Federal Acquisition Regulation; Government Property, 54878-54889 [05-18516]

Agencies

• General Services Administration
• National Aeronautics and Space Administration
• DEPARTMENT OF DEFENSE

[Federal Register Volume 70, Number 180 (Monday, September 19, 2005)]
[Proposed Rules]
[Pages 54878-54889]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18516]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 1, 2, 17, 31, 32, 35, 42, 45, 49, 51, 52, and 53

[FAR Case 2004-025]
RIN: 9000-AK30


Federal Acquisition Regulation; Government Property

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing to amend the 
Federal Acquisition Regulation (FAR) to simplify procedures, clarify 
language, and eliminate obsolete requirements related to the management 
and disposition of Government property in the possession of 
contractors. Various FAR parts are amended to implement a policy that 
fosters efficiency, flexibility, innovation, and creativity, while 
continuing to protect the Government's interest in the public's 
property. The proposed rule specifically impacts contracting officers, 
property administrators, and contractors responsible for the management 
of Government property.

DATES: Interested parties should submit written comments to the FAR 
Secretariat on or before November 18, 2005 to be considered in the 
formulation of a final rule.

ADDRESSES: Submit comments identified by FAR case 2004-025 by any of 
the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     Agency Web Site: https://www.acqnet.gov/far/ProposedRules/
proposed.htm. Click on the FAR case number to submit comments.
     E-mail: farcase.2004-025@gsa.gov. Include FAR case 2004-
025 in the subject line of the message.
     Fax: 202-501-4067.
     Mail: General Services Administration, Regulatory 
Secretariat (VIR), 1800 F Street, NW, Room 4035, ATTN: Laurieann 
Duarte, Washington, DC 20405.
    Instructions: Please submit comments only and cite FAR case 2004-
025 in all correspondence related to this case. All comments received 
will be posted without change to https://www.acqnet.gov/far/
ProposedRules/proposed.htm, including any personal and/or business 
confidential information provided.

FOR FURTHER INFORMATION CONTACT The FAR Secretariat at (202) 501-4755 
for information pertaining to status or publication schedules. For 
clarification of content, contact Ms. Jeritta Parnell, Procurement 
Analyst, at (202) 501-4082. Please cite FAR case 2004-025.

SUPPLEMENTARY INFORMATION:

A. Background

    In the late 1990s, the Department of Defense (DoD) initiated a 
complete rewrite of FAR Part 45 and associated clauses. Beyond 
attempting to address long-standing property management

[[Page 54879]]

issues, the effort reflected the general consensus that adoption of 
more typically commercial business practices would not only attract 
more commercial firms to the marketplace but also result in significant 
savings of acquisition dollars. For many reasons, only one portion of 
that rewrite - Subpart 45.6 with its associated clauses and forms, was 
published as a final rule. Therefore, another rewrite of Part 45 and 
its associated clauses is being proposed.
    The proposed language, by encouraging efficiency, flexibility, 
innovation, and creativity, complements the use of current processes 
and technologies such as Enterprise Resource Planning, relational 
databases, unique item identification, radio frequency tags, bar-
coding, and the general trend toward commercialization of components 
and equipment.
    The concepts of the proposed rewrite have been discussed and 
presented to a wide audience. Briefings were presented at public 
meetings, defense industry representative meetings, industry and trade 
associations, and to the military departments, GSA Property Management 
Executive Council and other interested parties.
    The new language reflects a life-cycle, performance-based approach 
to property management and permits the adoption of more typically 
commercial business practices.
    The proposed rule requires contracting officers, property 
administrators and other personnel involved in awarding or 
administering contracts with Government property to be aware of 
industry-leading practices and standards for managing Government 
property. Other associated impacts include--
    (a) Stricter policy for contracting officers to follow when 
determining whether or not to provide property to contractors.
    (b) Possible contracting officer revocation of the Government's 
assumption of risk when the property administrator determines that the 
contractor's property management practices are inadequate and/or 
present an undue risk to the Government.
    (c) An outcome-based framework for the management of property in 
possession of contractors.
    (d) Identification by contractors of the standard or practice 
proposed for managing Government property.
    Many of the policy language changes are administrative in nature 
(i.e., deleting obsolete terms, eliminating duplicate language, 
clarifying and relocating definitions to clauses, etc.). Other policy 
changes include revising or adding new definitions as a result of 
previous changes and/or lessons learned. FAR Subparts 45.1, General; 
45.2, Competitive Advantage; 45.3, Providing Government Property to 
Contractors; 45.4, Contractor Use and Rental of Government Property; 
and 45.5, Management of Government Property in the Possession of 
Contractors, have been revised and reorganized in such a manner that it 
was necessary to delete language in these sections in their entirety 
and replace them with revised language and titles. FAR Subpart 45.6 
remains unchanged, except for the revision of the term ``Government 
property'' found in FAR 45.600 to read ``contractor inventory'' and the 
movement of the definitions to the new FAR 45.101 and the revised 
clause at 52.245-1(a).
    Definitions for ``Special Test Equipment'' and ``Special Tooling'' 
are revised and moved from Part 45 to Part 2 and a new definition 
``Voluntary Consensus Standards'' is added in Part 2. The definition 
for ``Plant Clearance Officer'' in Part 2 is also revised.
    Definitions for ``Acquisition cost,'' ``Real property,'' and 
``Government property'' located in the clause at 52.245-9, Use and 
Charges, are revised and included in the new FAR 45.101.
    The proposed rule includes the following new definitions in FAR 
45.101 and the clause at 52.245-1:
     ``Contractor Inventory''
     ``Contractor's Managerial Personnel''
     ``Equipment''
     ``Property''
     ``Provide''
     ``Unique Federal Property''.
    The proposed rule, if adopted, would eliminate the following 
definitions:
     Agency Peculiar Property
     Accessory Item
     Auxiliary Item
     Custodial Records
     Facilities
     Facilities Contracts
     Government Furnished Material
     Government Production and Research Property
     Individual Item Record
     Plant equipment
     Nonprofit Organization
     Salvage
     Stock Record
     Summary Record
     Utility Distribution System
     Work-in-Process.
    The FAR clauses at 52.245-1, Property Records; 52.245-2, Government 
Property (Fixed Price Contracts); 52.245-5, Government Property (Cost-
Reimbursement, Time and Material, or Labor Hour Contracts); and 52.245-
19, Government Property Furnished ``As Is'', were combined to form one 
new clause--52.245-1, Government Property. A new property clause at 
52.245-2, Government Property (Installation Operations for Services), 
was added specifically to address contracts designed for military base-
operating and installation-level contracts, particularly those awarded 
under the Office of Management and Budget Circular A-76 process. The 
Councils seek specific comment on the new clause at FAR 52.245-1 as to: 
(1) whether the proposed wording of paragraphs (f) and (g) are clear in 
their intent; and (2) whether the intent of paragraphs (f) and (g) 
could be achieved in some other manner.
    The following clauses were deleted in their entirety because they 
were either obsolete or conflicted with the use of consensus standards 
and/or industry-leading standards and practices for property 
management:
     52.245-3
     52.245-4
     52.245-5
     52.245-6
     52.245-7
     52.245-8
     52.245-10
     52.245-11
     52.245-12
     52.245-13
     52.245-14
     52.245-15
     52.245-16
     52.245-17
     52.245-18.
    The rule deletes the current FAR text on facilities contracts and 
the associated clauses because the Councils believe they are outmoded 
and no longer necessary. The Councils found that facilities contracts, 
contracts established solely to account for property with subsequent 
contracts authorized to use that property, are rarely used. The 
Councils also found that facilities clauses are being used in service 
contracts for the operation of Government-Owned Contractor-Operated 
Facilities (GOCOs). In the case of GOCOs, it is believed that agencies' 
property management needs can better, and more appropriately, be met 
through tailoring the statement of work in these service contracts to 
the agency's specific needs and incorporating the new property clause 
at FAR 52.245-1. Should the facilities contract coverage be deleted in 
a subsequent final rule, any required administrative conforming 
revisions (e.g., elimination of cross references to deleted facilities 
contract clauses) will be effected in the final rule.
    The Councils seek specific comment on instances in which there is a 
continued need for coverage or clauses similar to those that are being 
deleted.

