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Contractor Responsibility for Damage to Government Property


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#1 RIR

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Posted 29 December 2011 - 06:59 PM

FAR 45.104 ?Responsibility and Liability for Government Property states that generally contractors are not held liable for loss, theft, damage or destruction of Government property under Cost-reimbursement contracts.

The contract in question (CPIF for ship repair/overhaul) includes:

FAR 45.107 Government Property (June 2009) (Deviation). Paragraph (h) of this clause states that unless otherwise provided for in the contract, the Contractor shall not be liable for loss, damage, destruction or theft to the Government property furnished or acquired under this contract, with exceptions (gross negligence, willful misconduct, etc).
The clause defines Government Property as all property owned or leased by the Government. Government property includes both Government-furnished and Contractor-acquired.

Additional Provisions Relating To Government Property (NAVSEA) (April 2008) which states that for the purpose of FAR 45.107 (h) the following shall be included in the definition of Government Property:

(1) the vessel;
(2) the equipment on the vessel;
(3) movable stores;
(4) cargo; and
(5) other material on the vessel

FAR 52.216-10 Incentive Fee (March 1997) which states, for the purpose of fee adjustment, ?total allowable cost? shall not include allowable costs arising out of
any claim, loss, or damage resulting from a risk for which the Contractor has been relieved of liability by the Government Property clause.



The work package for this contract includes the repair of Turbine Generators. The contractor discovered, after reassembly, that ?construction debris? (metal shavings) were left in one of the generators due to trade error. The debris was removed and the generator was reassembled with no resulting damage. The contractor proceeded in this effort without any additional authorization from the government. As a result, the contractor re-opened another Turbine Generator to check cleanliness and discovered debris and extensive damage to a bearing from the debris (also present due to trade error). The contractor requested authorization to make repairs and has asserted that they should not be held liable for the damage to the bearing under 45.107 (h), with the associated cost handled in accordance with the Incentive Fee Clause, i.e. excluded from the fee calculation. The behavior that caused the damage is not considered by the government to fall under one of the exceptions to paragraph (h) of the government property clause (gross negligence, willful misconduct, etc.).

I believe (I hope I?m wrong), based on the contract language, the contractor is correct in their assertion that the cost of the bearing repair should be excluded from the fee calculation, but it does not make sense to me. The damage occurred to a piece of government property they were tasked to repair, in the performance of that effort. Why are they excused from assuming their share of the risk for additional repair necessitated by their own poor workmanship?

#2 Vern Edwards

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Posted 29 December 2011 - 09:24 PM

What is "FAR 45.107 Government Property (June 2009) (Deviation)"? There is no such thing. FAR 45.107 is entitled "Contract clauses."

There is no 45.107(h). To what paragraph (h) are you referring?

#3 Don Mansfield

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Posted 29 December 2011 - 09:54 PM

Did you mean FAR 52.245-1 Government Property (DEVIATION) (June 2007)?

#4 RIR

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Posted 30 December 2011 - 06:31 AM

Yes, I apologize. 52.245-1 Government Property (June 2007) (Deviation) is the contract clause I am referring to.

#5 Vern Edwards

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Posted 30 December 2011 - 08:45 AM

So you have a CPIF contract. The contractor did not do its repair work correctly and so had to do more work to correct the poor work. You are shocked that the cost of reperformance is not to be included in the total allowable cost for the purpose of calculating the fee payable under the Incentive Fee clause, FAR 52.216-10. That clause says, in part:

(e)(4) For the purpose of fee adjustment, ?total allowable cost? shall not include allowable costs arising out of... (v) Any claim, loss, or damage resulting from a risk for which the Contractor has been relieved of liability by the Government Property clause... .

Paragraph (h) of the Government Property clause says, in part:

(h) Contractor Liability for Government Property. (1) Unless otherwise provided for in the contract, the Contractor shall not be liable for loss, theft, damage or destruction to the Government property furnished or acquired under this contract... .

The contractor argues that pursuant to the terms of the Incentive Fee clause, the cost of its reperformance is not to be included in the total allowable cost because the Government property clause says that it is not liable for any claim, loss, theft, damage, or destruction of the property.

Is the above a correct statement of the problem?

If so, according to you there has been no loss, theft, damage, or destruction of the property and no government claim arising out of such. What happened was that the contractor did not do its work properly the first time ("trade error") and had to reperform part of the work to correct the poorly done work. So why do you think the contractor is correct?

#6 RIR

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Posted 30 December 2011 - 10:59 AM

Vern,
Thank you for your response. Yes, the situation is as you described it.
I believe the contractor is correct because paragraph (h) of the property clause says that we will not hold the contractor liable for damage to government property unless an exception applies.

1. The Turbine Generator fits in the definition of government property stated in the clauses.
2. The contractor damaged the Turbine Generator by failing to remove debris resulting from their repair.
2. No exception applies.

