maintenance, repair, protection, 

and preservation of Government property in accordance with sound business practice, 

the applicable provisions of FAR 45.5, and other contractually imposed requirements.

C3.4.2. The property management activity established by the contractor's 

management personnel is usually tasked with the establishment and maintenance of the 

system. This involves establishment of the procedures, performing or coordinating 

property administration tasks, and controlling the system. This may include internal 

review, self-audit, or audit of other activities within the company that perform property 

administration tasks and that affect Government property control.

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43 CHAPTER 3
C3.4.3. Placement of this activity within the organization is critical to the system's 

effectiveness. Company organization structures differ widely, but placement will 

facilitate or effectively curtail efficient property management. Analysis of the 

contractor's system may reveal that the organizational placement of the property 

administration function has impacted the establishment or maintenance of the system, 

or has prevented reporting and/or resolution of deficiencies. Effective placement will 

facilitate communications between other company activities and upper management.

C3.5. ACQUISITION OF GOVERNMENT PROPERTY

C3.5.1. Material

C3.5.1.1. Determination of Material Requirements. The material control 

system is closely related to several other functions in the manufacturing process. 

Engineering organizations provide technical data in the form of drawings, bills of 

material, and material specifications. Production planning initiates production orders 

for fabrication of component parts and materials. Material control manages availability 

of parts and materials necessary for contract performance. To adequately evaluate and 

understand the contractor's property control system, the PA must be thoroughly familiar 

with the operation and function of each of these organizational units.

C3.5.1.2. Methods of Acquisition. There are two basic methods of providing 

material to a contractor. The Government may furnish the material (GFM) or the 

Government may authorize the contractor to acquire material for the Government 

(CAM). The following paragraphs reflect the basic means of acquisition by the two 

methods, and the differences in contractual requirements that apply to each.

C3.5.1.2.1. GFM. There are two subcategories of GFM, Government 

Source Material and Transferred Material.

C3.5.1.2.1.1. Government Source Material

C3.5.1.2.1.1.1. "Government Directed" (Pushed) material may be 

provided to a contractor according to specific contract terms and provisions. No 

request from the contractor is required to obtain delivery of the items. This may be 

either Military Standard Requisitioning and Issue Procedure (MILSTRIP) (Pushed) or 

contract source where the Government performs all the tasks associated with furnishing 

this material.

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44 CHAPTER 3
C3.5.1.2.1.1.2. "Contractor Requisitioned" Government material 

is provided to a contractor when the contractor requests the material in accordance with 

the contract terms. The form of the request will be dictated by contract, utilizing the 

MILSTRIP system, that includes electronic transmission of orders (requisitions), 

requisitioning by telephone, mailed requisitions, or formatted messages (teletype).

C3.5.1.2.1.1.3. The PA must be fully aware of the contractor's 

authority to requisition GFM and be similarly aware of the GFM that is authorized for 

each Government contract. The PA must ensure that the contractor's property control 

system requisitions only those items and quantities of GFM authorized and fully 

accounts for those assets. The PA must also ensure that GFM delivered from the 

Government is received, controlled, and consumed in accordance with the contract 

provisions. In the event that the contractor receives items or quantities of GFM that 

are not contractually authorized, it must be reported in accordance with FAR 

45.502(g). The PA shall encourage contractors to advise the CO of such discrepancies 

and request disposition instructions or contractual authorization for retention.

C3.5.1.2.1.2. "Transferred" Government material means that the 

Government has authorized the accountability of material to be transferred to a contract 

from another contract or Government source. When beneficial to the Government, and 

when consideration has been received, for fixed-price gaining contracts usually in the 

form of a reduction in the contract price, the Government may authorize a transfer from 

one contract to another; the material provided to the gaining contract is considered to 

be Government-furnished material (GFM). When COs give verbal approval for transfer, 

the approvals must be confirmed by the COs in writing, as required by the Government 

property clauses under changes in Government-furnished property. These written 

approvals should be in the form of appropriate contract modifications. In situations 

where the PA finds that contracts have not been modified, the facts should be provided 

to the CO for action. The practice of verbal approvals is discouraged, and should only 

be implemented due to the exigency of the situation. Written follow-up shall be 

provided.

C3.5.1.2.2. Contractor-Acquired Material

C3.5.1.2.2.1. Cost-type and time-and-materials contracts allow the 

contractor to acquire material for the Government as a direct charge to the contract. 

Title vests with the Government through the provisions of the Government property 

clause FAR 52.245-5(c). Fixed-price type contracts may provide for the contractor to 

acquire material for the Government as a direct charge to the contract when specifically 

listed as a line item in the contract. Title vests with the Government through the 

DoD 4161.2-M, December 1991

45 CHAPTER 3
provisions of the Government property clause FAR 52.245-2(c). The method the 

contractor selects to acquire material for the Government is based upon several factors 

(determination of items needed, schedules of production or delivery, source 

identification, and quantities required).

C3.5.1.2.2.2. The first source for acquiring material should be an 

internal review of available in-house assets that are excess to other requirements. 

These materials are made available to meet new requirements through internal material 

transfer practices. Such transfers must be carefully monitored to ensure that they are 

authorized and properly accomplished.

C3.5.1.2.2.2.1. Credit-Debit System. The preferred method of 

transfer is a credit-debit system for contractor-acquired material where the losing 

contract is credited for the cost of the material and the gaining contract is debited for 

the costs. This supports the FAR 31.205-26 policy that material costs should be home 

by the contract that consumes material when materials are required for specific 

contracts. Note that this system applies only to contractor-acquired material. It does 

not apply to Government-furnished material.

C3.5.1.2.2.2. Transfer of Material through Contract Modification. 

CAM material may be transferred to a contract when authority to receive such property 

as GFM is in the schedule or specifications of the gaining contract, or when such items 

are a suitable substitute for material described in the schedule or specifications of the 

gaining contract or if the contract contains provisions for unilateral increase in the 

amount of material furnished by the Government. Transfers should be accomplished 

according to instructions in the gaining contract or, in the absence of complete 

instructions in the contract, documentation pertaining to the transfer should be 

forwarded to the CO for equitable adjustment of the gaining contract and any other 

required action. Transfers should not be accomplished unless authorized in the 

receiving contract and no longer required on the losing contract. The Government 

should receive consideration whenever CAM is so transferred; if not, the Government 

may pay more than it should and the contractor stands to receive a competitive 

advantage. Upon transfer CAM becomes GFM.

C3.5.1.2.2.3. Benefits of a Credit-Debit System Over Contract 

Modification Transfers

C3.5.1.2.2.3.1. Credit-Debit systems charge material costs to 

the contract that benefits by the transfer that meets the intent of FAR 31.205-26. In 

contrast, Contract Modification transfers incur costs against one contract or program 

for property ultimately used on another contract or program. This could constitute a 

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46 CHAPTER 3
violation of the Anti-Deficiency Act. Credit-Debit system does not require contractual 

modifications as they are internal contractor accounting transactions.

C3.5.1.2.2.3.2. Contract Modification transfers require 

modification to the gaining contract to authorize the property to be provided as GFM 

and to ensure that the Government receives consideration for the property. If this is 

not done properly, the Government may pay more than it should and contractors may 

receive a competitive advantage for materials provided as GFM.

C3.5.1.2.2.3.3. When material is to be transferred to 

Government contracts with no other Government property, Contract Modification 

transfers require that a Government property clause be added to those contracts. This 

action would be unnecessary if a Credit-Debit system transfer was used. Contract 

Modification transfers frequently increase Government administrative burden and 

complicate the risk of loss provisions when material is transferred to fixed-price 

contracts. Credit-Debit system transfers retain the risk-of-loss provisions that apply to 

other material acquisitions for the contract.

C3.5.1.2.2.3.4. Credit-Debit system transfers facilitate future 

transfers to later contracts since excess contractor-acquired materials can be retained at 

cost by the contractor for other uses in accordance with FAR 45.6. However, once the 

assets become GFM through a Contract Modification transfer, future transfers or 

contractor retention requires specific Government approval.

C3.5.1.2.2.4. Contractor Procedures. Contractor procedures should 

include controls over all types of transfers. Procedures should include provisions that 

transfers are reviewed and approved at an appropriate level of contractor management. 

The review should validate necessity and authority on the gaining contract and ensure that 

the transfer will not adversely impact the losing contract. The review should also 

ensure that approvals are obtained where required. Contractor procedures should also 

provide controls to:

C3.5.1.2.2.4.1. Ensure that all quantities and items being 

transferred are required in the receiving contract.

C3.5.1.2.2.4.2. Ensure that, for Credit-Debit system transfers of 

contractor-acquired material, all costs pertaining to such material, including general and 

administrative, are withdrawn and transferred with the material, and costs for such 

material are allowable on the contract to which transferred.

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47 CHAPTER 3
C3.5.1.2.2.4.3. Ensure that proper accountability for property is 

maintained during the transfer process.

C3.5.1.2.2.5. Coordination of Transfer Practices. PAs shall 

coordinate property transfer procedures with the CO since they are involved with cost 

and contractual aspects of the transfer process.

C3.5.1.2.3. If excess assets are not available, other methods of 

acquisition apply. Material is commonly acquired by the contractor through the 

company's purchasing system. Material control organizations initiate purchase 

requisitions for consolidated material requirements that are submitted to the 

contractor's purchasing function for purchase. Purchases are made from vendors or 

suppliers by use of a purchase order; material transfer documents are used to transfer 

material from the contractor's own stock to Government stock for use on the contract; 

or petty cash vouchers may be used for very small, infrequent purchases. The system 

must include the necessary controls to ensure that quantities purchased are reasonable 

according to contract type and scope, that documentation is adequate and consistent, and 

that acquisition actions are performed in a timely manner. Prime considerations are 

efficiency and overall economy as well as direct cost.

C3.5.1.2.4. When the contractor has the capability of manufacturing parts 

or materials internally, material requirements may be satisfied through fabrication 

orders. These include orders within the plant or alternate locations of the company, or 

may include other corporate divisions.

C3.5.1.2.5. When the purchase order is for material for more than one 

contract, the quantity that is being acquired for each contract should be specified in the 

purchase order or supporting documentation. Material acquired through such orders is 

also considered to be a direct purchase by the contractor and is to be controlled as 

Government-owned property upon delivery by the vendor.

C3.5.1.2.6. MILSTRIP material may be considered either 

contractor-acquired material or contractor-owned material when "cash sales" have been 

authorized in accordance with Agency directions.

C3.5.2. Agency-Peculiar Property. APP is generally furnished to the contractor 

through provisions in the contract, bailment agreement, or lease. It may also be created 

through the manufacture or fabrication as related peculiar-support equipment that is not 

readily available as a commercial item.

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48 CHAPTER 3
C3.5.3. Special Test Equipment. The STE clause, FAR 52.245-18, requires the 

contractor to prepare and submit to the CO a notice of intent to acquire or fabricate 

items of STE. Failure on the part of the CO to respond to the contractor's notice of 

intent within 30 days allows the contractor to acquire or fabricate the equipment or 

components subject to any other applicable provisions of the contract. Within 30 days 

from the date of receipt of the contractor's notice, the CO should ensure the following 

actions have been completed:

C3.5.3.1. Review proposed STE items and coordinate with the PA and other 

appropriate technical personnel, as required, to determine the necessity and 

classification as special.

C3.5.3.2. On DoD contracts, screen requirements for availability of computer 

equipment per DFARS 245.302-72 and 270.602.

C3.5.3.3. For NASA contracts, Agency screening and return of a NASA 

certificate of non-availability using a DD Form 1419, "DoD Industrial Plant Equipment 

Requisition," or equivalent, is required if the special test equipment or components 

qualify as centrally reportable equipment (CRE) as defined in the NASA FAR 

Supplement.

C3.5.3.4. Ensure any funding problems have been resolved.

C3.5.3.5. Notify the contractor:

C3.5.3.5.1. Of the Government's approval of the proposed acquisition or 

fabrication, or

C3.5.3.5.2. That the equipment will be furnished by the Government, or

C3.5.3.5.3. Of the Government's disapproval of the proposed STE.

C3.5.3.6. STE Cost Allocations. See FAR 31.205-40.

C3.5.4. Special Tooling. There are various methods by which a contractor may 

acquire special tooling. It may be furnished to a contractor as GFP, or it may be 

acquired, fabricated or manufactured by the contractor during contract performance and 

the Government may either have title or the option or right to title to this special 

tooling. See FAR 45.306.

DoD 4161.2-M, December 1991

49 CHAPTER 3
C3.5.4.1. Special Tooling Containers. Specially designed and fabricated 

reusable containers for special tooling should be considered as special tools and 

accountability maintained either jointly with the tool or independently when:

C3.5.4.1.1. Container design and fabrication costs are charged to special 

tooling accounts.

C3.5.4.1.2. The container is dedicated to the storage, movement, 

shipment, or protection of specific special tools.

C3.5.4.2. For NASA contracts, Agency screening and return of a NASA 

certificate of non-availability using a DD Form 1419, or equivalent, is required if the 

special tooling or components thereof qualify as CRE, as defined in the NASA FAR 

Supplement.

C3.5.5. Facilities

C3.5.5.1. Government-Furnished Facilities. All facilities to be provided a 

contractor as Government-furnished property shall be described in the facilities 

contract schedule, specifications or attachments to the contract. In addition, facilities 

may be added to a contract through the use of a contract modification.

C3.5.5.2. Contractor-Acquired Facilities. All Government facilities to be 

acquired by a contractor shall be described in the facilities contract schedule, or as 

otherwise authorized. Prior to the acquisition of any item of facilities the contractor 

shall comply with the notification requirements found in the Cost Reimbursement 

Subcontracts clause, FAR 52.244-2. Contracting Officer consent is required prior to 

the acquisition of all facilities not stated in the schedule. Prior to acquiring IPE having 

an item acquisition cost of $10,000 or more, the contractor, shall submit a DoD 

Industrial Plant Equipment Requisition (DD Form 1419) to DIPEC to ascertain whether 

existing Government-owned IPE is available for redistribution. In addition, NASA 

requires a DD Form 1419, or equivalent, to be submitted to NASA for Agency screening 

for all facilities items that qualify as CRE as defined in the NASA FAR Supplement. 

NASA will assign a Certificate of Non-Availability (CNA) number if the item is not 

available. The PA shall ensure that the contractor prepares a DoD property record (DD 

Form 1342) subsequent to the acquisition and submits it to NASA citing the CNA 

number.

C3.5.5.2.1. If the item is not available, the DD Form 1419 will be 

returned by DIPEC to the cognizant CAO for transmittal to the contractor as 

authorization to procure the facilities item. Although the PA is not specifically tasked 

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50 CHAPTER 3
to obtain a certification signature on the DD Forms 1419 and 1342, the PA shall ensure 

such certifications are provided and the completed document is maintained in the 

contractor's official contract files, preferably in a historical file for each item of IPE.

C3.5.5.3. Requests for contract transfers involving reclassification of general 

purpose components of STE acquired under supply contracts; e.g., any transfer or 

acquisition of an additional facilities item not covered by an approved contract schedule 

or specification must be treated as an increase of Government property to the contract. 

This requires prior approval of the CO.

C3.5.5.4. PAs may also be involved in the acquisition of real property, which 

includes expansion or capital-type rehabilitation (CTR) projects. Such projects require 

completion of "Transfer and Acceptance of Military Real Property" (DD Form 1354), by 

the operating contractor at a Government-owned plant as part of the final inspection and 

acceptance of completed expansion and CTR projects.

C3.5.5.5. Facilities Supporting Contractors at DoD Installations

C3.5.5.5.1. FAR 45.302-3 states that facilities may be provided under 

other than a facilities contract when the contract is for the performance of work within 

an establishment or installation operated by the Government. Accordingly, facilities 

provided to contractors to support work at DoD installations may be provided under, and 

be accountable to, a supply or service-type contract.

C3.5.5.5.2. Use of a contract other than a facilities contract for providing 

facilities does not negate the necessity for obtaining facilities project approval, when 

applicable. These approvals should be obtained by the procuring activity before the 

issuance of any contractual commitments relative to providing facilities items. See 

DFARS 245.302-70.

C3.5.5.6. Proper Classification

C3.5.5.6.1. Support equipment requirements may include several 

categories of property (special test equipment, general purpose test equipment, 

industrial facilities, construction equipment, etc.). To ensure proper identification and 

subsequent project approval processing for any facilities items, it is appropriate that all 

proposed support equipment requirements be subject to review by a technical specialist 

before submission to the program office to ensure that the equipment is properly 

classified. Items identified as facilities should then be referred to the appropriate 

facilities procuring activity for project approval, or processed in accordance with 

Agency directions.

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51 CHAPTER 3
C3.5.5.6.2. All facilities items in possession of contractors at alternate 

locations of the prime contractor that have not been properly reported in accordance 

with FAR 45.505-14 and DFARS 245.505-14 due to misclassification will be brought to 

the attention of the prime PA for corrective action. The prime PA should review the 

items in question and take appropriate action with the contractor to have the records and 

reporting procedures corrected.

C3.6. RECEIPT OF GOVERNMENT PROPERTY

C3.6.1. General. This section covers the contractor's receiving procedures and 

practices whereby Government property is initially placed in the control or custody of 

the contractor. It is at this point that the contractor becomes accountable and 

responsible, and the PA must ensure that the contractor's procedures provide for proper 

documentation on receiving, actions pursuant to discrepancies, inspection, identification, 

calibration, movement to storage or using areas, and control of misdirected shipments. 

Most of the specific functions under receiving are common to all classes of property; 

however, the PA will have to determine the difference in requirements among the 

receiving functions for various types of property.

C3.6.2. Control. Receiving Process - Contractors employ numerous methods and 

systems for controlling the receipt of property. The receiving process may consist of 

the following steps: notification to receiving department of due-in assets, physical 

delivery and initial inspection of the property, reconciliation of assets received against 

due-in records and preparation of receiving documents, release of assets from receiving 

organization, quality or technical acceptance inspection as required, identification as 

required, and distribution of assets and documentation. Resolution of discrepancies 

may occur at any time in this process.

C3.6.2.1. Notification to Receiving Department of Due-In Assets. Receiving 

departments may be provided a copy of the originating purchase orders, MILSTRIP 

requisitions, and other requisitioning data that reflect the items and quantities ordered 

and/or due-in. The documents and due-in data are provided for comparison with items 

physically received, as well as for proper in-processing to accounting records.

C3.6.2.2. Physical Delivery and Initial Inspection of the Property. Upon 

delivery an inspection is conducted to ascertain that there is no obvious or visible 

damage and the quantity of pallets, boxes or containers agrees with the transportation 

document. Before acceptance of the shipment, the carrier's signature will be obtained 

to acknowledge any discrepancies. A "Transportation Discrepancy Report" (TDR), SF 

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52 CHAPTER 3
361, will be prepared to report discrepant conditions disclosed as a result of the 

inspection, when appropriate. The authorized use of the SF 361 is addressed in the 

"Joint" Service and Agency Regulation, AR 55-38, NAVSUPINST 4610.33C, AFR 75-18, 

MCO P4610.19D, and DLAR 4500.15. Contractors must also take action to resolve 

discrepancies incident to receipt of contractor acquired property.

C3.6.2.3. Reconciliation of Assets Received. For contractor's using due-in 

records, the assets received will be reconciled against the due-in record. If a 

Government supply source discrepancy is noted at this time, a "Report of Discrepancy" 

(ROD), SF 364, is initiated. The SF 364 is addressed in the "Joint" Service Regulation, 

DLAR 4140.55, AR 735-11-2, SECNAVINST 4355.18, AFR 400-54, and MCO 

4430-3E. Receiving reports are prepared at this time in a manner that clearly indicates 

the quantity and condition of the property at time of receipt and any discrepancies noted, 

including overages, shortages, incorrect item(s), misdirected shipments, and/or damage 

disclosed during the receiving operation. Documentation attached to the report may 

include freight bill, bill of lading, packing list, Government shipping document (DD 

Forms 250, "Material Inspection and Receiving Report"; DD Form 1149, "Requisition 

and Invoice Shipping Document"; or DD Form 1348, "DoD Single Line Item Requisition 

System Document (Manual)") and discrepancy report(s).

C3.6.2.4. Release of Assets From Receiving Organization. After the 

receiving department prepares and processes appropriate documentation, the assets are 

generally released for quality or technical acceptance inspection, storage, or use as 

required.

C3.6.2.5. Quality or Technical Acceptance Inspection as Required. The 

receiving department or other contractor activity designated the quality control 

responsibility may be responsible for a more stringent inspection. The contractor's 

procedures should clearly outline the inspection responsibilities and indicate the types 

of Government property that require further technical inspection, operational or 

acceptance test, and/or calibration before completion of final acceptance and transfer to 

storage, stockroom, or release for use authorized by contract terms.

C3.6.2.6. Identification as Required. Designated personnel must determine 

whether assignment of a Government property tag is required. Tagging requirements 

are dependent upon the type of Government property. Government property that will 

not be consumed or otherwise lose its identity through incorporation into a larger end 

item or deliverable item, shall be tagged. Government property will be appropriately 

tagged or marked pursuant to FAR 45.506 requirements, during or immediately after 

completion of the receiving process. The specific coding, numbering sequence, or 

identification to be employed must be clearly set forth in the contractor's procedures.

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53 CHAPTER 3
C3.6.2.7. Distribution of Assets. Upon completion of any required quality 

inspection, acceptance testing, and/or physical identification, the asset is delivered to 

the appropriate storage area, stockroom, or released for use as authorized by contract 

terms.

C3.6.2.8. Distribution of Documentation. Concurrent with the distribution of 

assets, the associated receiving documentation is distributed. This distribution may 

include a copy retained in receiving department files, one or more copies to purchasing, 

a copy to the department to which the asset is delivered, and a copy to the accounting 

department for use as a voucher for invoices. At least one copy should accompany the 

shipment, and it is good practice to provide two, one of which is signed by the receiver 

and returned to the receiving department. It is most important that a copy be provided 

to the inventory control activity so that stock records can be accurately posted. 

Individual Agency directives may provide additional distribution requirements.

C3.6.3. Discrepant Shipments

C3.6.3.1. Transportation Discrepancies. When transportation discrepancies 

are noted, including those requiring preparation of the SF 361, the PA should ensure the 

matter is referred to the cognizant Transportation and Packaging Specialist or the 

responsible contractor organization.

C3.6.3.2. Receiving Discrepancies

C3.6.3.2.1. FAR 45.502-2 requires the contractor to take all actions 

necessary in adjusting shortages, overages, or damages in shipment of contractor 

acquired property from a vendor or supplier, except as described below. When 

receiving discrepancies involve Government-furnished property or assets shipped via 

Government Bills of Lading (GBLs), discrepancies will be reported on an a Report of 

Discrepancy (ROD), SF 364, by the appropriate Government representative.

C3.6.3.2.2. The contractor will prepare a report and forward for 

processing in accordance with established contractor procedures. These procedures 

will be part of the contractor's property control system for receiving approved by the 

PA. This should include providing a completed copy of the report to the PA for 

informational purposes along with its normal distribution.

C3.6.3.3. Misdirected Shipments. The contractor must initiate actions 

required to report, resolve, and dispose of misdirected shipments. SF 361 or 364 will 

be prepared, as applicable, by the appropriate Government representative.

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54 CHAPTER 3
C3.6.4. PA Responsibilities for Discrepant Shipments

C3.6.4.1. The PA's review of contractor receiving procedures must ensure that 

such procedures denote a clear distinction between all types of discrepancies incident 

to shipments and/or receipts of Government property. These may include Government 

supply source via GBL or parcel post shipments, contractor and/or vendor to contractor 

shipments by means of Commercial Bills of Lading, Freight Way Bills, etc.

C3.6.4.2. When the PA has questions or concerns related to the SF 364 that 

are not adequately addressed by the contractor, the circumstances may be discussed with 

the Government quality assurance, transportation, manufacturing, and engineering 

personnel for advice on other discrepant conditions that may be present.

C3.6.4.3. When the contractor is unable to obtain disposition instructions for 

misdirected shipments, the PA will be contacted and will provide assistance as necessary.

C3.6.5. Subsidiary Receiving Areas. Subsidiary receiving areas in outlying 

locations are usually responsible for performing the same functions as the main 

receiving areas and should be required to submit necessary documentation to the latter. 

The PA's review of contractor receiving operations shall include local "subsidiary" 

receiving operations under the direct control of the contractor. Subsidiary contractor 

operations shall be required, by operation of the contractor's procedures, to maintain the 

same level of in processing accounting controls required of the primary receiving area.

C3.6.6. Specialized Receipt of Government Property. Some contractors maintain 

separate receiving areas that specialize in the receipt, inspection, identification, and 

release of Government property. The majority of such property, which is shipped from 

Government supply sources, is consigned to the contractor on Government shipping 

documents and bills of lading.

C3.6.7. Other

C3.6.7.1. NASA Requirements. For all equipment received under NASA 

contracts that meets NASA criteria as controlled equipment, the contractor is required, 

in accordance with NFS 18-45-505-670, to submit a DD Form 1342, or equivalent, to 

the NASA representative designated in the NASA Property Administration Delegation 

Special Instructions within 15 days after receipt. For controlled equipment shipped by 

NASA to the contractor as GFP, the NASA Equipment Management System (NEMS) 

generates the DD Form 1342. The NEMS coordinator for the NASA installation sends 

the DD Form 1342 to the contractor at the time of shipment of the GFP. The 

contractor is required to add the zip code location of the property, and any identification 

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55 CHAPTER 3
number assigned by the contractor, and return a copy of the DD Form 1342 to the 

individual designated in the NASA Property Administration Delegation Special 

Instructions.

C3.6.7.2. In-House Fabricated Items. Normally, ST, STE, or other items 

fabricated in-house do not go through receiving. Care should be taken to ensure that 

these items are recorded on accountable records in accordance with the contractor's 

established procedures.

C3.7. IDENTIFICATION OF GOVERNMENT PROPERTY

Government-owned property shall be identified, marked and recorded during the 

contractor's receiving process. The requirements of FAR 45.506 apply in most cases 

except for the exemptions given in that section. Proper identification serves to ensure 

the Government's assets are not confused with contractor-owned property and used for 

unauthorized purposes. The identification number is assigned by the contractor unless 

provided by the Government. In addition, it shall be marked on the property, where 

marking is not impractical, and referenced on support documentation for inventory 

control purposes.

C3.8. RECORDS OF GOVERNMENT PROPERTY

C3.8.1. General. Property records systems, whether manual or automated, must 

contain the prescribed data elements as set forth by FAR 45.505 and any other data 

elements required by specific contract provisions. Normally, the contractor's property 

control records are the official Government property records established and 

maintained to account for and control all Government property, including 

Government-furnished and contractor-acquired property.

C3.8.2. Material

C3.8.2.1. As materials and parts are received, they are either placed in stock 

or issued directly to the user. Documents reflecting receipt of purchased parts and 

materials are used as a basis for posting material records. Documents indicating 

completion of fabricated parts, as well as documents indicating issue or turn in of 

material, also serve as a basis for posting the material records. Transaction documents 

(evidence of receipt, inventory adjustments, debits and credits) to a contract property 

account are assigned voucher numbers or equivalent posting reference numbers. 

Vouchered documents include, but are not limited to, DD Form 1149, "Requisition and 

Invoice/Shipping Document"; DD Form 250, "Material Inspection and Receiving Report"; 

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56 CHAPTER 3
and DD Form 1348-1, "DoD Single Line Item Release/Receipt Document." Also 

included are those documents used in the contractor's purchasing system, such as the 

receiving report, material transfer document, petty cash document, and fabrication 

document.