[[Page 54880]]

    The following additional FAR changes are consistent with the intent 
of this proposed rule:
     Deletion of 42.302(a)(27). This paragraph refers to the 
Special Test Equipment clause which is being deleted.
     Revision of FAR 51.107 to delete references to facilities 
contracts.
     Revision of FAR 52.245-17, Special Tooling, was originally 
proposed under FAR Case 2002-015, Use and Rental and Special Tooling. 
Public comments recommended deletion of this clause rather than 
revision. Therefore, this case solicits comments on the deletion of the 
clause at 52.245-17, Special Tooling.
    The cost principle at FAR 31.205-19 is revised to reflect the 
changes made in the proposed clause at FAR 52.245-1, to indicate that, 
unless the Government has determined that the contractor's property 
management practices are inadequate and/or present an undue risk to the 
Government, the cost of insurance is allowable when the contractor is 
liable and the insurance does not cover loss, damage, destruction, or 
theft which results from willful misconduct or lack of good faith on 
the part of the contractor's managerial personnel.
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The changes may have a significant economic impact on a substantial 
number of small entities within the meaning of the Regulatory 
Flexibility Act, 5 U.S.C. 601, et seq., because the rule affects the 
method of managing Government property and is intended to give agencies 
and contractors more flexibility in applying industry-leading practices 
and standards. As such, it is expected that the rule will have a 
positive effect on small business.
    An Initial Regulatory Flexibility Analysis (IRFA) has been 
prepared. The analysis is summarized as follows:
    The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) are proposing revising 
the FAR to update FAR Parts 45 and 52. The revisions will attempt to 
address long-standing property management issues and will reflect a 
general consensus that adoption of more typically commercial 
business practices would not only attract more commercial firms to 
the marketplace but also result in significant savings of 
acquisition dollars. Moreover, much of the current FAR language 
related to property management is well over fifty years old, and 
contains inconsistent, often conflicting guidance that is at odds 
with modern materials management technology such as Enterprise 
Resource Planning, relational databases, unique item identification, 
radio frequency tags, bar-coding, and the general trend toward 
commercialization of components and equipment.
    Title II of the Federal Property and Administrative Services Act 
of 1949, Public Law 81-152, as amended, requires, in part that 
executive agencies account for Government property, determine when 
such property is excess, and dispose of excess Government property 
promptly. The proposed rule amends the FAR to revise the policies 
for the management of Government-owned property used and acquired by 
private industry in the performance of Government contracts.
    It is estimated that approximately 5000 contractors have Federal 
property in their possession. DoD has 2,242 contractors. 
Approximately 62 percent of DoD's contractors are small businesses. 
Given that property in the possession of contractors is 
overwhelmingly DoD property, it is estimated the DoD ratio of small 
business to total businesses having such property is a reasonable 
approximation for all Government contractors. Therefore, it is 
estimated that approximately 3,100 small businesses have Government 
property in their possession.
    This proposed rule substantially decreases the impact of the 
current FAR provisions by simplifying procedures, reducing 
recordkeeping and eliminating requirements related to the management 
of Government property in the possession of contractors. The rule 
continues the philosophy of ordinarily requiring contractors to 
furnish all property necessary to perform Government contracts, but 
also introduces more modern and innovative concepts.
    The rule is structured around a number of principles or 
objectives which, it is believed, will have an overall positive 
impact on contractors regardless of size. The rule balances 
regulation with principle-based standards that allow for minimal 
regulatory requirement and greater flexibility and efficiency to 
achieve best value for the Government. The rule introduces 
commercial standards and industry best practices into the property 
management process to the maximum extent possible. This facilitates 
moving from a prescribed regulatory process to a performance-based 
outcome environment. The use of sound business practices should 
reduce both the Government's and the contractor's ongoing 
administrative costs of dealing with Government property. 
Contractors will initiate and maintain the processes, systems, 
records, and methodologies necessary for effective control of the 
Government's property.
    While it may be that small businesses are more dependent on 
Government--furnished property than large businesses, the underlying 
philosophy has not changed (i.e., contractors are ordinarily 
required to furnish all property necessary to perform the Government 
contracts).
    The Federal Property Management Regulation and the Federal 
Management Regulation published by the General Services 
Administration provide property management guidance to Government 
personnel. Some of the material overlaps or is duplicated by the FAR 
property management provisions. The duplication or overlap stems 
from the need to have contract administration issues addressed in 
the FAR and broadly disseminated to Government and contractor 
personnel.
    The FAR Secretariat has submitted a copy of the IRFA to the Chief 
Counsel for Advocacy of the Small Business Administration. A copy of 
the IRFA may be obtained from the FAR Secretariat. The Councils will 
consider comments from small entities concerning the affected FAR parts 
1, 2, 17, 31, 32, 35, 42, 45, 49, 51, 52, and 53, in accordance with 5 
U.S.C. 610. Comments must be submitted separately and should cite 5 
U.S.C 601, et seq. (FAR case 2004-025), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act (Pub. L. 104-13) applies because the 
proposed rule contains information collection requirements. 
Accordingly, the FAR Secretariat submitted a request for a revised 
information collection requirement concerning Government Property to 
the Office of Management and Budget under 44 U.S.C. 3501, et seq.
    The present FAR requirements currently approved by the Office of 
Management and Budget (OMB) are being revised under OMB Control Number 
9000-0075.
    The information collection includes the following requirements 
relating to FAR Part 45 and 52.245:
    1. FAR 45.606-1 requires a contractor to submit inventory 
schedules.
    2. FAR 45.606-3(a) requires a contractor to correct and resubmit 
inventory schedules as necessary.
    3. FAR 52.245-1(f)(1)(ii) requires contractors to receive, record, 
identify and manage Government property.
    4. FAR 52.245-1(f)(1)(iii) requires contractors to create and 
maintain records of all Government property accountable to the 
contract.
    5. FAR 52.245-1(f)(1)(iv) requires contractors to periodically 
perform, record, and report physical inventories during contract 
performance.
    6. FAR 52.245-1(f)(1)(vi) requires contractors to have a process to 
create and provide reports.
    7. FAR 52.245-1(f)(1)(viii) requires contractors to promptly 
disclose and report Government Property in their possession that is 
excess to contract performance.
    8. FAR 52.245-1(f)(1)(ix) requires contractors to disclose and 
report to the Property Administrator the need for

