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Contractor Responsibility for Damage to Government Property

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Vern's post represents the part of the definition that I kept stubbling over and got me to thinking about something like a building being "furnished" for janitorial (maintenance) and a bridge being "furnished" for repair or renovation (modification). Really makes my head spin when you start thinking about all the contracting efforts that occur! JOC contracts or whatever they are called in this day and age? Add to it the fact that "government property" includes by definition real property (ref. FAR 45.101).

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What about: "Government-furnished property includes, but is not limited to, spares and property furnished for repair, maintenance, overhaul, or modification."

Wouldn't the turbines be property furnished for repair?

If the Government gave the turbines (or the entire vessel) to the contractor, and the contractor had possession of them, then I think that the turbines would be property furnished for repair. If the vessel were on a Navy base and the contractor boarded the vessel to repair the turbines in place, then the turbines would not be property furnished for repair (i.e., the turbines were not given to the contractor nor did the contractor take possession of them).

In the decision that you cited (which I skimmed), I gathered that the contractor would take possession of Government property and perform repair/overhaul work on it at its facility:

Mr. Noak attached the greatest significance to the last four words of that line item, ?other Government Furnished Property,? and stressed the importance of the need to repair or overhaul the many items of Air Force ground support equipment while they are at the PDM contractor's facility.

If that was the case, then that was correctly referred to as GFP in the contract. Accordingly, the contractor would be responsible for performing the custodial duties of the Government Property clause.

I think that for an item to be GFP or CAP, the contractor must have possession of the item. If the contractor damages Government property that is not in its possession while performing work, FAR 52.245-1(h) does not relieve them from liability. Accordingly, costs of repairing the damage should not be excluded in the "Total Allowable Cost" computation if the contract includes the Incentive Fee clause.

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What constitutes possession? How do you define it? What does it mean in the case in question?

The Government Property clause uses the word "possession" several times, but does not define it (nor does FAR 2.101). I think one can glean what is required in order for possession to be present from paragraph (B) of the clause:

Property management.

(1) The Contractor shall have a system to manage (control, use, preserve, protect, repair and maintain) Government property in its possession. The system shall be adequate to satisfy the requirements of this clause. In doing so, the Contractor shall initiate and maintain the processes, systems, procedures, records, and methodologies necessary for effective control of Government property, consistent with voluntary consensus standards and/or industry-leading practices and standards for Government property management except where inconsistent with law or regulation. During the period of performance, the Contractor shall disclose any significant changes to their property management system to the Property Administrator prior to implementation.

(2) The Contractor?s responsibility extends from the initial acquisition and receipt of property, through stewardship, custody, and use until formally relieved of responsibility by authorized means, including delivery, consumption, expending, sale (as surplus property), or other disposition, or via a completed investigation, evaluation, and final determination for lost, stolen, damaged, or destroyed property. This requirement applies to all Government property under the Contractor?s accountability, stewardship, possession or control, including its vendors or subcontractors (see paragraph (f)(1)(v) of this clause).

(3) The Contractor shall include the requirements of this clause in all subcontracts under which Government property is acquired or furnished for subcontract performance.

My interpretation of the clause is that in order for possession to exist, the contractor would have to at least receive the property. Paragraph (f)(1)(ii) of the clause requires the contractor to document receipt. The implication is that the property was sent to the contractor by someone. Once received, the contractor would be responsible for its stewardship (tagging, keeping records, taking inventory, maintenance, reporting, etc.) until relieved in accordance with (f)(1)(vii) of the clause.

In the case in question, were the turbines received by the contractor? Was the contractor responsible for stewardship of the turbines? If we removed the turbines and sent them to the contractor (or sent the entire vessel to the contractor) and they received them, then they were in the contractor's possession. As such, the contractor would be responsible for their stewardship and relieved of liability for loss, theft, damage, or destruction of the property while executing their stewardship responsibility.

On the other hand, if we didn't send the turbines (or the vessel) to the contractor, then they could not have received them. The Government could not hold them accountable for stewardship responsibilities pursuant to FAR 52.245-1.

If a contractor comes to a Government office to perform onsite maintenance of a copy machine, I don't believe that the contractor has taken possession of the copy machine. I think the situation is similar to a contractor coming to a Navy base performing on-board repair of equipment on a vessel.