C3.8.2.2. Bench stock shall be limited to low dollar, non-sensitive, high usage 

consumable material and is normally found at the using location. Quantities at the using 

location shall not exceed amounts that would normally be consumed within 30 days, or 

as established in the contractor's approved property control system.

C3.8.2.3. Contractors may be authorized in writing by the PA to use a "Receipt 

and Issue" system in accordance with FAR 45.505-3(d) when there is a clear benefit to 

the Government. This system is appropriate when material acquired by the contractor 

or furnished by the Government is issued for immediate consumption. This is an 

alternate method of recordkeeping instead of perpetual inventory records. When this 

system is authorized, the contractor is required to maintain a file of appropriately 

cross-referenced documents evidencing receipt and issue for immediate consumption of 

this material. These documents may consist of purchase requisitions, purchase orders, 

receiving documents, and issue slips. To justify the use of this material the PA may 

review the supporting documents (blueprint, drawing, etc.) that generated the purchase 

requisition as well as conduct discussions with the appropriate contractor personnel. 

The PA may elect to restrict the application of a receipt and issue system to specific 

contracts.

C3.8.2.4. Custodial items issued from tool cribs, office stock rooms, uniform 

rooms, and the like shall have control records maintained that include essential data to 

accomplish effective control. Issues to contractor personnel will be covered by tool 

chits, uniform slips, or other mechanisms designed to ensure return or the ability to 

locate items that are to be returned. New items are not to be issued without return of 

worn-out items unless suitable explanation is provided.

C3.8.3. Agency-Peculiar Property

C3.8.3.1. Contractors are required to establish control over APP and maintain 

records in accordance with FAR 45.505-1 and 45.505-13, where applicable.

C3.8.3.2. In accordance with FAR 45.310(c), special direction for the control, 

security, and maintenance of APP may be included in the contract by the contracting 

officer.

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57 CHAPTER 3
C3.8.4. Special Test Equipment. The contractor is required to establish and 

maintain records of Government-owned special test equipment in accordance with FAR 

45.505-1 and 45.505-4. The accuracy of these records is important for the proper 

control, utilization, and disposition of special test equipment. Records must clearly 

identify general purpose components that are readily removable. These items shall be 

identified on the item record. In addition, these items must be clearly reflected on 

inventory schedules in conjunction with plant clearance of STE.

C3.8.5. Special Tooling. The contractor is required to establish and maintain 

records of Government-owned special tooling in accordance with FAR 45.505-1 and 

45.505-4. The accuracy of these records is important for the proper control, 

utilization, and disposition of special tooling. Special emphasis should be placed on 

in-house fabricated tools to ensure that fabrication is properly documented and that the 

tooling is incorporated within the accountable inventory control and financial records.

C3.8.6. Facilities. The minimum requirements for establishing contractor records 

on Government facilities are set forth in FAR 45.505-5 (plant equipment) and FAR 

45.505-7 (real property). The PA should ensure that historical files on centrally 

reportable IPE are established and maintained as prescribed by DFARS 245.505-6. For 

NASA centrally reportable equipment, a DoD Property Record (DD Form 1342 or 

equivalent) shall be prepared in accordance with NASA PR B-31-1.

C3.9. MOVEMENT OF GOVERNMENT PROPERTY

C3.9.1. Material

C3.9.1.1. Movement must be controlled through some type of documentation 

so that records may be updated to show changes in quantities and location. Various 

types of documents are used as authority for moving material and for recording 

movement thereof. Examples of proper documentation are receiving reports, issue 

documents, turn-in documents, move tickets, and shipping documents.

C3.9.1.2. Movement of material requires use of a variety of material handling 

equipment such as conveyors, fork lifts, cranes, elevators, hoists, positioning equipment, 

motor vehicles, railroad cars, and aircraft. A variety of containers and supports are used 

to carry in-process or finished materials, parts, assemblies, or products through all 

phases of the manufacturing cycle. Training is necessary for all personnel involved in 

the movement and handling of materials and equipment. Practices shall be used that 

will minimize or are designed to prevent possible damage to property and injury to 

personnel.

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58 CHAPTER 3
C3.9.2. APP. The contractor's procedures covering movement of APP should be 

established, when applicable, to provide for adequate controls while such property is 

moved from one location to another and stored pending reutilization or disposal. In 

accordance with FAR 45.310(c), when APP requires special handling or safeguards the 

contracting officer shall provide special instructions for security, etc.

C3.9.3. Special Test Equipment. The contractor is contractually required by 

incorporation of FAR 45.5 in a contract to control and protect all Government 

property. This includes controlling and protecting all STE by ensuring proper 

movement practices.

C3.9.4. Special Tooling. The contractor's procedures concerning movement of 

special tooling must be complete and adequate to protect the Government's interests. 

When the management of special tooling will not provide adequate control of tooling, 

significant losses of tooling may occur and costly work delays could result. An 

effective move order system is essential to maintain the integrity of the location system.

C3.9.5. Facilities. The contractor's procedures covering movement of facilities, 

of a moveable nature, should be established to provide for adequate controls while such 

property is moved from one location to another and stored pending reutilization or 

disposal. The PA shall ensure that proper documentation is promptly processed to 

update the official Government property records.

C3.10. STORAGE OF GOVERNMENT PROPERTY

C3.10.1. General. Storage of Government property requires establishing controls 

that permit ready location and identification. Proper protection of Government 

property in storage includes but is not limited to security from pilferage; adequate 

prevention of handling damage; protection against water flows, insects and rodents, or 

from deterioration by dust, temperature, and humidity. Special controls shall be 

provided for sensitive property, shelf life items, classified property, and other similar 

situations. Storage layout and housekeeping are other important factors in the proper 

storage of Government property.

C3.10.2. Segregation or Commingling of Materials

C3.10.2.1. Commingling is the process by which materials that are common 

to multiple contractor projects or contracts are stored in a single location. Normally, 

commingling consists of storing both Government and contractor material in the same 

room or building, and specifically identifying the material as to ownership by physical 

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59 CHAPTER 3
segregation of marked bin box, shelf, or package. FAR 45.507 provides criteria for PAs 

to authorize in writing commingling of materials. The disadvantage in commingling lies 

in that the property may lose its identity as Government property. Convenience and 

apparent ease for the contractor alone will not be considered to be advantageous to the 

Government. There must be clear benefit to the Government. The PA's determination 

as to whether commingling is advantageous to the Government should include 

consideration of the following:

C3.10.2.1.1. Whether it is practical and economical to combine 

Government and contractor property in the manufacturing or processing operation.

C3.10.2.1.2. Whether issue, use, and identification controls are adequate 

to prevent loss in excess of that which might be reasonable under conditions of 

segregation.

C3.10.2.1.3. Whether procedures exist for the equitable apportionment 

of inventory loss.

C3.10.2.2. A MMAS differs in its allowance of commingling. See Chapter 5

for MMAS information.

C3.11. PHYSICAL INVENTORIES OF GOVERNMENT PROPERTY

C3.11.1. General. It is standard industry practice for a contractor to periodically 

physically inventory company assets for the purposes of material management and 

production control. The Government requires the contractor to do likewise for 

Government property in the contractor's possession. The PA has the authority and the 

responsibility to approve the contractor's physical inventory practices and procedures in 

accordance with FAR 45.508.

C3.11.2. Inventory Requirements

C3.11.2.1. Frequency of Inventories. Contractors may have various inventory 

frequencies for different types of property as authorized in FAR 45.508.

C3.11.2.1.1. Contractors normally accomplish physical inventory of 

material on an annual or semiannual basis. This is imperative to ensure that the quantity 

on hand is known and recorded, especially for the purchasing organization and the 

requirements planning organization to prevent over procurement or work stoppage due 

to material shortages. However, inventorying all the line items (100 percent) of 

material is a very time consuming and seldom cost-effective method of checking for 

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60 CHAPTER 3
discrepancies within the contractor's material control system. Two alternative methods 

are currently in use in commercial practice: statistical sampling and stratification.

C3.11.2.1.1.1. Statistical sampling is a method that will reduce costs, 

yet not increase the Government's risk significantly. In approving the contractor's use 

of a sampling-type inventory, the PA should examine the contractor's plan to ensure that 

it does not exceed the risk the Government is willing to accept, and that it provides for 

use of valid sampling techniques. If the contractor's sample indicates that they have 

dropped below the approved error rate, they will have to perform a complete inventory 

and correct the deficiency in the system.

C3.11.2.1.1.2. Stratification is appropriate where the contractor does 

not have specific controls, such as physical inventory, for their own material for items 

under a certain dollar value. More specifically, the contractor does not physically 

inventory material that falls below a set dollar value, for example, below $10.00, or 

$25.00, or at some pre-established level. This does not relieve the contractor of 

responsibility for record keeping but does allow the contractor to expend the greatest 

amount of time and effort on the high dollar value items. For example, the contractor 

may be authorized to use a stratified physical inventory process whereby material under 

$25.00 is not inventoried, items between the dollar value of $25.01 and $99.99 are 

statistically sampled, and all items above $100 are inventoried 100 percent. The 

contractor may be authorized by the PA to stratify material by dollar value for tie 

purposes of physical inventory. This determination should be based on the contractor 

providing supporting rationale for this type of inventory and the PA's assessment of 

reliability of the contractor's system.

C3.11.2.1.1.3. A combination of stratification and statistical sampling 

may be useful and could be done by authorizing the contractor to perform statistical 

sampling of low value items and a complete inventory of high value items. Decisions as 

to types or methods of inventory must be determined at each location. Criteria for 

separating low value items from high value items is a matter of judgment and should be 

based on the PA's knowledge and confidence of the contractor's operation. If inventory 

methods can be cost-effective without requiring the Government to assume an 

unreasonable risk, this method should be authorized in accordance with the PA's 

authority to approve the type of inventory that the contractor will perform (FAR 

45.508).

C3.11.2.1.2. Physical inventory of non-consumable assets (ST, STE, 

Facilities, etc.) should be based on the contractor's established practices; the type, use, 

and amount of Government property involved; the monetary value of the property; and 

the reliability of the contractor's property control system.

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61 CHAPTER 3
C3.11.2.2. Types of Inventories. The contractor's method of accomplishing 

the physical inventory must be detailed in the procedures portion of their property 

control system. The two primary means of performing an inventory are periodic and 

cyclical.

C3.11.2.2.1. A periodic inventory is taken at predetermined intervals, 

usually accomplished in a short period of time, on a wall-to-wall basis. The interval 

between inventories may be semiannual, annual, biennial, and so forth, but must be based 

on the contractual considerations such as type, amount, value, and usage of Government 

property and the established practices and reliability of the contractor's property control 

system.

C3.11.2.2.2. An inventory by exception is taken on a continuous basis with 

a fixed beginning and ending inventory cycle. This type of inventory uses move orders, 

calibration checks, and other situations where the items are "touched" by disinterested 

parties. However, when these situations occur, the inventory must comply with all 

contractual provisions. Toward the end of this cycle, a periodic inventory must be 

performed on items not already inventoried during the inventory period.

C3.11.2.2.3. An ABC inventory stratifies the property to be inventoried 

either by criticality or dollar value as these items are likely to be controlled more 

tightly than other. For example, those items with high dollar values are financially more 

important than those with low dollar values. All items may be placed in at least three 

categories: A, B, and C. Class A items, the most critical, are counted, for example, 

perhaps six times a year; class C items, the least critical, are counted less frequently. 

Consideration should also be given to other situations such as items that have a long 

lead time, items subject to pilferage, and critical or sensitive items.

C3.11.2.3. Approval Requirements. The PA approves the contractor's 

inventory practices as part of the property control system. In all cases the 

requirements of FAR 45.508 must be met for a system to be acceptable. These 

requirements include:

C3.11.2.3.1. Personnel who perform the inventory shall not be the same 

individuals who maintain the property records or have custody of the property unless the 

contractor's operation is too small to do otherwise. Movers, calibration technicians, or 

maintenance personnel are all eligible to perform the inventory if they do not fall into 

the above category. Often, contractors will hire a separate company, such as special 

service firms, to do the inventory. This has proven to be a very effective method. In 

addition, it is recognized that some contractors are using current technologies such as 

DoD 4161.2-M, December 1991

62 CHAPTER 3
bar coding, electronic reading, recording, and reporting to facilitate the accomplishment 

and completion of inventories.

C3.11.2.3.2. Under a manual system, the property inventoried is generally 

tagged or marked in a manner that readily indicates that the item has been inventoried. 

The tags used should be designed to last through the inventory cycle. The tags used are 

often color-coded or have the current year identified.

C3.11.2.3.3. If the PA approves an inventory by exception method, move 

orders, maintenance cards, or calibration checks can be used for inventory purposes 

during the inventory cycle. The move orders, calibration checks, or maintenance cards 

must clearly describe the item to include the property control number and any other 

identification so that these documents can be reconciled with the official property 

records.

C3.11.2.4. Property in the Possession of a Subcontractor. Contractors are 

required to periodically inventory all Government property and shall cause 

subcontractors to do likewise. The contractor's property control system shall include 

procedures necessary to accomplish this action. The prime contractor will use the 

subcontractor's records if the subcontractor has a Government-Approved Property 

Control System for controlling property under other prime contracts, unless otherwise 

directed by the PA (see FAR 45.505(a)).

C3.11.2.5. Physical Inventory Union Completion or Termination. In 

accordance with FAR 45.508-1, contractors are required to perform and cause each 

subcontractor to perform a physical inventory, adequate for disposal purposes, of all 

Government property. The inventory may be waived by the PA when the property is 

authorized for use on a follow-on contract if past contract performance has established 

the adequacy of property controls and an acceptable degree of inventory discrepancies. 

In addition, the contractor provides a statement indicating that record balances have been 

transferred in lieu of preparing a formal inventory list and that the contractor accepts 

responsibility and accountability for those balances under the terms of the follow-on 

contract.

C3.11.2.6. Other Inventories. As contractually authorized, the PA may require 

inventories upon notification by the contractor or discovery by the PA of LDD of 

Government property.

C3.11.3. Accomplishing the Inventory. The PA shall review the contractor's 

property control system to ensure that, where applicable, the following actions are 

performed:

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63 CHAPTER 3
C3.11.3.1. Preparation for Inventory. Before conducting the inventory, the 

contractor shall specify the method to be use, identify all locations where Government 

property is stored or used, schedule start and stop dates, and notify users as to 

commencement or performance of the inventory.

C3.11.3.2. Performing the Inventory. All property inventoried must be 

sighted, recorded, reported, and reconciled with the property records. The physical 

inventory should be taken from the floor without knowledge of the record balances. 

The purpose of this action is twofold. It prevents a bias on the past of the counter due 

to foreknowledge of the record balance as well as it will determine if any property has 

been received and not included in the property records.

C3.11.3.3. Recording the Inventory. Upon completion of the inventory, all 

pertinent records will be annotated as to the accomplishment of the inventory and the 

actual physical count recorded. Results shall be compared between the actual physical 

count and the balances recorded in the contractor's property control records.

C3.11.3.4. Reconciling the Inventory. The contractor shall reconcile those 

items where there exists a discrepancy between the actual physical count obtained 

during the inventory and the "balance on hand" last posted to the record. Reconciliation 

normally consists of a number of different actions, some of which may include: 

reviewing the physical counts accomplished during the inventory for miscounts, 

correcting miscounts due to weighing, and reviewing the records for possible posting 

errors, consisting of either incorrect or incomplete entries. Most contractors conduct 

investigations to reconcile all variances, regardless of the dollar value. This could 

mean that more money is being spent checking variances than the line items are actually 

worth. When the contractor is performing a complete inventory of all material, the PA 

should consider authorizing the contractor to conduct a variance analysis only on those 

line items in which the variance exceeds minimum dollar value; for example, $10.00, 

$15.00, etc. This approval should not be used in conjunction with a sampling-type 

inventory, since the two combined will increase the Government's risk.

C3.11.3.5. Reporting the Inventory. The contractor, through established 

management channels, will promptly furnish the PA the results of the inventory in 

accordance with FAR 45.508-2. The time frames for reporting results shall be 

established in the contractor's property control system. This report will include:

C3.11.3.5.1. A listing that identifies all discrepancies.

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64 CHAPTER 3
C3.11.3.5.2. A signed statement that the physical inventory of all, or a 

part, was completed on a certain date.

C3.11.3.5.3. A statement that the official property records are in 

agreement with the physical inventory, except for the discrepancies reported.

C3.11.3.5.4. Inventory results on a quantitative and monetary basis by 

category of property, if requested by the CO in accordance with FAR 45.508-3.

C3.11.3.6. Adjustment of Records. All inventory discrepancies reported by 

the contractor will be evaluated by the PA to determine actual losses of Government 

property. Differences caused by record errors or offsetting overages and shortages of 

similar items are not construed to be actual losses to the Government. Inventory 

adjustments necessitated by posting errors will include appropriate cross-reference to 

the error in the official property records. The PA shall make a liability determination 

for material adjustments to records arising from the results of physical inventories in 

accordance with the applicable Government property clauses. The PA may elect to 

make a single liability determination to address all material losses or determine if 

individual items or categories, e.g., sensitive items, high dollar items, or pilferable 

items require separate review and determination. Losses or shortages involving special 

tooling, special test equipment, facilities or Agency-peculiar property shall not be listed 

on Inventory Adjustment Vouchers. All such occurrences shall be reported to the PA 

for a determination of liability in accordance with the applicable Government property 

clauses. Physical inventory adjustments for facilities, special tooling, and special test 

equipment, including found assets once reported lost and removed from the official 

property records, shall be posted to the official property records.

C3.12. REPORTS OF GOVERNMENT PROPERTY

C3.12.1. General. Management of reports includes the review of the document(s) 

for accuracy, completeness, and timeliness of submission, as well as the contractor's 

system for obtaining and compiling the data reported.

C3.12.2. Reports of DoD Property in the Custody of Contractors (DD Form 1662)

C3.12.2.1. The contractor is responsible for preparing appropriate reports as 

prescribed in FAR 45.505-14 and DFARS 245.505-14 for all DoD contracts. DFARS 

245.505-14 prescribes the use of DD Form 1662 (DoD Property in the Custody of 

Contractors). This report shall include all DoD-owned Government property in the

DoD 4161.2-M, December 1991

65 CHAPTER 3
contractor's possession, including property accountable to a prime contract but is 

located at a subcontractor's plant and/or alternate location.

C3.12.2.2. The data reported is as of September 30 each year. In addition, the 

contractor must report zero balances on contracts accountable for DoD property when 

they close. The report may be submitted using DD Form 1662 or an equivalent 

substitute approved by the PA. The form is self-explanatory and contains the 

instructions and required codes on the reverse side. The contractor is required to 

furnish the prepared report, in duplicate, to the PA no later than October 31 each year. 

The PA will forward the reports to the appropriate DoD office in accordance with 

Agency directives.

C3.12.3. PA Responsibilities

C3.12.3.1. The PA is primarily responsible for ensuring that the contractor's 

property control system, including both written procedures and practices, provides for 

the reasonably accurate preparation, contractor validation, and timely submission of the 

DD Form 1662. When there are indications of cost and quantity data errors, the PA 

shall request DCAA assistance, through the CO, to perform detailed analysis and 

determine the extent of the deficiencies. In reviewing the contractor's report 

preparation process, the PA will consider the following criteria to ensure that the 

contractor's policies and procedures provide for the accurate preparation, validation, and 

timely submission of DD Form 1662:

C3.12.2.3.1.1. Responsibility for reports data compilation, preparation, 

contractor validation, and timely submission is assigned to specific contractor functions.

C3.12.3.1.2. Sources of report information are clearly defined, accurate, 

and current.

C3.12.3.1.3. Appropriate audit or other method is employed by the 

contractor to verify report accuracy and completeness.

C3.12.3.1.4. Controls are maintained to identify:

C3.12.3.1.4.1. Contracts subject to report requirements.

C3.12.3.1.4.2. Specific report requirements.

C3.12.3.1.4.3. Required submission dates for reports.

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66 CHAPTER 3
C3.12.3.1.5. Procedures provide adequate lead time for orderly 

compilation of data and report submissions.

C3.12.3.1.6. Reports are distributed according to contractual 

requirements.

C3.12.3.1.7. Exclusion of items to which the Government has acquired a 

lien or title solely as a result of advance, progress, or partial payments.

C3.12.3.1.8. Completed end items accepted by the Government and 

retained by the contractor, as well as items returned for repair under warranty, shall be 

reported as Agency-peculiar (military) property.

C3.12.3.1.9. Inclusion of Government property in the possession of 

vendors, subcontractors, or alternate sites shall be consolidated under the prime 

contract and submitted on a single DD Form1662.

C3.12.3.1.10. Compilation of accurate addition and deletion figures. 

Addition and deletion figures are not merely the difference between the beginning and 

ending balances.

C3.12.3.1.10.1. Additions:

C3.12.3.1.10.1.1. Purchase, fabrication, and transfer of 

facilities, special tooling, and special test equipment.

C3.12.3.1.10.1.2. When the Government takes title to special 

tooling under FAR 52.245-17.

C3.12.3.1.10.1.3. Physical inventory adjustments for facilities, 

special tooling, and special test equipment including found assets once reported lost and 

removed from the official property records.

C3.12.3.1.10.2. Deletions:

C3.12.3.1.10.2.1. Lost or destroyed items.

C3.12.3.1.10.2.2. Items disposed of through plant clearance or 

transferred to another contract.

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67 CHAPTER 3
C3.12.3.2. In addition, the PA shall perform the following reviews in 

conjunction with the contractor's annual submission of reports:

C3.12.3.2.1. The PA shall compare the property contract assignment 

listing with the contractor's submittal to ensure that a DD Form 1662 is submitted for 

each contract having Government property, including those that have become zero 

balance during the report period. The PA shall only accept DD Forms 1662 for 

contracts that the PA has prime property administration responsibility. If the contract 

reflected on the DD Form 1662 is for support property administration, remind the 

contractor that the data should be sent to the prime contractor for consolidation with 

prime contract data.

C3.12.3.2.2. Balances on hand at the end of the previous reporting period 

must equal the balances at the beginning of the current reporting period for those 

categories of property requiring this information.

C3.12.3.2.3. Finally, it is essential that all other pertinent information, 

such as contract purpose, is included on each DD Form 1662, since all data is used by a 

variety of organizations including Office of the Secretary of Defense (OSD), General 

Accounting Office (GAO), Department of Defense Inspector General (DoD IG), and 

Congress.

C3.12.2.4. Property Status Reports

C3.12.2.4.1. Various Agencies require particular status reports (e.g., repair 

status, GFM reports, etc.). The PA shall review the contractor's reports for their 

accuracy and to ensure that all are submitted as required in the contract or other DoD 

requirement.

C3.12.2.4.2. The Government may provide reports about Government property 

to the PA for reconciliation or verification. The PA shall comply with these requests in 

a timely fashion.

C3.12.2.5. Other Reports. Other reports may be required by non-DoD Agencies. 

These reports may include NASA Form 1018 or Department of Energy Form 4300.3. 

These and other Government property reports will be submitted in accordance with 

contract terms and requirements.

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68 CHAPTER 3
C3.13. CONSUMPTION OF MATERIALS

C3.13.1. Consumption. Consumption is the process of incorporating material into 

an end item or otherwise consuming it in the performance of the contract. 

Consumption analyses have long been recognized as one of the most complex aspects 

of property administration. The need for effective consumption analyses is highlighted 

by congressional and other allegations of inadequate controls of GFM. The 

consumption process consists of four parts:

C3.13.1.1. The first part consists of the issuance of material in reasonable and 

proper quantities for the work being performed. Issuance can generally be controlled 

through an effective system that ensures materials are issued only for authorized 

requirements and to authorized personnel. Additional factors to be considered by the 

PA are: shelf life; first in, first out (FIFO); lotting; serially numbered items; parts 

mortality; attrition; and sensitive or hazardous control considerations.

C3.13.1.2. The second part consists of the actual usage, incorporation, or 

expenditure of material into a higher assembly, end item, or through testing. It may 

also include the attachment or incorporation of material into an item of Government 

property.

C3.13.1.3. The third consists of the return of any unused portions of the 

material to stock and its annotation on perpetual inventory control and financial records 

or re-establishment of the records, with the appropriate supporting documentation.

C3.13.1.4. The fourth part consists of parts or components that are removed 

or recovered from repair, rework, testing, or cannibalization. These parts are returned 

to stores with the prospect of future use or disposal, dependent upon their condition 

(e.g., reparable status, shelf life, life expectancy, scrap or salvage, etc.).

C3.13.2. Determination of Unreasonable Consumption. As a general rule, 

material consumption should be considered to be unreasonable when consumption 

exceeds amounts supported by bills of material, material requirement lists, or similar 

material planning documents (including reasonable mortality or attrition rates). In the 

event of unreasonable consumption, a determination by the CO of the contractor's 

liability is required by FAR 45.503(a)(5). The PA should require the contractor to 

report and investigate instances of potential unreasonable consumption in a manner 

similar to LDD property. The PA shall encourage contractors to perform a 

consumption analysis as part of the investigation. PAs must be aware that contract 

liability provisions for LDD of Government property do not generally apply to 

unreasonable consumption unless it is caused by LDD. As such, the contractor may be 

DoD 4161.2-M, December 1991

69 CHAPTER 3
liable for unreasonable consumption of material even though the Government property 

control system is in an approved status.

C3.13.3. Remedies for Unreasonable Consumption. Unreasonable consumption 

of Government materials is not considered "loss, damage or destruction" under the 

risk-of-loss provisions. In cost-type contracts where unreasonable consumption is 

found, the PA will forward the case to the CO recommending cost disallowance action 

under the FAR cost principles. If unreasonable consumption is found in a fixed-price 

contract, the PA will forward the case to the CO for determination as to whether or not 

consideration should be sought from the contractor. In fixed-price contracts where 

unreasonable consumption of GFM is found, the CO shall determine whether or not 

consideration should be requested. Unreasonable consumption under MMAS is 

addressed in Chapter 5.

C3.14. UTILIZATION OF GOVERNMENT PROPERTY

C3.14.1. General

C3.14.1.1. Use of Government Property. The contractor should use 

Government property for authorized purposes only and have a system to determine if 

Government property is excess to their contractual needs. There must be a contractual 

requirement for all Government property in the possession of the contractor. Unless a 

contract provides authorization to use Government property in the offerer's possession, 

offerer's wishing to use such property in performance of a contract must obtain written 

approval for use from the CO having cognizance over the property.

C3.14.1.2. Rental of Government Property. It is the responsibility of the 

Contracting Officer to ensure the collection of any rent due the Government from the 

contractor in accordance with the Use and Charges Clause (FAR 52.245-9). In addition 

to ensuring that Government property is being used for the purposes authorized by the 

contract, the contractor's utilization system must also provide a basis for determining 

and allocating rental charges in accordance with FAR 45.403 and 45.509-2. In this 

connection, the CO may call upon the PA and/or other technical specialists, to verify the 

adequacy of the contractor's written statement of use in accordance with FAR 45.407 

and 52.245-9 and utilization records established under FAR 45.509-2. Upon the 

request of the CO, the PA and/or other technical specialists shall prepare and furnish a 

statement to the CO on the adequacy of the contractor's procedures for controlling, 

recording, and reporting usage in accordance with the contract requirements. The 

statement will describe any variances between the utilization records and the statement 

of use in the following areas:

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70 CHAPTER 3
C3.14.1.2.1. Unauthorized use.

C3.14.1.2.2. Authorized use on a rental basis.

C3.14.1.2.3. Use on independent research and development (IR&D) 

programs.