[[Page 54881]]

replacement and/or capital rehabilitation.
    9. FAR 52.245-1(f)(1)(x) requires contractors to perform and report 
to the Property Administrator contract property closeout.
    10. FAR 52.245-1(f)(2) requires contractors to establish and 
maintain source data, particularly in the areas of recognition of 
acquisitions and dispositions of material and equipment.
    11. FAR 52.245-1(j)(4) requires contractors to submit inventory 
disposal schedules to the Plant Clearance Officer.
    12. FAR 52.245-9(f) requires a contractor to submit a facilities 
use statement to the contracting officer within 90 days after the close 
of each rental period.
    The information will be used to control and account for Government-
owned property in the possession of contractors.
    Annual Reporting Burden:
    Public reporting burden for this collection of information is 
estimated to average .4598 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    The annual reporting burden is estimated as follows:
    Respondents: 15,100.
    Responses per respondent: 896.71.
    Total annual responses: 13,540,450.
    Preparation hours per response: .46.
    Total response burden hours: 6,226.350.

D. Request for Comments Regarding Paperwork Burden

    Submit comments, including suggestions for reducing this burden, 
not later than November 18, 2005 to: FAR Desk Officer, OMB, Room 10102, 
NEOB, Washington, DC 20503, and a copy to the General Services 
Administration, FAR Secretariat (VIR), 1800 F Street, NW, Room 4035, 
Washington, DC 20405.
    Public comments are particularly invited on: whether this 
collection of information is necessary for the proper performance of 
functions of the FAR, and will have practical utility; whether our 
estimate of the public burden of this collection of information is 
accurate, and based on valid assumptions and methodology; ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and ways in which we can minimize the burden of the 
collection of information on those who are to respond, through the use 
of appropriate technological collection techniques or other forms of 
information technology.
    Requester may obtain a copy of the justification from the General 
Services Administration, FAR Secretariat (VIR), Room 4035, Washington, 
DC 20405, telephone (202) 501-4755. Please cite OMB Control Number 
9000-0075, Government Property, in all correspondence.

List of Subjects in 48 CFR Parts 1, 2, 17, 31, 32, 35, 42, 45, 49, 
51, 52, and 53

    Government procurement.

    Dated: September 7, 2005.
Julia B. Wise,
Director, Contract Policy Division.
    Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 1, 2, 
17, 31, 32, 35, 42, 45, 49, 51, 52, and 53, as set forth below:
    1. The authority citation for 48 CFR parts 1, 2, 17, 31, 32, 35, 
42, 45, 49, 51, 52, and 53, is revised to read as follows:

    Authority: 40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 1--FEDERAL ACQUISITION REGULATIONS SYSTEM


1.106   [Amended]

    2. Amend section 1.106 in the table following the introductory 
paragraph by removing FAR segments ``52.245-3'', ``52.245-5'', 
``52.245-7'', ``52.245-8'', ``52.245-10'', ``52.245-11'', ``52.245-
16'', ``52.245-17'', and ``52.245-18'' and the corresponding OMB 
Control Number ``9000-0075''.

PART 2--DEFINITIONS OF WORDS AND TERMS

    3. Amend section 2.101 in paragraph (b) by revising the definition 
``Plant clearance officer'', and by adding, in alphabetical order, the 
definitions ``Special test equipment'', ``Special tooling'', and 
``Voluntary Consensus Standards'' to read as follows:


2.101   Definitions.

* * * * *
    (b) * * *
    Plant clearance officer means an authorized representative of the 
contracting officer assigned the responsibility of screening, 
redistributing, and disposing of Contractor Inventory from a 
Contractor's plant or work site. The term ``Contractor's plant'' 
includes, but is not limited to, Government-owned Contractor-operated 
plants and Federal installations as may be required under the scope of 
the contract.
* * * * *
    Special test equipment means either single or multipurpose 
integrated test units engineered, designed, fabricated, or modified to 
accomplish special purpose testing in performing a contract. It 
consists of items or assemblies of equipment including standard or 
general purpose items or components that are interconnected and 
interdependent so as to become a new functional entity for special 
testing purposes. Special test equipment does not include material, 
special tooling, real property (except foundations and similar 
improvements necessary for installing special test equipment), and 
equipment items used for general testing purposes or property that with 
relatively minor expense can be made suitable for general purpose use.
    Special tooling means jigs, dies, fixtures, molds, patterns, taps, 
gauges, all components of these items, and replacement of these items, 
which are of such a specialized nature that without substantial 
modification or alteration their use is limited to the development or 
production of particular supplies or parts thereof or to the 
performance of particular services. Special tooling does not include 
material, special test equipment, unique federal property, real 
property (except foundations and similar improvements necessary for 
installing special tooling), equipment, machine tools, or similar 
capital items.
* * * * *
    Voluntary Consensus Standards means common and repeated use of 
rules, conditions, guidelines or characteristics for products, or 
related processes and production methods and related management 
systems. Voluntary Consensus Standards are developed or adopted by 
domestic and international voluntary consensus standard making bodies.
* * * * *