V/R,
Ruth

#7 joel hoffman

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Posted 30 December 2011 - 11:12 AM

So you have a CPIF contract. The contractor did not do its repair work correctly and so had to do more work to correct the poor work...according to you there has been no loss, theft, damage, or destruction of the property and no government claim arising out of such. What happened was that the contractor did not do its work properly the first time ("trade error") and had to reperform part of the work to correct the poorly done work. So why do you think the contractor is correct?


RIR, what does the contract REQUIRE the contractor to do with regard to workmanship, supervision, quality control and inspection of its work. And did the contractor comply with the contract requirements? Apparently, poor workmanship and lack of quality control and supervision caused major damage to at least one turbine. Is there any contract requirement for actions that could or would have prevented such damage had the contractor complied with the contract requirements?

#8 RIR

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Posted 30 December 2011 - 11:54 AM

Joel,
I am at home and can't access a copy of the contract at the moment. I'm trying to get someone to email one to me but it may be next week before I can look at all of the language. Thank you for your response.

#9 Vern Edwards

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Posted 30 December 2011 - 11:57 AM

According to you, the contractor was hired to repair governement-owned turbine generators. The contractor did not do the work properly in the first place and had to take corrective action. I think there is a distinction between liability for loss or damage of government property and the contractor's obligation to perform the repair work properly. The clause at FAR 52.246-5, Inspection of Services -- Cost Reimbursement, provides as follows:

(d) If any of the services performed do not conform with contract requirements, the Government may require the Contractor to perform the services again in conformity with contract requirements, for no additional fee. When the defects in services cannot be corrected by reperformance, the Government may?

(1) Require the Contractor to take necessary action to ensure that future performance conforms to contract requirements; and

(2) Reduce any fee payable under the contract to reflect the reduced value of the services performed.

I do not believe that the cost of reperformance is the kind of cost contemplated by subparagraph (e)(4) of the Incentive Fee clause. I think the cost should be included in the total allowable cost for purposes of calculating payable fee.

But if you want to let the contractor off the hook, be my guest.

I should add that I could find no case law on this issue. In Cost Reimbursement Contracting 3d at 1083, Cibinic and Nash raise the issue of the impact of the paragraph (h) rule in the Incentive Fee clause and its apparent inconsistency with the purpose of the incentive. In my opinion, the drafters of the Incentive Fee clause could have been clearer, but as contracting officer I would include the "cost of reperformance" in the total allowable cost and let the contractor take me to a board or the Court of Federal Claims. My position might be different if the contract were for other than repair of government property or if the repair of damage did not constitute reperformance of specified work.

#10 C Culham

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Posted 30 December 2011 - 12:50 PM

RIR - With regard to workmanship issues related to the matter you have described be mindful of DFARS 217.17, and its related clauses if the "contract" work you are describing is/was performed under a Master Agreement. If so then there may be some 252.217 clauses that are applicable beyond the inspection FAR clause mentioned by Vern.

Other places to look might be other clauses that deal with workmanship or other terms and conditions as many times matters of workmanship and protecting existing property during the performance of work are contained in the specifications. Bottomline is the contract should be read as a whole to explore the issue you have at hand inclusive of discussions with your agency folks that deal with the actual work requirements, legal, etc. as it seems the matter you have could become a tangled web.

#11 RIR

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Posted 30 December 2011 - 01:15 PM

One last question -
Because the original repair of the generator didn't include work on the bearing the contractor has argued that this isn't "re-work" but new work resulting from their damage of government property. Would you agree, if the repair of the bearing wasn't included in the original work package for the turbine generators, that the cost of repairing the bearing should be excluded for the purpose of fee calculation?

#12 RIR

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Posted 30 December 2011 - 01:22 PM

RIR - With regard to workmanship issues related to the matter you have described be mindful of DFARS 217.17, and its related clauses if the "contract" work you are describing is/was performed under a Master Agreement. If so then there may be some 252.217 clauses that are applicable beyond the inspection FAR clause mentioned by Vern.

Other places to look might be other clauses that deal with workmanship or other terms and conditions as many times matters of workmanship and protecting existing property during the performance of work are contained in the specifications. Bottomline is the contract should be read as a whole to explore the issue you have at hand inclusive of discussions with your agency folks that deal with the actual work requirements, legal, etc. as it seems the matter you have could become a tangled web.


Thank you very much. It is a tangled web. Our legal and technical people are all involved. I'm not making the decision; I'm just trying to understand it.

#13 Vern Edwards

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Posted 30 December 2011 - 01:40 PM

One last question -
Because the original repair of the generator didn't include work on the bearing the contractor has argued that this isn't "re-work" but new work resulting from their damage of government property. Would you agree, if the repair of the bearing wasn't included in the original work package for the turbine generators, that the cost of repairing the bearing should be excluded for the purpose of fee calculation?