C3.14.1.2.4. Authorized and actual use of Government property.

C3.14.1.2.5. Age of Government property.

C3.14.1.2.6. Cost of Government property (including any variances 

between the contractor's statement and the property control records involving 

transportation, installation, rebuilding or modernization, special tooling, or accessories 

costs).

C3.14.1.3. Unauthorized Use of Government Property. It is the PA's 

responsibility to advise the CO of any known unauthorized use of Government 

property. In the event the contractor uses any Government property without 

authorization, the contractor may be liable for rental, without credit, for such items for 

each month or part of a month in which such unauthorized use occurs. The only 

exception is that the concerned Agency Head may, in writing, waive the contractor's 

liability for such unauthorized use if the Agency Head determines that without such a 

waiver a gross inequity would result.

C3.14.1.4. Identification of Excess. Government property that has no activity 

over a specified period of time should be reviewed periodically and its need for 

continued retention justified. This system must be responsive to contract modification, 

completion, termination, reduced production rates, and engineering changes. The PA 

shall ensure the contractor's property control system establishes timeframes for these 

reviews. The cost of retention of inactive Government property must be compared to 

the potential for future need and possible replacement cost. Significant program 

changes in the contract may affect the continued use and retention of Government 

property. Examples of such changes are production cutbacks, partial terminations, 

primary purpose or product change, program adjustment, or contract completion or 

termination.

C3.14.2. Facilities. The primary use of facilities is related to a specific contract 

and its use will normally expire upon completion thereof unless a new purpose is 

established, justified, and approved by the CO. The use of facilities for other than 

primary use may be authorized under FAR 45.4; however, such incidental use must not 

DoD 4161.2-M, December 1991

71 CHAPTER 3
interfere with or extend the primary use authorization. Both primary and incidental use 

of facilities for Government work are generally authorized by the CO on a rent-free 

basis. Conversely, facilities may be authorized for use by a contractor for commercial 

purposes in accordance with the requirements of FAR 45.402, 45.403 and 45.407. In 

such instances, a rental rate shall be computed in' a manner prescribed by the Use and 

Charges Clause, FAR 52.245-9.

C3.14.2.1. In view of the above stated policies, the contractor is contractually 

responsible for ensuring that all Government-owned facilities are effectively used. In 

addition, the contractor has a contractual obligation to promptly report all Government 

property in excess of the amounts needed to complete full performance under the 

contracts providing or authorizing its use. To accomplish this, the contractor has the 

responsibility to establish and maintain an adequate utilization management program. 

Contractor's procedures shall include an acceptable method of accumulating utilization 

data in sufficient detail to provide visibility as to the extent and manner of use of all 

Government-owned facilities. Although contractor systems will vary in type and 

complexity, each type will provide certain basic management data. All contractor 

utilization systems must provide written procedures for each type or group of property. 

Procedures for plant equipment with an acquisition cost of $5,000 or more must 

include the requirements found in FAR 45.509-2.

C3.14.2.1.1. Establishment of a minimum level of utilization. Such 

standards should indicate when management analysis will be accomplished by the 

contractor for retention justification. The utilization percentage or standard may vary 

for different items or grouping of items, depending on circumstances of use.

C3.14.2.1.2. Provide for the recording of authorized use and the actual 

use of the facilities.

C3.14.2.1.3. Definition of terms such as utilization, available hours, idle 

time, operating time, and minimum level of utilization.

C3.14.2.1.4. A method of collecting utilization data and for reporting 

equipment availability and usage. As a minimum, equipment utilization reports should 

include PE item, group, or category identification, location of equipment, minimum 

level of utilization, actual hours used, and basis of usage rate.

C3.14.2.1.5. Procedure or method for evaluating data and taking 

appropriate action when required for justifying retention of equipment that has fallen 

below the established minimum level of use or changing the minimum level of use or 

other standard.

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72 CHAPTER 3
C3.14.2.1.6. Provide for prompt reporting to the CO of all plant 

equipment (PE) for which retention is not justified.

C3.14.2.2. The PA will ensure that the contractor develops and maintains such 

a program in accordance with FAR 45.509-2. This will be accomplished by an 

evaluation of the contractor's utilization system(s) and analysis of the system's output. 

Before performing a system evaluation, the PA will ensure the contractor has developed 

an acceptable utilization procedure for PE as required by FAR 45.509-2. The 

contractor's procedures for use shall be referred to the appropriate technical personnel 

for evaluation and advice.

C3.14.2.3. The following represents the specific responsibilities of the PA in 

performing an evaluation of the contractor's utilization system:

C3.14.2.3.1. Approving the contractor's utilization program.

C3.14.2.3.2. Establishing with the contractor, mutually agreeable usage 

criteria on items, types, or groups of Government-owned PE. Coordinate contractor's 

procedures with the appropriate technical personnel for technical analysis and advice as 

to acceptance or changes required to meet minimum acceptable standards of use.

C3.14.2.3.3. Performing analysis of the utilization system's output to 

ensure economical and efficient usage of Government-owned plant equipment.

C3.14.2.3.4. Initiating reviews when it is determined that such property is 

not being economically and efficiently used or taking corrective action that may result in:

C3.14.2.3.4.1. Adjustment of the usage criteria.

C3.14.2.3.4.2. Reallocation of excess PE between contractor's 

programs through CO direction.

C3.14.2.3.4.3. Justification for retention based on programmed or 

projected workload, contractual changes, or other reasons acceptable to the PA.

C3.14.2.3.4.4. Declaration of the Government-owned PE as excess.

C3.14.2.3.4.5. Correction of deficiencies in the contractor's 

utilization systems.

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73 CHAPTER 3
C3.15. MAINTENANCE OF GOVERNMENT PROPERTY

C3.15.1. General. The applicable Government property clauses and special 

contract provisions require contractors to establish and maintain a program for the 

maintenance, repair, protection, and preservation of Government property (i.e., 

Facilities, ST, STE, and APP) in accordance with sound industrial practice and the 

applicable provisions of FAR 45.5.

C3.15.2. Maintenance Program. The contractor's maintenance program should be 

tailored to efficiently initiate, control, perform, and document maintenance functions 

for Government property provided under the terms of the contract. Facilities contracts 

require a more extensive maintenance plan. This plan becomes the contractor's normal 

maintenance obligation. The plan will include procedures and maintenance instructions 

that communicate company standards and techniques to operational and maintenance 

personnel. The program should provide for:

C3.15.2.1. Preventive Maintenance (PM), FAR 45.509-1(b). The PM 

program should include the recurrent day-to-day scheduled systematic first-level care of 

property, such as lubrication, adjustment, servicing, and inspection. It should also 

include normal parts replacement required to forestall excessive wear, repair, 

malfunction, or deterioration of production or non-production facilities to ensure 

effective use for their designated purpose, capacity and/or production rate. Procedures 

and/or instructions should be based on:

C3.15.2.1.1. Specific and/or optimum maintenance requirements for each 

item of equipment or real property.

C3.15.2.1.2. Manufacturer's recommendations, Government instructions 

or technical manuals/publications.

C3.15.2.1.3. Plant experience (peculiar operating conditions).

C3.15.2.1.4. Engineering analysis (age and condition).

C3.15.2.1.5. Tolerance requirements.

C3.15.2.1.6. Safety considerations. 

 

PM should be scheduled and performed in accordance with required frequencies (i.e., 

weekly, monthly, semiannually, or annually). Work orders and/or instructions for PM 

should assign responsibility and include a checklist identifying detailed tasks (i.e., points 

that must be inspected, lubricated, adjusted, and material required). When PM is 

DoD 4161.2-M, December 1991

74 CHAPTER 3
performed by equipment operators, procedures shall identify tasks, checklists, 

frequencies, recording requirements, and provide for reporting deficiencies when 

corrective maintenance is required. The objectives of PM are to sustain the service 

life of equipment, maintain safety, ensure optimum performance level, reduce 

emergency repairs and equipment downtime, and lower cost.

C3.15.2.2. Corrective Maintenance. The contractor's program should provide 

for the reporting, initiating, and performance of maintenance outside the scope of PM, 

but within the contractor's normal maintenance obligation. Any work that is outside of 

the normal maintenance obligation, such as capital-type rehabilitation (CTR), requires 

CO authorization. Procedures should include instructions for the following:

C3.15.2.2.1. Disclosure and/or reporting of deficiencies by operational 

personnel.

C3.15.2.2.2. Disclosure of deficiencies through PM and/or inspections.

C3.15.2.2.3. Initiating work orders with detailed assignment, guidance, and 

fixed responsibility.

C3.15.2.2.4. Ensuring deficiencies have been corrected.

C3.15.2.2.5. Recording work accomplished.

C3.15.2.2.6. Reporting the need for CTR.

C3.15.2.2.7. Identifying and reporting the need for replacement.

C3.15.2.3. Maintenance Management. The contractor's maintenance 

operation may be centralized to facilitate an efficient and effective maintenance 

program. Procedures should address all management control functions, lines of 

authority, and responsibility. Maintenance control functions include:

C3.15.2.3.1. Planning (knowing what work must be done and how it will 

be accomplished).

C3.15.2.3.2. Estimating (establishing cost of work to be performed).

C3.15.2.3.3. Scheduling work (coordinating specific work with 

man-hours, material, and equipment operational time).

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75 CHAPTER 3
C3.15.2.3.4. Initiating work orders (PM and corrective, controlling work 

flow).

C3.15.2.3.5. Controlling maintenance performance.

C3.15.2.3.6. Ensuring field reporting (completed work orders returned 

noting work accomplished and providing remarks on equipment status).

C3.15.2.3.7. Work order status (suspense on complete or open orders).

C3.15.2.3.8. Backlog (planned work yet to be scheduled).

C3.15.2.3.9. Records (complete historical data on each item of property; 

i.e., all maintenance efforts, cost, accumulative cost (parts and labor), repetitive 

failures).

C3.15.2.3.10. Maintenance analysis.

C3.15.2.3.11. Reporting (the ability to provide reports on all the above).

C3.15.2.4. Maintenance Requirements by Property Type

C3.15.2.4.1. APP. APP shall be maintained in accordance with the 

contractor's maintenance program. Special contract terms and conditions may require a 

higher level of maintenance or special maintenance provisions. The PA shall review 

contracts for any special provisions. Maintenance for APP must be accomplished in 

accordance with Government technical publications or manuals, where applicable, or 

other appropriate technical sources, including manufacturer's maintenance manuals, 

where available. Both scheduled and non-scheduled maintenance may be required. PAs 

should be aware that in some instances APP may, by its nature, require maintenance to 

be performed by the Government instead of the contractor.

C3.15.2.4.2. STE. Maintenance of STE shall be included in the 

maintenance program and is primarily limited to periodic calibration. Contractor 

calibration systems are generally reviewed by the Quality Assurance Technical 

Representative. STE maintenance consists of preventive, corrective, and calibration as 

required by the manufacturer's recommendations or other appropriate technical 

standards. The PA should be assured that the maintenance or calibration is performed 

according to schedule, and records of preventive maintenance, calibration, and 

corrective actions are adequate and accurate. The calibration review should include a 

thorough review of the maintenance history, whether manual or automated. Updated 

DoD 4161.2-M, December 1991

76 CHAPTER 3
calibration stickers usually show the next required inspection date. The PA shall review 

the contractor's procedures for a step-by-step implementation of calibration program 

control.

C3.15.2.4.3. ST. The contractor's maintenance program shall include 

provisions that will ensure the proper maintenance and preservation of ST. Factors that 

should be considered are proper preservation of tools before going into long-term 

storage, particularly proper protection of critical surfaces, and proper calibration and 

tolerance checks before putting tools back into service.

C3.15.2.4.4. Facilities. The contractor's responsibilities for maintenance 

of Government-owned real property and plant equipment are described in FAR 

45.509-1, Contractor's Maintenance Program and the appropriate Government property 

and Facilities clauses. The Facilities contract clauses (FAR 52.245-7 & 11) require 

the establishment of a maintenance program that, when approved by the PA, may be the 

contractor's normal maintenance program. Any work that exceeds the requirements of 

the normal maintenance program shall be considered to be CTR. The contractor's 

maintenance program shall provide for:

C3.15.2.4.4.1. Disclosure of need for and the performance of 

preventive maintenance.

C3.15.2.4.4.2. Disclosure of need for and reporting of CTR.

C3.15.2.4.4.3. Recording of work performed under the contractor's 

maintenance program.

C3.15.2.5. PA Responsibilities. The PA will ensure the contractor develops 

and maintains a maintenance program in accordance with contract provisions, FAR 

45.509-1, and the applicable Government property clauses. To accomplish an adequate 

evaluation of the maintenance program, appropriate technical staff personnel should 

review the contractor's procedures and provide recommendations or comments. The PA 

will approve the contractor's maintenance program when evaluation reflects compliance 

with contract requirements.

C3.16. SUBCONTRACTOR AND ALTERNATE LOCATION PROPERTY 

MANAGEMENT

C3.16.1. General. It is recognized that Government property may be in the 

possession or under the control of a subcontractor or at alternate locations of the 

prime contractor. The contractor is responsible and accountable for all Government 

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77 CHAPTER 3
property in the possession of subcontractors or at its alternate locations. The PA is 

responsible for ensuring that the prime contractor includes appropriate provisions in its 

subcontracts providing for Government property and is performing adequate surveillance 

of its subcontractor's property control systems. In addition, the PA is responsible for 

determining the extent of support property administration necessary to ensure that the 

best interests of the Government are adequately protected.

C3.16.2. Contractor Requirements

C3.16.2.1. Maintaining Official Records of Government Property

C3.16.2.1.1. FAR 45.505 requires the prime contractor to use the 

records created and maintained by a subcontractor with an approved property control 

system for Government property provided under its own prime contracts, unless the PA 

directs otherwise. A common industry practice has been for the prime contractor to 

maintain the official property records while relying upon the subcontractor's records as 

secondary locator records.

C3.16.2.1.2. The PA's approval of the contractor's determination as to 

who should create and maintain the official property records will be based on, but not 

limited to the following criteria:

C3.16.2.1.2.1. Type, quantity, and dollar value of property in the 

subcontractor's possession.

C3.16.2.1.2.2. Type of subcontract and risk of loss provision 

contained therein.

C3.16.2.1.2.3. Established policies, precedence, and past 

performance of the contractor and subcontractor.

C3.16.2.1.2.4. Extent and effectiveness of the prime contractor's 

subcontractor surveillance program.

C3.16.2.1.2.5. Prime contractor's willingness to accept the findings 

of the supporting PA.

C3.16.2.1.2.6. Other pertinent information.

C3.16.2.1.3. The PA's approval or disapproval and rationale must be fully 

documented in the contract file.

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78 CHAPTER 3
C3.16.2.2. Flowdown of Contractor Requirements

C3.16.2.2.1. The PA must ensure that the contractor's procedures 

adequately address the methods by which flowdown of contractor requirements are 

accomplished. Subcontracts and/or purchase orders (PO) that provide Government 

property to subcontractors must be reviewed to verify that they adequately describe the 

Government property being furnished by or acquired for the Government, and that the 

contract requirements are flowed down:

C3.16.2.2.1.1. By reference (for larger subcontractors 

knowledgeable of FAR provisions), or

C3.16.2.2.1.2. Incorporated in full text (for smaller subcontractors 

with limited knowledge of or access to FAR provisions), whichever is appropriate.

C3.16.2.2.2. In particular, FAR 45.502(d) requires a contractor who 

provides Government property to a subcontractor for the performance of a subcontract, 

to insert the provisions of FAR 45.5 in the subcontract.

C3.16.2.2.3. Under fixed-price contracts containing the "All" risk of loss 

provisions, found at FAR 52.245-2 (g), prime contractors are liable for all loss, damage 

or destruction of Government property with the exception of reasonable wear and tear 

or proper consumption as determined by the PA. If Government property is provided by 

the prime to a subcontractor the prime is ultimately responsible. If a prime has 

Government property accountable under a contract containing the "Limited risk of loss" 

provisions, FAR 52.245-2 (ALT. I), 52.245-5 or 52.245-8, and the contractor provides 

that Government property to the possession and control of a subcontractor, the transfer 

shall not affect the liability of the prime for loss, damage or destruction of Government 

property. Under the "Limited risk of loss" provisions it is the Government's policy that 

the prime require the subcontractor to assume the risk of and be responsible for any 

loss or destruction of, or damage to, the Government property while in the 

subcontractor's possession or control, with the exception of reasonable wear and tear or 

reasonable and proper consumption. However, the prime contractor may, with the 

Contracting Officer's prior written approval, flow down the "limited risk-of-loss 

provision" of the Government property clause. To make this determination, the 

Contracting Officer shall consider the applicable criteria listed in FAR 45.103 before 

allowing the flow-down of the "Limited risk-of-loss provisions."

C3.16.2.2.4. If the prime contract contains the FAR 52.245-17 Special 

Tooling (ST) clause, the contractor shall include in any subcontract involving the 

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79 CHAPTER 3
acquisition or fabrication of ST, where the full cost of ST is to be charged to the 

subcontract, provisions to obtain Government rights comparable to the rights of the 

Government under the prime contract (unless the contractor and Contracting Officer 

agree that such rights are not of substantial interest to the Government).

C3.16.2.2.5. If the prime contract contains the FAR 52.245-18 Special 

Test Equipment (STE) clause, the contractor shall insert the STE clause or equivalent 

provisions in any subcontract that provides for the acquisition or fabrication of STE or 

components for the Government.

C3.16.2.3. Contractor Surveillance of Subcontractors

C3.16.2.3.1. The PA shall review the contractor's procedures and 

practices for performing surveillance of subcontractor property control systems to 

ensure that they provide for:

C3.16.2.3.1.1. Scheduled and completed surveillance.

C3.16.2.3.1.2. The scope, frequency, and techniques used to perform 

the surveillance.

C3.16.2.3.1.3. Adequate surveillance documentation describing:

C3.16.2.3.1.3.1. Subcontractor name and address, date(s) of 

survey, and person(s) contacted during the survey.

C3.16.2.3.1.3.2. Types, quantities, and dollar value of property 

involved.

C3.16.2.3.1.3.3. Method(s) of performing the survey (sampling, 

observation and judgment, discussions with key contractor personnel, review of 

procedures, etc.).

C3.16.2.3.1.3.4. Evaluation criteria used to perform the survey.

C3.16.2.3.1.3.5. Conclusions including disclosure, follow-up, 

and final resolution of deficiencies.

C3.16.2.3.2. Extent of Surveillance. The scope, frequency, and 

techniques the contractor uses to perform surveillance of his subcontractors should be 

based on applicable criteria listed in subparagraph C3.16.2.1.1. through C3.16.2.1.3.,

above:

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80 CHAPTER 3
C3.16.2.3.2.1. For subcontractors with small amounts of 

Government property, the extent of prime contractor surveillance may be limited to a 

letter ascertaining the status of the Government property that was provided under the 

subcontract. However, unless the PA determines otherwise, certification letters must 

not be the sole method of surveillance. Periodic on-site surveys may be necessary to 

verify that the items are being adequately protected and used for purposes authorized by 

the contract.

C3.16.2.3.2.2. For subcontractors with larger amounts of 

Government property, on-site surveillance visits by contractor personnel knowledgeable 

of Government property control contract requirements are essential.

C3.16.3. Support Property Administration

C3.16.3.1. Support Property Administration Criteria

C3.16.3.1.1. The PA has the responsibility to determine when Support 

Property Administration (SPA) will be in the Government's best interest. Since the 

contractor is responsible for managing its subcontracts, the PA should be primarily 

concerned with the contractor's program for subcontractor control. Thus, the PA will 

normally not request SPA unless one of the conditions in FAR 42.204(b) or (c) exist.

C3.16.3.1.2. When one of the conditions in FAR 42.204 (b) or (c) exists, 

the PA shall consider applicable criteria in subparagraph C3.16.2.1.2., above.

C3.16.3.1.3. Since the contractor's contract costs or prices are normally 

based on direct charges or overhead rates that include the cost of performing 

surveillance of subcontractors, it is recommended that the PA coordinate with the CO 

before requesting SPA. The CO may determine that consideration should be sought 

depending upon the amount of overhead costs the contractor will save by having the 

Government perform the contractor's required surveillance of his subcontractors.

C3.16.3.1.4. Support property administration delegations should be 

reviewed and updated during the preparation for a system analysis for changes, additions, 

or deletions.

C3.16.3.2. Contractor's Permission and Concurrence

C3.16.3.2.1. When the PA determines that SPA is appropriate, the PA will 

ascertain whether the contractor will accept the findings of a supporting PA. Legally, 

the PA must have the permission of the contractor before a supporting PA may be 

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81 CHAPTER 3
allowed to enter the subcontractor's facility to perform surveillance. The basis for this 

requirement is that the contractor is the party having a direct contractual relationship 

with the Government. There is no such relationship, or as it is commonly phrased 

"privity of contract," between the Government and the subcontractor.

C3.16.3.2.2. The contractor may request and accept the findings of a 

supporting PA instead of performing its own surveillance. In instances where the 

contractor does not consent to SPA, the contractor shall perform necessary reviews and 

surveillance, and document all actions and findings in accordance with FAR 45.502(d). 

This likely to involve small subcontractors with limited Government subcontracts who 

prefer to deal only with those with whom they have a direct contractual relationship. 

However, if the same subcontractor has Government prime contracts, there is nothing 

to preclude the PA from requesting occasional assistance from the cognizant PA in 

order to ascertain the overall status of the subcontractor's property control system. If 

the information from the cognizant PA reveals deficiencies in the subcontractor's 

system, the PA will ascertain whether the prime contractor had knowledge of the 

deficiencies and whether appropriate corrective actions have been implemented.

C3.16.3.2.3. Often, prime contractors insert provisions in their 

subcontracts allowing Government personnel to audit the subcontractor's property 

control system during subcontract performance.

C3.16.3.2.4. When the contractor will accept the findings of a supporting 

PA, the PA will obtain a statement in writing to that effect and prepare a request for SPA.

C3.16.3.2.5. The PA does not require the contractor's permission to 

request SPA if Government property is at the contractor's alternate locations, since the 

system is covered under the provisions of the prime contract.

C3.16.3.3. Procedures for Requesting Support Property Administration

C3.16.3.3.1. When the PA has determined that SPA is necessary and that 

the contractor will accept the findings of a supporting PA, the PA will consult DLAH 

4105.4, "Directory of Contract Administration Services Components," to determine the 

cognizant CAO.

C3.16.3.3.2. Wherever possible, requests for SPA will be combined with 

those for support administration in other functional areas. The PA shall consult with 

other components of the CAO and ascertain whether other functions are to be 

delegated. In the event more than one function is to be delegated, a request will be 

prepared by the PA and forwarded to the CO for consolidation with the other functional 

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82 CHAPTER 3
requests. When other support contract administration functions are not required, the 

PA will make an individual request.

C3.16.3.3.3. In many cases, a determination as to whether SPA is 

necessary cannot be made by the PA until such time that subcontracts have been placed 

by the contractor, and the dollar amount and type of property located at the 

subcontractor's facility is known. This requires the PA to request from the contractor a 

list of all Government property by dollar amount and type located at subcontractor and 

contractor alternate locations. The information is needed in order for the PA to make 

SPA determinations such as whether to request SPA and to ensure that existing SPA 

reflects current requirements.

C3.16.3.3.4. The request for SPA shall include the following minimum 

information:

C3.16.3.3.4.1. The name and address of the prime contractor.

C3.16.3.3.4.2. The prime contract number.

C3.16.3.3.4.3. The name and address of the subcontractor or the 

contractor's alternate location where the property is to be located.

C3.16.3.3.4.4. A list of property to be furnished and/or a statement 

as to whether property will be acquired by the subcontractor.

C3.16.3.3.4.5. A copy of the subcontract, purchase order, and any 

subsequent change orders under which the property will be furnished or acquired by the 

subcontractor.

C3.16.3.3.4.6. The specific extent of support required such as:

C3.16.3.3.4.6.1. Prompt reporting of loss, damage or 

destruction of Government property.

C3.16.3.3.4.6.2. Forwarding copies of deficiency and system 

summary reports.

C3.16.3.3.4.6.3. Performing special emphasis surveillance, etc.

C3.16.3.3.4.7. Any limitations of the delegation; for example:

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83 CHAPTER 3
C3.16.3.3.4.7.1. Approval of the property control system at the 

contractor alternate location (in this case, the supporting PA will only be requested to 

perform the surveillance and forward the findings and status to the prime PA).

C3.16.3.3.4.7.2. Relieving the contractor of responsibility for 

LDD of Government property at the contractor alternate location (in this case, the 

requester will ask only that the supporting PA investigate and make a recommendation to 

the prime PA).

C3.16.3.3.4.7.3. Other responsibilities that the PA may wish to 

retain.

C3.16.3.3.5. Ideally, requests for SPA should be formulated with the 

coordination of the cognizant CAO to enable the supporting CAO to plan for efficient 

support to the requesting CAO. Prior coordination provides both CAOs the opportunity 

to discuss and agree upon the extent of support required and any limitations thereof.

C3.16.3.3.6. The requesting CAO is responsible for distributing copies of 

contract modifications pertaining to Government property at the subcontractor's facility 

to the supporting CAO as soon as possible.

C3.16.3.3.7. When preparing SPA requests on subcontracts and purchase 

orders where performance is on a military installation, the Services are responsible for 

administering their contracts.

C3.16.4. Accepting Requests for Support Property Administration. When an SPA 

request is received, it shall include all the pertinent information required to properly 

administer the contract and specifically outline the extent of support required. If the 

request is not complete, the supporting CAO shall request clarification and inclusion of 

pertinent documents from the prime PA before accepting the assignment. Acceptance 

of SPA shall be accomplished promptly after receipt of an acceptable request it is 

important that the supporting PA keep the prime PA informed of pertinent issues or 

deficiencies in the contractor's property management system. A support property 

administration delegation need not be accepted if the request is incomplete.

C3.16.5. Contractor Possession of Government Property Not Delegated for 

Support Property Administration. The PA should be alert for cases where assigned 

contractors come into possession of Government property not accountable to 

subcontracts or purchase orders that the PA is administering. In cases where a 

contractor receives Government property from a prime contractor for performance 

under a subcontract, the PA shall request from the prime CAO as to whether they desire 

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84 CHAPTER 3
support property administration to be performed. If support property administration is 

to be delegated, a formal request shall be prepared by the prime PA. If support 

property administration is not delegated the PA at the subcontractor location shall not 

include the property accountable under the subcontract or purchase order in their 

system analysis. (See privity of contract, subparagraph C3.16.2.1., above)

C3.16.6. Other Prime Contractor Relationships. The PA should be familiar with 

and aware of the numerous and varied internal controls and relationships established 

with and between prime contractors and their other working groups, divisions, and 

organizational entities. The prime contractor must clearly define for the PA whether 

the work being done is under a subcontract or under an interorganizational transfer or at 

an alternate location. If the PA is unable to ascertain the contractual relationship 

between organizations, the PA shall request clarification from the prime contractor. 

Below are a number of commonly used categories of relationships.

C3.16.6.1. Alternate Locations. The PA will ensure that contractor 

procedures provide for the control of Government property at alternate locations of the 

prime. It is essential that the PA be aware of the quantity and types of Government 

property at alternate locations, the type of record system utilized, and the degree of 

autonomy of the alternate location property management organization. Contractor 

concurrence is not required for the PA to access the alternate location.

C3.16.6.2. Military Installations. The PA shall ensure that SPA on a military 

installation is accomplished in accordance with DFARS 242.270.