PART 17--SPECIAL CONTRACTING METHODS

    4. Amend section 17.603 by revising paragraph (a)(5) to read as 
follows:


17.603   Limitations.

    (a) * * *
    (5) Functions that can more properly be accomplished in accordance 
with Subpart 45.3, Authorizing the Use and/or Rental of Government 
Property.
* * * * *

PART 31--CONTRACT COST PRINICPLES AND PROCEDURES

    5. Amend section 31.205-19 by revising paragraph (e)(2)(iv) to read 
as follows:


31.205-19   Insurance and indemnification.

* * * * *
    (e) * * *
    (2) * * *

[[Page 54882]]

    (iv) Unless the Government has determined that the contractor's 
property management practices are inadequate and/or present an undue 
risk to the Government, costs of insurance for the risk of loss, 
damage, destruction, or theft of Government property are allowable to 
the extent that the contractor is liable for such loss, damage, 
destruction, or theft, and such insurance does not cover loss, damage, 
destruction, or theft which results from willful misconduct or lack of 
good faith on the part of any of the contractor's managerial personnel 
(as described in the FAR clause at 52.245-1(h)(1)(ii)).
* * * * *


31.205-40  [Amended]

    6. Amend section 31.205-40 in paragraph (a) by removing ``45.101'' 
and adding ``2.101(b)'' in its place.

PART 32--CONTRACT FINANCING

    7. Amend section 32.503-15 by revising paragraph (b)(1) to read as 
follows:


32.503-15   Application of Government title terms.

* * * * *
    (b) * * *
    (1) The clause at 52.245-1, Government Property.
* * * * *

PART 35--RESEARCH AND DEVELOPMENT CONTRACTING


35.014   [Removed and Reserved]

    8. Remove and reserve section 35.014.

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES


42.302   [Amended]

    9. Amend section 42.302 by removing and reserving paragraph 
(a)(27).

PART 45--GOVERNMENT PROPERTY

    10. Amend section 45.000 by revising the second sentence to read as 
follows:


45.000   Scope of part.

    * * * It does not apply to property under any statutory leasing 
authority, (except as to non-Government use of plant equipment under 
45.301(f)); to property to which the Government has acquired a lien or 
title solely because of partial, advance, progress, or performance-
based payments; or to disposal of real property.
    11. Revise Subparts 45.1 through 45.5 to read as follows:
Subpart 45.1--General
Sec.
45.101 Definitions.
45.102 Policy.
45.103 General.
45.104 Responsibility and liability for Government property.
45.105 Analysis of contractors' property management system.
45.106 Transferring accountability.
45.107 Contract clauses.
Subpart 45.2--Solicitation and Evaluation Procedures
45.201 General.
Subpart 45.3--Authorizing the Use and/or Rental of Government Property
45.301 Use and rental.
45.302 Contracts with foreign Governments or international 
organizations.
45.303 Use of Government property on independent research and 
development programs.
Subpart 45.4--Title to Government Property
45.401 Title to Government property.
Subpart 45.5--Support Government Property Administration
45.501 Support Government property administration.

Subpart 45.1--General


45.101   Definitions.

    As used in this part--
    Acquisition cost means--
    (1) For contractor acquired property, the full cost determined in 
accordance with the system established by the Contractor in conformance 
with consistently applied sound accounting principles.
    (2) For Government furnished property, the amount identified in the 
contract, or in the absence of such identification, the fair market 
value attributed to the item by the contractor.
    Common item means material that is common to the applicable 
Government contract and the contractor's other work.
    Contractor acquired property means property acquired, fabricated, 
or otherwise provided by the contractor for performing a contract and 
to which the Government has title.
    Contractor inventory means--
    (1) Any property acquired by and in the possession of a contractor 
or subcontractor under a contract for which title is vested in the 
Government and which exceeds the amounts needed to complete full 
performance under the entire contract;
    (2) Any property that the Government is obligated or has the option 
to take over under any type of contract, e.g., as a result either of 
any changes in the specifications or plans thereunder or of the 
termination of the contract (or subcontract thereunder), before 
completion of the work, for the convenience or at the option of the 
Government; and
    (3) Government-furnished property that exceeds the amounts needed 
to complete full performance under the entire contract.
    Contractor's managerial personnel means the contractor's directors, 
officers, 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; or a separate and 
complete major industrial operation.
    Demilitarization means rendering a product designated for 
demilitarization unusable for, and not restorable to, the purpose for 
which it was designed or is customarily used.
    Discrepancies incident to shipment means all deficiencies incident 
to shipment of Government property to or from a contractor's facility 
whereby differences exist between the property purported to have been 
shipped and property actually received.
    Equipment means a tangible article of personal property that is 
complete in-and-of itself, durable, nonexpendable, and needed for the 
performance of a contract. Equipment generally has an expected service 
life of one year or more, and does not ordinarily lose its identity or 
become a component part of another article when put into use.
    Government-furnished property means property in the possession of, 
or directly acquired by, the Government and subsequently furnished to 
the contractor for performance of a contract.
    Government property means all property owned or leased by the 
Government. Government property includes both Government-furnished and 
contractor-acquired property.
    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 unique federal property.
    Nonseverable means property that cannot be removed after erection 
or installation without substantial loss of value or damage to the 
installed property or to the premises where installed.
    Precious metals means silver, gold, platinum, palladium, iridium, 
osmium, rhodium, and ruthenium.
    Property means all tangible property, both real and personal.
    Property Administrator means an authorized representative of the 
contracting officer assigned the responsibility of administering the