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Well, FAR 1.108(a) says that if a term is not defined in FAR it has its common dictionary meaning. My Oxford Dictionary of English defines possession as "the state of having, owning, or controlling something." When the Navy furnished the turbines for repair, did the contractor have control over them?

Black's Law Dictionary 9th defines possession as:

The fact of having or holding property in one's power; the exercise of dominion over property. 2. The right under which one may exercise control over something to the exclusion of all others; the continuing exercise of a claim to the exclusive use of a material object. 3. Civil law. The detention or use of a physical thing with the intent to hold it as one's own. 4. (usu. pl.) Something that a person owns or controls; PROPERTY (2). 5. A territorial dominion of a state or nation.

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When the Navy furnished the turbines for repair, did the contractor have control over them?

I'm not sure that the Navy "furnished" the turbines for repair. If the contractor came on base and did on-board repair of the turbines, then I don't think the Navy "furnished" them.

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I'm not sure that the Navy "furnished" the turbines for repair. If the contractor came on base and did on-board repair of the turbines, then I don't think the Navy "furnished" them.

The turbine generators are on board a ship that is being overhauled at the contractor's facility.

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OK. So what's your definition of possession?

If the receiver has control of the ball with both feet in bounds :lol:

I'll go with the Merriam-Webster online dictionary:

Possession

a : the act of having or taking into control b : control or occupancy of property without regard to ownership.

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The turbine generators are on board a ship that is being overhauled at the contractor's facility.

RIR,

Is there anything in the contract that says that the vessel is still under the Government's control, even if it is located at the contractor's facility? I have experience with NAVSEA contracts and I recall there being some clause to that effect.

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RIR,

Is there anything in the contract that says that the vessel is still under the Government's control, even if it is located at the contractor's facility? I have experience with NAVSEA contracts and I recall there being some clause to that effect.

This is the only language I can find referring to control of the vessel -

C-2-7 ADDITIONAL INSURANCE PROVISIONS

Notwithstanding any other provision of this contract, for the purpose of the contract clause entitled "Insurance-Liability to Third Persons (FAR 52.228-7)", the vessel, its outfit, supplies, equipment, and the property or equipment of Government personnel or Government contractors other than the Prime Contractor, shall not be considered to be in the care, custody or control of the Contractor nor used by the Contractor.

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Don:

Rather than focusing on the particular contract, can't we look for a more general solution?

Do we know whether government property handed over to a contractor for repair traditionally has been considered GFP?

Do we have any reason to think that GFP includes only property provided to the contractor for its use or consumption in performance, rather than for maintenance or repair?

Is there anyone on the DAU faculty who can answer those questions?

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Don and Vern - For the good of the order ....

I continue to read and research myself. Here is a DFARS 252.217 clause (see below) that I found that is partial answer to Vern's thoughts in his last post. See paragraph ©.

I referenced the DFARs 217 early on noting that it would apply to vessels that are being repaired under a master agreement. I finally got around to reading all the clauses and found this one. In my posts referencing the DFARS RIR has never indicated whether the work was connected to a Master Agreement or not but as the clause appears to be the standard for Master Agreement work makes me wonder if it is the standard as well, or should be, for work done outside the Master Agreement concept stated in DFARS 217?

I also found this solicitation on FBO for a USACE project and read through it. The only thing considered GFP for this solicitation were some parts that the USACE provided to be replaced on the vessel with wording otherwise implying that the USACE was not considering the vessel to be GFP.

https://www.fbo.gov/index?tab=documents&amp...deff8c0ac121b19

252.217-7006 Title.

As prescribed in 217.7104(a), use the following clause:

TITLE (DEC 1991)

(a) Unless otherwise provided, title to all materials and equipment to be incorporated in a vessel in the performance of a job order shall vest in the Government upon delivery at the location specified for the performance of the work.

(B) Upon completion of the job order, or with the approval of the Contracting Officer during performance of the job order, all Contractor-furnished materials and equipment not incorporated in, or placed on, any vessel, shall become the property of the Contractor, unless the Government has reimbursed the Contractor for the cost of the materials and equipment.

© The vessel, its equipment, movable stores, cargo, or other ship's materials shall not be considered Government-furnished property.

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Vern,

Given the definition of GFP in the clause, I don't think that there's any question that property furnished to the contractor for repair is GFP. The question I was raising, which RIR just answered, is whether the Government "furnished" the turbine generators. The entire vessel was furnished to the contractor.