C3.16.6.3. Interorganizational Transfers (IOT). An IOT is also known as an 

Interdivisional Work Authorization (IDWA) or an Assist Work Authorization (AWA). 

An IOT is simply a work order issued by the contractor to one of its corporate 

divisions. IOTs are usually issued when the contractor lacks the required technical 

expertise or manufacturing capability to perform a particular task. Government 

property provided for use in the performance of an IOT is subject to the provisions of 

the Government property clause contained in the prime contract. The PA should be 

aware of the existence of IOTs and should ensure that contractor records accurately 

reflect the status of all property provided under an IOT. Contractor concurrence may 

not be required for the PA to access the other location depending upon the contractor's 

organizational structure.

C3.16.7. Enforcement of Subcontractor Control Requirements

C3.16.7.1. Contractors who fail to flowdown the required property control 

provisions to subcontractors run the risk of having this segment of their property 

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85 CHAPTER 3
control system evaluated as unsatisfactory. For instance, a contractor who flows down 

the "limited risk-of-loss" provision of a Government property clause without Contracting 

Officer approval and subsequently fails to insert the "regular risk-of-loss provision" may 

have this segment of their property control system evaluated as unsatisfactory and then 

subsequently have their property control system approval withdrawn, thereby shifting the 

risk-of-loss to the prime contractor for any losses, damage, or destruction of 

Government property provided to the subcontractor under the subcontract. In addition, 

Contracting Officers may consider not granting the contractor "consent to subcontract" 

on future subcontracts until the contractor completes appropriate corrective actions.

C3.16.7.2. Similarly, the unsatisfactory rating and possible withdrawal of 

approval of the contractor's property control system and not granting "consent to 

subcontract" are options for the CO to consider when the contractor fails to perform an 

adequate level of surveillance of a subcontractor's property control system. This is 

important especially when there are large dollar values of Government property involved 

and/or the "limited-risk-of-loss" provision is flowed down to the subcontractor. The 

contractor's procedures should provide for appropriate levels of subcontractor property 

control system surveillance.

C3.16.8. Property Administration Files. The PA shall maintain a file of both 

incoming and outgoing delegations that are to be made part of the official contract 

file. An SPA log containing brief summary information for quick reference may be 

useful. As a minimum, SPA files should consist of:

C3.16.8.1. A copy of the original SPA request.

C3.16.8.2. Support documentation pertinent to the original request.

C3.16.8.3. Subsequent documentation related to the SPA delegation.

C3.17. DISPOSITION OF GOVERNMENT PROPERTY

C3.17.1. General. The applicable Government property clauses and special 

contract provisions set forth the requirements for final accounting and disposition of 

Government property. The disposition process begins with identifying Government 

property that is excess to its contract requirements. Effective property control 

systems provide for disclosing excesses as they occur. Government property shall be 

promptly reported by the contractor for disposition in accordance with FAR 45.6, other 

contractual requirements, or direction from the CO. Government property that has had 

no activity over a specified period of time should be reviewed and its need justified. 

Once inactive Government property has been determined to be excess to the contract 

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86 CHAPTER 3
for which acquired, it should be screened against other in-house contracts for further 

use. Government property shall be transferring to follow on contracts only where the 

receiving contract authorizes such a transfer, either originally or through contract 

modification, and a contractual requirement has been established. The contractor's 

property control system shall provide for reutilization visibility of excess while the 

disposition process is going on, up to the time final disposal actually takes place.

C3.17.2. APP. Special direction for the disposal of APP may be included in the 

contract by the CO. This may be necessary due to the potential harm that may be 

rendered by some types of APP; e.g., arms, ammunition, and explosives.

C3.17.3. ST. Special tooling subject to the special tooling clause. The special 

tooling clause includes special provisions for reporting and dispositioning right-to-title 

special tooling when it becomes excess to contract requirements. The PA shall 

interface and assist the CO to ensure proper and timely reporting and subsequent 

disposal of the right-to-title special tooling.

C3.17.4. Facilities. The DLA Joint Services Manual (DLAM 4215.1, AR 700-43, 

NAVSUP PUB 5009, and AFM 78-9, "Management of Defense-Owned Industrial Plant 

Equipment (IPE))," provides detailed procedures for idle declarations of IPE and 

screening for reallocation by IPEC. Agencies may require internal screening before 

DIPEC reporting.

C3.18. CLOSURE OF CONTRACTS FOR PROPERTY ADMINISTRATION

C3.18.1. General. Upon completion or termination of a contract, the PA shall:

C3.18.1.1. Ensure that contractor property management organizations are 

internally notified of the pending and actual completion of contract performance so that 

closure of property issues can be initiated.

C3.18.1.2. Require the contractor to perform a physical inventory of 

Government property disposal purposes unless waived, as set forth in with FAR 

45.508-1. If waived, the PA shall obtain from the contractor a written statement 

indicating that record balances have been transferred and that the contractor accepts 

responsibility and accountability for those balances where property is transferred to a 

follow-on contract.

C3.18.1.3. Ensure that property transfers to other Government contracts are 

accomplished based upon firm contract requirements.

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87 CHAPTER 3
C3.18.1.4. Monitor the actions of the contractor in returning excess 

Government property not referred to the Plant Clearance Officer.

C3.18.1.5. Advise the cognizant Plant Clearance Officer of the existence at a 

contractor's plant of residual property requiring disposal.

C3.18.1.6. Ensure that excess property is promptly reported on inventory 

schedules to the Plant Clearance Officer.

C3.18.1.7. Ensure that the contractor promptly takes all required actions to 

complete property management responsibilities and close out records.

C3.18.1.8. Require the contractor to submit a DD Form 1662 or comparable 

document prescribed for non-DoD Agencies (e.g., NASA 1018), to reflect a zero 

balance of Government property accountable to the contract.

C3.18.1.9. Ensure that the processing of all liability actions by the PA or CO 

are completed.

C3.19. INFORMATION REQUIREMENTS

The reports mentioned in this chapter have been licensed under Report Control Symbol 

DD-P7L(A)1087 and Office of Management and Budget Control Number 0704-0246.

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88 CHAPTER 3
C4. CHAPTER 4

SYSTEMS ANALYSIS ELEMENTS OF THE PROPERTY

ADMINISTRATION PROCESS

C4.1. PROPERTY CONTROL SYSTEM ANALYSES

C4.1.1. General

C4.1.1.1. Contractors are required to establish and maintain an adequate 

property control system to control, protect, preserve and maintain all Government 

property as required by the Government property clauses. This property control system 

normally shall comply with the requirements of FAR 45.5, DFARS 45.5,

Agency-specific, requirements and any other contractually specified requirements. 

There are exceptions where a contractor need not control the Government property in 

its possession in accordance with FAR 45.5. Exceptions are found in FAR 45.105(b) by 

using the Government property clause at FAR 52.245-1. Another exception where 

contractors need not control Government property in accordance with FAR 45.5 is 

found in the clause at FAR 52.245-4.

C4.1.1.2. The property control system established and maintained by the 

contractor normally consists of written property control procedures, and the application 

and/or compliance with those procedures. It is normal industry practice to provide for 

the control of property by means of written procedures that communicate company 

standards, techniques, and instructions to operational personnel. These procedures 

provide the PA with the yardstick by which the contractor's application and/or 

compliance shall be evaluated. The PA shall evaluate the contractor's written 

procedures and the application and/or compliance thereof.

C4.1.1.3. The analysis of a contractor's property control system during 

contract performance is a critical responsibility assigned the PA. It is through this 

analysis that the PA determines whether the contractor is effectively and efficiently 

complying with the terms and conditions of the contract, regulatory requirements, and 

other special requirements contractually imposed by the procuring activity. The system 

analysis may reveal unsatisfactory conditions. These unsatisfactory conditions may in 

turn lead to the disapproval of the contractor's property control system and a subsequent 

increase in the contractor's liability for any loss, damage or destruction of Government 

property.

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89 CHAPTER 4
C4.1.1.4. The PA has available many tools that may be used to evaluate and 

analyze the contractor's property control system. These tools consist not only of the 

statistical methodologies available but the judgment and expertise that the PA develops 

through experience. To effectively evaluate the contractor's property control system, 

the PA must be familiar with the contractor's operation, types and amounts of property, 

the complexity of the contractor's system, previous experience regarding the adequacy 

of control, and the reliability of the contractor's system.

C4.1.2. Property System Status. A contractor's property control system may exist 

in one of four different statuses. These consist of Pre-submission, Non-acceptance 

and/or Withheld, Approved, and Disapproved and/or Withdrawn Status.

C4.1.2.1. Pre-submission status exists when a contractor's property control 

system has neither been formally non-accepted, approved, or disapproved.

C4.1.2.2. Non-acceptance and/or Withheld status exists when a contractor 

who has never had an approved property control system submits a procedure to the PA, 

deficiencies exist and are not corrected. The CO, based upon the PA's 

recommendation, formally notifies the contractor of the non-acceptance of the property 

control system. This may also occur when a contractor fails to submit a written 

procedure in accordance with the Government property clauses.

C4.1.2.3. Approved status exists when the contractor has a property control 

system approved by the PA.

C4.1.2.4. Disapproved and/or Withdrawn status exists when the contractor 

previously had an approved property control system but the PA was unsuccessful at 

obtaining contractor correction of deficiencies; the CO, based upon the PA's 

recommendation, has formally notified the contractor of the disapproval and/or 

withdrawal of the property control system.

C4.1.3. Levels of Property Control System Analyses. Completion of property 

control system analyses may require detailed tests, examinations, and evaluations over 

an extended period of time. However, an analysis of a contractor's property control 

system involving only small dollar amounts of property and simple property control 

methods may often be accomplished without plant visits or extensive testing by the PA. 

To more efficiently and effectively assign resources, property control system analyses 

may take one of two forms: Standard or Limited Analyses.

C4.1.3.1. Standard analyses normally take place at a contractor's place of 

operation over an extended period of time involving complex property control systems. 

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90 CHAPTER 4
This analysis usually covers all applicable functions with detailed work papers generated, 

summaries provided, and formalized conclusions drawn as to the condition of the 

contractor's operations. The depth and detail of review and analysis are far greater for a 

standard system analysis than for a limited system analysis.

C4.1.3.2. Limited analyses may be applied to contractors with property 

control systems that involve small dollar amounts or quantities of Government 

property. Limited analyses should be accomplished without plant visits except that the 

PA shall visit contractor's operations no more than once every 3 years when designated 

for limited analyses, unless the PA is aware of problems that exist that may require 

increasing the frequency of visits. When limited analyses of the contractor's property 

control system is considered adequate to protect the interest of the Government, a 

written determination to that effect shall be prepared by the PA and placed in the 

Contract Property Control Data file. The PA shall consider previous analyses 

experience, contractor's personnel, and the complexity and reliability of contractor's 

property system, before determining whether limited analyses shall be performed.

C4.1.3.2.1. Limited analyses may be applied when Government property 

under one or more contracts consists of no more than $500,000 exclusive of 

reparables on overhaul and maintenance contracts.

C4.1.3.2.2. Limited analyses shall not be applied when sensitive property 

is in the possession of the contractor.

C4.1.4. Frequency of Property Control System Analyses

C4.1.4.1. A contractor's property control system may be subject to analyses as 

frequently as conditions warrant. These analyses may take place at any time during 

contract performance, upon contract completion or termination, or at any time 

thereafter during the period that the contractor is required to retain such records.

C4.1.4.2. A system analysis shall be conducted at least once each fiscal year 

to obtain knowledge of the contractor's system of property control. Unless individual 

Agency policy dictates otherwise, the PA may choose, due to the reliability of the 

contractor's property control systems, to perform the analysis using one of the 

following methods:

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91 CHAPTER 4
C4.1.4.2.1. Biennial analysis for contractors who have initially 

demonstrated 3 consecutive years of satisfactory property control system performance 

and continue satisfactory system performance. An unsatisfactory system analysis will 

result in demonstration of 3 consecutive years of satisfactory property control system 

performance prior to reinstating biennial system analysis; or

C4.1.4.2.2. Waive review of selected functions or functional segments as 

evidenced by, but not limited to, the following factors:

C4.1.4.2.2.1. Satisfactory compliance with the applicable 

Government regulations and contractual requirements over an extended period of time; 

and/or

C4.1.4.2.2.2. Stability of the quantity of Government property in the 

contractor's possession; and

C4.1.4.2.2.3. PA's first hand knowledge of the contractor's property 

control system.

C4.1.4.2.3. In no instance shall any applicable function or functional 

segment be reviewed any less often than once every 2 years. Schedules may be 

modified to reflect changes in the property control system analyses.

C4.1.5. Planning of Property Control System Analyses

C4.1.5.1. A system analysis plan shall be developed for each contractor's plant 

covering the property control system used in connection with Government contracts. 

The plan shall provide for analyses and shall be augmented to cover responsibilities 

imposed by new contracts, changing conditions, or marginal performance.

C4.1.5.2. The PA must develop and determine in the system analyses plan 

which functions, functional segments and criterion (see Appendix 1) of the contractor's 

property system warrant examination. Only those functions and functional segments 

applicable to the contractor, the types of property accountable, and the activities 

involved need be subject to review. Those functions not applicable shall not be 

reviewed. Limited dollar amounts and activity, types of property, complexity of the 

contractor's system, risk to the Government, and previous experience regarding the 

adequacy of contractor controls are factors the PA may consider in determining the 

extent and scope of the system analysis plan. Before the initiation of any system 

analysis, the PA shall establish a system analysis plan which shall provide, as a minimum:

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C4.1.5.2.1. Listing of the functions, functional segments, and criteria 

identifying those items that are applicable, not applicable, or deferred.

C4.1.5.2.2. Listing of the estimated line items of property by type.

C4.1.5.2.3. Record of the evaluation of procedures portion of the 

approved property control system applicable to the functions to be examined, and noting 

of any portions thereof that should be reviewed with operating personnel for possible 

updating.

C4.1.5.2.4. Survey files shall contain sufficient narrative and 

documentation reflecting rational for deferring accomplishment of the functions or 

functional segments.

C4.1.6. Scheduling of Property Control System (PCS) Analyses

C4.1.6.1. At the beginning of each fiscal year, the PA shall prepare a schedule 

showing the names of the contractors and the projected dates on which each system 

analysis shall take place. In the case of PAs assigned to one contractor; e.g., resident 

versus itinerant, this schedule shall consist of the function and/or functional segment 

and the projected dates on which that function's analysis shall take place.

C4.1.6.2. When the survey involves CAS elements other than Property 

Administration, the PA shall coordinate the planning and scheduling with the other 

elements. The PA will share available, pertinent information when planning and 

scheduling with other involved CAS elements.

C4.1.6.3. At major contractors, surveys of major functions such as utilization 

and maintenance may have to be scheduled over the entire year. When a contractor's 

system involves the use of substantial quantities of equipment and/or tooling, it may be 

necessary to conduct surveys of the functions of utilization and maintenance on a 

continual basis.

C4.1.7. Initial Contact With New Con Factors. Normally, the initial contact by the 

Contract Administration Office with a contractor is through a pre-award survey, 

post-award conference or post-award letter. (See FAR 42.5.) When a conference is 

held, the PA shall ensure suitable discussion of property administration responsibilities 

and any items of special interest or impact on the contractor, such as known 

deficiencies, a disapproved or withheld property control system, or the absence of a 

property control system. When a conference is not held, the PA, upon assignment of a 

contract for property administration, shall forward a letter to the contractor:

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C4.1.7.1. Inviting attention to the contractor's responsibilities regarding 

Government property under the contract, including any specialized controls, and the 

extent of his liability for loss, damage, or destruction of Government property during 

any period in which the contractor's property control system does not have the written 

approval of the PA.

C4.1.7.2. Requesting the name of the contractor's representative(s) to contact 

for review and discussion of the proposed property control system.

C4.1.7.3. Requesting that written procedures be provided for evaluation that 

comply with FAR 45.5 and other applicable regulations and contractual requirements.

C4.1.7.4. Arranging an entrance interview with the contractor to discuss these 

items.

C4.1.8. Initial Evaluation of the Contractor's Property Control System

C4.1.8.1. Initial Evaluation of Contractor Procedures. PAs are required to 

review contractor procedures for the proper management of Government property. 

Procedures for the control of Government property must identify the nature of the 

action(s) to be taken and the type(s) of property involved, assign responsibilities and 

acceptable timeframes for those actions, and describe the methods for performing the 

prescribed tasks. An effective guide in evaluating the contractor's property control 

procedures is to compare the type(s) of property and control requirements by using the 

applicable functions in this Manual. Broad statements such as, "It is the company policy 

to protect Government property" are of little value in providing contractor's operating 

personnel with instructions for receipt and issue of materials, maintenance to be 

performed on certain types of equipment, or the control or utilization of property to 

ensure it is used only for authorized purposes.

C4.1.8.2. Following assignment of an initial contract, and upon submission of 

the written procedures, the PA shall review the procedures portion of the contractor's 

property control system to determine:

C4.1.8.2.1. Areas in the proposed procedures which fail to comply with 

FAR 45.5 and other contract requirements.

C4.1.8.2.2. Essential controls not provided by the proposed procedures.

C4.1.8.2.3. Areas in the proposed procedures requiring physical 

observation or verification.

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C4.1.8.2.4. Subcontractors or secondary locations of prime contractor 

performance, and the need for physical observation or verification of property controls 

at those locations. This initial evaluation may take place at either the PA's office or at 

the contractor's place of operation.

C4.1.8.3. Procedures for Contractors with Limited Amounts of Property. 

Though it is normal industry practice to provide for the control of property through the 

use of written procedures, a contractor with few employees may not have a need for 

written procedures for effective management of Government property. In such cases, 

the PA shall evaluate the adequacy of the contractor's system on the basis of the 

contractor's explanation of his or her controls and observation of the application 

thereof. The PA shall prepare a brief written description of the applicable procedures 

for inclusion in the Contract Property Control Data File, as well as providing the 

contractor a copy. In this instance, the contractor's signature shall be obtained 

signifying his concurrence with the PA's written description. If the contractor will not 

concur with the written description, the contractor shall be required to independently 

prepare a written property control procedure.

C4.1.8.4. Initial Evaluation of Application of Contractor Procedures. PAs 

shall evaluate the application of the contractor's procedures to ensure they meet the 

criteria for property control established and required by FAR 45.5 and other contract 

requirements, as appropriate. Normally, this requires the PA to visit the contractor's 

place of operation to determine that the application of the property control system 

provides adequate controls for the Government property to be furnished or acquired. 

The PA shall make any necessary tests of the contractor's application and compliance 

with the procedures. The choice of methods to be used to obtain the information 

necessary for approval of a contractor's property control system is a matter of 

judgement by the PA. Test examinations, analysis, and verification in specific functions 

may be necessary to ensure the reliability of the final evaluation and conclusions as to 

the acceptability of controls for all functions and the system as a whole.

C4.1.9. Evaluation of a Contractor's Existing Property Control System. When a 

contractor's property control system has previously been approved and a new contract 

requires the expansion of existing controls or the establishment of addition controls, 

the review should normally be limited to the new contract requirements. If the system 

is adequate, the PA shall record this fact on the property summary data record for the 

contract. Notification to the contractor is not required. However, if the PA 

determines that the contractor's property control system does not adequately meet the

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new contract requirements, the contractor shall be notified in writing of the required 

changes and shall be requested to revise the procedures within a reasonable period of 

time.

C4.1.10. Performance of Property Control System Analyses

C4.1.10.1. Notification of System Analyses. The PA shall notify the 

contractor in writing of the planned dates for the system analyses no later than 30 days 

before the commencement of the review. A system analysis may be rescheduled if the 

review will adversely impact the contractor. The PA shall ensure that this rescheduling 

does not delay performance-of the review past the end of the fiscal year.

C4.1.10.2. Entrance Interview. An entrance interview shall be held with 

contractor managerial personnel to inform the contractor of the scheduled system 

analysis, timeframe for performance, functions subject to review, and other pertinent 

items; e.g., previously disclosed deficiencies, new contractual requirements, etc. PAs 

are encouraged to discuss proposed criteria with contractors in advance of system 

analysis and to provide contractors with a list of criteria to be used.

C4.1.10.3. Conducting Property System Analyses. Property system analyses 

shall be conducted in a manner to ensure efficient use of Government and contractor 

resources. Related property control criteria shall be jointly analyzed during the 

review. Property system analyses shall include reviews comparing "records to property" 

and "property to records." PAs shall determine property control criteria to be used in 

conjunction with scheduled property systems analyses. See section C4.3. of this 

chapter for specific direction by property category and function.

C4.1.11. Correction of Unsatisfactory Conditions

C4.1.11.1. Identification of Deficiencies. When element or item defects are 

identified during the system analysis, PAs shall take the following actions:

C4.1.11.1.1. Determine whether the defects are isolated or are systemic 

in nature.

C4.1.11.1.2. Assess the known or perceived impact of defects.

C4.1.11.1.3. Determine the cause of the defects, where possible.

C4.1.11.1.4. Notify the responsible contractor management personnel of 

the defects and request corrective action.

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C4.1.11.2. Resolving Identified Defects. Minor or isolated property defects 

that can be corrected during the performance of the analyses should be resolved at the 

lowest possible management level with verbal or limited written contact. Systemic 

defects must be formally documented and reported to an appropriate level of contractor 

management. If these defects create a significant risk-of-loss, damage, or destruction 

of Government property, notify the contractor that failure to immediately correct the 

defects constitutes the basis for property system disapproval which potentially increases 

the contractor's liability. The PA shall follow up to ensure that corrective actions are 

taken.

C4.1.11.3. Notification to the Contractor of Deficiencies. The PA shall 

forward to the contractor a listing of the deficiencies found during the evaluation of the 

property control system. The PA shall state within this notification, if obtained during 

the exit interview, agreement by the contractor to correct the deficiencies. The period 

of time for corrective action shall normally be established at 90 days. This time frame 

may vary, either increased or decreased, dependent upon the complexity and nature of 

the corrective action(s) required and the impact of the deficiencies involved.

C4.1.11.4. Resolution of Differences. When the PA is not successful in 

obtaining compliance with recommendations for corrective actions, the PA shall advise 

the CO by memorandum that shall include:

C4.1.11.4.1. A specific, concise documented statement of open problems.

C4.1.11.4.2. An assessment of the impact of the defects.

C4.1.11.4.3. A statement of the contractor's positions.

C4.1.11.4.4. Recommendations for action including disapproval and/or 

withdrawal of the property control system, where appropriate. For further guidance, 

see Chapter 3 of this Manual, "Evaluation and Approval of Contractor's Property Control 

System," and FAR 45.104.

C4.1.12. Exit Conference with the Contractor. Upon completion of the system 

analysis, the PA shall conduct an exit conference with the contractor's managerial 

personnel to discuss the overall results of the system analysis. In addition, this 

conference must also address any function or functional segment in which the adequacy 

of controls, procedures, or the application thereof was found to be unsatisfactory. The 

PA shall advise the contractor where corrective action is required. Agreement should 

be reached during the exit conference as to the corrective measures necessary.

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97 CHAPTER 4
C4.1.13. Letter of Approval for the Contractor's Property Control System. When 

the contractor's property control system is acceptable, the PA shall, in accordance with 

FAR 45.104(b) and 45.502(a), so advise the contractor in writing approving the property 

control system. This letter is only provided at the initial approval of the contractor's 

property control system or re-approval after the contractor's property control system 

has been disapproved or withdrawn.

C4.1.14. Non-acceptance or Disapproval of a Contractor's Property Control 

System

C4.1.14.1. The PA must be aware that the only Government representative 

who has the authority to not accept or disapprove a contractor's property control system 

is the CO. (See FAR 45.104.) The PA does not have this authority. The 

non-acceptance or disapproval of a contractor's property control system is a most 

serious action with far reaching implications. As the CO is responsible for the overall 

performance of the contractor and their relationship with the Government, this authority 

is not delegated to the PA through the Certificate of Appointment.

C4.1.14.2. PA's Responsibilities Under a Disapproved and/or Withdrawn 

System. During a period of system disapproval, the PA shall continuously review 

contractor management of Government property to determine instances where the 

contractor shall be held liable for property loss or damage. Property system 

re-approval is contingent upon the contractor satisfactorily correcting outstanding 

defects. Special attention will be given to ensuring that any LDD occurring during a 

period of property system disapproval is identified before re-approval. Priority 

emphasis will be given to reexamination and testing of the property system functions, 

functional segments, and criteria where defects have previously been found before 

system re-approval.

C4.1.15. Record of System Analysis. As each function is analyzed, the 

acceptability of the procedures and application shall be appropriately noted or 

commented on as the basis for the record of system analysis. Upon completing the 

analysis of the contractor's property control system, the PA shall prepare a written 

report. This report shall contain a listing of the participating contractor and 

Government personnel, the PA's findings to support approval of the system, 

requirement for corrective action prior to such approval, or referral to the CO in cases 

where the PA is unable to obtain correction of the unsatisfactory condition(s).

C4.1.16. Summary of Findings

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C4.1.16.1. At the conclusion of each property system analysis, the PA shall 

prepare a written summary of findings to support continued approval of the system 

and/or defects identified and their impact on system approval. System analysis 

summaries shall be executive-revel documents written to concisely communicate 

property issues to levels of management unfamiliar with property technical terms. 

Summaries must be written to clearly convey the results of property system analyses in 

general terms. A formal record shall be prepared by the PA in the following format:

C4.1.16.1.1. Introduction: Provide contractor's name and address, period 

of system analysis, and types of property involved, and applicable procedures.

C4.1.16.1.2. Methods Used: Summarize methods used in performing the 

review.

C4.1.16.1.3. Conclusions: State defects identified and conclusions 

reached.

C4.1.16.1.4. Actions taken by the contractor and remaining actions, if any, 

necessary to correct defects.

C4.1.16.2. In the case of a satisfactory limited analysis, the PA shall not 

prepare a formal summary record. For limited analyses, the file shall be documented to 

indicate the extent and results of the review. In all other cases, a summary of the 

system analysis shall be forwarded to the contractor. In those instances where defects 

exist, the contractor shall be advised of any defects and requested to correct them within 

prescribed periods. The contractor shall also be advised that failure to correct the 

defects may result in disapproval of its property control system.

C4.1.16.3. For standard analyses, the PA shall prepare a letter transmitting the 

system analysis summary to the contractor, noting whether the contractor is rated 

satisfactory or unsatisfactory for system analysis purposes. For limited analyses not 

requiring a formal summary, the PA shall prepare a letter notifying the contractor of 

their satisfactory or unsatisfactory rating for system analysis purposes.

C4.1.16.4. Distribution of Summary. A copy of the property system analysis 

summary shall be retained in Contract Property Control Data File, and whenever 

unresolved defects have been disclosed, a copy of the summary shall be provided to the 

CO. When the nature of the defects has significant impact one individual contracts or 

programs, the Procuring Contracting Officer shall also be advised in writing. A copy of 

the Property Control System Analysis Summary shall be forwarded to all delegating

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offices; e.g., Support Property Administration Delegations, NASA (see NASA Delegation 

Instructions), etc.

C4.1.16.5. Propery Control System Analysis Case File. A case file shall be 

established for each system analysis performed containing the survey plan, work papers, 

and the summary. This file will also include all correspondence of discussions, 

actions, and follow up to obtain correction of any unsatisfactory condition. The case 

file shall be maintained in the Contract Property Control Data File or the Contractor's 

General File.