[[Page 54883]]

contract requirements and obligations relating to Government property 
in the possession of a contractor.
    Provide means to furnish existing Government property or to allow 
the contractor to acquire property on behalf of the Government under 
this contract.
    Real property means land, land rights, buildings, structures, 
utility systems, steam-generation systems, and equipment attached to 
and made part of buildings and structures (such as heating systems). As 
such, land rights are considered real property. It does not include 
foundations and other work necessary for installing special tooling, 
special test equipment, or equipment.
    Sensitive property means property potentially dangerous to the 
public safety or security if stolen, lost, or misplaced, or that shall 
be subject to exceptional physical security, protection, control, and 
accountability such as classified property, weapons, ammunition, 
explosives, controlled substances, radioactive materials, hazardous 
materials or wastes, or precious metals.
    Surplus property means excess personal property not required by any 
Federal agency as determined by the Administrator of the General 
Services Administration (GSA).
    Unique Federal property means Government-owned personal property 
that is peculiar to the mission of an agency, e.g., military or space 
property. Unique federal property excludes material, special test 
equipment, special tooling, real property and equipment.


45.102   Policy.

    (a) Contractors are ordinarily required to furnish all property 
necessary to perform Government contracts.
    (b) Contracting officers shall provide property to contractors only 
when it is clearly demonstrated--
    (1) To be in the Government's best interest;
    (2) That the overall benefit to the procurement significantly 
outweighs the increased cost of administration, including ultimate 
property disposal;
    (3) That providing the property does not substantially increase the 
Government's assumption of risk; and
    (4) That Government requirements cannot otherwise be met.
    (c) The contractor's inability or unwillingness to supply its own 
resources is not sufficient reason for the furnishing or acquisition of 
property.


45.103   General.

    (a) Agencies shall--
    (1) Allow and encourage contractors to use voluntary consensus 
standards (see 11.101(c)) and/or industry-leading practices and 
standards to manage Government property in their possession.
    (2) Eliminate to the maximum practical extent any competitive 
advantage a prospective contractor may have by using Government 
property and ensure maximum practical reutilization of Contractor 
Inventory for Government purposes (see 45.602).
    (3) Require contractors to use Government property already in their 
possession to the maximum extent possible in performing Government 
contracts.
    (4) Charge appropriate rentals when the property is authorized for 
use on other than a rent-free basis.
    (5) Require contractors to justify retaining Government property 
not needed for contract performance and to declare property as excess 
when no longer needed for contract performance.
    (b) Agencies will not generally require contractors to establish 
property management systems that are separate from a contractor's 
established procedures, practices, and systems used to account for and 
manage contractor-owned property.


45.104   Responsibility and liability for Government property.

    (a) Generally, contractors are not held liable for loss, damage, 
destruction, or theft of Government property under the following types 
of contracts:
    (1) Cost reimbursement contracts.
    (2) Time and material contracts.
    (3) Labor hour contracts.
    (4) Negotiated fixed price contracts for which the price is not 
based upon an exception at 15.403-1.
    (b) However, the contracting officer may revoke the Government's 
assumption of risk when the property administrator determines that the 
contractor's property management practices are inadequate and/or 
present an undue risk to the Government. A prime contractor that 
provides Government property to a subcontractor shall not be relieved 
of any responsibility to the Government that the prime contractor may 
have under the terms of the prime contract.


45.105   Analysis of contractors' property management system.

    (a) The agency responsible for contract administration shall 
conduct an analysis of the contractor's property management policies, 
procedures, practices, and systems. This analysis shall be accomplished 
as frequently as conditions warrant, in accordance with agency 
procedures.
    (b) The property administrator shall notify the contractor in 
writing when the contractor's property management system does not 
comply with contractual requirements, (i.e., is inadequate, not 
acceptable and/or presents an undue risk to the Government), and shall 
request prompt correction of deficiencies and shall provide a schedule 
for their completion. If the contractor does not correct the 
deficiencies in accordance with the schedule, the contracting officer 
shall notify the contractor, in writing, that failure to take the 
required corrective action(s) may result in--
    (1) Contract price adjustment;
    (2) Withdrawal of the Government's assumption of risk for loss, 
damage, destruction, or theft; and/or
    (3) Other such action as determined by the contracting officer.
    (c) If the contractor fails to take the required corrective 
action(s) in response to the notification provided by the contracting 
officer in accordance with paragraph (b) of this section, the 
contracting officer shall notify the contractor in writing of any 
Government decision to apply the remedies described in paragraphs 
(b)(1) through (b)(3) of this section.


45.106  Transferring accountability.

    Government property shall be transferred from one contract to 
another only when firm requirements exist under the gaining contract 
(see 45.102). Such transfers shall be documented by modifications to 
both gaining and losing contracts. Once transferred, all property shall 
be considered Government-furnished property to the gaining contract.


45.107   Contract clauses.

    (a)(1) Except as provided in paragraph (d) of this section, the 
contracting officer shall insert the clause at 52.245-1, Government 
Property, in--
    (i) All cost reimbursement, time-and-material, and labor hour type 
solicitations and contracts; and
    (ii) Fixed-price solicitations and contracts when the Government 
will provide Government property.
    (2) The contracting officer shall use the clause with its Alternate 
I in contracts other than those identified in 45.104(a).
    (3) The contracting officer shall use the clause with its Alternate 
II when a contract for the conduct of basic or applied research at 
nonprofit institutions of higher education or at nonprofit 
organizations whose primary purpose is the conduct of scientific 
research (see 35.014) is contemplated.
    (b) The contracting officer shall insert the clause at 52.245-2, 
Government Property (Installation Operations for

[[Page 54884]]

Services), in service contracts to be performed on a Government 
installation when Government-furnished property will be provided for 
initial provisioning only and the Government is not responsible for 
repair or replacement.
    (c) The contracting officer shall insert the clause at 52.245-9, 
Use and Charges, in solicitations and contracts when rental of 
Government property is contemplated.
    (d) When the acquisition cost of the item to be repaired does not 
exceed the simplified acquisition threshold, purchase orders for 
property repair need not include a Government property clause.