Carl,

You found the clause that I was asking RIR about. Paragraph ( c ) is what I remember. However, I suspect that the DFARS clause is not in RIR's contract because NAVSEA generally doesn't issue job orders against master agreements for ship repair. They award long-term multi-ship multi-option (MSMO) contracts that are combination CPAF/CPIF.

RIR,

1. Does the contractor have a Master Agreement for the Repair and Alteration of Vessels (MARAV) or Master Ship Repair Agreement (MSRA) with the Navy?

2. If yes to question #1, does the agreement include DFARS 252.217-7006?

3. If yes to #1 and #2, does the contract incorporate the MARAV by reference, or does the MARAV say that it applies to all future contracts for ship repair with that contractor? (i.e., Is there a way to bind the contractor to DFARS 252.217-7006 under your contract?)

If you can answer yes to all these questions, then pursuant to DFARS 252.217-7006( c ), the turbine generators are not to be considered GFP. As such, FAR 52.245-1(h) does not relieve the contractor from liability for loss, theft, damage, or destruction of the turbine generators.

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RIR,

1. Does the contractor have a Master Agreement for the Repair and Alteration of Vessels (MARAV) or Master Ship Repair Agreement (MSRA) with the Navy?

2. If yes to question #1, does the agreement include DFARS 252.217-7006?

3. If yes to #1 and #2, does the contract incorporate the MARAV by reference, or does the MARAV say that it applies to all future contracts for ship repair with that contractor? (i.e., Is there a way to bind the contractor to DFARS 252.217-7006 under your contract?)

If you can answer yes to all these questions, then pursuant to DFARS 252.217-7006( c ), the turbine generators are not to be considered GFP. As such, FAR 52.245-1(h) does not relieve the contractor from liability for loss, theft, damage, or destruction of the turbine generators.

Don,

The clause doesn't apply to this contract.

Thank you to everyone for your interest and research!

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RIR,

One last comment. If the contractor wants to argue that the turbine generators are GFP, they should know that they would then be responsible for performing all of the duties in FAR 52.245-1(f) for any property furnished to them for repair--documentation of receipt, identification, record-keeping, inventory, reporting, maintenance, closeout, etc. If the turbine generators are GFP for purpose of FAR 52.245-1(h), then they are GFP for the purpose of FAR 52.245-1(f)--the contractor can't have it both ways.

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I would reject the contractor's interpretation. In order to do that you have to be able to say why the contractor's interpretation is wrong. I think Don had raised a very good issue, but I have a slightly different take.

As I read the Incentive Fee clause, it excludes from the total allowable cost calculation costs for claims, losses, or damage for which the contractor is indemnified under the Government Property clause. That clause protects the contractor from claims, loss, or damage to "Government property furnished" to the contractor. I read that as meaning GFP as defined in the Government Property clause, which is Government property in the contractor's possession that was furnished to the contractor "for performance" which I would interpret as meaning for use as a tool or for consumption.

I would first argue that the turbines are Government property, but not GFP, because (1) the property was never in the possession (under the control of) of the contractor and (2) was not furnished to the contractor for use as a tool or for consumption during performance. Moreover, I don't think the turbines were described in the contract as GFP, which is required by the Government property clause. The turbines are Government property to which the contractor was merely given access in order to repair it. Access is not possession. (I would not rely as heavily on "furnished" as Don is doing.)

I would further argue that it would make no sense to exclude the costs of correction of its defective work, since the purpose of the incentive is to motivate the contractor to be efficient in the performance of that work and excluding the costs of poor performance would not foster that purpose. Thus, the Incentive Fee clause cannot reasonably be interpreted as the contractor does.

As CO I would not hesitate to take that position and I would write a final decision accordingly. And unless prevented by my superiors, I would let the contractor appeal to the board or the Court of Federal Claims and take my chances. The only risk to the CO is that the Government would have to pay interest on the contractor's claim once it is submitted, and the interest rate now is very low.

I think this is an honest and reasonable interpretation for a CO to take and a reasonable legal risk. The clause is ambiguous in my opinion. If the court sides with the contractor you will lose, but you will have done a service to the acquisition community in getting a legal interpretation. If you lose you lose, so what? It happens. There is no shame unless your position was manifestly unreasonable. What kind of CO won't do what he or she thinks is right because a board or court might disagree? Back off if your lawyer or theirs finds case law that makes your interpretation unreasonable.