C4.2. SAMPLING

C4.2.1. General. Sampling is a tool to support the PA's judgment; it does not 

supplant that judgment. Moreover, use of sampling methods and the results thereof 

shall be subject to judgment and determination by the PA. The PA must be aware that, 

when large quantities of documents and actions must be reviewed, sampling is more 

efficient and economical than 100 percent inspection. Sampling is an effective method 

for reviewing or analyzing a system whereby an accurate snapshot in time may be 

obtained. There are times when the PA through observation and judgment may see or 

become aware of deficiencies in a contractor's property control system that do not lend 

themselves to analysis through statistical methodologies. Therefore, the PA must be 

skilled in various audit methods in order to protect the Government's interest.

C4.2.2. Types of Sampling

C4.2.2.1. There are numerous approaches to sampling that are determined by 

the different fields from which they emerge. The two major approaches are quantitative 

and qualitative. Statistical sampling comes out of the quantitative methods approach. 

Judgment and purposeful sampling come out of the qualitative methods approach. It 

should be noted by the PA that both of these approaches have their own strengths and 

weaknesses. The PA should be familiar with which approach best suits the function, 

functional segment, and criterion undergoing analysis.

C4.2.2.2. When using a sampling plan, the Government's risk shall not exceed 

10 percent (a 90 percent confidence level) excepting slight variations due to changes in 

population sizes. Appendix 2 contains sampling plans for use in achieving this 90 

percent confidence level. Using this sampling plan the Government will discover 

defects of 10 percent or more, if they exist, 90 percent of the time.

C4.2.2.3. CLASS I. Statistical Sampling is the process by which a number of 

items are selected from the population for analysis so that the sample is representative 

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of the entire population from which it was selected. Statistical sampling is useful 

where large numbers of items are subject to review and where it is not cost-effective to 

review all items. This sample allows the PA to review a small number of randomly 

selected items of a particular functional segment and reach a judgment as to the 

acceptability of the entire functional segment. Appendix 2 sets forth the population 

ranges and sample sizes required for a double sampling plan. Random numbers may be 

generated either through the use of Appendix 3 or any other available random number 

table or computer program designed for such a purpose. Other random selection 

techniques may be applied (i.e., selecting every thirtieth item) provided they are defined 

beforehand in the property administration survey plan.

C4.2.2.4. CLASS II. Judgment Sampling is the process by which a number of 

items or areas are selected from the population for analysis without meeting the random 

selection and sample size criteria in Appendix 2. Judgment sampling is useful for 

functional segments that do not lend themselves to any other methods of sampling; i.e., 

reviewing the contractor's operation from a floor to records analysis.

C4.2.2.5. CLASS III. Purposeful Sampling.

C4.2.2.5.1. Purposeful sampling is the process by which known, 

suspected, or reported conditions of a critical or substantial nature are used to select 

areas, items, or actions for review to determine the possible adverse systemic impact. 

It is especially critical, when using purposeful sampling, that items being research 

significant systemic impact. When the PA determines the potential exists for systemic 

impact, conditions or items shall be reviewed to determine whether or not a systemic 

deficiency exists. Conditions or items which have defects but do not impact the 

system should be reviewed using other methodologies; e.g., Statistical or judgment 

sampling.

C4.2.2.5.2. Purposeful sampling is closely related to judgment sampling 

in that a purely random sample is, not drawn. This process is particularly useful for 

resident PAs who have established a first-hand perspective of the contractor's 

operations. The use of purposeful sampling presupposes that the PA is aware of an 

substantial adverse condition within the contractor's property control system that has 

been disclosed through some other review, occurrence, discussion with or notification 

by other functional Government area, e.g., Quality Assurance, Production, etc., or 

contractor operation. Using the information the PA shall purposefully seek out other 

similar conditions. As this sampling is purposeful, the random number tables in 

Appendix 3 would not be used.

C4.2.3. Selection of Population

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C4.2.3.1. The population should encompass the maximum number of items 

possible within a functional segment that have common characteristics. These 

characteristics may be categorized by functions, types of property, actions or 

transactions occurring within the functional segment, or other requirements subject to 

evaluation. Care should be exercised, however, to ensure that the items in the 

population have common characteristics and that the same control elements of the 

property control system apply. Populations selected may be used for the examination 

of characteristics for more than one function or functional segment; e.g., items selected 

under the function of acquisition may be used to examine criteria under the functions of 

receiving.

C4.2.3.2. Transactional functions are those functions where a population may 

be obtained using items selected due to their transactional timeframes. For example, 

the function of acquisition may be tested by selecting as the population all purchase 

orders that have been initiated within the past year; the function of receiving may be 

tested by selecting as the population all receiving reports generated during the past year, 

etc.

C4.2.3.3. Non-transactional functions are those functions where items may 

not readily be selected due to the lack of transactional timeframes. In such cases, a 

population may be obtained by estimating or obtaining the entire population. For 

example, the function of storage does not have transactions but rather the PA reviews 

the actual storage areas for housekeeping, etc. Therefore, the population consists of all 

storage sites.

C4.2.3.4. In selecting the population for analysis, the PA shall use the 

following procedure (except that the procedure shall be optional when limited 

surveillance will be performed):

C4.2.3.4.1. The PA shall select the function, functional segment, and 

criterion to be evaluated.

C4.2.3.4.2. The PA shall estimate the population for those items that have 

common characteristics to encompass the maximum number of items possible within a 

functional segment. This population may be obtained from either:

C4.2.3.4.2.1. Those items that lend themselves to transactional 

analysis that have occurred during a set time frame of either 1 year immediately 

preceding the date of review, or since the last survey, whichever is less.

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C4.2.3.4.2.2. All items in a contractor's possession, areas of control, 

or types of property without regard to timeframe in those cases where a timeframe 

based sample would be impractical.

C4.2.4. Selection of Random Numbers

C4.2.4.1. Using the population obtained, the PA shall determine into which 

population range it lies. The PA shall then determine the required sample size from 

column 2 of Appendix 2. This indicates the number of items that must be selected 

from either the random number tables (Appendix 3) or equivalent random-number 

generating method.

C4.2.4.2. Numbers selected from either Appendix 3, or equivalent, shall be 

arranged in numerical order.

C4.2.4.3. In addition, a second set of sample numbers may be drawn at the this 

time. This set of numbers is for use in the event there are defects uncovered in the 

first sample that require additional review in accordance with the rejection rates in 

Appendix 2.

C4.2.5. Selection of a Sample

C4.2.5.1. If the items in the population to be examined are already 

consecutively numbered, such as on computer generated lists, the items having the 

numbers corresponding to those obtained from the random table become the sample 

items. Where items are not consecutively numbered, the items, to make up the sample, 

should be obtained by counting the items until each of the sample numbers are reached. 

Each item corresponding to a sample number becomes a sample item.

C4.2.5.2. These items shall be recorded on the appropriate worksheet(s), as 

determined by each Agency, and then subject to the appropriate analysis and evaluation 

required for each function, functional segment, and the applicable criteria.

C4.2.6. Evaluation of Sample. The evaluation of a sample and the determinations 

and findings obtained from that evaluation have implications for future actions on the 

part of the contractor and the Government. The actions on the part of the PA may 

include recommending disapproval of the contractor's property control system, negative 

pre-award surveys and possible impact on the award of future contracts should 

corrective actions not be taken by the contractor.

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C4.2.6.1. The PA shall objectively evaluate the sample for item and element 

defects that impact the system. Defects that are minor, for example those that do not 

affect the contractor's system of control of Government property but are more clerical 

in nature, should not be the basis for finding the sample item, criteria, or functional 

segment unsatisfactory. Multiple defects may be sufficient to lead the PA to determine 

that they impact the contractor's system of control to such an extent that the criterion, 

functional segment, or function may be unsatisfactory.

C4.2.6.2. Appendix 2 sets forth acceptance and rejection rates for the various 

population and sample sizes dependent upon the number of defects found within a given 

function, functional segment, or criterion. The PA shall use these rates for the 

acceptance or rejection of populations selected as functions, functional segments, or 

criteria. The following decisions shall be made by the PA:

C4.2.6.2.1. If no defects are found in the first sample, the functional 

segment or criterion shall be evaluated as satisfactory. (See Column 3, Appendix 2.)

C4.2.6.2.2. If the number of item defects found in the first sample is 

equal to the number of defects found in column 4 of Appendix 2, where the defects are 

not of a systemic nature the functional segment may be evaluated as satisfactory.

C4.2.6.2.3. If the number of item defects found in the first sample is 

equal to the number of defects found in column 4 of Appendix 2, where the defects are 

of a systemic nature, the functional segment shall be evaluated as unsatisfactory.

C4.2.6.2.4. If the number of item defects found in the first sample is 

equal to the number of defects found in column 5 of Appendix 2, the PA shall use the 

second sample selected in paragraph C4.2.4.3., above. If the total number of defects 

found in both sample 1 and sample 2 equals or is less than the number specified in 

column 7 of Appendix 2, the functional segment shall be evaluated as satisfactory.

C4.2.6.2.5. If the total number of defects found in both sample 1 and 

sample 2 equals or is more than the number specified in column 8 of Appendix 2 where 

the defects are not of a systemic nature, the functional segment may be evaluated as 

satisfactory.

C4.2.6.2.6. If the total number of defects found in both sample 1 and 

sample 2 equals or is more than the number specified in column 8 of Appendix 2 where 

the defects are of a systemic nature, the functional segment shall be evaluated as 

unsatisfactory.

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C4.2.6.3. The impact of system defects disclosed during the course of a 

system analysis, upon the overall system rating, shall be in accordance with Agency 

direction.

C4.3. SYSTEMS ANALYSIS TECHNIQUES BY PROPERTY FUNCTION

C4.3.1. Introduction. The PA is responsible for assuring that the contractor is 

adequately controlling, protecting, preserving, maintaining, using, and reporting 

Government property in accordance with the contract, FAR 45.5, and other contractually 

imposed requirements and directions as well as complying with their approved property 

control system. To accomplish this action, the PA shall use the Functions, Functional 

Segments and Criteria in Appendix 1 of this Manual in the evaluation of the contractor's 

property control system during a system analysis. The PA must exercise judgement in 

the selection of the Functions, Functional Segments, and Criteria to be reviewed and 

analyzed during a System Analysis as not all Functions, Functional Segments, and 

Criteria may be applicable. This may be due to the type of property in the possession 

of the contractor, the authorities provided the contractor (e.g., no contracts authorizing 

the acquisition of CAP or GFP), subcontracting practices, or the types of controls 

instituted over the Government property in the possession of the contractor (e.g., 

"Receipt and Issue" versus perpetual inventory records). The following factors should 

be considered, along with Agency direction, to ensure adequate coverage of 

requirements peculiar to particular classes of property and property system elements.

C4.3.2. Testing Property Management. The PA is responsible for ensuring that the 

contractor establishes and maintains an approved property control system. The basic 

objective is to determine the effectiveness of the contractor's property management 

system and the possible systemic impact of any deficiencies identified. An additional 

objective of this review is to provide a management overview identifying causal factors 

that may contribute to deficiencies in other functions and functional segments. 

Subjective evaluations may include outlining the scope of the system analysis 

performed, summarizing the functions and functional segments reviewed, and 

examination of any deficiencies identified for possible trends. Lack of training 

provided to the contractor's personnel, ineffective communication between 

organizational elements, failure to be responsive to identified deficiencies, failure to 

establish current and adequate procedures, or failure to provide adequate protection for 

Government property to prevent LDD are examples of trends that may have an adverse 

impact on the contractor's property control system. When the contractor is 

participating in a self-audit program, such as the Contractor Risk Assessment Guide 

(CRAG) program, periodic internal audits are scheduled by the contractor and should be 

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performed in accordance with this schedule. Deficiencies disclosed through these 

types of internal audits should be disclosed to the PA and corrective actions taken, by 

the contractor, to correct and prevent reoccurrence of the disclosed problems. Where 

deficiencies were disclosed through the contractor's internal audit and not corrected, 

the PA shall notify the contractor and request prompt correction.

C4.3.3. Testing Acquisition

C4.3.3.1. General. The primary objective of conducting a system analysis on 

the acquisition of Government property is to ensure that only those items and quantities 

authorized by contract terms and conditions are acquired or fabricated and to ensure the 

validity of the property classifications. To meet this objective, the PA's analysis shall 

include a review of the actual procurement and fabrication documents, including material 

requisitions, purchase orders, contract transfer documents, petty cash documents, 

fabrication orders, or engineering change proposals, as applicable. These documents 

may serve as the population for selection of the sample to be analyzed. The PA should 

also review the cost vouchers submitted to the CO for payment to obtain information 

regarding the dollar value of direct charges for property against the contracts to ensure 

that reviews encompass all property charges to the contract. Another objective is to 

determine if contractor acquisitions involve excessive quantities resulting in 

unnecessary costs and increased storage and handling charges. Examination of the 

items acquired is necessary to determine if the property is appropriate for direct charge 

under the contract and reasonably required in the performance of the scope of work. 

Examination of manufacturing order quantities is also necessary to determine if 

excessive quantities of parts or assemblies (taking into consideration minimum buys, 

bulk purchases, mortality, economic order or manufacturing quantities, etc.), were 

manufactured.

C4.3.3.2. Acquisition of Special Test Equipment. The PA shall review the 

acquisition of STE to ensure that the contractor has submitted the required notice of 

intent as specified in the Special Test Equipment Clause (FAR 52.245-18). Attention 

to the proper classification of STE is of primary importance to prevent the 

misclassification and acquisition of general purpose test equipment as Special Test 

Equipment.

C4.3.3.3. Acquisition of Facilities. The PA shall review the acquisition of 

facilities to ensure that only those items authorized by the contract or CO were 

acquired. The PA shall review DIPEC or other screening requirements (e.g., DARIC, 

NASA, etc.) to ensure that items were not acquired when Government assets were 

available.

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106 CHAPTER 4
C4.3.3.4. Supplemental Material Acquisition Reviews. PAs are encouraged to 

perform a supplemental material acquisition review on all production contracts 

completed since the last analysis when the following conditions are present:

C4.3.3.4.1. GFM or CAM are accountable;

C4.3.3.4.2. A bill of material, Material Requirements Lists, or Master 

Production Schedule exists; and,

C4.3.3.4.3. There are limited engineering changes. These reviews will be 

performed by comparing, the bill of material to the total quantity acquired and the total 

quantity acquired to the bill of material to ensure that material is not in excess of the 

total bill of material requirements, after allowing for a spoilage factor, engineering 

changes, etc. PAs may recommend to the CO that excessive acquisition costs be 

disallowed and/or possible disapproval of the contractor's property control system. 

Where excessive GFM is identified, the PA shall notify the MCA(S) for corrective 

action.

C4.3.4. Testing Receiving

C4.3.4.1. Receiving Process. The PA's responsibilities, as part of the system 

analysis program, includes a review of the contractor's receiving system to ensure that 

the system specifies:

C4.3.4.1.1. Physical inspection of the shipping containers for evidence of 

obvious damage, comparison of incoming receipts with due-in records to determine if 

the correct item and/or quantity was received, and immediate notification to shipper 

(driver) of obvious damage disclosed during the initial receiving of Government 

property.

C4.3.4.1.2. Special handling instructions regarding the acceptance 

inspection and/or test requirements, sensitive property; i.e., precious metals, explosives, 

corrosive chemicals, etc., and special storage requirements.

C4.3.4.1.3. Documentation supporting receipt. The PA must ensure that 

procedures require the receiving documents be maintained, distributed, and contain the 

entries necessary for the protection of the Government's interest. The PA should 

examine receiving reports and/or Government shipping documents (DD Form 1149, 

"Requisition and Invoice/Shipping Document"; DD Form 250, "Material Inspection and 

Receiving Report"; DD Form 1348-1, "DoD Single Line Item Release/Receipt 

Document"; and MCA reports). The population may be determined from the contractor's 

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receiving dock log, MCA reports for GFM, property number register for equipment, and 

fabrication records, where applicable.

C4.3.5. Testing Identification. The PA is responsible for ensuring that the 

contractor has established proper procedures for the identification, marking, and 

recording of Government property upon receipt or fabrication, unless exempted by FAR 

45.506. The basic objective is to determine the effectiveness of the contractor's 

system in identifying Government property. A thorough analysis would validate that the 

assigned numbers are recorded on all applicable documents, as well as marked on the 

particular pieces of property. The PA shall use as the population all property records. 

Testing of this function may be accomplished during the testing of other functional 

segments.

C4.3.6. Testing Records. The PA is responsible for ensuring that the contractor 

has established proper records for all Government property. The basic objective is to 

determine the effectiveness of the contractor's system of records for accountability of 

Government property in accordance with FAR 45.5 and other applicable contract 

requirements. In conducting reviews of the records function, the PA should examine 

the contractor's accountable records and support documentation by physical 

verification. The following guidance is provided to aid the PA in selecting appropriate 

documents for establishing a population and selecting samples:

C4.3.6.1. The population for the function of records may be obtained from the 

following: stock records (whether manual or automated, for all classes of Government 

property, except for material accountable under a receipt and issue system), receipt and 

issue files, historical records, fabrication records, custodial records, warranty item 

records, and scrap and salvage records.

C4.3.6.2. Samples from these populations shall be reviewed for proper 

postings of receipts, issues, returns, inventories, adjustments, and disposition, in an 

accurate, complete and timely fashion. Documentation should be available to support 

all entries. These support documents may consist of receiving reports, requisition 

slips, issue documents, inventory adjustment vouchers, transfer documents, shipping 

documents, etc. Verification of the actual physical property (location, description, 

quantity, etc.) is required as part of this review. In addition to the records to property 

review, the PA shall perform a property to records review to ensure that records have 

been established and the locator system is adequate.

C4.3.7. Testing Movement. The PA is responsible for ensuring that the contractor 

has established a proper method of movement for all Government property. The basic 

objective is to determine if Government property is moved under the proper authority, 

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with appropriate documentation, adequate protection is provided during movement, 

location changes are promptly posted to the records, and any losses or damage 

occurring during movement are promptly reported to the PA. The population for the 

function may be drawn from all issue slips, shipping tickets, location change orders, 

custodial transfer documents, maintenance work orders, and other similar documents. 

The testing of movement may also be accomplished during the testing of other 

functional segments.

C4.3.8. Testing Storage. The PA is responsible for ensuring that the contractor 

has established a proper method of storage for all Government property. The basic 

objective is to determine the effectiveness of the storage function on the control, 

protection, and preservation of the Government property in storage. This function is 

normally reviewed by visual inspection of the areas where Government property is 

stored. Visual inspection of these areas may also be accomplished during the testing of 

other functional segments. Subjective evaluation may include reviewing the 

housekeeping, access, packaging, and preservation of the Government property located in 

the storage areas. For example, the storage areas are clean and organized, access is 

limited to authorized personnel, and items are treated for short-term or long-term 

preservation. Objective evaluation may include reviewing the physical security of the 

Government property located either in inside storage or outside storage, if required. 

For example, for outside storage of Government property there is adequate lighting, 

fencing, or control of access to those locations to prevent theft of Government 

property. In addition, items stored outside are not prone to rust or deterioration and 

may be better suited to inside storage. Certain types of Government property, such as 

arms, ammunition, and explosives, may require more stringent storage requirements. 

Where necessary, the review of these storage areas should be coordinated with the 

appropriate Government technical representatives; e.g., Quality Assurance, Safety, or 

Security.

C4.3.9. Testing of Physical Inventories

C4.3.9.1. The PA is responsible for ensuring that the contractor has scheduled 

and performed physical inventories of Government property in accordance with the 

contractor's approved property control system. The basic objective is to determine the 

effectiveness of the physical inventory function about physically locating and counting 

Government property, comparing the results to the records, posting the findings and 

adjustments, and reporting the adjustments to the PA.

C4.3.9.2. The PA has the option of performing analyses of the contractor's 

physical inventories either during the performance of the inventory or subsequent to its 

completion. In either case, the tests shall evidence physical counts of selected items 

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without knowledge of record balances, verification of the entries on count slips, 

comparisons with recording, preparation of documents necessary for any adjustments 

required, approval of adjustments, and the referral of lists of all recorded adjustments to 

the PA. Populations and their respective samples may be drawn from records of 

Government property or from physical inventory documentation such as count slips, 

inventory tickets, computer printouts, or similar items. Subjective evaluations may 

include a review of the techniques employed by the contractor to accomplish the 

physical inventory; e.g., ensuring the inventory was accomplished and completed as 

scheduled, ensuring the inventory was not performed by the individual(s) responsible for 

keeping the records, and inventories are performed at contract completion, when 

required.

C4.3.9.3. Property to Records. The PA may select a judgmental sample of all 

types of Government property from the contractor's working areas; e.g., manufacturing 

areas, fabrication areas, storage areas, etc. to ensure that the physical inventory has 

been performed and recorded.

C4.3.10. Testing Reports Preparation. The PA is responsible for ensuring that the 

contractor has established a proper method of preparation and submission of reports that 

reflect the status of Government property, as required by contract or regulation. The 

basic objective is to determine the accuracy, completeness, and timeliness of 

submission. Evaluation may include reviewing such reports as the DD Form 1662 (DoD 

Property in the Custody of Contractors), NASA 1018, and other reports as required by 

contract terms and requirements; e.g., repair status, GFM reports, etc. Chapter 3, 

section C3.12., of this Manual provides specific guidance on the property control 

system requirements concerning the DD Form 1662.

C4.3.11. Testing Consumption of Materials

C4.3.11.1. The purpose of consumption analyses is to determine that 

materials are consumed commensurate with contract requirements, with reasonable 

allowances for scrap and spoilage and not diverted to other work. The PA shall evaluate 

consumption consistent with the contractor's environment, be that production; overhaul, 

modification, and repair; or research and development (R&D). Consumption may be 

tested using the Consumption Analysis Worksheet (Appendix 4), or automated 

equivalent.

C4.3.11.2. Reasonableness of consumption in an R&D environment requires a 

somewhat different approach since bills of material are not normally available. The 

quantity issued for use must be determined by examining the issue or movement 

documentation. The decision on whether the consumption was reasonable depends 

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primarily on judgment supported by sufficient investigation to reach a decision. When 

the quantity issued is relatively small, indicating immediate use, then there is little 

possibility of unreasonable consumption. However, where a larger quantity is issued, 

the possibility of unreasonable consumption may exist. Additional discussion with 

Government technical personnel may be used to confirm the conclusions. The 

adequacy of the physical controls should also be considered as this is a factor that may 

have a bearing on the possibility of unauthorized use or pilferage.

C4.3.11.3. A consumption analysis should be performed outside of the system 

analysis when the PA has identified symptoms of unreasonable consumption. These 

conditions are most readily visible when it is determined that the contractor has 

exhausted the stock of materials before contract completion or has acquired quantities 

that exceed planned material requirements. When these conditions are identified, 

consumption analyses should quantify the extent of the problem and identify causal 

factors. When the survey discloses consumption of Government material that is 

considered unreasonable by the PA, action shall be initiated to determine the liability of 

the contractor for the unreasonable consumption.

C4.3.11.4. The Consumption Analysis Worksheet (Appendix 4) has been 

developed to be used as a tool in performing these analyses. The worksheet format 

provides latitude to the user, and all elements do not apply to all materials being 

reviewed. The format may be adapted by the PA for analyses on R&D, production, or 

overhaul and repair contracts.

C4.3.11.5. Consumption analysis reviews can be extremely complicated and 

the format may require modification to address certain conditions. As such, it is not 

considered mandatory as long as adequate consumption analysis techniques are applied 

when required. Each PA is responsible for the adequacy of consumption analyses and 

for providing sufficient training to industrial property management specialists to ensure 

that reviews are properly performed.

C4.3.12. Testing Utilization. The PA is responsible for ensuring that the 

contractor has used Government property in accordance with contractual authorization 

and the contractor's approved property control system. The basic objective is to 

determine if the contractor is using the Government property for the purposes and time 

authorized. The population should be selected from all Government property records 

(excluding material), stratified by property type with common utilization 

characteristics. For example, ST and STE may be grouped as one population for 

sampling purposes. All IPE may be grouped as one population due to its common 

utilization requirements. The PA must use sound judgment in determining the groupings 

selected for testing the utilization function. The PA should be particularly concerned 

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with any unauthorized use, use in excess of allowable time on non-Government work, 

proper recording of actual use, and failure to maintain the required utilization records.

C4.3.12.1. Agency-Peculiar Property (APP), Special Test Equipment 

(STE),and Special Tooling (ST). The contractor should use APP, STE, and ST for 

authorized purposes only, and have a system to determine if this property is excess to 

the contractor's needs. There must be a contractual requirement for each item in the 

possession of the contractor. The PA should perform utilization evaluations to ensure 

the proper utilization and declaration of excess. There is no formula for determining a 

minimum level of use for these items as they are specialized in nature, and are needed 

for a specific use. PAs should be aware that the utilization levels of these items may 

be affected by the purpose of the contract (overhaul and maintenance versus 

production), the type of testing the item was used for (continuous versus final 

acceptance), and lastly, the reason the property was provided; e.g., as a model or for 

configuration standards.

C4.3.12.2. Facilities. The PA is responsible for performing a review of the 

utilization of facilities but this review may be delegated to other appropriate technical 

representatives. The PA should ensure that facilities are used only as authorized. The 

PA should be particularly concerned with the authorized limits of non-Government 

usage as set forth in FAR 45.407 and as approved by the CO. In addition, the PA should 

be aware that non-Government use that exceeds 25 percent of the time available for use 

requires advance approval of the Head of the Agency.

C4.3.12.3. PAs should conduct reviews as part of the system analysis program 

of vehicular equipment provided to the contractor in support of contract performance. 

Such reviews should be made to ensure that Government-owned vehicular equipment is 

in an economical operating condition and is still justified for retention by the contractor, 

and meets the requirements of DoD 4500.36-R.13.

C4.3.13. Testing Maintenance. The PA is responsible for ensuring that the 

contractor has established a proper method of maintaining Government property. All 

property shall be reviewed to ensure that all required maintenance is scheduled and 

performed. The population for analysis may be selected from all items that require 

maintenance as part of their normal operation or stratified by property type requiring 

varying levels of maintenance actions. Maintenance actions and records shall be 

reviewed to determine that they have been performed and recorded in accordance with 

the maintenance portion of the contractor's approved property control system. Also, 

maintenance and repair records shall be analyzed to determine the cause of breakdown 

to ascertain the possibility of inadequate preventive or routine maintenance. This 

function may be reviewed by technical specialists other than the PA.

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C4.3.14. Testing Subcontract Control. The PA is responsible for ensuring that the 

prime contractor has established adequate control over its subcontractors who have 

been provided Government property. This may take place either through the prime 

contractor performing surveillance of its subcontractors or through the prime 

contractor electing to rely upon the Government's surveillance through the operation of 

a support property administration delegation. The PA should be aware of all 

subcontracts, purchase orders, IDWAs, IOTs, etc., that contain or provide Government 

property to a subcontractor. The population for analysis may be predicated on these 

documents. Areas within the subcontract function that are of critical concern are:

C4.3.14.1. The flowdown of proper clauses and provisions; e.g., the 

requirements of FAR 45.5, the liability requirements, the ST and STE clause 

requirements, where applicable.

C4.3.14.2. The required approvals by the CO for incorporation and flowdown 

of the limited risk of loss provisions, and the administration of the risk of loss 

provisions on behalf of the Government for any instances of LDD of Government 

property in the possession of the subcontractor.

C4.3.14.3. The adequacy of the contractor's system of surveillance 

incorporated in its property control system and applied throughout the life of the 

subcontract, etc.

C4.3.15. Testing Disposition

C4.3.15.1. The PA is responsible for determining if the contractor has a 

system for disclosure of excess Government property and effecting its timely 

disposition. The basic objective is to determine the effectiveness of the disposition 

function on screening, identifying, submitting inventory schedules to the proper 

Government representatives, and obtaining the proper authority for disposal of excess 

Government property.

