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I am struggling to find the benefits of the Ground and Flight Risk (GFRC) clause when applied to contracts for repair and maintenance of aircraft. Are there any sources that can help?

The GFRC limits the contractor's liability for loss or damage to the aircraft by, in effect, creating a deductible and then self-insuring the balance of the loss. The clause is based on an assumption that, in the long run, the government's cost of self-insurance will be less than paying for the contractor's insurance to cover these risks.

Where I am confused is how this clause interacts with the Government Property clause on aircraft that are provided to a contractor for repair, maintenance, modification, etc. Under the GFP clause, the contractor's liability for loss or damage of property is very limited. FAR 52.245-1(h)(1)(i-iii) provides the contractor shall not be liable for loss of Government property (which is defined earlier in the clause to include damage and destruction) furnished under the contract unless the risk is covered by insurance, the loss is the result of willful misconduct or lack of good faith on the part of the Contractor's managerial personnel, or the Contracting Officer has revoked the Government's assumption of risk. If I am reading the Government Property clause correctly, it seems to me that the GFRC reduces the scope of the Government's self-insurance by creating a "deductible" that otherwise would not exist.

What am I missing?

Thanks for your assistance.

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Guest Vern Edwards

It would help everybody a lot of you would fully identify "the Ground and Flight Risk (GFRC) clause." I assume that you're talking about DFARS 252.228-7001. NASA has a similarly titled clause, "Aircraft Ground and Flight Risk," NFS 1852.228-70.

Generally, questions such as yours can be answered reliably only through regulatory research or, less reliably, through recollection, assumption, or speculation. That clause dates back to at least the late 1970s. It may be that the clause is designed to explicitly relieve the contractor from having to buy insurance coverage that its accountants and attorneys would otherwise make them buy.

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My apologies. I am referring to the DFARS clause.

I reviewed the Federal Register issuance for when the latest (2010) version of the clause was published (I did not review earlier Federal Register issuances, thanks for the suggestion). I reviewed an article in the Summer 2011 Procurement Lawyer by Donald Carney of Perkins Coie (see http://www.perkinscoie.com/files/upload/GC_11_07DonCarneyArticle.pdf). I also reviewed several DAU sources and whatever else I could find through Google. Everything that discussed the self-insurance benefits of the Ground and Flight Risk clause seemed to focus on aircraft in production, not aircraft that is provided as GFP under a repair, maintenance, overhaul, etc., contract. I did not find anything describing the relationship between liability under the Government Property clause and liability under the Ground and Flight Risk clause.

The research I did indicates that the purpose of the clause is, as you describe, to relieve the contractor from having to buy insurance coverage under the assumption that, in the long run, the government's cost of self-insurance will be less than paying for the contractor's insurance to cover these risks. But what insurance coverage would be required for GFP aircraft if the liability for loss, damage, or destruction is assumed by the government? That is the essence of my confusion.

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Guest Vern Edwards

According to DFARS 228.370 the clause is to be used in all contracts for "acquisition, development, production, modification, maintenance, repair, flight, or overhaul of aircraft." That takes in more territory than just production.

What it really does is distribute a certain risk. It states many exceptions to the government's position as self-insurer. Thus, it works in conjunction with the Government Property clause. Paragraph (h)(1) of that clause begins "Unless otherwise provided for in the contractor, the Contractor shall not be liable...." Well, read the Ground and Flight Risk clause. Then read LTV Aerospace and Defense Co., ASBCA No. 45808, 93-3 BCA P 2648, in which the government tried to get $2 million from a contractor for the loss of an aircraft during a flight test, citing the Ground and Flight Risk clause.

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One benefit that I see is that the clause would limit the contractor's liability for loss, damage, or destruction for "aircraft" defined as: "Conventional winged aircraft, as well as helicopters, vertical take-off or landing aircraft, lighter-than-air airships, unmanned aerial vehicles, or other non-conventional aircraft specified in this contract." Thus, while FAR 52.245-1 would limit the contractor's liability for GFP provided for maintenance/repair, the clause could also be used to limit the contractor's liability for loss, damage, or destruction of other aircraft specified in the contract.