If you think you're right, or just probably right, then go for it! If not, then don't. Either way, for what it's worth, I've got your back and the power of the pen. (I think Don has your back, too.)

Vern

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Vern,

Why do you say that the turbines were never in the possession (under the control of) of the contractor? RIR said the contractor has the ship at their facility.

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Missed that. OK, then the property was not furnished for their use or consumption in performance. They had to repair it, and it was in their possession for that purpose only, they weren't using it as a tool to be used or material to be consumed. I can't find anything that says that all Government property in a contractor's possession is Government-furnished property, and I've been looking. See also FAR Subpart 45.3. I don't want to rely on "furnished" alone. Government-furnished property is property furnished "for performance". Moreover, it has to be "described" as GFP in the contract.

RIR, were the turbines described as GFP in the contract?

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Missed that. OK, then the property was not furnished for their use or consumption in performance. They had to repair it, and it was in their possession for that purpose only, they weren't using it as a tool to be used or material to be consumed. I can't find anything that says that all Government property in a contractor's possession is Government-furnished property, and I've been looking. See also FAR Subpart 45.3. I don't want to rely on "furnished" alone. Government-furnished property is property furnished "for performance". Moreover, it has to be "described" as GFP in the contract.

RIR, were the turbines described as GFP in the contract?

No, the turbines are not described as Government Furnished Property.

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RIR - How about a broader question following Vern's thoughts - Was there any property described in the contract as GFP and the turbines were not on the list? Was the vessel in total described as GFP?

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RIR - How about a broader question following Vern's thoughts - Was there any property described in the contract as GFP and the turbines were not on the list? Was the vessel in total described as GFP?

There is a specific list of special tooling and equipment that is provided for use by the contractor and the turbines are not included. The vessel and its equipment are not described anywhere "Government- Furnished Property", but they are included in the definition of "government property" for the purposes of (h) (1) of the government property clause.

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RIR ? Well after sorting this through I would only pursue inclusion of the re-performance costs in the fee calculation if-

1) There is other contract provision(s) that holds the contractor liable ? As noted in the thread such provisions might relate to an inspection clause or other term and condition of the contract that addresses workmanship.

2) Risk is covered by insurance or otherwise reimbursed ? No indication has been made by you that such insurance/reimbursement exists. It might be wise to ask the contractor if they have some type of coverage that would cover the matter. Remember you might not have asked for insurance but the contractor might have it anyway. Likewise if a subcontractor was involved in the work that resulted in the damage you might want to see the terms of that subcontract in case it covers such instances where the sub is insured or the prime is otherwise reimbursed by the sub.

3) Damage caused by managerial personnel ? This is a strong matter to prove as the 52.245-1(h) clause as supported by case law defines the ?managerial personnel? to be those at the top of the organizational structure. A reference here is ASBCA No. 14387, November 30, 1971 (sorry I could not find a link to on the web to this decision).

4) The CO has revoked the Governments assumption of risk. While the 52-245-1 clause references paragraph (g) where such a revocation determination is made my read of the clause suggests that paragraph (B) and paragraph(f)(vi) come into play as well but only if the Government has done due diligence in administering these provisions of the clause per reference FAR 45.105 (see paragraph (B)(1) specifically).

I realize that I have basically stated the obvious above as the four ?ifs? are taken directly from the 52-245-1 clause at paragraph (h). I have voiced my view in this manner as I am not in 100% agreement with the posts by Vern and Don that determination of liability revolves around whether the turbine(s) is Government Furnished Property (GFP) or not.

As you have noted the turbine(s )in the context and definition of both FAR Part 45 and clause 52.245-1 as ?property? is ?Government Property? . However, as it was not ?provided? or otherwise described as GFP in the contract it is not GFP in my view. As the turbine(s) is ?Government Property? it is therefore covered by the 52.245-1 clause and FAR Part 45 (see FAR 45.000). In my close read of the 52.245-1 clause I believe it makes specific and intentional distinction in use of the words like ?Government Property? and ?GFP? inclusive of the (h) paragraph where the word ?furnished? is used in lieu of ?provided?. My conclusion therefore is that (h) covers ALL ?Government Property? and not just GFP. The simple view might be that it is after all the ?Government Property? clause.

Hope these additional thoughts help.

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