C4.3.15.2. This function is normally reviewed by selecting as a population all 

disposal records including plant clearance cases, transfers, scrap tickets, GFM return 

documents, and other appropriate documents. These records should include a file 

containing proof of in-house screening and a copy of the inventory schedule or other 

appropriate documents. In addition, the contractor's records shall have written authority 

for disposal and a copy of the disposal document to provide a complete audit trail. 

When appropriate, the PA should ensure that the contractor has a system for properly 

crediting the Government with the proceeds realized from the sales of assets.

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C4.3.15.3. When plant clearance is performed in residence, portions of the 

disposition function analysis may be performed by the Plant Clearance Officer (PLCO) 

instead of the PA. This is predicated upon their continuous visibility of the disposition 

process. In any case, the PA should interface with the PLCO to obtain information 

related to system effectiveness that is visible from the plant clearance perspective.

C4.3.15.4. Testing Authority for Disposition. The PA must determine that 

disposition of Government property is based on contractual or other Contracting 

Officer authorizations. When all property has been dispositioned through plant 

clearance, the PA may select samples from inventory schedules or other plant clearance 

documentation for this analysis. However, when multiple disposition methods are 

utilized; i.e., transfers, returns to supply sources, plant clearance, etc., the PA should 

select samples from inventory records reflecting disposition to determine that all 

actions taken were properly authorized. This analysis is appropriate in conjunction with 

the contract closure task. If the disposal action was unauthorized, the contractor should 

investigate and report the incident for determination of liability or other remedy before 

relief of responsibility.

C4.3.16. Testing Contract Close-Out

C4.3.16.1. The PA is responsible for ensuring that the contractor has a method 

to ensure that all contract close-out actions related to property are completed. The 

basic objective is to determine the timeliness and effectiveness of the contractor 

property close-out function.

C4.3.16.2. This function may be analyzed during the PA's final review of 

contractor close-out actions, or the PA may test all contractor close-out actions over a 

period of time. Subjective evaluation may include reviewing the timeliness of 

submission of contractor close-out reports, accuracy of reports, the adequacy of the 

contractor's method for tracking contracts nearing completion, and the timely initiation 

of appropriate actions to close-out affected contracts. Objective evaluations may 

include verifying that the contractor has obtained all required authorizations for 

property transfer, completed directed disposition actions, ensured completion of liability 

determinations, and submitted all required reports, including a close-out DD Form 1662.

C4.3.16.3. When no contract close-out actions have been initiated or 

completed since the last analysis, the PA may only address the tracking of contracts 

nearing completion. Where no contract close-out actions have been reported, the PA 

should review for any contracts that have been completed but not reported for close-out.

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C5. CHAPTER 5

SPECIAL TOPICS RELATED TO THE PROPERTY

ADMINISTRATION PROCESS

C5.1. PROPERTY ADMINISTRATOR SUPPORT TO PROGRAM MANAGERS AND 

LOGISTICS PERSONNEL

C5.1.1. Scope. This section provides policy and guidance to the PA and other 

Government personnel regarding the role of the PA at procuring activities.

C5.1.1.1. Industrial Property Management Specialists (IPMS) should be designated 

at procuring contracting activities to assist Contracting Officers (COs) in the 

preparation and negotiation of contracts. They should participate in source selection 

and pre-award surveys whenever a program will involve significant amounts of 

Government property. Once contracts are awarded, IPMSs should maintain liaison with 

PAs having cognizance for contractor locations and coordinate property administration 

issues.

C5.1.1.2. IPMS support to COs, program managers, and Government logisticians is 

critical in ensuring that contract provisions associated with both program and 

system-related Government property to be provided to or acquired by contractors are 

properly implemented and administered.

C5.1.1.3. When IPMSs are not available at contracting activities, PAs at contractor 

locations should resolve property issues directly with the CO or other established point 

of contact. It is vital that effective communication be established and maintained 

between IPMSs at program offices and PAs at contractor locations throughout the 

course of any major program to provide the basis for identification and resolution of 

Government property issues.

C5.1.1.4. Effective coordination between PAs and IPMSs is critical whenever 

contracts provide Government-furnished property from Government depots, other 

contractors, or other sources. PAs must be fully aware of the types and amounts of 

authorized Government-furnished property and the method of providing the property to 

the contractor. Whenever contractor acquisition of Government property through 

MILSTRIP procedures is authorized, PAs must ensure that only authorized property and 

quantities are being ordered by contractors and that correct MILSTRIP procedures are 

being used. Similarly, PAs must determine if delays are being experienced in the

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receipt of property required for contract performance. Contact must be maintained 

with program or depot logistical personnel for this purpose.

C5.1.1.5. On major programs involving Government property, PAs should have 

direct interface with program personnel. Acquisition, utilization, and disposition of 

property may be reviewed on a program basis.

C5.1.1.6. As programs near completion, PAs and IPMSs must plan for and 

coordinate the close out of property-related issues. They must ensure that property is 

promptly reported for plant clearance once it is excess to contract requirements or 

ensure that other disposal provisions of the contract are complied with. The PLCO is 

responsible for screening, sales, and other disposal techniques to be used. However, 

the PA and IPMS must remain aware of the status of the disposal process and provide 

support as required to ensure timely and effective disposal of Government property at 

contract completion.

C5.2. MANAGEMENT CONTROL ACTIVITY

C5.2.1. Scope. This section provides policy and guidance for PAs in administering 

the DoD Instruction Number 4140.48, dated March 6, 1986, Subject: "Control of 

Access to DoD Material Inventories Required by Defense Contracts."

C5.2.2. Definition. Management Control Activity (MCA). DoD 

Component-designated activities that initially receive and control requisitions for GFM 

supplied from the wholesale DoD Supply system to support defense contracts or 

requirements.

C5.2.3. Purpose. DoD Instruction 4140.48 provides policy, procedures, and 

responsibilities for authorizing access to DoD material inventories under defense 

contracts by controlling individual requisitions for Government-furnished material; and 

informing the CAO of material shipments to contractors under their cognizance.

C5.2.4. Management Control Activity. Each DoD Component authorizing the use 

of GFM by contractors shall establish one or more MCA to maintain control over all 

contractor access to the DoD supply system.

C5.2.4.1. Each MCA shall establish a system that:

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C5.2.4.1.1. Causes all contractor-initiated requisitions and/or 

DoD-initiated requisitions, which are coded for direct shipment to a contractor, to flow 

through the MCA for validation and approval.

C5.2.4.1.2. Restricts contractor access to specific predetermined items 

or classes of material authorized, to include maximum quantity, by insuring that 

requisition validity and authority are consistent with the terms of an existing contract.

C5.2.4.1.3. Rejects contractor requisitions that do not comply with the 

requirements of an existing contract. DoD supply sources will reject 

contractor-initiated and/or DoD requisitions that are coded for direct shipment to a 

contractor for GFM that have not passed through and been approved by an MCA.

C5.2.4.1.4. Passes approved requisitions to the appropriate DoD source 

for supply action.

C5.2.4.2. MCAs will establish a management reporting system that:

C5.2.4.2.1. Maintains a contract, requisition, and shipment status history 

file that serves as a record of GFM transactions.

C5.2.4.2.2. Provides DoD CAOs a status report that reflects the 

shipments of GFM to contractors or to DoD activities for subsequent shipment to 

contractors and of the GFM requisitions that were rejected.

C5.2.4.2.3. Alternative to paragraph C5.2.4.2.2., above, provides DoD 

CAOs a status report that reflects the discrepancies between shipments for contractors 

and receipts by those contractors or interim DoD activities and the GFM requisitions 

rejected.

C5.2.5. PA Responsibilities. PAs shall use the GFM status reports provided by the 

MCAs, or other activity, to verify receipt of GFM or reconcile discrepancies between 

shipments and receipts during reviews in accordance with this Manual and Agency 

direction.

C5.2.6. Information Requirements. A GFM Status Report should be provided by 

the MCAs, or other activity, to DoD CAOs administering contracts. The report should 

be prepared quarterly for the reporting periods ending June 30, September 30, 

December 31 and March 31. The report shall provide the following information:

C5.2.6.1. Shipment of GFM to Contractors.

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C5.2.6.2. Requisitions Rejected.

C5.2.6.3. Shipment of GFM to Contractor For Which Receipt Is Unknown.

C5.3. MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM (MMAS)

C5.3.1. Scope. This section provides policy and guidance for PAs in providing 

support to COs for performance of DFARS-prescribed responsibilities related to 

contractor MMAS.

C5.3.2. Definition. MMAS means the contractor's system(s) for planning, 

controlling, and accounting for the acquisition, use, and disposition of material. 

MMASs may be manual or automated and they may be integrated with planning, 

engineering, estimating, purchasing, inventory, and/or accounting systems, etc., or they 

may be essentially stand-alone systems.

C5.3.3. Policy. MMAS policy is prescribed by DFARS 242.7203.

C5.3.4. General

C5.3.4.1. DFARS 242.72 establishes requirements to protect the 

Government's interests in materials when the contractor has established an MMAS 

system. These interests include Government materials subject to FAR Subpart 45.5, as 

well as a financial interest in materials financed through Government progress payments.

C5.3.4.2. MMAS provisions require careful coordination, communication, and 

understanding among the CO staff, the contractor, and the DCAA auditor. The PA, as an 

authorized representative of the Contracting officer, with specialized knowledge of 

inventory control practices, should be a key member of the CO staff in support of 

MMAS requirements.

C5.3.4.3. MMAS systems are unique in that they authorize contractors to 

physically commingle materials for which costs are charged or allocated to fixed-price, 

cost-reimbursement, and commercial contracts. The PA must, therefore, ensure that 

MMAS systems do not place the Government at undue risks related to material losses, 

or unauthorized diversion of Government assets to other work of the contractor.

C5.3.4.4. An MMAS system does not apply to Government-furnished material, 

other than those items acquired through a "cash sales" program.

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C5.3.5. Physical Inventories Prescribed for MMAS Systems. DFARS 

242-7206(b)(5) requires adequate levels of record accuracy, including reconciliation 

through physical inventories. Although the nature and extent of these inventories are 

not prescribed, physical inventory requirements, including methods and frequency, 

should be based on the extent of risk posed to the Government, as described in DFARS 

242.7208. PAs must ensure that both the records and physical inventories of 

Government-owned materials within an MMAS system comply with the contractual 

requirements of FAR 45.5. For all MMAS materials, PAs should assist the CO to 

determine if the contractor has complied with the physical inventory requirements of 

DFARS 242.7206(b)(5).

C5.3.6. System Evaluation. DFARS 242.7208 prescribes an MMAS system 

evaluation to be conducted at least every 3 years except where the CO, in consultation 

with the auditor, determines that past experience and a current vulnerability assessment 

of the contractor discloses low risk. Where the Government is at high risk, more 

frequent evaluations are authorized.

C5.3.7. PA Participation in MMAS System Evaluations

C5.3.7.1. PAs should participate in MMAS evaluations as scheduled by the CO 

to provide technical input on system requirements related to inventory control. PAs 

shall ensure that contractors maintain an adequate audit trail of property-related actions 

for Government-owned and progress payments materials, when requested by the CO, 

accountable to an MMAS system from acquisition through disposition. Use existing 

system analyses techniques for this purpose, but include MMAS materials in the review 

during the MMAS system evaluation. Property functions to address include acquisition, 

records, physical inventories, consumption, and disposition.

C5.3.7.2. MMAS evaluations should include consideration of the specific 

inventory control issues related to standards prescribed by DFARS 242.7206. These 

include:

C5.3.7.2.1. Ensuring that the contractor has adequate procedures and 

policies to address the property control elements of MMAS requirements. (See 

DFARS 242.7206(b)(1).)

C5.3.7.2.2. Determining if contractor internal audits of MMAS 

adequately address property issues. (See DFARS 242.7206(b)(10).)

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119 CHAPTER 5
C5.3.7.2.3. Ensuring that material acquisitions of MMAS inventories are 

based on valid material requirements planning documents such as bills of material, 

material requirements lists, or comparable documents. (See DFARS 242.7206(b)(2).)

C5.3.7.2.4. Ensuring that contractors maintain an adequate audit trail and 

records of property transactions involving MMAS assets. Transactions involving 

Government-owned material must comply with the requirements of FAR 45.5. (See 

DFARS 242.7206(b)(4).)

C5.3.7.2.5. Assisting the CO to determine the adequacy of contractor 

procedures and practices for transfers of parts. Ensuring that transfers are authorized 

and that the Government is not placed at undue risk associated with the transfer 

process. (See DFARS 242.7206(b)(6).)

C5.3.7.2.6. Ensuring that contractor procedures for loan and/or payback 

of MMAS assets conform to sound inventory control practices. As a minimum, the PA 

should ensure that a ledger or comparable record is maintained of all loan and/or 

payback transactions to ensure that Government financial and other interests are fully 

protected. (See DFARS 242.7206(b)(7)(ii).)

C5.3.7.2.7. Ensuring that systems provide for operational exceptions such 

as identifying excess and/or residual inventory as soon as it is known and initiating 

proper disposition action based on contract requirements and other factors. (See 

DFARS 242.7206(b)(3).)

C5.4. PROGRESS PAYMENTS INVENTORY

C5.4.1. Scope. This section provides information to the PA on the contractual 

provisions concerning Progress Payments Inventory. FAR 45.000 and 45.502(c)(2)

state that progress payment inventory is exempt from FAR 45 requirements. The PA's 

involvement is limited to supporting requests for assistance from the Contracting 

Officer.

C5.4.2. General. Progress payment inventory is that property acquired by the 

contractor to which the Government has a vested interest solely through FAR 52.232-16

progress payment clause provisions. The progress payment clause and FAR Part 32 

provide policy and direction related to progress payment inventory. The intent of these 

provisions is to prevent overpayment of progress payments and to recoup progress 

payments allocable to lost or damaged property. The contractor is required to maintain 

an accounting system and controls adequate for the proper administration of the 

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120 CHAPTER 5
progress payment clause requirements. FAR 45.502(c)(2) specifically exempts 

progress payment inventory from FAR 45.5 property control requirements. However, 

the progress payment clause establishes property control requirements pertaining to 

progress payment inventory. These property control requirements may be administered 

by the PA, if requested by the CO.

C5.4.3. Purpose and Intent of Progress Payments. Progress payments are 

provided as a means of financing contract performance and reducing financial burden on 

contractors. Since material and other contract costs are financed through the progress 

payments, the Government obtains title to the property until such time as contract 

requirements have been complied with and the progress payments are considered 

liquidated. Various courts have ruled differently as to whether the Government obtains 

clear "Title" or just a "security" or "collateral" interest; i.e., a lien. The Government's 

position is that title and not merely a lien is obtained. However, in those cases where a 

court rules that only a lien is obtained in the event of contractor default, either through 

bankruptcy or termination, the security interest protects the Government's investment in 

the property and provides a basis for recovery of the inventory. Unfortunately, in these 

cases, the Government may have to wait its turn with other creditors and/or financiers 

for a chance to recover the property to which it claims title.

C5.4.4. Administration of Progress Payment Inventory Provisions

C5.4.4.1. Although progress payment inventory is not subject to FAR 45.5,

the contractor is required to adequately control this property. Special property reviews 

of progress payment inventory shall be performed at the request of the CO.

C5.4.4.2. Reviews of firm fixed-price contracts should be on an exception 

basis when the Government has reason to believe that progress payment inventory is 

being managed in a way that places the Government at significant risk.

C5.4.4.3. PAs may also become involved when there is progress payments 

inventory remaining on terminated contracts or when the contractor has filed for 

bankruptcy. This involvement shall be at the CO's direction. The degree of 

involvement shall be determined at the Agency level.

C5.5. ADMINISTRATION OF SPECIAL TOOLING CLAUSE PROVISIONS

C5.5.1. PA Responsibilities for Administration of FAR 52.245-17 Provisions

C5.5.1.1. The provisions of FAR 52.245-17, Special Tooling clause, provide 

the Government a method by which it may acquire a "Right to Title" to special tooling, 

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121 CHAPTER 5
which the contractor may acquire in support of a Government contract. The clause also 

serves to identify tooling needed to support Government post-production logistical 

requirements. Close coordination is needed between the buying activity, DoD logistical 

functions, contractors, and CAOs to coordinate implementation of the Special Tooling 

clause and management of tooling subject to the clause.

C5.5.1.2. The clause is intended to be incorporated within contracts where the 

Government has identified a significant potential for Government use of tooling 

following completion of the production phase for a DoD program. For example, 

tooling for an aircraft production contract may be required for fabrication of spare parts 

or other repair effort after the production phase is complete. Where significant 

logistical provisioning for a DoD program is anticipated, incorporation of the FAR 

52.245-17 clause is generally appropriate.

C5.5.1.3. Conversely, when there is little potential use for special tooling 

after contract completion, or the use of the tooling is limited to its original contractor, 

incorporation of the special tooling clause is generally not appropriate. Buying 

activities and logistical functions must work closely together to consider the cost and 

potential benefits of incorporation of the special tooling clause.

C5.5.1.4. The Special Tooling clause, FAR 52.245-17, applies only to tools 

acquired by the contractor for contracts containing the clause. Under the clause the 

Government has the option to take title to this ST as set forth in the clause. Generally, 

the PA is not involved with the control of "Right to Title" special tooling (RTTST) as 

this tooling is not subject to the requirements of FAR 45.5. The Government has a 

recognized interest in tooling subject to the Special Tooling Clause although the 

contractor has title to this RTTST until such time as the Government takes title at the 

direction of the CO. The PA may, at the request of the CO, become a participant in this 

process as a technical advisor to both Government and contractor personnel in special 

tooling management issues.

C5.5.1.5. Tooling subject to the special tooling clause is not subject to FAR 

45.5 and therefore is not generally included in the PA's System Analysis. Generally, 

contracts containing the Special Tooling clause, as the only Government property 

clause, are not picked up for property administration assignment by the PA. For 

contracts containing the Special Tooling clause, the PA may be requested to assist the 

CO in the administration of inventory control and reporting requirements of the clause. 

The PA, at the CO's request, may be responsible for the following actions:

C5.5.1.5.1. Ensuring that special tooling acquired for contract 

performance is required and does not include property misclassified as special tooling.

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122 CHAPTER 5
C5.5.1.5.2. Ensuring that existing tooling is transferred to Government 

contracts only when a contractual requirement exists within the gaining contract.

C5.5.1.5.3. Ensuring that the contractor develops and maintains data and 

records prescribed by the clause.

C5.5.1.5.4. Ensuring that special tooling is properly maintained.

C5.5.1.5.5. Ensuring that special tooling is used only as authorized.

C5.5.1.5.6. Ensuring that contractual provisions are incorporated in 

subcontracts, when appropriate, and enforced by the prime contractor.

C5.5.1.5.7. Ensuring that listings of special tooling are properly and 

accurately prepared and distributed by the contractor as prescribed by the Special 

Tooling Clause.

C5.5.1.5.8. Ensuring that the contractor promptly identifies and reports 

special tooling that is excess to contractual requirements.

C5.5.1.5.9. Providing support to COs and logisticians to coordinate 

retention planning of tools.

C5.5.1.5.10. Providing support, as required, to the disposition process of 

Special Tooling Clause assets. Although disposition of this tooling is not subject to the 

provisions of FAR 45.6, the CO or other Government representative must initiate 

screening, shipment, and other disposition actions in accordance with provisions of the 

clause.

C5.6. AUTOMATED DATA PROCESSING EQUIPMENT

C5.6.1. Scope. This section provides policy and guidance for PAs in administering 

their responsibilities on the acquisition, control, maintenance, utilization, reporting and 

disposition of Government-owned or -leased automated data processing equipment 

(ADPE) provided to contractors for the performance of Government contracts.

C5.6.2. General. ADPE is defined in FAR 31.001. ADPE is generally categorized 

as plant equipment (see FAR 45.101) but may be classified under other categories 

dependent upon its use, purpose, or application.

C5.6.3. Policy. It is the policy of the Department of Defense that ADPE will not 

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123 CHAPTER 5
be acquired from commercial sources until it is determined that the requirements 

cannot be met through the ADPE Reutilization or Automated Resources Sharing 

Programs at a cost savings to the Government. The Defense Automation Resources 

Information Center (DARIC), under the Defense Logistics Agency (DLA), has been 

established to serve as the focal point for the DoD ADPE Reutilization or Automated 

Resources Sharing Programs. ADPE will not be procured, exchanged, sold, transferred, 

or disposed of without prior clearance through DARIC. To assist in the identification 

of ADPE, DoD 7950.1-M contains an appendix of noun names of the most common 

types of ADPE that are reportable for ADPE reutilization screening.

C5.6.4. Acquisition. When a DoD contractor has a requirement for computer 

equipment exclusively for use as facilities, special test equipment, plant equipment or 

material, under one or more Government contracts, the contractor shall submit a DD 

Form 1851 with documentation attached as required by DFARS 270.604 to the CO with 

a copy to PA. Before submission to the CO for approval to purchase, the CO shall 

forward the approved requirements to the Director, Defense Automation Resources 

Information Center (ATTN: DARIC-R), Cameron Station, Alexandria VA 22304-6100, 

in accordance with the Defense Automation Resources Management Manual, DoD 

7950.1-M. The provisions of on-line screening for possible reutilization of ADPE are 

applicable regardless of the manner of acquisition or dollar amount. ADPE with an 

acquisition cost of $25,000 and above shall be screened using DD Form 1851, or 

through the remote on-line screening process.

C5.6.4.1. Acquisitions must be approved in accordance with DFARS 270.601

in the following situations:

C5.6.4.1.1. If a contractor acquires ADPE for the account of or if title to 

the ADPE will pass to the Government.

C5.6.4.1.2. If a contractor leases ADPE, and the lease will not be for the 

account of the Government or title will not pass to the Government, and the total cost 

is to be allocated to one or more Government contracts requiring the determination or 

negotiation of costs.

C5.6.4.2. Acquisitions must be approved in accordance with DFARS 270.603

if a contractor leases ADPE with an annual cost in excess of $500,000, and more than 

50 percent of the cost is allocated to Government contracts requiring the negotiation or 

determination of costs.

C5.6.4.3. When leased ADPE is used on a Government contract and the total 

cost is charged to the Government under cost reimbursable contracts, the Government 

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124 CHAPTER 5
shall have the initial option to use any purchase credits or benefits earned through rental 

payments. The CAO shall ensure that this provision is in the lease agreement as 

required by DFARS 270.606.

C5.6.4.4. Acquisition of ADPE acquired as facilities must meet the 

requirements in FAR 45.302-1.

C5.6.5. Utilization. The contractor shall use ADPE for authorized purposes only. 

The contractor's procedures shall include an acceptable method of accumulating 

utilization data in sufficient detail to determine the extent and manner of use of all 

ADPE, classified as plant equipment valued at $5,000 or more. The prior written 

permission of the CO is required for any non-Government use of ADPE in accordance 

with DFARS 270.605. This approval may be granted if the requirements of FAR 45.407

are met and no additional costs are incurred by the Government.

C5.6.6. Disposition. Excess ADPE and associated spare parts in the possession of 

contractors, whether leased or Government-owned, will be reported in accordance with 

DFARS 270.14 and DoD 7950.1-M. The CO or his designated representative, which 

may be the PA or the PLCO, is responsible for ensuring that the contractor identifies 

and reports all ADPE, regardless of Federal Supply Class (FSC) in which it was 

originally provided or property category (facilities, STE, material, etc.), that is projected 

to become excess to the contract.

C5.7. GOVERNMENT-OWNED REUSABLE CONTAINERS

C5.7.1. General. Government-owned reusable containers may consist of four 

major types: serialized special design, non-serialized special design, common design, 

and special tooling or special test equipment containers. Areas that require 

surveillance while in the possession of the contractor are acquisition, receipt, storage, 

movement, recording, reporting, inventory control, utilization, maintenance, and 

disposition.

C5.7.2. Receipt of Reusable Containers. Contractors with reusable containers in 

their possession, whether acquired and/or fabricated by the contractor for the 

Government or provided by the Government, must receive and record the property in 

accordance with their approved property control system. The contractor may order 

Government-owned reusable containers from inventory control points when authorized 

by the contract by initiating appropriate MILSTRIP requisitions. The receiving process 

will require that the container quantity, part numbers, and serial numbers are verified 

whether received on a packing sheet, Government bill of lading, DD Form 1149, or DD 

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125 CHAPTER 5
Form 1348. During the receiving process, the containers must be inspected for damage 

in the presence of the carrier. Before releasing the carrier, the contractor receiving 

inspection employee should annotate discrepancies if there are any found, and obtain the 

driver's signature on the freight bill.

C5.7.3. Classification and Control of Reusable Containers. Government-owned 

end items returned to the contractor under contract for overhaul, modification, or repair 

may be shipped to the contractor in specially designed and fabricated containers. These 

containers shall be classified as Agency-peculiar property, and are subject to the 

requirements of FAR 45.5. Specially designed and fabricated reusable containers for 

special tooling should be considered as special tools and accountability maintained 

either jointly with the tool or independently when the container design and fabrication 

costs are charged to special tooling accounts. Another factor to consider is whether 

the container is dedicated to the storage, movement, shipment, and protection of 

specific tools. Often a special tooling container consists of wooden or fiber boxes and 

formed protective foam, and should be identified as part of the special tooling set or 

unit. The container should have an identification tag and number that identifies it to the 

specific special tooling set. The container identification number, as well as container 

description, must be a part of the tooling records for the set or unit.

C5.7.4. Physical Inventory of Reusable Containers. Contractors should physically 

inventory all reusable containers in their possession in accordance with their approved 

property control system or as specified in the contract.

C5.7.5. LDD of Reusable Containers. LDD of Government-owned reusable 

containers should be reported at time of discovery as any other type of Government 

property; however, in some cases, there may be a contract provision for the repair of 

damaged reusable containers at the Government's expense.

C5.8. SENSITIVE PROPERTY

C5.8.1. Scope. This section provides policy and guidance for PAs in administering 

contract requirements relating to sensitive property (see DFARS, part 223).

C5.8.2. Definition. Sensitive property is property for which the theft, loss, or 

misplacement could be potentially dangerous to the public safety or community 

security, and which must be subjected to exceptional physical security, protection, 

control, and accountability. The following types of property shall be designated as 

"sensitive" in the contractor's property management system:

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C5.8.2.1. Weapons such as carbines, grenade launchers, rocket launchers, 

machine-guns, pistols, recoilless weapons, revolvers, rifles, or shotguns.

C5.8.2.2. Ammunition for the above weapons.

C5.8.2.3. Explosives, including demolition material (e.g., detonators, charges, 

blasting caps, firing devices, fuses, primers, timers), grenades, mines, and explosive 

waste developed from the manufacture of the foregoing.

C5.8.2.4. Narcotics and dangerous drugs.

C5.8.2.5. Radioactive Material. Any item or material that is, in itself, 

radioactive or that is contaminated with radioactive material giving readings in excess of 

background radiation as measured on an instrument designed specifically for the type of 

radiation being emitted.

C5.8.2.6. Hazardous Material. Any used or unused personal property, 

including scrap and waste, that is ignitable, corrosive, reactive, or toxic because of its 

quantity, concentration, or physical, chemical, or infectious characteristics. The 

property can be a solid, liquid, semi-liquid, or contained gas form and may cause or 

significantly contribute to an increase in mortality or serious illness, or pose a 

substantial present or potential hazard to human health or the environment when 

improperly treated, stored, transported, disposed of or otherwise managed.

