Federal Acquisition Regulation; FAR Case 2008-011, Government Property, 38675-38683 [2010-15918]

Agencies

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

[Federal Register Volume 75, Number 127 (Friday, July 2, 2010)]
[Rules and Regulations]
[Pages 38675-38683]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-15918]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 2, 4, 15, 31, 32, 42, 45, and 52

[FAC 2005-43; FAR Case 2008-011; Item I; Docket 2009-0029; Sequence 1]
RIN 9000-AL41


Federal Acquisition Regulation; FAR Case 2008-011, Government 
Property

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

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to revise FAR part 
45, Government Property, and its associated clauses.

DATES: Effective Date: August 2, 2010.

FOR FURTHER INFORMATION CONTACT: Ms.nbsp; Jeritta Parnell, Procurement 
Analyst, at (202) 501-4082, for clarification of content. For 
information pertaining to status or publication schedules, contact the 
Regulatory Secretariat at (202) 501-4755. Please cite FAC 2005-43, FAR 
Case 2008-011.

SUPPLEMENTARY INFORMATION:

A. Background

    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 74 FR 39262, August, 6, 2009. This rule clarifies and 
corrects the previous FAR rule for part 45, Government Property, 
published under FAC 2005-17, FAR Case 2004-025, May 15, 2007 (72 FR 
27364).
    Sixteen respondents submitted 106 comments. The comments received 
were grouped under 31 general topics. A discussion of the comments and 
the changes to the rule as a result of these comments are provided 
below:

1. Access

    There is no revision to the proposed rule based on this category of 
comment. One respondent recommended revising FAR 52.245-1(g)(4) to 
provide Government access to contractor site locations at reasonable 
times. The Councils did not agree. Similar language is already 
contained in the proposed rule at FAR 52.245-1(g)(1). The proposed FAR 
language at 52.245-1(g)(1) provides for Government access to all 
contractor site locations, prime and subcontractor (with prime 
contractor consent). This language was merely consolidated. The 
language consolidated and relocated subsections 52.245-1(g)(1) and 
52.245-1(g)(4) into one subsection.

2. Closeout

    There is no revision to the proposed rule based on this comment 
category. One respondent suggested adding a new paragraph after FAR 
52.245-1(f)(x) entitled Disposition of contractor inventory. The 
Councils noted the issue raised by the commenter. The recommendations 
are outside the scope of this particular case.

3. Commingling

    There is no revision to the proposed rule based on this comment 
category. Two respondents suggested that commingling Government and 
contractor material should not occur. One respondent questioned whether 
equipment can be commingled by being located with similar equipment. 
Another respondent recommended revising FAR 52.245-1(f)(1)(viii)(B) to 
address commingling while in storage or in stockrooms. The Councils do 
not agree. The practice of commingling only applies to material. 
Equipment, special tooling, and special test equipment can be co-
located, but by their nature are not commingled. The Councils see no 
need to limit the applicability of commingling to a particular 
location(s).

4. Contractor Records

    There is no revision to the proposed rule based on this comment 
category. Two respondents submitted three comments on contractor 
records. Two comments requested clarification on retention periods in 
FAR 4.705-3(h). In addition, one commenter requested clarification of 
the term ``property records'' in FAR 4.705-3(h). Another respondent 
recommended removal of language ``consisting of equipment usage and 
status reports'' from FAR 4.705-3(c). The Councils disagree. The 
beginning of the retention period is defined in FAR 4.704(a). The 
definition of property records is in the proposed rule at FAR 45.101. 
The recommendation for removal of language from FAR 4.705-3(c) is 
outside the scope of this particular case and will be considered in the 
formulation of a new case.

5. Corrective Action

    There is a revision to the proposed rule at FAR 52.245-1(g)(3) 
based on this comment category.
    Two respondents recommended revising the action required for 
corrective action. One respondent recommended additional language to 
distinguish between the lines of authority and responsibility as 
follows: `` * * * the contractor shall immediately take all necessary 
corrective actions and shall prepare a corrective action plan at the 
request of the Property Administrator.'' The Councils partially agree. 
The language at FAR 52.245-1(g)(3) is revised to add ``* * * the 
contractor shall prepare a corrective action plan when requested by the 
Property Administrator and take all necessary corrective actions as 
specified by the schedule within the corrective action plan.'' The 
second respondent suggested that there needs to be a better audit 
protocol and due process in property management practices. The Councils 
noted the issues raised by this respondent and the respondent's 
recommended revisions to FAR 52.245-1(g)(3). These revisions are 
outside the

[[Page 38676]]

scope of this case and will be considered in the formulation of a new 
FAR case.