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According to DFARS 228.370 the clause is to be used in all contracts for "acquisition, development, production, modification, maintenance, repair, flight, or overhaul of aircraft." That takes in more territory than just production.

What it really does is distribute a certain risk. It states many exceptions to the government's position as self-insurer. Thus, it works in conjunction with the Government Property clause. Paragraph (h)(1) of that clause begins "Unless otherwise provided for in the contractor, the Contractor shall not be liable...." Well, read the Ground and Flight Risk clause. Then read LTV Aerospace and Defense Co., ASBCA No. 45808, 93-3 BCA P 2648, in which the government tried to get $2 million from a contractor for the loss of an aircraft during a flight test, citing the Ground and Flight Risk clause.

I am trying to read that ASBCA case, but I cannot find it. 45808 is not on the asbca.mil website. Has anyone else found and read it?

We have a contract where we are doing flight tests only (no development, production, modification, etc.), and we are trying to figure out the DFARS Ground and Flight Risk Clause applicability to us.

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Guest Vern Edwards

I mis-cited the decision. The correct cite is LTV Aerospace and Defense Co., ASBCA 45808, 93-3 BCA para. 26248 (not 2648). You won't find it at the ASBCA website, because it's too old. However, the case continued in ligitation until at least 1999, after Vought Aircraft Co. acquired LTV, and the most recent decision is Vought Aircraft Co., ASBCA 47357, 00-1 BCA para. 30721, and you can get that one by Googling "ASBCA 47357" and it gives a lot of background. It also cites all the earlier decisions. According to Westlaw, the decision is still "good law."

Here is a partial summary of the decision, taken from another source:

The Armed Services Board of Contract Appeals has held that the Government assumed the risk of loss for contractor equipment installed in a Government airplane that crashed during a test flight to evaluate that equipment. As a result, the Board ruled that the contractor could recover under the contract's “Termination for Convenience” clause without excluding the “fair value” of the destroyed equipment from its termination for convenience claim.

Contractor entered into a contract with the U.S. Air Force to modify Government aircraft by installing a “Low Altitude Night Attack” (LANA) system. Contractor was required to test the LANA system in an aircraft furnished by the Government. The contract incorporated then-standard “Ground and Flight Risk” and “Termination for Convenience of the Government (Fixed-Price)” clauses. See Defense Federal Acquisition Regulation Supplement 52.228-7001 (Oct. 1975) and FAR 52.249-2 (Apr. 1984).

The “Ground and Flight Risk” clause provided that the Government assumed the risk of damage to Government-furnished aircraft during “operation” and in “flight.” The definition of “aircraft” included “all property installed” in airplanes furnished by the Government to contractor. The clause further provided that if an “aircraft” was damaged, lost, or destroyed prior to delivery, the Government could either demand that the aircraft be replaced and issue an equitable adjustment to the contractor, or terminate the contract “with respect to such aircraft.” If the contract was terminated, the Government was required to pay contractor the “contract price for said aircraft.”

The “Termination for Convenience” clause provided for payment of the contract price to the contractor if the contract was terminated for the convenience of the Government. However, the clause excluded from the amount payable to the contractor the “fair value. . .of property. . .destroyed, lost, stolen, or damaged so as to become undeliverable to the Government” unless the Government “expressly assumed the risk of loss” for said property.

On March 27, 1987, the LANA system was destroyed when the Government aircraft crashed during a flight test of the system. On August 1, 1988, contractor submitted a certified claim in the amount of $1.2 million for the contract price of the LANA system destroyed in the crash. On September 14, 1988, the CO terminated for default the portion of the contract relating to the destroyed LANA system, because the system was rendered undeliverable.

Contractor's appeal from the termination for default was sustained by the ASBCA and the default termination was converted into a termination for convenience of the Government. The Board, however, denied contractor's claim for payment of the contract price of the LANA system under the termination provision of the “Ground and Flight Risk” clause. The Board found that the “Ground and Flight Risk” clause did not apply to contractor's claim because the Government did not terminate the contract due to the destruction of the aircraft. Instead, the termination stemmed from contractor's failure to deliver the destroyed LANA system, an act not covered by the “Ground and Flight Risk” clause.

Also, see this: http://www.perkinscoie.com/files/upload/GC_11_07DonCarneyArticle.pdf

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