C5.8.2.7. Hazardous Waste. Any material that is a solid waste as defined 

under the Resource Conservation and Recovery Act (RCRA) and has also been classified 

as hazardous in conformity with the provisions of RCRA. The Environmental 

Protection Agency (EPA) criteria for hazardous waste classification are specified in 40 

CFR 261 and will be used to decide whether to deal with a solid waste as hazardous. 

Also, EPA-approved State hazardous waste programs may identify additional solid 

wastes as hazardous. These State designations will also be complied with.

C5.8.2.8. Precious Metals. Uncommon and highly valuable metals 

characterized by their superior resistance to corrosion and oxidation. Included within 

the scope of this definition are silver, gold, and the platinum group metals -- platinum, 

palladium, iridium, osmium, rhodium, and ruthenium.

C5.8.2.9. Any other item designated by a Defense Agency or Component to be 

sensitive.

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127 CHAPTER 5
C5.8.3. GENERAL

C5.8.3.1. Contractors' Procedures

C5.8.3.1.1. The contractor's procedures on property designated as 

sensitive must be specific and detailed particularly with regard to in-process control, 

protection, physical security, periodic inventories, and the immediate reporting and 

thorough investigation of inventory shortages or losses. Procedures should also be in 

sufficient detail to reflect receipt, accountability, storage, and movement within the 

plant and disposition of sensitive property.

C5.8.3.1.2. The contractor's procedures shall require that they report the 

theft or loss of arms, ammunition, and explosives (AA&E) (as described above) 

immediately by telephone or personal contact to the PA and the Defense Investigative 

Service (DIS), ATTN: Director for Industrial Security and also confirm the theft or 

loss of AA&E in writing as soon as possible. Information on the theft of AA&E shall 

also be provided to the local Federal Bureau of Investigation (FBI) Office, Bureau of 

Alcohol, Tobacco and Firearms, and the local police, as appropriate. Other sensitive 

item losses shall be reported by the contractor immediately by telephone or personal 

contact to the PA and confirmed in writing. The PA will advise all CAO concerned 

elements. Criminal violations shall be reported in accordance with Agency directives.

C5.8.3.2. Records of Sensitive Property. Records of property designated 

sensitive shall be identified by an appropriate method (e.g., marking, stamping, color 

coding), so that such records may be readily distinguished from the records of 

non-sensitive items In the case of weapons, all serial numbers shall be recorded on the 

stock record or automated equivalent. The unit of measure of narcotics, dangerous 

drugs, or radioactive material shall be in the smallest measurable units (grains, drams, 

milligrams).

C5.8.3.3. Inventory of Sensitive Property. Physical inventories of property 

designated "sensitive" shall be performed as frequently as necessary, but in no case less 

often than annually, to obtain continuous control and agreement between physical 

inventories and record balances. Periodic inventory practices employed for 

non-sensitive property (e.g., cyclic) shall not be considered adequate for sensitive 

property.

C5.8.3.4. System Analysis

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128 CHAPTER 5
C5.8.3.4.1. When sensitive property is involved, the initial analysis shall 

be performed expeditiously following assignment of the contract for property 

administration.

C5.8.3.4.2. Parts of the contractor's property control system involving 

sensitive property, as defined above, shall be reviewed as frequently as necessary to 

ensure adequate control.

C5.8.3.4.3. PAs shall maintain close contact with the cognizant DIS 

Industrial Security Office to ensure AA&E contractors are receiving physical security 

inspections as required by DoD 5100.76-M, "Physical Security of Sensitive 

Conventional Arms, Ammunition and Explosives at Contractor Facilities," and DoD 

4145.26-M, "Contractor's Safety Manual for Ammunition and Explosives." In addition, 

PAs should exchange respective system analysis summaries performed at AA&E 

contractors with DIS to enhance overall property management at these locations. Also, 

when corrective actions are required as a result of the analysis and inspection by DIS, 

PAs, through the CO, shall advise the DIS industrial Security Office of completed 

corrective actions. Physical security surveys of sensitive items conducted by DIS are 

limited to AA&E, and shall be considered separate from the system analysis required by 

this Manual.

C5.8.3.5. Final Review and Closings. FAR 4.8 establishes the, standard closing 

time for physically complete contracts. The contractor's actions should result in 

expeditious processing and completion of all Government property matters under the 

contract. Close-out actions involving AA&E will require a plant visit. The signed 

determination shall describe the type of reviews performed and findings. Upon close 

out of AA&E contracts, a copy of the DD Form 1593, "Contract Administration 

Completion Record," or automated equivalent, will be forwarded to the cognizant DIS 

Security Office.

C5.9. PROPERTY AT NON-PROFIT CONTRACTORS

C5.9.1. Scope. This section provides policy and guidance for PAs in administering 

the contract requirements relating to contracts at non-profit companies that incorporate 

the clauses FAR 52.245-2 (Alternate II) and 52.245-5 (Alternate I) in accordance with 

45.106(b)(3) and 45.106(f)(2).

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129 CHAPTER 5
C5.9.2. General

C5.9.2.1. Care must be taken to insure non-profit provisions are allowed only 

when the contracts incorporate the non-profit clauses FAR 52.245-2 (Alternate II) and 

52.245-5 (Alternate I) in accordance with FAR 45.106. Non-profit contractors are not 

subject to multi-contract cost and material control systems (see FAR 45.505-3(f)). 

Non-profit contractors have special requirements for the material management 

accounting systems (see DFARS 242.7204).

C5.9.2.2. In regard to property administration, the contractor's procedures and 

the system survey are essentially the same as for profit contractors. Major differences 

apply to various record requirements in FAR 45.5 and the title provisions in the clauses 

referenced above.

C5.9.3. Title

C5.9.3.1. For equipment purchased with funds available for research and 

having an acquisition cost of less than $5,000, title will vest in the contractor, provided 

the contractor obtained the CO's approval for the acquisition. This approval must be 

obtained before each acquisition. When approval is obtained, title vests in the 

contractor upon acquisition.

C5.9.3.2. Title to contractor-acquired equipment with an acquisition cost of 

more than $5,000 vests as set forth in the contract. In other words, unless the contract 

specifically provides otherwise, title to equipment with an acquisition cost of $5,000 or 

more vests in the Government.

C5.9.3.3. All equipment to which title is vested in the contractor under these 

provisions shall be listed in a report to the CO within 10 days following the end of the 

calendar quarter during which it was vested.

C5.9.4. Records

C5.9.4.1. When the non-profit clauses are incorporated, the use of receipt and 

issue records for material is accepted as adequate property control records. The 

provisions in FAR 45.505-3(e) for non-profit indicate that material is issued directly 

"so as to be considered consumed under the contract." Therefore, reviews under the 

survey categories of acquisition or consumption for indication of acquisitions of 

excessive quantity, allocability, and diversions to other use are critical. As with any 

other contractor, the results of misclassification of equipment as material can lead to a 

serious lack of accountability.

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130 CHAPTER 5
C5.9.4.2. Records of special tooling may consist of Government invoices, 

contractor purchase documents, or other documentation evidencing acquisition or issue, 

FAR 45.505-4(c). Records of transportation and installation cost of plant equipment 

do not apply, FAR 45.505-11.

C5.9.5. Subcontractor Control. Due to the nature of non-profit contracts, special 

attention must be applied to the contractor's system for subcontractor control. The 

subcontractors may not be entitled to the non-profit clauses due to the profit status of 

their company and/or the nature of their subcontract. In addition, FAR 45.505-2

requires unit prices be maintained for Government property at secondary sites and 

subcontractors of non-profit contractors. When non-profit contractors perform 

surveillance of subcontractors when the non-profit clauses are not incorporated, the 

non-profit contractor must be aware of the different requirements.

C5.10. MILITARY STANDARD REQUISITION AND ISSUE PROCEDURE

C5.10.1. Scope. This section provides policy and guidance for PAs in 

administering contract provisions relating to MILSTRIP actions.

C5.10.2. General. Military Standard Requisition and Issue Procedure (MILSTRIP), 

as the name implies, is a requisitioning and issue procedure for use by Military 

Departments and contractors authorized by the terms of the contract to requisition or 

move Government material. MILSTRIP is a system using uniform codes and punch card 

formats designed to provide standard procedures of requisitioning, determining order 

status and receipt time frames, and returning Government material. This system is 

designed to permit the maximum use of automated data processing equipment to 

perform these tasks.

C5.10.2.1. The procedures, forms, and instructions for the requisitioning and 

returning of Government-Furnished Material (GFM) are prescribed for use by 

contractors when authorized by the terms of the contract pursuant to FAR Part 51 and 

52.251-1.

C5.10.2.2. DoD 4000.25-1-M, "Military Standard Requisition and Issue 

Procedures," provides policies, procedures, forms, and instructions for use by 

contractors in the requisitioning of GFM and the return of such material when directed 

by the cognizant Military Department in accordance with the MILSTRIP system.

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131 CHAPTER 5
C5.10.2.3. Supplemental instructions to facilitate contractors in the 

preparation of GFM requisitions and return documents may be provided in a separate 

appendix to each applicable contract authorizing use of the MILSTRIP system.

C5.10.2.4. When contractors are authorized to acquire property through use of 

the MILSTRIP system, the PA and IPMS at buying activities must be fully aware of the 

specialized requirements of the authorization. The CO must provide:

C5.10.2.4.1. A DoD Activity Address Code (DoDAAC) from the 

appropriate DoD Service point listed in Section I of the Introduction to the DoD 

Activity Address Directory (DoDAAD).

C5.10.2.4.2. The contract number(s) involved.

C5.10.2.4.3. The period of the authorization.

C5.10.2.4.4. The description (by Federal Supply Classes, National Stock 

Numbers or part numbers), and quantity and/or limits of Government property.

C5.10.2.4.5. Special codes such as routing identifiers, priorities 

authorized, advice, billing, and fund codes.

C5.10.2.5. Contracts authorizing MILSTRIP may stipulate procedures and 

additional data requirements for acquisition, receiving, records, utilization, maintenance, 

physical inventories, disposition, and reports.

C5.10.3. PA Responsibilities

C5.10.3.1. The PA shall review the contractor's property control system to 

ensure that there is sufficient control over the access and use of the MILSTRIP 

system. When performing the initial review of the contract for assignment, the PA 

must determine if a change to the contractor's system will be required for compliance 

with the special contract requirements and DoD 4000.25-1-M. The PA should review 

MILSTRIP requisitions in accordance with Appendix 1 of the above cited Manual.

C5.10.3.2. Generally, contractors are responsible for the preparation of 

requisitions through the MILSTRIP system. The Government may be responsible for 

the preparation of MILSTRIP documents when the GFM will be "pushed" to the 

contractor. There may also be times, specifically when dealing with smaller 

contractors, when the PA may be required to assist the contractor in requesting 

Government property using the MILSTRIP system. To facilitate this assistance, the PA 

DoD 4161.2-M, December 1991

132 CHAPTER 5
should be familiar with the requirements of DoD 4000.25-1-M. If difficulty is 

encountered in obtaining the contractually specified Government property through the 

MILSTRIP system, the PA should contact the CO for clarification and assistance.

C5.11. NASA PROPERTY

C5.11.1. NASA LETTER OF CONTRACT ADMINISTRATION DELEGATION, 

SPECIAL INSTRUCTIONS. PROPERTY ADMINISTRATION (February 1989).

C5.11.1.1. NASA property administration requirements generally correspond 

to the Department of Defense's. The differences, that are highlighted below, will 

require the PA's special attention.

C5.11.1.1.1. Ensure all Centrally Reportable Equipment (CRE) is 

reported on DD Forms 1342, or equivalent, to the NASA installation NASA Equipment 

Management System (NEMS) Coordinator upon receipt, when condition or use status of 

equipment changes, and again when no longer required or being actively used (NASA 

FAR Supplement < NFS > 18-45.505-670). CRE is plant equipment, special test 

equipment (including components), special tooling, and non-flight space property 

(including ground support equipment) generally commercially available, whether used as 

a separate item or as a component of a system, having an acquisition cost of $1,000 or 

more, and identifiable by a manufacturer and model number. Also, ensure the 

contractor's procedures provide for annual verification and update of NEMS listings 

provided annually by NASA as of June 30th. Check for compliance during system 

surveys of the records or reporting function. For CRE reported idle, the NEMS 

Coordinator will acknowledge receipt of DD Forms 1342 within 30 days of receipt and 

will initiate NASA screening or advise the submitter otherwise.

C5.11.1.1.2. NASA does not delegate approval authority for equipment 

procurements to the administrative contracting officer (NFS 18-42.202). Ensure the 

contractor's procedures provide that such requests are forwarded to the NASA 

contracting officer. Ensure the contractor's procedures provide for NEMS to be 

screened, using DD Forms 1419, or equivalent format for non-DIPEC equipment, 

before any contractor acquisition or fabrication of CRE, unless for incorporation into 

flight-qualified or flight-monitoring deliverable end items (NFS 18-52.245-70). Check 

for compliance during system surveys of the acquisition function.

C5.11.1.1.3. Include samples of both contractor-acquired (and 

subcontractor-acquired, if applicable) and Government-furnished materials in the

DoD 4161.2-M, December 1991

133 CHAPTER 5
acquisition portion of system surveys. When applicable, include sample of supplies 

ordered from Government sources using Activity Address Codes.

C5.11.1.1.4. Ensure the contractor's inventory procedures provide for a 

reconciliation of inventory results within 30 days after completion of the inventory 

(NFS 18-45.508).

C5.11.1.1.5. If the clause NFS 18-52.245-73, FINANCIAL REPORTING 

OF GOVERNMENT-OWNED/CONTRACTOR-HELD PROPERTY, is in the contract, 

ensure the contractor prepares and submits NASA Form 1018, "Report of 

Government-Owned/Contractor-Held Property," by July 31 to the organization cited in 

the clause and that the data (particularly in "Additions" columns) is reasonable based on 

the last system survey (NFS 18-45.505 and 18-52.245-73). Negative reports are also 

required by that clause.

C5.11.1.1.6. Ensure all cases of LDD of NASA property are promptly 

investigated, adequately documented, and reported to the contract administration office. 

Ensure discoveries of unrecorded property, as well as losses, are investigated, 

documented, and reported to identify both the causes and necessary actions to prevent 

recurrence of the discrepancies (FAR 45.502(f) and (h), 45.504(b), and NFS 

18-45.508).

C5.11.1.1.7. Ensure the contractor's procedures provide for separately 

tagging (identifying) removable and/or reusable components of STE (FAR 45.506(c)). 

Ensure the contractor does not categorize as STE any plant equipment used for general 

plant testing purposes (FAR 45.101(a) and 52.245-18). Include enough 

floor-to-records samples in system surveys to ensure proper tagging and recording of 

NASA property.

C5.11.1.1.8. Exchange and/or sale authority for replacement of 

non-excess personal property is extended to NASA contractors (NFS 18-17.7100). 

Ensure contractor's procedures provide for obtaining prior CO approval and for 

subsequently reporting any exchange and/or sale transactions to the NASA installation 

Property Disposal Officer (PDO) and the individual listed in block 5 of the form.

C5.11.1.2. Provide the following data and/or documents to the individual 

listed in block 5 of the form:

C5.11.1.2.1. One copy of each Summary of Property Control System 

Survey performed for this contractor.

DoD 4161.2-M, December 1991

134 CHAPTER 5
C5.11.1.2.2. Notification of all granting of relief of responsibility for 

LDD property under this contract.

C5.11.1.2.3. One copy of DD Form 1593, "Contract Administration 

Completion Record," or equivalent, for final payment purposes. Also, ensure contractor 

submits a "Final" NASA Form 1018 (i.e., all ending balances are zero) when disposition 

of all reportable property is complete.

 

These delegation instructions may not be altered without prior coordination with the 

Director, Supply and Equipment Management Division, NASA Headquarters in 

accordance with NFS 18-45.7203.

C5.11.2. GRANT PROPERTY ADMINISTRATION AND PLANT CLEARANCE 

(February 1989). All other functions are withheld.

C5.11.2.1. NASA property administration and plant clearance requirements for 

research grants generally correspond to the Department of Defense's. The differences, 

that are highlighted below, will require the PA's special attention:

C5.11.2.1.1. The Grantee shall maintain property records and otherwise 

manage nonexpendable personal property used in the performance of this grant in 

accordance with the provisions of Paragraph 509 of the NASA Grant and Cooperative 

Agreement Handbook (GCAHB). Check for compliance during system surveys of the 

records function.

C5.11.2.1.2. Ensure Grantee submits annually an inventory listing of 

Government-owned property under this grant with a copy of the contract to the Grants 

Officer listed in block 5 of the form. Such listings shall be as of June 30, and shall be 

submitted by July 31, as required in the GCAHB, Paragraph 408(f).

C5.11.2.1.3. Ensure all cases of loss, damage, or theft of NASA property 

are promptly investigated, adequately documented, and reported to the Grants Officer 

(GCAHB, Paragraph 509(b)(4)). Ensure discoveries of unrecorded property, as well as 

losses, are investigated, documented, and reported to identify both the causes and 

necessary actions to prevent recurrence of the discrepancies.

C5.11.2.1.4. Upon completion of the grant or when the property is no 

longer required, the Grantee shall submit a final inventory to the individual listed in 

Block 5 of the form for disposition instructions. Under no circumstances will 

Government property be disposed of without instructions from NASA.

DoD 4161.2-M, December 1991

135 CHAPTER 5
C5.11.2.1.5. Ensure all NASA identifications are removed or obliterated 

prior to disposition of property other than by return to NASA or reutilization on other 

NASA programs and/or contracts and/or grants.

C5.11.2.1.6. NASA does not delegate approval authority for property 

acquisitions beyond those in the approved proposal budget (GCAHB, paragraph 408). 

Ensure that Grantee procedures provide that such requests are forwarded to the NASA 

Grants Officer. Check for compliance during system surveys of the acquisition 

function. Also, please note that NASA policy is to not furnish Grantees property 

acquired from Government excess listings.

C5.11.2.1.7. Ensure Grantee acknowledges receipt of all 

Government-furnished equipment, providing the zip code of the property's physical 

location, if different from the shipping address, and any identifying tag number assigned 

by the Grantee.

C5.11.2.2. Provide the following data and/or documents to the individual listed in 

Block 5 of the form:

C5.11.2.2.1. One copy of each system survey summary performed for this 

Grantee.

C5.11.2.2.2. Notification of all granting of relief of responsibility for LDD 

property under this grant.

C5.11.2.2.3. A letter stating that all required property actions in Paragraph 514 

of the GCAHB have been completed.

DoD 4161.2-M, December 1991

136 CHAPTER 5
AP1. APPENDIX 1

FUNCTIONS, FUNCTIONAL SEGMENTS, AND CRITERIA

 

CLASS I - STATISTICAL SAMPLING

CLASS II - JUDGEMENT SAMPLING

CLASS III - PURPOSIVE SAMPLING

NOTE: A Class II sampling may be changed to a Class I sampling by the PA 

dependant upon the circumstances and situations affecting the analysis. Functional 

segments need be reviewed only where applicable.

FUNCTION 1: PROPERTY MANAGEMENT. The process of maintaining an 

adequate Property Control System for Government Property; reporting LDD; and the 

process of contractor internal self audit.

FUNCTIONAL SEGMENT: MANAGEMENT

Criteria

1. Contractor written policies and procedures provide for effective property control of each type of 

Government asset in its possession.

 II

2. Contractor procedures are maintained in an up to date status that meet contractual 

requirements, with changes submitted to PA for review, and are readily available to personnel 

accountable for or otherwise responsible for Government property.

 II

3. Contractor prepares and implements a plan of corrective action and furnishes the plan to the 

PA promptly after notification of a system deficiency or incident of LDD, where applicable.

 II

4. Contractor provides immediate interim protection of Government property in response to 

identified deficiencies until permanent measures are taken.

 II

FUNCTIONAL SEGMENT: REPORTING OF LOSS, DAMAGE, AND DESTRUCTION

Criteria

1. Contractor promptly identifies, investigates, and reports incidents involving LDD of Government 

property to the PA and other appropriate authorities, as required.

 II

2. Contractor promptly furnishes all necessary data to substantiate requests for relief of 

responsibility.

 II

FUNCTIONAL SEGMENT: CONTRACTOR AUDITS OF GOVERNMENT PROPERTY

Criteria

1. Contractor performs audits of property management issues in accordance with company policy 

and promptly initiates corrective actions when audits disclose deficiencies.

 II

2. Contractor audit function coordinates review plans and results with the PA to preclude 

duplication of effort and enhance problem resolution.

 II

DoD 4161.2-M, December 1991

137 APPENDIX 1
FUNCTION 2: ACQUISITION. The process of acquiring Government property 

either through requisition or transfer from Government sources or through purchase, 

including those made from contractor stores.

FUNCTIONAL SEGMENT: ACQUISITION AUTHORITY

Criteria

1. Contractual provisions and requirements related to Government property are flowed down to 

appropriate contractor property acquisition organizations.

 II

2. Contract authority exists for acquisition of facilities and special test equipment. I

3. Material transfers between contracts are adequately documented. I

4. CO consent or approval is obtained when required. I

FUNCTIONAL SEGMENT: CATEGORIZATION OF PROPERTY

Criterion

Catergorization of property is correctly determined before acquisition or fabrication. I

FUNCTIONAL SEGMENT: REQUIREMENTS COMPUTATIONS

Criterion

Requirements for property must be supported by bills of materials, materials requirement lists, or 

similar technical planning documents that include spoilage or loss estimates, attrition, and 

mortality rates.

 I

FUNCTIONAL SEGMENT: ORDERING PRACTICES

Criteria

1. Acquisition documents include detailed and accurate description of assets to be acquired and 

contract or equivalent code designator.

 I

2. Items and quantities requisitioned, purchased, or fabricated are reasonable, contractually 

authorized, based on firm requirements, and are not available from existing stocks.

 I

3. Economic ordering practices are properly applied, when applicable. I

4. Orders are processed in a timely manner to minimize emergency acquisitions or requisitions. I

5. On-order assets are monitored until assets are received. I

6. On-order assets are canceled or amended, to the extent possible, when requirements are 

changed by contract modification, engineering change, terminations, production schedule revision, 

receipt of "pushed" items, etc.

 I

7. Distribution, cancellation, and change of purchase requisitions are properly controlled. I

DoD 4161.2-M, December 1991

138 APPENDIX 1
FUNCTIONAL SEGMENT: MILSTRIP ACQUISITIONS

Criteria

1. Requisition documents are properly prepared and processed including routing identifiers, fund 

code, priority designator, etc.

 I

2. Status file maintained, supply status monitored, and appropriate action taken when required. I

3. Requests are submitted in a timely manner to minimize use of emergency priorities. I

FUNCTION 3: RECEIVING. The process of Government property initially 

entering into a contractor's custody.

FUNCTIONAL SEGMENT: RECEIVING PROCESS

Criteria

1. Property is promptly examined upon arrival to determine quantity received, determine condition, 

and identify transit-related discrepancies.

 I

2. Carrier's representative signature is obtained when shortages or other transit related 

discrepancies are identified at time of delivery.

 II

3. Receiving reports are promptly prepared that document items and quantities received, 

condition, shipping data, date received, etc.

 I

4. Items received are reconciled against requisition documents, purchase orders, packing lists or 

related documents to ensure accountability for all items, attachments, and accessories.

 I

5. Item received by contractors for rework, processing, or repair under terms of contract warranty 

provisions are identified and documented during the receiving process.

 I

6. Completed receiving reports are promptly distributed to designated inventory control points, 

accounting functions, etc., to ensure full accountability is established.

 I

7. Incoming property is provided adequate protection and storage during the receiving process. I

8. Returnable and reusable containers are properly controlled and accounted for. I

FUNCTIONAL SEGMENT: DISCREPANCIES INCIDENT TO SHIPMENT

Criteria

1. Misdirected shipments and other discrepant property is adequately segregated and controlled 

pending receipt of disposition instructions.

 II

2. Causes of discrepancies are investigated and documented. II

3. Contractor initiates appropriate discrepancy reports and notifies the PA and/or Government 

transportation officer.

 I

DoD 4161.2-M, December 1991

139 APPENDIX 1
FUNCTION 4: IDENTIFICATION. The process of properly identifying 

Government property.

FUNCTIONAL SEGMENT: IDENTIFICATION PROCESS

Criteria

1. Assets are labeled, tagged, or otherwise identified in a manner approved by the PA promptly 

upon fabrication or receipt.

 I

2. General purpose components of special test equipment are identified in a manner to facilitate 

removal and reutilization.

 I

FUNCTION 5: RECORDS. The official accountable records maintained by a 

contractor to show status and to control all Government property furnished to or 

otherwise acquired by the Contractor.

FUNCTIONAL SEGMENT: ALL RECORDS OF GOVERNMENT PROPERTY

Criteria

1. Property control records conform to FARor other contractual requirements and are accurately 

maintained for all Government property at the contractor primary and alternate locations as well as 

subcontractor locations.

 I

2. Support documentation used for posting entries provides complete, current, and auditable data. I

3. Transactions, including location changes, are promptly posted. I

4. Records are established for all assets purchased, fabricated, furnished by the Government, 

parts removed or recovered, or transferred from other work of the contractor.

 I

5. Sensitive property is accurately reflected on inventory control records. I

6. Inventory control records are closed by means of proper posting entry, adequately supported by 

documentation.

 II

FUNCTIONAL SEGMENT: MATERIAL RECORDS

Criteria

1. Stock levels and reorder points are reflected on records, where applicable, are reasonably 

sound, and are consistent with contract provisions.

 I

2. Receipt and issue records are maintained as authorized by the PA. I

3. Records required by MMAS provisions are properly maintained. I

FUNCTIONAL SEGMENT: INDUSTRIAL PLANT EQUIPMENT RECORDS

Criterion

DD Forms 1342, "DoD Property Record," are prepared and submitted in a timely manner for each 

item identified as industrial plant equipment including updates to report status changes.

 I

DoD 4161.2-M, December 1991

140 APPENDIX 1
FUNCTIONAL SEGMENT: WARRANTY ITEM RECORDS

Criterion

Accountable records are established for items returned to the contractor for rework, processing, or 

repair under warranty.

 I

FUNCTIONAL SEGMENT: CUSTODIAL RECORDS

Criterion

Custodial records are established for items issued from tool cribs, guard force, protective clothing, 

and other items issued to individuals for use in their work.

 I

FUNCTION 6: MOVEMENT. The process of moving all types of Government 

property. It includes movement from one point to another within a contractor's facility, 

movement between facilities, for any purpose, and protection during movement.

FUNCTIONAL SEGMENT: MATERIAL HANDLING

Criteria

1. Item is moved under proper authority, supported by approved documentation; i.e., issue slips, 

shipping ticket, location change order, etc.

 I

2. Adequate protection is provided during movement, such as packing, covering, skidding, 

property handling equipment, procedures, techniques, and safety precautions.

 II

FUNCTION 7: STORAGE. The process of storing all types of Government 

property.

FUNCTIONAL SEGMENT: STORAGE AREAS

Criteria

1. Housekeeping is adequate. II

2. Government property is segregated from contractor property, when required. II

3. Adequate physical security and protection are provided for assets in both inside and outside 

storage.

 II

4. Access to property in storage is limited to authorized personnel. II

5. Assets in storage are properly packaged and preserved, when required. II

FUNCTIONAL SEGMENT: SPECIAL STORAGE AREAS

Criteria

1. Additional physical security and protection are provided for sensitive items. II

2. Special controls and inspections are provided for items in storage subject to corrosion, 

humidity, temperature, age controls, etc.