Subpart 45.2--Solicitation and Evaluation Procedures


45.201   General.

    (a) The contracting officer shall insert a listing of the 
Government property to be offered in all solicitations where 
Government-furnished property is anticipated (see 45.102). The listing 
shall include at a minimum--
    (1) The name, commercial part number and description, manufacturer, 
bulk identifier, model number, and National Stock Number (if needed for 
additional item identification tracking and/or disposition);
    (2) Quantity/unit of measure;
    (3) Unit acquisition cost; and
    (4) Unique-item identifier or equivalent (if available and 
necessary for individual item tracking).
    (b) When Government property is offered for use in a competitive 
acquisition, solicitations will ordinarily require that the contractor 
assume all costs related to making the property available for use, such 
as payment of all transportation, installation or rehabilitation costs.
    (c) The solicitation shall describe the evaluation procedures to be 
followed, including rental charges or equivalents and other costs or 
savings to be evaluated, and shall require all offerors to submit the 
following information with their offers:
    (1) A list or description of all Government property that the 
offeror or its subcontractors propose to use on a rent-free basis. The 
list shall identify the accountable contract under which the property 
is held and the authorization for its use (from the contracting officer 
having cognizance of the property).
    (2) The dates during which the property will be available for use 
(including the first, last, and all intervening months) and, for any 
property that will be used concurrently in performing two or more 
contracts, the amounts of the respective uses in sufficient detail to 
support prorating the rent.
    (3) The amount of rent that would otherwise be charged in 
accordance with the clause at 52.245-9, Use and Charges.
    (4) The voluntary consensus standard or industry leading practices 
and standards to be used in the management of Government property, or 
existing property management plans, methods, practices, or procedures 
for accounting for property.
    (d) The contracting officer shall consider any potentially unfair 
competitive advantage that may result from the contractor possessing 
Government property. At a minimum, this shall be done by--
    (1) Adjusting the offers by applying, for evaluation purposes only, 
a rental equivalent evaluation factor; or
    (2) By charging the offeror rent for using the property when 
adjusting the offer is not practical.
    (e) The contracting officer shall ensure the offeror's property 
management plans, methods, practices, or procedures for accounting for 
property are consistent with the requirements of the solicitation.

Subpart 45.3--Authorizing the Use and/or Rental of Government 
Property


45.301   Use and rental.

    This subpart prescribes policies and procedures for contractor use 
and rental of Government Property.
    (a) Government property shall normally be provided on a rent-free 
basis in performance of the contract under which it is accountable or 
otherwise authorized.
    (b) Rental charges, to the extent authorized do not apply to the 
following:
    (1) Government property that is located in Government-owned, 
contractor-operated plants operated on a cost-plus-fee basis.
    (2) Government property that is left in place or installed on 
contractor-owned property for mobilization or future Government 
production purposes; however, rental charges shall apply to that 
portion of property or its capacity used for non-government commercial 
purposes or otherwise authorized for use.
    (c) The contracting officer cognizant of the Government property 
may authorize the rent-free use of property in the possession of 
nonprofit organizations when used for research, development, or 
educational work and--
    (1) The use of the property is in the national interest;
    (2) The property will not be used for the direct benefit of a 
profit-making organization; and
    (3) The Government receives some direct benefit, such as rights to 
use the results of the work without charge, from its use.
    (d) In exchange for consideration as determined by the cognizant 
contracting officer(s), the contractor may use Government property 
under fixed-price contracts other than the contract to which it is 
accountable. When, after contract award, a contractor requests the use 
of Government property, the contracting officer shall obtain a fair 
rental or other adequate consideration if use is authorized.
    (e) The cognizant contracting officer(s) may authorize the use of 
Government property on a rent-free basis on a cost-type Government 
contract other than the contract to which it is accountable.
    (f) In exchange for consideration as determined by the cognizant 
contracting officer, the contractor may use Government property for 
commercial use. Prior approval of the Head of the Contracting Activity 
is required where non-Government use is expected to exceed 25 percent 
of the total use of Government and commercial work performed.


45.302   Contracts with foreign Governments or international 
organizations.

    Requests by, or for the benefit of, foreign governments or 
international organizations to use Government property shall be 
processed in accordance with agency procedures.


45.303   Use of Government property on independent research and 
development programs.

    The contracting officer may authorize a contractor to use the 
property on an independent research and development (IR&D) program, 
if--
    (a) Such use will not conflict with the primary use of the property 
or enable the contractor to retain property that could otherwise be 
released;
    (b) The contractor agrees not to include as a charge against any 
Government contract the rental value of the property used on its IR&D 
program; and
    (c) A rental charge for the portion of the contractor's IR&D 
program cost allocated to commercial work is deducted from any agreed-
upon Government share of the contractor's IR&D costs.

[[Page 54885]]

Subpart 45.4--Title to Government Property


45.401   Title to Government property.

    (a) The Government retains title to all Government-furnished 
property until properly disposed of, as authorized by law or 
regulation. Property that is leased by the Government and subsequently 
furnished to the contractor for use shall be considered Government-
furnished property under the clause at 52.245-1, Government Property.
    (b) Under fixed price type contracts, the contractor retains title 
to all property acquired by the contractor for use on the contract, 
except for property identified as a deliverable end item. If a 
deliverable item is to be retained by the contractor for use after 
inspection and acceptance by the Government, it shall be made 
accountable to the contract through a contract modification listing the 
item as Government-furnished property.
    (c) Under cost-type and time-and-material contracts, the Government 
acquires title to all property to which the contractor is entitled to 
reimbursement as a direct item of cost, provided the property acquired 
is reasonable, allocable, and allowable (see Part 31). If the 
contractor is covered by Cost Accounting Standards, its disclosure 
statement may affect the charging, and consequently, the title vesting 
provisions.

Subpart 45.5--Support Government Property Administration


45.501   Support Government property administration.

    (a) To ensure subcontractor compliance with Government property 
administration requirements, the property administrator assigned to the 
prime contract may request support property administration from another 
contract administration office, provided the contractor has agreed to 
allow such property administration.
    (b) In instances where the prime contractor does not agree to allow 
the support property administrator to provide support property 
administration, the prime property administrator shall immediately 
refer the matter to the contracting officer.
    (c) In instances where the prime contractor does not concur with 
the findings of the support Property Administrator, the prime property 
administrator shall immediately refer the matter to the contracting 
officer.
    (d) The prime property administrator shall accept the findings of 
the delegated support property administrator and advise the prime 
contractor of any deficiencies within the subcontractor's property 
management system.