I say that if the contractor was hired to repair one part of the generator, and that if the repair work damaged another part, then the original repair was faulty, and the work to fix the damaged part was reperformance. The cost of the reperformance should be included in the total allowable costs for purposes of determining payable fee.

Bottom line: I could find no litigation over the proper application of paragraph (e)(4)(v) of the Incentive Fee clause. I would read the contract in its entirety and ask myself whether the contractor's interpretation is reasonable. I think it is not, for reasons that I have already explained. I think that a reasonable application of paragraph (e)(4)(v) might be this: If a fork lift operator doing other work lost control of his machine and it struck and damaged the generator while it was under repair or afterward, I would (grudgingly) exclude the cost of repairing the damage from the total allowable cost. However, if the contractor did something improperly while doing the contractually specified repairs, resulting in damage to any part of the generator, I would include the cost of fixing the damage in the total allowable cost for purposes of calculating payable fee. I think that is a reasonable interpretation of (e)(4)(v) that does not conflict with the plain meaning of the contract, when read as a whole, and that is not contradicted by any board or court decision or official interpretation of which I am aware. I think it would be appropriate to at least consider including the cost and letting the contractor contest my interpretation before a board or court.

#14 RIR

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Posted 30 December 2011 - 01:51 PM

I say that if the contractor was hired to repair one part of the generator, and that if the repair work damaged another part, then the original repair was faulty, and the work to fix the damaged part was reperformance. The cost of the reperformance should be included in the total allowable costs for purposes of determining payable fee.

Bottom line: I could find no litigation over the proper application of paragraph (e)(4)(v) of the Incentive Fee clause. I would read the contract in its entirety and ask myself whether the contractor's interpretation is reasonable. I think it is not, for reasons that I have already explained. I think that a reasonable application of paragraph (e)(4)(v) might be this: If a fork lift operator doing other work lost control of his machine and it struck and damaged the generator while it was under repair or afterward, I would (grudgingly) exclude the cost of repairing the damage from the total allowable cost. However, if the contractor did something improperly while doing the contractually specified repairs, resulting in damage to any part of the generator, I would include the cost of fixing the damage in the total allowable cost for purposes of calculating payable fee. I think that is a reasonable interpretation of (e)(4)(v) that does not conflict with the plain meaning of the contract, when read as a whole, and that is not contradicted by any board or court decision or official interpretation of which I am aware. I think it would be appropriate to at least consider including the cost and letting the contractor contest my interpretation before a board or court.


Thank you very much for your time and advice!

#15 C Culham

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Posted 02 January 2012 - 10:53 AM

RIR - In exploring the discussion of this thread further I found a reference document that you may or may not know about. I am unsure whether I found the most current copy or not but in reading it, while it does not address you situation exactly it does provide direction and information that may be useful.

Document is the "DoD Manual for the Perfomance of Contract Property Administration" DoD 4161.2-M

#16 Vern Edwards

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Posted 03 January 2012 - 07:02 AM

DOD 4161.2-M, dated December 31, 1991, was rescinded on February 22, 2008.

#17 C Culham

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Posted 03 January 2012 - 10:40 AM

Vern - Edited post on my part. I am confused by your last post. I looked again at the reference and it is still listed as current. I then did a little further research and found some info on the "Ask the Professor" website. References provided below, noting that the some folks may have trouble accessing the Ask the Professor one.

So I guess my question is - Are you sure? Reference?

And again I note it is not the silver bullet to RIR's question but it might be helpful in sorting out the matter.

http://www.dtic.mil/...orres/pub1.html

https://dap.dau.mil/...estionID=110001

#18 Vern Edwards

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Posted 03 January 2012 - 11:55 AM

I'm sure.

DCMA is the OPR for that manual. See DCMA Information Memorandum No. 08-170, dated February 22, 2008, "Rescission of Instruction DoD 4161.2-M DoD Manual for the Performance of Contract Property Information (INFORMATION)," which said:

Information Memorandum No. 08-170

Subject: Rescission of Instruction DoD 4161.2-M DoD Manual for the Performance of Contract Property Administration (INFORMATION)

Date: February 22, 2008

Target Audience: Property Administrators (PA) and Administrative Contracting Officers.

New Information/Guidance/Tools:

The subject Instruction designated the Defense Logistics Agency (Defense Contract Management Command) with responsibility for the developing, publishing, and maintaining the DoD 4161.2-M. This responsibility has continued under the Defense Contract Management Agency (DCMA).

The manual, last published in 1991, is now obsolete. Its utility as a policy-making tool has largely been superseded by DoD Procedures, Guidance and Information (PGI). With that in mind, OSD is in the process of cancelling DoDI 4161.2-M, DoD Manual for the Performance of Contract Property Administration.

