Jump to content
The Wifcon Forums and Blogs

Recommended Posts

Question: In the context of FAR Part 45 and proper disposition of government property upon task completion, how should the contractor account for and dispose of the remnants of incidental construction "modifications" (fencing, etc.) to a leased space/facilty?

Background: Contractor has been tasked to provide services on a cost reimbursable contract for which a facility lease is required (deemed incidental to the services). The costs for lease, maintenance, and "modifications" to the facility were proposed and direct charged to the task. In order to render the facility suitable for the services to be performed in the facility, modifications were required on the leased premises, such as an exterior fence (for security); roll-up doors (for large vehicles), concrete and asphalt work, electrical wiring, compressed air, etc..

Link to post
Share on other sites

Hope7, Have you reviewed the cost principle @ 31.205-31 ("Plant Reconversion Costs")? Do you think it's applicable to your situation?

Hope this helps!

Link to post
Share on other sites

Thank you :). However, my question was related to FAR Part 45 vice allowability of costs; specifically, what action is requried of the contractor with "asphalt," for example? I am told that it falls into the category fo Government equipment.

FAR 45.101:

“Material” means property that may be consumed or expended during the performance of a contract, component parts of a higher assembly, or items that lose their individual identity through incorporation into an end-item. Material does not include equipment, special tooling, special test equipment or real property.

“Equipment” means a tangible item that is functionally complete for its intended purpose, durable, nonexpendable, and needed for the performance of a contract. Equipment is not intended for sale, and does not ordinarily lose its identity or become a component part of another article when put into use. Equipment does not include material, real property, special test equipment or special tooling.

Link to post
Share on other sites

Hope7 I believe you have been misinformed regarding the applicability of FAR Part 45 to leasehold improvements made to a third party's building for which your entity entered into a lease, the cost of which was direct-charged to a government cost-reimbursement contract.

The Government does not take title to the leased building, nor do I believe it takes title to any leasehold improvements made to that building.

Thus -- not Government property.

As you whether you should have direct-charged the leasehold improvements as contract expenses, versus capitalizing them and amortizing the expenses over the life of the lease as indirect expenses, I leave to you and your GAAP accountants to figure out. Not incidently, if you had capitalized the improvements and depreciated into your indirect cost pools, FAR Part 45 would clearly not be applicable, since there would be absolutely no question regarding passage of title, right?

Hope this helps.

Link to post
Share on other sites

Not being a GP expert, I have attempted to go through the property related clauses in the FAR and so far, references to plant or facility appear to be related to that owned by the contractor; there is little to nothing stated about leased facility. I'm not sure how relevant would be the distinction in this except that in this case, there is an expiration date to exit the facility; if this were a contractor owned facilty, there would not be a time constraint and therefore more time to work with the plant clearance officer if/as needed. (The lease stipulates the modifications if pre-approved can be left in place, or if removed, the facility must be returned to its original condition.) I have attempted to view this with the lease issue taken out of the equation, focusing on the specific items that were purchased and then installed (on the leased facility or premises). The contract contains the JUN 2007 version of 52.245-1.

Examples:

1) Contractor takes out a large portion of a 14" thick wall in order to install a huge roll-up door to allow for movement of assets in/out of the facility. Is the contractor then required to de-install that door and return to the Gov't? De-installation and restoration would be significant in relative value.

2) Contractor installs fencing for security around the premises. De-installation is significant relative to value (in this writer's opinion).

FAR 45.101 definitions for reference:

“Nonseverable” means property that cannot be removed after construction or installation without substantial loss of value or damage to the installed property or to the premises where installed.

“Material” means property that may be consumed or expended during the performance of a contract, component parts of a higher assembly, or items that lose their individual identity through incorporation into an end-item. Material does not include equipment, special tooling, special test equipment or real property.

“Equipment” means a tangible item that is functionally complete for its intended purpose, durable, nonexpendable, and needed for the performance of a contract. Equipment is not intended for sale, and does not ordinarily lose its identity or become a component part of another article when put into use. Equipment does not include material, real property, special test equipment or special tooling.

QUESTIONS:

1) While the JUN07 version of FAR Part 45 defines "nonseverable," it does not make any further mention of it. What constitutes "substantial" and if deemed substantial, any thoughts on the use of that to relieve the contractor of the need to go through the process defined in FAR Part 45 as to disposal?

2) Could the roll-up door and fencing fall into the category of "material" in that they became a part of the (leased) facility and therefore would not be returned? I am told they fall into the category of equipment.

The costs on the Government side and contractor side (to vet this through the Plant Clearance Officer via SF1428, etc;de-install the items; transport/store; restore the facility, etc.) would far outweigh the value of the items (in this writer's opinion and to anyone who would conduct a site visit. Any sage advice would be most appreciated.

Link to post
Share on other sites

Hope7

I can't help you any further. I would suggest, however, that you need the services of a Government Property expert to answer your questions. Maybe one will see this thread and respond to your questions.

In my experience, Government Property is a lot like CAS. Either you know it well, or you don't know it and should find somebody who does.

H2H

Link to post
Share on other sites
Guest Vern Edwards

I don't have an answer either and I agree with help's advice. However, I'd like to add that this is a perfect example of a situation the handling of which is not clearly spelled out in FAR Part 45 and the government property clause. COs should be alert for these kinds of things and should negotiate an advance agreement with the contractor before the cost is incurred.

The stuff is not personal property now that it has been installed. It has no reuse value, so the government won't want it. Will the contractor leave the stuff in place after its lease expires? What does the contractors lease say about improvements? Will it have to remove the stuff and restore the leased property to its former condition? If so, does the stuff have any scrap or salvage value? The government may want to negotiate a cost settlement. In these kinds of situations it's usually better to decide what to do in advance rather than figure it out after the fact.

Link to post
Share on other sites

Much thanks for the responses. At the very least, I wanted to confirm that I wasn't overlooking anything that may have spoken directly to this; by the responses, I think I have confirmed this is not addressed specifically or clearly in the FAR. The response from the GP experts to date is lacking the supporting rationale (specifically, FAR or similar reference) that I need to convince me of a path forward. I have attempted to research this issue for anything that could be viewed as precedent/precedence and have come up with nothing so far.

Vern - to your question: The landlord is okay with either: a) leaving the leasehold improvements in place; or B) if removed, return to original condition. In my opinion (and pretty much everyone else familiar with this for the obvious), the salvage value is far less than the effort expended to de-install, transport, restore/rehab facility, and re-install. And I haven't even mentioned the fact that anyone contemplating re-use would have to accept that the items would be transferred on an "as is" basis with no warranty.

Again, I cannot overstate my thanks for the responses.

Link to post
Share on other sites
Guest
This topic is now closed to further replies.
×
×
  • Create New...