45.600   [Amended]

    12. Amend section 45.600 by removing ``Government property'' and 
``or progress'' and adding ``contractor inventory'' and ``, progress, 
or performance-based'' in their places, respectively.


45.601   [Removed and Reserved]

    13. Remove and reserve section 45.601.

PART 49--TERMINIATION OF CONTRACTS

    14. Amend section 49.108-3 by revising paragraph (b)(1) to read as 
follows:


49.108-3   Settlement procedure.

* * * * *
    (b) * * *
    (1) All subcontractor termination inventory be disposed of and 
accounted for in accordance with the procedures contained in paragraph 
(j) of the clause at 52.245-1, Government Property; and
* * * * *

PART 51--USE OF GOVERNMENT SOURCES BY CONTRACTORS


51.106   [Amended]

    15. Amend section 51.106 by removing from paragraph (b) ``52.245-
2'' and adding ``52.245-1'' in its place, and removing ``, or 52.245-5, 
Alternate I''.


51.107   [Amended]

    16. Amend section 51.107 by removing the last sentence.


51.200   [Amended]

    17. Amend section 51.200 by removing ``45.304'' and adding 
``45.102'' in its place.

PART 52--SOLICIATION PROVISIONS AND CONTRACT CLAUSES

    18. Revise sections 52.245-1 and 52.245-2 to read as follows:


52.245-1   Government Property.

    As prescribed in 45.107(a), insert the following clause:

GOVERNMENT PROPERTY (DATE)

    (a) Definitions. As used in this clause--
    Acquisition cost means--
    (1) For Contractor acquired property, the full cost determined 
in accordance with the system established by the Contractor in 
conformance with consistently applied sound accounting principles.
    (2) For Government furnished property, the amount identified in 
the contract, or in the absence of such identification, the fair 
market value attributed to the item by the Contractor.
    Common item means material that is common to the applicable 
Government contract and the contractor's other work.
    Contractor-acquired property means property acquired, 
fabricated, or otherwise provided by the Contractor for performing a 
contract, and to which the Government has title.
    Contractor's managerial personnel means the Contractor's 
directors, officers, 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.
    Contractor inventory means--
    (1) Any property acquired by and in the possession of a 
Contractor or subcontractor under a contract for which title is 
vested in the Government and which exceeds the amounts needed to 
complete full performance under the entire contract;
    (2) Any property that the Government is obligated or has the 
option to take over under any type of contract, e.g., as a result 
either of any changes in the specifications or plans thereunder or 
of the termination of the contract (or subcontract thereunder), 
before completion of the work, for the convenience or at the option 
of the Government; and
    (3) Government-furnished property that exceeds the amounts 
needed to complete full performance under the entire contract.
    Demilitarization means rendering a product designated for 
demilitarization unusable for and not restorable to, the purpose for 
which it was designed or is customarily used.
    Discrepancies incident to shipment means all deficiencies 
incident to shipment of Government property to or from a 
Contractor's facility whereby differences exist between the property 
purported to have been shipped and property actually received.
    Equipment means a tangible article of personal property that is 
complete in-and-of itself, durable, nonexpendable, and needed for 
the performance of a contract. Equipment generally has an expected 
service life of one year or more, and does not ordinarily lose its 
identity or become a component part of another article when put into 
use.
    Government-furnished property means property in the possession 
of, or directly acquired by, the Government and subsequently 
furnished to the Contractor for performance of a contract.
    Government property means all property owned or leased by the 
Government. Government property includes both Government-furnished 
and contractor-acquired property.
    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 unique Federal property.
    Nonseverable means property that cannot be removed after 
erection or installation without substantial loss of value or damage

[[Page 54886]]