 II

DoD 4161.2-M, December 1991

141 APPENDIX 1
FUNCTION 8: PHYSICAL INVENTORIES. The process of physically locating 

and counting Government property and comparing it to records of such property, 

including the posting of findings and adjustments and the reporting of adjustments to the 

PA.

FUNCTIONAL SEGMENT: PERFORMANCE

Criteria

1. Physical inventories are performed in accordance with schedules and procedures approved by 

the PA, including those prescribed by MMAS requirements.

 II

2. Physical inventories are conducted by personnel other than those maintaining records or 

having custody of property.

 II

3. Property inventoried is properly sighted and counted, either manually or electronically. I

4. Physical inventories, adequate for disposal purposes, are performed promptly upon contract 

completion or termination unless waived by the PA.

 II

FUNCTIONAL SEGMENT: RECORDING

Criteria

1. Inventory is posted to accountable record within reasonable period. I

2. Posting to accountable record is completed, accurately showing date and quantity, and clearly 

identified as an inventory entry.

 I

FUNCTIONAL SEGMENT: MATERIAL RECORDS ADJUSTMENTS

Criteria

1. Material quantity adjustments are promptly posted to accountable records. I

2. Adjustment are complete on date and quantity and are clearly identified as inventory 

adjustments.

 I

FUNCTIONAL SEGMENT: REPORTING INVENTORY FINDINGS

Criterion

Results of physical inventories, including all adjustments and LDD identified as a result of 

physical inventories, are promptly reported to the PA.

 I

DoD 4161.2-M, December 1991

142 APPENDIX 1
FUNCTION 9: REPORTS. The preparation and submission of reports reflecting 

the status of Government property as required by contract or regulation.

FUNCTIONAL SEGMENT: ACCURACY AND COMPLETENESS

Criteria

1. Responsibility for reports preparation is clearly assigned to specific function(s). II

2. Source(s) of data are clearly defined, accurate, and current. II

3. Appropriate audit or other method is employed by the contractor to verify report accuracy and 

completeness.

 II

FUNCTIONAL SEGMENT: REPORT SUBMISSION

Criteria

1. Controls are maintained to identify: II

 a. Contracts subject to reports requirements.

 b. Specific reports required.

 c. Required submission dates for reports.

2. Procedures provide adequate lead time for orderly compilation of data and report submission. II

3. Reports are distributed according to contractual requirements. II

FUNCTION 10: CONSUMPTIONS. The process of incorporating Government 

property, of the material or Agency-peculiar classification, into an end item or 

otherwise consuming it in performance of a contract.

FUNCTIONAL SEGMENT: REASONABLENESS OF CONSUMPTION

Criteria

1. Items are consumed only as authorized by the contract unless otherwise approved by the CO. I

2. Quantities consumed are reasonable when compared to requirements such as bill of 

material, material requirements lists, established scrap rates, etc.

 I

3. Issue documentation maintains an audit trail reflecting that items are properly consumed. I

4. Issue documentation is properly authorized and prepared. I

5. Assets are issued "first-in, first-out" for age sensitive materials. II

6. Contractor investigates, analyzes, and reports instances of consumption above planned usage 

rates as property losses.

 II

DoD 4161.2-M, December 1991

143 APPENDIX 1
FUNCTIONAL SEGMENT: IDENTIFICATION OF EXCESS

Criteria

1. Using areas identify and return material to stores that is not required for current work. II

2. Degree of use or contractual authorization justifies retention. I

3. Continuous screening is accomplished using approved criteria to identify excess assets that is 

responsive to engineering changes, contract modifications, completions, terminations, or inactive 

assets.

 II

4. Reporting of excess is promptly initiated for all property excess of the amount needed to 

complete full performance under the contracts providing it or authorizing its use.

 II

FUNCTION 11: UTILIZATION. The process of using facilities, special tooling, 

special test equipment, and Agency-peculiar property for the purpose for which 

furnished or acquired.

FUNCTIONAL SEGMENT: AUTHORIZED USE

Criteria

1. Items are used only as authorized by the contract unless otherwise approved by the CO. I

2. Methods are established for determining and allocating rental charges, when required. II

FUNCTIONAL SEGMENT: IDENTIFICATION OF EXCESS

Criteria

1. Degree of utilization or contractual authorization justifies retention. I

2. Continuous screening is accomplished using approved criteria to identify excess assets that is 

responsive to engineering changes, contract modifications, completions, terminations, or inactive 

assets.

 II

3. Reporting of excess is promptly initiated for all property excess of the amount needed to 

complete full performance under the contracts providing it or authorizing its use.

 II

DoD 4161.2-M, December 1991

144 APPENDIX 1
FUNCTION 12: MAINTENANCE. The process of providing the amount of care 

necessary to obtain a high quality of production and the most useful service life of 

Government property.

FUNCTIONAL SEGMENT: PREVENTIVE MAINTENANCE

Criteria

1. Contractor obtains and complies with current technical publications for maintenance of 

Government, when applicable.

 I

2. Item is scheduled for periodic maintenance (including technical publication compliance), when 

appropriate.

 I

3. Inspection and/or periodic maintenance is performed according to the schedule in the 

contractor's approved property control system.

 I

4. Unscheduled maintenance requirements are performed in an expeditious manner. II

5. Records of preventive maintenance and corrective actions are adequate and accurate. I

FUNCTIONAL SEGMENT: CAPITAL-TYPE REHABILITATION (INCLUDING REAL PROPERTY)

Criteria

1. Inspection is scheduled to determine need for major repair, replacement, or other rehabilitation. I

2. Inspection is performed as scheduled and results are reported including the need for major 

repair, asset replacement, or CTR.

 I

3. CO approval is obtained to modify, cannibalize, or repair Government property other than repairs 

authorized by contract requirement or through the approved maintenance program.

 I

4. Rehabilitation is properly accomplished, when authorized. I

FUNCTION 13: SUBCONTRACTOR CONTROL. The process of prime 

contractor control over subcontractors on Government property.

FUNCTIONAL SEGMENT: PRIME CONTRACTOR RESPONSIBILITIES

Criteria

1. Subcontract reflects assets to be provided and flowdown of contract requirements including 

adequate instructions on subcontractor responsibilities.

 I

2. CO approval has been obtained for each subcontract that will relieve the subcontractor of the 

risk of loss of Government property and the Government must receive consideration when 

appropriate.

 I

3. When the prime contractor uses subcontractor records as its official records of Government 

property, and the subcontractor has a system approved by the Government, the prime contractor 

has implemented a system to maintain visibility of property at subcontractor locations.

 II

4. he prime contractor has established an adequate system analysis program to assess the 

adequacy of records, control, protection, preservation, and maintenance of Government property in 

the possession of subcontractors unless supporting property administration has been obtained.

 II

5. The prime contractor properly administers the risk of loss and other provisions of subcontracts 

related to Government property.

 II

DoD 4161.2-M, December 1991

145 APPENDIX 1
FUNCTION 14: DISPOSITION. The process of disclosing excess, requesting 

disposition instructions, and effecting disposal of Government property.

FUNCTIONAL SEGMENT: DISCLOSURE OF EXCESS

Criteria

1. In-house screening of excess assets is accomplished at contract completion or when 

determined to be excess, to identify possible uses on other contracts or other work of the contractor.

 I

2. Items determined excess are promptly reported to the Government. I

3. Declaration as excess is complete and accurate. I

FUNCTIONAL SEGMENT: DISPOSAL

Criteria

1. There is proper authority for disposition. I

2. Disposition is accomplished in compliance with FAR 45.6 or other specific contract provisions. I

3. Item was disposed of within a reasonable time period after disposal authority was received. I

4. Identification tag is removed from item before disposal, when appropriate. I

5. Documentation of disposition is complete and reflects authority, disposal action, date of 

disposal, and is posted to record.

 I

6. When appropriate, proceeds from sale of assets have been credited to the Government. I

FUNCTIONAL SEGMENT: APPROVED SCRAP PROCEDURE

Criteria

1. Contractor complies with provisions of approved scrap procedure. I

2. Proceeds from scrap sales have been properly credited. I

DoD 4161.2-M, December 1991

146 APPENDIX 1
FUNCTION 15: CONTRACT PROPERTY CLOSE-OUT The process of properly 

closing out the property element of a contract.

FUNCTIONAL SEGMENT: RELIEF FROM RESPONSIBILITY

Criteria

1. Contractual authorization or CO approval is obtained to transfer Government property from a 

completed contract when identified for use on other contracts or for retention of idle assets (except 

for contractor's purchase or retention at cost of contractor-acquired property.)

 I

2. Inventory adjustments, liability determinations, and other property issues are resolved before 

contract close-out.

 I

FUNCTIONAL SEGMENT: FINAL CONTRACT REVIEW

Criteria

1. Contractor property management organizations are aware of contracts approaching completion. II

2. Lists of special tooling subject to the special tooling clause are provided to the Government for 

disposition purposes.

 I

3. Prescribed reports required for completed contracts are properly submitted. I

4. The contractor notifies the PA promptly when all pending actions on property-related matters 

are completed.

 I

DoD 4161.2-M, December 1991

147 APPENDIX 1
AP2. APPENDIX 2

DOUBLE SAMPLING PLAN

(90 percent confidence of rejecting lots having 10 percent or more defectives)

Lot Range Sample 

Size 1

Accept if 

Defects 

in 

Sample 

1 Are

Reject if 

Defects 

in 

Sample 

1 Are

Continue 

with 

Sample 2 if 

Defects in 

Sample 1 

Are

Sample 

Size 2

Accept if 

Sum of 

Defects in 

Samples 1 

and 2 

Equals or is 

Less Than

Reject if 

Sum of 

Defects in 

Samples 1 

and 2 

Equals or 

Exceeds

1-18 All 0 1 — — — —

19-50 18 0 1 — — — —

51-90 21 0 2 1 21 1 2

91-150 25 0 3 1 or 2 25 2 3

151-400 32 0 4 1, 2, or 3 32 3 4

401-10,000 34 0 4 1, 2, or 3 34 3 4

10,001-35,000 40 0 5 1, 2, 3, or 4 40 4 5

35,001-100,000 46 0 6 1, 2, 3, 4, or 

5

46 5 6

100,000+ 52 0 7 1, 2, 3, 4, 5, 

or 6

52 6 7

DoD 4161.2-M, December 1991

148 APPENDIX 2
AP3. APPENDIX 3

TABLE OF RANDOM NUMBERS

DoD 4161.2-M, December 1991

149 APPENDIX 3
DoD 4161.2-M, December 1991

150 APPENDIX 3
DoD 4161.2-M, December 1991

151 APPENDIX 3
DoD 4161.2-M, December 1991

152 APPENDIX 3
DoD 4161.2-M, December 1991

153 APPENDIX 3
DoD 4161.2-M, December 1991

154 APPENDIX 3
DoD 4161.2-M, December 1991

155 APPENDIX 3
AP4. APPENDIX 4

CONSUMPTION ANALYSIS WORKSHEET AND INSTRUCTIONS

CONTRACT NUMBER: ____________________ 

 

ASSEMBLY AND/OR PART NUMBER: ____________________ 

 

NOMENCLATURE: ____________________

SECTION A - PLANNED MATERIAL REQUIREMENTS

1. Quantity of Part Number Required per the Next 

Higher Assembly

 _______*

2. Quantity of the Next Higher Assembly Required by 

the Contract:

 (Use best estimate and/or MRL for overhaul and 

repair contracts)

 _______

3. Determine the Net Quantity Required (Line 1 X Line 

2)

 _______*

4. Planned Mortality and/or Scrap and/or Attrition and/or 

Usage

 Variance Factor (Percent)

 _______%*

5. Projected Mortality Quantity (Line 3 X Line 4) _______*

6. Total Projected Requirements (Line 3 + Line 5 for 

production

 contracts)

 _______

(Use historical data, if available, for overhaul and repair contracts when a bill of material or material 

requirements list is not available)

SECTION B - QUANTITY ACQUIRED

7. Quantity Received or Transferred for Use on Contract _______

8. Quantity on Order Due In _______

9. Quantity Projected for Future Acquisition Under the Contract _______

10. Quantity Rejected or Pending Material Review Board _______

11. QuantityTransferred from Contract _______

12. Net Quantity Acquired (Lines 7 + 8 + 9 + 10 - 11) _______

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156 APPENDIX 4
SECTION C - CONSUMPTION

13. Quantity Consumed Within the Next 

Higher Assembly 

 (including scrap)

 _______

14. Number of Higher Assemblies 

Produced and/or Repaired

 to Date for the Contract

 _______

15. Actual Consumption Rate per Higher 

Assembly 

 (Line 13 divided by Line 14)

 _______

* Items 1, 3, 4, 5, & 17 MAY NOT BE APPLICABLE TO OVERHAUL AND/OR REPAIR CONTRACTS WHEN A 

BILL OF MATERIALS OR MRL IS NOT AVAILABLE.

SECTION D - EXTENT OF EXCESSIVE ACQUISITION AND/OR CONSUMPTION

16. Projected Requirements for Contract Based on Current Consumption Rate

 (Line 2 X Line 15)

 

_______

17. Quantity authorized by DD Form 610, when applicable 

_______*

18. Quantity Acquired That Exceeds Authorization or Projected Requirements 

 (Line 12 - Line 17 for DD 610 items) (Line 12 - Line 6 for others) 

 (If less than 1, enter N/A)

 

_______

19. Actual or Projected Excessive Acquisition Due to Variance Between Planned and

 Actual Consumption (Line 6 - Line 16) 

 (Note: Negative Number Indicates Possible Over Consumption that must be separately 

explained but not used to compute Line 21)

 

_______

20. Quantity in Line 18 and 19 which Justified (Such as inventory losses for which the 

contractor

 is not liable) (Provide explanation)

 

_______#

21. Unjustified Actual or Projected Excessive Acquisition 

 (Line 18 + 19 - 20)

 

_______

22. Projected Dollar Impact (Line 21 X Unit Price of Item) 

_______

# Item 20 should consider pushed GFM in excess of quantities authorized by DD Form 610.

———————————————————————— ——————

SIGNATURE OF EVALUATOR DATE

DoD 4161.2-M, December 1991

157 APPENDIX 4
INSTRUCTIONS FOR USING THE CONSUMPTION ANALYSIS WORKSHEET

 

1. The Consumption Analysis Worksheet is intended to provide a standardized 

technique for determining the reasonableness of consumption of Government-Furnished 

Materials (GFM) and Contractor-Acquired Materials (CAM) that are subject to a 

Government property clause. 

 

2. It is recognized that consumption analyses are more effective on production efforts 

where the consumption rates are projected and can be analyzed than on other contracts. 

For example, on research and development (R&D) contracts, consumption analyses are 

often highly subjective since material requirements are primarily developed based on 

engineering estimates. On overhaul and repair (O&R) contracts, materials are 

consumed as needed, thus making the materials requirements planning process 

susceptible to error. The consumption analysis worksheet is based on data generally 

available and required for production contracts. Several data elements do not apply or 

must be subjectively developed for non-production effort. 

 

3. The worksheet will identify and document cases in which quantities of GFM have 

been acquired in excess of their contractual authorization. In addition, the worksheet 

identifies variances in consumption rates for both GFM and contractor-acquired 

materials that could indicate either excessive acquisition or consumption. Obviously, 

the ultimate determination of over consumption is consumption of all planned materials 

before completion of contract effort. Similarly, the extent of possible over acquisition 

is difficult to quantify until the contract reaches completion. Analyses are prone to 

error until accurate consumption rates can be determined. Thus, analyses during the 

start-up portion of a contract must be considered as preliminary at best, and possibly 

inaccurate, at worst. 

 

4. Instructions for completion of the worksheet: 

 

 a. Section A of the worksheet (Planned Material Requirements) is intended to 

document the quantity of an item of material that the contractor projects will be needed 

to complete a contract. For production contracts, bills of material are the primary 

source of information pertaining to requirements planning. For R&D or O&R 

contracts, estimates must be made based on engineering judgment, material 

requirements lists, past history, or other available information. 

 

Step 1 of the worksheet documents the quantity of the item of material that is planned 

for incorporation into the next higher assembly. This is based on bill of material data 

in most cases. In the event that an item of material is used on two or more higher 

DoD 4161.2-M, December 1991

158 APPENDIX 4
assemblies, Sections A and C of the worksheet must be completed for each higher 

assembly that uses the part on the contract. Step 1 may apply to some non-production 

contracts based on engineering estimates or past history. 

 

Step 2 is the quantity of the next higher assembly required for the contract. Once 

again, this is most meaningful on production contracts where the manufacturing 

requirements are fully defined. Engineering estimates or material requirements lists 

may exist for R&D contracts, and historical data may provide the best source of this 

information for O&R contracts. 

 

Step 3 is simply the multiplication of the quantities from steps one and two to 

determine, material requirements without consideration of scrap or mortality factors. 

This step will not apply to all R&D or O&R contracts. 

 

Step 4 provides for acquisition of additional materials based on projected scrap factors. 

These should be developed based on past historical data, when available. The evaluator 

should question scrap factors that appear excessive. This factor should be entered on 

the form as a percent of net requirements. 

 

Step 5 computes the amount of materials that are projected based on the scrap and/or 

mortality factor from line 4. This quantity must be added to the net requirements in 

determining total material requirements. 

 

Step 6 provides an estimate of total material requirements for the item being reviewed 

based on quantity required per higher assembly, number of higher assemblies, and 

projected scrap rates. It is the sum of items 3 and 5. For R&D or O&R contracts 

without firm-material requirements, use the best available estimate of material 

requirements for the contract. When desired, include "est" to denote the fact that a 

highly subjective number has been used. 

 

 b. Section B of the worksheet (Quantity Acquired) provides a summary of past, 

present, and projected acquisitions for the item being reviewed. Obviously, excessive 

acquisition is more readily visible during the latter part of a contract than early in the 

contract when quantities to be acquired are subject to revision. 

 

Step 7 is the quantity of the item being checked that has been received or transferred to 

the contract from other contracts. Include all quantities, whether ultimately accepted, 

rejected, or transferred out. 

 

Step 8 is the quantity on order that has not yet been received. 

DoD 4161.2-M, December 1991

159 APPENDIX 4
 

Step 9 is the quantity planned for future orders to satisfy contract requirements. This is 

needed to project total acquisitions for the contract. 

 

Step 10 provides a means of identifying quantities of an item that are rejected or 

pending review. This information is especially valuable to highlight quality problems 

associated with delivery of GFM. If GFM does not meet specifications, then the CO 

must initiate action to repair or replace the faulty materials. 

 

Step 11 shows the quantity of the item transferred from the contract for use on other 

contracts. This is one obvious method of reducing the impact of acquisitions found to 

be excessive. If records show large quantities of materials ultimately transferred from 

the contract, the evaluator should determine the cause for the high rate and ensure that 

Government contracts are not routinely used as the mechanism to acquire materials 

actually intended for other contract efforts. 

 

Step 12 is the net quantity of materials acquired to date or projected for acquisition 

against the contract. It is the sum of lines 7, 8, and 9 minus lines 10 and 11. If the 

quantity acquired exceeds total projected requirements (line 6), then the potential for 

excessive acquisition exists. However, consumption rates must be considered before 

making conclusions in this area. 

 

 c. Section C (Consumption) provides a mechanism for comparison of planned against 

actual consumption data. This produces a revised projection of material requirements 

for the contract. 

 

Step 13 is the quantity of material consumed within the next higher assembly. This 

quantity may be available from manufacturing records, or it may be necessary to total 

the issue documents for the materials being reviewed and reduce this amount by the 

stock of the materials in the production area that have not been used. Quantity scrapped 

should be included in this figure. 

 

Step 14 is the number of higher assemblies produced or repaired to date for the 

contract. This data will generally be obtained from production records. 

 

Step 15 is the actual consumption rate for the item being checked which is determined 

by dividing the quantity consumed (line 13) by the number of higher assemblies 

produced (line 14). 

DoD 4161.2-M, December 1991

160 APPENDIX 4
Step 16 is a projection of contract requirements based on actual consumption rates. It 

is computed by multiplying the consumption rate per higher assembly (line 15) by the 

total number of higher assemblies required for the contract (line 2). If it is 

significantly different from the original planned requirements (line 6), then the potential 

for excessive acquisition or over consumption is indicated. 

 

 d. Section D (Extent of Excessive Acquisition and/or Consumption) is the 

mechanism for concluding whether or not excessive acquisition or consumption is 

indicated. Once again, data is more conclusive on contracts nearing completion than on 

contracts starting up. However, the worksheet provides a mechanism for conclusions 

based on the best available information. 

 

Step 17 is included to readily identify quantities of GFM that exceed contractual 

authorizations. This step is the quantity of the item being checked that is authorized by 

the DD Form 610 (The Department of Defense Government-Furnished Equipment 

Requirement Schedule). This line obviously does not apply to contractor-acquired 

materials. 

 

Step 18 is a simple comparison of quantities acquired (line 12) against quantities 

authorized by DD Form 610 (line 17) or against projected requirements for other items 

(line 6). Obviously, if acquisition exceeds authorization or planned requirements, 

further explanation is needed. The reasons for these situations need to be fully 

identified and documented. If neither of these conditions exists, enter "N/A" on line 18. 

 

Step 19 compares actual consumption rates against projected rates to identify possible 

excessive acquisition or over consumption. When reliable consumption rates are 

available, significant variances between planned and actual consumption rates are 

indicators of potential for excessive acquisition (positive number in line 19), or for 

over consumption (negative number in line 19). The contractor should be tracking 

consumption rates and reducing projected requirements where the planned rates are 

found to be overstated. If consumption rates are not available, so state. This may be 

the case during the initial part of contract performance. If line 19 is negative, provide a 

separate explanation of the nature or potential for over consumption and any actions that 

are required to correct the condition. However, do not use a negative number in line 

19 to compute line 21. 

DoD 4161.2-M, December 1991

161 APPENDIX 4
Step 20 provides the evaluator the opportunity to identify mitigating factors and to 

consider whether the data collected is conclusive or inconclusive. If data is 

inconclusive, and the contractor is able to justify its position, the evaluator should 

reduce the quantity of potential over acquisition from lines 18 or 19. If line 19 

suggests over consumption (negative value), which the evaluator feels is justified or 

inconclusive, enter "see remarks" in line 20 and provide a separate explanation. 

 

Step 21 summarizes the extent of excessive acquisition that is considered to be 

conclusive by the evaluator. 

 

Step 22 projects the dollar impact of unjustified excessive acquisition.

DoD 4161.2-M, December 1991

162 APPENDIX 4
AP5. APPENDIX 5

INSTRUCTION FOR THE USE, COMPLETION, AND DISTRIBUTION OF DD FORM 1149, 

"REQUISITION AND INVOICE/SHIPPING DOCUMENT"

1. Use. The DD Form 1149 may be used for the following purposes (unless 

otherwise approved by the PA, CO, or contract): 

a. Return of Government-Furnished Property (GFP) except for material 

obtained through the Military Standard Requisitioning and Issue Procedures (MILSTRIP) 

and Real Property. MILSTRIP material may be returned on DD Form 1348-1, as 

prescribed by DoD Manual 4000.25-1-M. Real Property will be transferred on DD 

Form 1354.

b. Shipment of Industrial Plant Equipment (IPE) controlled by the Defense 

Industrial Plant Equipment Center (DIPEC), Memphis, TN. (Use DD Form 1149 issued 

by DIPEC.)

c. Internal transfer of Government property accountability from one contract 

to another, with proper authorization; e.g., contract modification.

d. Shipment of Government Property to other contractors and 

subcontractors. DD Form 1149 may also be used for shipments to secondary locations 

of the prime contractor.

2. Preparation and Completion of DD Form 1149

a. The following information will be reflected in each appropriate block: 

(1) From - Consignor (including contract number under which shipment 

is made).

(2) To - Consignee - Enter complete name. Do not abbreviate or use 

letter symbols.

(3) Ship to - Mark for - as indicated in the shipping instructions. Indicate 

contract number under which consignee will receive shipment, if furnished with shipping 

instruction.

DoD 4161.2-M, December 1991

163 APPENDIX 5
(4) Accounting and Funding Data - Cite applicable data if specified in the 

shipping or other instructions. For Item 4 leave blank in all other cases. Items (4a) 

through (4i) shall be completed in all instances.

(4a) Item No. - Numerical sequence of items being shipped or 

transferred.

(4b) National Stock Number, Description and Coding of Material 

and/or Services - enter data listed in applicable Federal catalogs. Use Manufacturer's 

part number and description if item is not listed in Federal catalogs and so indicate in 

the description. If applicable, include in this block a listing of all attachments and 

accessories.

(4c) Unit of issue - as appropriate.

(4d) Quantity requested - enter quantity requisitioned by consignee, 

if appropriate. If not applicable, leave blank.

(4e) Supply action - enter quantity being shipped or transferred.

(4f) Type container - carton, wooden or metal box, skid, etc.

(4g) Container Numbers. Number each container if more than one 

and indicate in this block the container numbers in which the particular item is located.

(4h) Unit price - cost of each individual item Use estimate when 

cost is not available.

(4i) Total cost - Unit price multiplied by the total number of the 

applicable item shipped.

(5), (6), (7) and (8) (Requisition date, number, requirement and priority) - 

Leave blank unless such data are included in the shipping instructions.

(9) Authority or purpose - cite document, contract modification, or other 

Government directive, which authorized shipment or transfer.

(10) Signature - leave blank. 

DoD 4161.2-M, December 1991

164 APPENDIX 5
(11a) Voucher number and date - enter number assigned by the shipping 

contractor or consignor to identify this shipping document and to credit his property 

account.

(11b) Indicate date the voucher number was assigned.

(12) Date shipped - enter date items are picked up by carrier. For 

in-place transfers, enter date transaction is completed.

(13) Mode of shipment - enter type of carrier used - railroad, 

commercial or Government truck, pick-up, commercial or Government aircraft. 

(14) Bill of Lading number - enter the commercial or Government bill 

of lading number on which shipment is accomplished.

(15) Air Movement Designator or Port Reference No. - enter data when 

applicable.

(16) Transportation via MSTS Chargeable to - Cite appropriate funds for 

these items as called for in shipping instructions. Leave blank if not applicable.

(17) Special handling - enter special handling requirement specified in 

the shipping instructions or required by the nature of the items shipped; i.e., "fragile," 

"do not drop," etc.

(18) Recapitulation of shipment - enter appropriate data only when 

shipments are of such magnitude and complexity that this information will be helpful in 

controlling shipment. This block may be left blank at the discretion of the Consignor.

(19) Receipt data - for use by consignee.

b. QAR verification When appropriate, the QAR will place a verification 

stamp or signature in block (4b) following the last line item entered. DD Form 1149C, 

"Requisition and Invoice/Shipping Document (Continuation sheet)" will be used if more 

than one page is required for a single shipment.

DoD 4161.2-M, December 1991

165 APPENDIX 5
3. Distribution

a. The DD Form 1149, as a minimum, will be distributed as follows: 

 

Original - To Consignee w/shipment

1 Copy - Consignor

1 Copy - Mailed to consignee as advance copy

1 Copy - Attached to original copy of Bill of Lading

1 Copy - Attached to Transportation Office copy of GBL

1 Copy - Carrier

1 Copy - Quality Assurance Representative (QAR)

1 Copy - Plant Clearance Officer (PLCO) (if applicable)

1 Copy - Property Administrator (if required for information purposes)

b. Distribution should be reflected in the body of DD Form 1149 or 1149-1.

c. Classified shipments and documents will be marked and handled in 

accordance with existing security regulations.

DoD 4161.2-M, December 1991

166 APPENDIX 5