Information and direction for DCMA Property Administrators and Plant Clearance Officers will be provided in the DCMA guidebook for Property Management on Government Contracts.

We will be updating the Guidebook on an incremental basis with the System Analysis Section projected for completion by May 1, 2008.

This information is applicable to the Property Management on Government Contracts Guidebook process.
Point of Contact for Further Information

Signature:

Deputy Executive Director, Contracts Directorate


http://guidebook.dcm...34/dc08-170.htm

A new draft guidebook was published on August 17, 2011, by the Director of Defense Procurement.

http://www.acq.osd.m...754-11-DPAP.pdf

In any case, the old manual contained absolutely nothing that would be of help to RIR in the matter that he has raised here. It addressed contract clauses that have long been out of use and the coverage in Section C2.5, "Liability for Loss, Damage, or Destruction of Government Property," simply does not address RIR's issue. It mainly addresses the role of property administrators. The new guidebook would not be of much help, either. Moreover, the real question is the proper interpretation of the Incentive Fee clause, not the Government Property clause.

Of course, RIR is free to consult a 20 year old, obsolete, largely useless manual that does not address his problem. I don't want to discourage him. He can find it here:

http://www.dtic.mil/...pdf/416102m.pdf

#19 C Culham

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Posted 03 January 2012 - 01:28 PM

Vern - Thanks. Always interesting to debate with you especially when on one hand you would and have advocated in this forum that folks should not depend on a "draft" policy documents (dated 7/28/11 at that) but then on another hand advocate that one should consider a current document as "rescinded" based on an informational memo that was issued some three years earlier?

Keying in on your premise regarding the date of the information memo I have been careful not to read more into RIR's post than meets the eye but it seems you have because it could be very possible that the repair contract and its required GFP management started prior to even the informational memo and as such I would conclude it could and would be applicable. Of course RIR might post the actual award date of his/her contract at issue and I could be assuming something I should not but again it seems you have.

Regardless of whether one should depend on a original and not yet cancelled manual, a draft manual, and/or an informational memo your point regarding the incentive fee interpretation being the only issue misses the point in my view. As RIR's initial post notes the issue revolves around both the GFP clause, specifically the "unless otherwise provided for in the contract" language of it and the incentive fee clause. With specific regard to the liability of the costs for the "reperformance" and therefore the associated fee one will find general discussion in both the current manual (see Chap. 2) and the draft (see Chap. 13) you have noted and again I note (for the third time) that such reference may or may not be known to and/or valuable to RIR. It was simply a post I made to be helpful whether in your mind?s eye the reference is or is not.

#20 Vern Edwards

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Posted 03 January 2012 - 02:32 PM

Carl,

I appear to have annoyed you. You had indicated that you were unsure whether the manual that you cited was the current one, and all I did was point out that the DOD manual was rescinded, according to DCMA. DOD has issued contradictory information in that regard, but I consider it rescinded since DCMA has told its people not to use it. Even the Ask A Professor post you cited said that contractors cannot rely on it. But you're right -- it's still listed at the DoD Directives website.

I haven't said that anybody should depend on anything, either the draft manual or the one declared obsolete by DCMA back in 2008. I don't think either manual is of any help in this issue, and I've read them. I doubt that RIR's contract was awarded before 2003, which is when the clause covered in the old manual was changed, but anything is possible, and a draft is just that.

The issue raised by RIR was simple:

I believe (I hope I?m wrong), based on the contract language, the contractor is correct in their assertion that the cost of the bearing repair should be excluded from the fee calculation, but it does not make sense to me. The damage occurred to a piece of government property they were tasked to repair, in the performance of that effort. Why are they excused from assuming their share of the risk for additional repair necessitated by their own poor workmanship?

What costs are to be excluded from the computation of total allowable cost under the Incentive Fee clause? Is damage caused by the contractor in the course of redoing the work it was hired to do to be excluded from the computation of total allowable cost? My opinion is that the answer is no, but I cannot cite anything in my favor in regulation or policy, and I couldn't find any case (as far as I can tell the issue has not been litigated).

Prof. Ralph Nash and I discussed this and he thinks I'm wrong, and I might be. He thinks the Incentive Fee clause was not meant to say what it says, but that it does and that's that. The clause has said that since at least the 1960s and there is nobody around who knows what the original objective was and why the clause says what it says. Ralph thinks the objective was to excuse the contractor from risks that are out of its control, but that damage is in its control. However, the clause says what it says and that's that. A retired GWU professor, Gil Ginsberg, wrote an article about it back in 1966 and I'm arranging to get it to see what he said. Ralph said he said the clause is goofy and inconsistent with the objectives of the incentive.

In any case, Carl, I'm not debating with you. I just passed on some information about the status of the manual. I'm curious, though. When you first referred RIR to the manual, had you read it. Have you read it yet? If so, can you point out what specific passage might be helpful?




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