to the installed property or to the premises where installed.
    Precious metals means silver, gold, platinum, palladium, 
iridium, osmium, rhodium, and ruthenium.
    Property means all tangible property, both real and personal.
    Property Administrator means an authorized representative of the 
Contracting Officer assigned the responsibility of administering the 
contract requirements and obligations relating to Government 
property in the possession of a Contractor.
    Provide means to furnish existing Government property or to 
allow the Contractor to acquire property on behalf of the Government 
under this contract.
    Real property means land, land rights, buildings, structures, 
utility systems, steam-generation systems, and equipment attached to 
and made part of buildings and structures (such as heating systems). 
As such, land rights are considered real property. It does not 
include foundations and other work necessary for installing special 
tooling, special test equipment, or equipment.
    Sensitive property means property potentially dangerous to the 
public safety or security if stolen, lost, or misplaced, or that 
shall be subject to exceptional physical security, protection, 
control, and accountability such as classified property, weapons, 
ammunition, explosives, controlled substances, radioactive 
materials, hazardous materials or wastes, or precious metals.
    Surplus property means excess personal property not required by 
any Federal agency as determined by the Administrator of the General 
Services Administration (GSA).
    Unique Federal Property means Government-owned personal property 
that is peculiar to the mission of an agency, e.g., military or 
space property. Unique Federal property excludes material, special 
test equipment, special tooling, real property and equipment.
    (b) 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, 
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.
    (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, disposition, or 
via a completed investigation, evaluation, and final determination 
for lost, 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.
    (c) Use of Government property. The Contractor shall use 
Government property, either furnished or acquired under this 
contract, only for performing this contract, unless otherwise 
provided for in this contract or approved by the Contracting 
Officer. The Contractor shall not modify, cannibalize, or make 
alterations to Government property unless this contract specifically 
identifies the modifications, alterations or improvements as work to 
be performed.
    (d) Government-furnished property. (1) The Government shall 
deliver to the Contractor the Government-furnished property 
described in this contract. The Government shall furnish related 
data and information needed for the intended use of the property.
    (2) The Government shall retain title to all Government-
furnished property; title shall not be affected by incorporation 
into, or attachment to, any property not owned by the Government. 
Government-furnished property shall not lose its identity as 
Government property by its attachment to real property.
    (3) The delivery and/or performance dates specified in this 
contract are based upon the expectation that the Government-
furnished property will be suitable for contract performance and 
will be delivered to the Contractor by the dates stated in the 
contract.
    (i) If the property is not delivered to the Contractor by the 
dates stated in the contract, the Contracting Officer shall, upon 
the Contractor's timely written request, consider an equitable 
adjustment to the contract.
    (ii) In the event property is received by the Contractor in a 
condition not suitable for its intended use, the Contracting Officer 
shall, upon the Contractor's timely written request, advise the 
Contractor on a course of action to remedy the problem. Such action 
may include repairing, replacing, modifying, returning, or otherwise 
disposing of the property at the Government's expense. Upon 
completion of the required action(s) the Contracting Officer shall 
consider an equitable adjustment to the contract (see also paragraph 
(f)(1)(ii)(A) of this clause).
    (iii) The Government may, at its option, furnish property in an 
``as is'' condition. In such cases, the Government makes no warranty 
with respect to the serviceability and/or suitability of the 
property for contract performance. Any repairs, replacement, and/or 
refurbishment shall be at the Contractor's expense.
    (4)(i) The Contracting Officer may by written notice, at any 
time--
    (A) Increase or decrease the amount of Government-furnished 
property under this contract;
    (B) Substitute other Government-furnished property for the 
property previously furnished, to be furnished, or to be acquired by 
the Contractor for the Government under this contract; or
    (C) Withdraw authority to use property.
    (ii) Upon completion of any action(s) under paragraph (d)(4)(i) 
of this clause, and the Contractor's timely written request, the 
Contracting Officer shall consider an equitable adjustment to the 
contract.
    (e) Title to Contractor-acquired property. Title to all property 
purchased by the Contractor, for which the Contractor is entitled to 
be reimbursed as a direct item of cost, under this contract, shall 
pass to and vest in the Government upon--
    (1) A vendor's or supplier's initial delivery of such property 
to the Contractor;
    (2) Issuance of the property for use in contract performance, 
including the installation of parts through normal maintenance;
    (3) Commencement of processing of the property for use in 
contract performance; or
    (4) Reimbursement by the Government for the cost of the 
property, whichever occurs first.
    (f) Contractor plans and systems. (1) Contractors shall develop 
property management plans and systems, at the contract, program, 
site or entity level to enable the following outcomes:
    (i) Acquisition of property. The Contractor shall document that 
all property was acquired consistent with its engineering, 
production planning, material control operations, and/or cost 
accounting disclosure statement.
    (ii) Receipt of Government property. The Contractor shall 
receive Government property (document the receipt), record (the 
information necessary to meet the record requirements of paragraphs 
(f)(1)(iii)(A)(1), (2), (3), (4) and (5) of this clause), identify 
(as Government-owned), and manage any discrepancies incident to 
shipment.
    (A) Government-furnished property. The Contractor shall furnish 
a written statement to the Property Administrator containing all 
relevant facts, such as cause or condition and a recommended 
course(s) of action, if overages, shortages, or damages and/or other 
discrepancies are discovered upon receipt of Government-furnished 
property.
    (B) Contractor-acquired property. The Contractor shall take all 
actions necessary to adjust for overages, shortages, damage and/or 
other discrepancies discovered upon receipt, in shipment of 
Contractor-acquired property from a vendor or supplier, so as to 
ensure the proper allocability and allowability of associated costs.
    (iii) Records of Government property. The Contractor shall 
create and maintain records of all Government property accountable 
to the contract, including Government-furnished and Contractor-
acquired property.
    (A) Property records shall enable a complete, current, auditable 
record of all transactions and shall, unless otherwise approved by 
the Property Administrator, contain the following data:
    (1) The name, commercial part number and description, 
manufacturer, bulk identifier, model number, and National Stock 
Number (if needed for additional item identification tracking and/or 
disposition).
    (2) Quantity received (or fabricated), issued, and balance-on-
hand.
    (3) Unit acquisition cost.
    (4) Unique-item identifier or equivalent (if available and 
necessary for individual item tracking).
    (5) Unit of measure.
    (6) Accountable contract number or equivalent code designation.
    (7) Location.
    (8) Disposition.

[[Page 54887]]

    (9) Posting reference and date of transaction.
    (10) Date placed in service.
    (B) When approved by the Property Administrator, the Contractor 
may maintain, in lieu of formal property records, a file of 
appropriately cross-referenced documents evidencing receipt, issue, 
and use of material that is issued for immediate consumption.
    (iv) Physical inventory. The Contractor shall periodically 
perform, record, and report physical inventories during contract 
performance. A final physical inventory shall be performed upon 
contract completion or termination. The Property Administrator may 
waive this final inventory requirement, depending on the 
circumstances, e.g., overall reliability of the Contractor's system 
or the property is to be transferred to a follow-on contract.
    (v) Subcontractor control. (A) The Contractor shall award 
subcontracts that clearly identify assets to be provided and shall 
ensure appropriate flow down of contract requirements, including any 
cost savings achieved as a result of its prime contract relationship 
with the Government.
    (B) The Contractor shall assure its subcontracts are properly 
administered and reviews are periodically performed to determine the 
adequacy of the subcontractor's property management system.
    (vi) Reports. The Contractor shall have a process to create and 
provide reports including: reports of discrepancies; loss, damage 
and destruction; physical inventory results; audits and self-
assessments; corrective actions; and other reports as directed by 
the Contracting Officer.
    (A) Loss, damage, destruction, and theft. Unless otherwise 
directed by the Property Administrator, the Contractor shall 
investigate and promptly furnish to the Property Administrator, a 
written narrative of all incidents of loss, damage, destruction, or 
theft, as soon as the facts become known or when requested by the 
Government. Such reports shall, at a minimum, contain the following 
information:
    (1) Date of incident (if known).
    (2) The name, commercial description, manufacturer, model 
number, and National Stock Number (if applicable).
    (3) Quantity.
    (4) Unique Item Identifier (if available).
    (5) Accountable Contract number.
    (6) A statement indicating current or future need.
    (7) Acquisition cost, or if applicable, estimated scrap 
proceeds, estimated repair or replacement costs.
    (8) All known interests in commingled property of which the 
Government property is a part.
    (9) Cause and corrective action taken or to be taken to prevent 
recurrence.
    (10) A statement that the Government will receive any 
reimbursement covering the loss, damage, destruction, or theft, in 
the event the Contractor was or will be reimbursed or compensated.
    (11) Copies of all supporting documentation.
    (B) The Contractor shall take all reasonable actions necessary 
to protect the Government property from further loss, damage, 
destruction, or theft. The Contractor shall separate the damaged and 
undam