6. Definitions

    There are revisions to the proposed rule based on this comment 
category. Twenty-two comments were received from five respondents 
regarding definitions. One respondent recommended changing the 
definition of ``cannibalize'' to read as ``Cannibalization means the 
unauthorized permanent removal of parts from Equipment, Special Tooling 
or Special Test Equipment in order to install them on other Government 
equipment.'' The Councils disagree. The current definition is meant to 
convey only the act of cannibalization itself, notwithstanding whether 
or not the act is authorized, or whether the removal of parts is 
temporary or permanent.
    One respondent recommended that FAR part 45.101 include a Web site 
for 41 CFR 102-71.20, thus providing easier access to the term ``Real 
Property.'' The Councils disagree. The Code of Federal Regulations is 
already easily accessible through most on-line search engines. 
Moreover, in general, the Councils wish to avoid adding unnecessary 
hyperlinks to the FAR due to their potentially transient nature.
    One respondent recommended that the last sentence of the definition 
of ``Equipment'' be expanded to include special test equipment and 
special tooling in the exclusions. The Councils agree.
    One respondent recommended revision of the definition to read: 
``Cannibalize means to remove worthwhile parts from property for 
probable use or installation on other property.'' The Councils 
disagree. The Councils revised the definition to limit cannibalization 
of parts to Government property. The use of cannibalization is governed 
by its application (i.e., by the terms and conditions of the contract).
    One respondent recommended revision of the definition of Government 
Furnished Property in both FAR 45.101 and 52.245-1. The Councils 
partially agree. The Councils revised the language to include 
``Government-furnished property also includes contractor-acquired 
property if the contractor-acquired property is a deliverable under a 
cost contract when accepted by the Government for continued use under 
the contract''.
    One respondent recommended a new definition of ``Property Loss.'' 
The Councils noted the issue raised by the commenter. The 
recommendation is outside the scope for the proposed rule. The Councils 
will consider adding this new definition as part of a future proposed 
rule.
    One respondent recommended adding a definition of ``Prime Property 
Administrator.'' The Councils noted the issue raised by the commenter. 
The recommendation is outside the scope for the proposed rule. The 
Councils will consider adding this proposal as part of a future 
proposed rule.
    One respondent agreed with the proposed rule in regard to the 
definitions of ``Equipment,'' ``Material,'' ``Plant equipment,'' 
``Government property,'' ``Real property,'' ``Plant equipment,'' and 
``Property records.'' The same respondent also agreed with the proposed 
changes to the definition of ``Plant clearance officer'' in FAR 2.101.

7. Disposal Schedules

    There is a revision to the proposed rule based on this comment 
category. One respondent submitted five comments on disposal schedules. 
In one comment, the respondent requested amending the language at FAR 
52.245-1(j)(1)(i)(B) to eliminate submission of inventory schedules for 
property that requires demilitarization; is classified, hazardous or 
dangerous; and for precious metals. The respondent recommended the use 
of a list in accord with the contractor's plans or by approval of the 
property administrator or contracting officer. The Councils noted the 
issue raised by the commenter. The recommendation is outside of the 
scope of this case. The proposed revision will be considered in the 
formulation of a new case.
    The respondent, in two comments, agreed with the proposed language 
in FAR 52.245-1(j)(1)(i)(C) and 52.245-1(j)(3)(iv).
    The respondent recommended deletion of paragraph FAR 52.245-
1(j)(3)(iv)(A). The Councils agree. The respondent recommended deletion 
of paragraph FAR 52.215-1(j)(3)(iv)(F). The Councils do not agree. The 
language is retained and moved to paragraph (A). This language allows 
the flexibility to determine whether there may be further use of the 
property.

8. Evaluation

    There is no revision to the proposed rule based on this category of 
comment. One respondent recommended revising FAR 45.202(a) to read: 
``(a) The contracting officer shall consider any potentially unfair 
competitive advantage that may result from the prospective contractor 
possessing Government property. This shall be done by adjusting the 
offers by applying, for evaluation purposes only, a rental equivalent 
evaluation factor.'' The Councils noted the issue raised by the 
commenter. The recommendation is outside the scope for the proposed 
rule. The Councils will consider adding this proposal as part of a 
future proposed rule.

9. Fair Value

    There is no revision to the proposed rule based on this category of 
comment. One respondent recommended replacement of the term 
``acquisition cost'' in FAR 45.602-3(b) and in 52.245-1(d)(2)(i)(B) 
with the term ``fair market value''. The Councils note the issue raised 
by the commenter. The recommendation is outside of the scope of this 
case. The proposed revision will be considered in the formulation of a 
new case.

10. Guidance

    There is no revision to the proposed rule based on this comment 
category. One respondent recommended revising 42.302(a)(30)(iii) to add 
the following language ``and guidance at FAR 45.103(a)(4) with the 
maximum use of Government property already in the contractor's 
possession.'' The Councils disagree. The intent of this paragraph is to 
address the use of the clause at FAR 52.245-9, Use and Charges. The use 
of Government property already in the possession of the contractor to 
its maximum extent is adequately addressed at FAR 45.103(a)(4) and is 
not appropriately referenced in this paragraph.

11. Item Unique

    There is a revision to the proposed rule based on this comment 
category. The proposed rule language in FAR 45.201, 52.245-
1(f)(1)(iii)(A)(4) and 52.245-1(f)(1)(vi)(B)(4) was deleted and the 
current FAR language is retained.
    Three respondents with five comments recommend changing the 
proposed rule to use the term ``unique item identifier (UII)'' in place 
of ``item unique.'' One comment recommended a general overall change to 
UII, two comments recommended revising 52.245-1(f)(1)(iii)(A)(4) to use 
the term ``unique item identifier (UII)'' in place of ``item unique,'' 
one comment suggested that the term ``item unique identifier'' is a DoD 
term and that ``asset identifier'' is a more widely recognized term, 
and one comment suggested changing ``Item unique'' identifier to 
``Unique item'' identifier as prescribed in Defense Acquisition 
Regulation Supplement (DFARS) 252.211-7007. The Councils agree with the 
proposal to retain the current FAR language of ``unique item'' 
identifier. The Councils did not agree with the term ``asset 
identifier.'' The

[[Page 38677]]

Councils believe that unique item identifier is used across industry 
and is reflected in industry practices and standards.

12. Liability

    There is no revision to the proposed rule based on this comment 
category. One respondent, with two comments, recommended revising the 
language associated with relief of stewardship responsibility to add 
the term liability (see FAR 52.245-1(f)). One comment recommended 
adding new language to read: ``(vii) Relief of Liability. The 
Contractor shall have a process to enable the prompt disclosure and 
reporting of all instances of loss, theft, damage, and destruction of 
Government property, including Government property in the possession of 
contractors.'' The second comment recommended moving 52.245-1(f)(vi)(A) 
and (B) to the new paragraph (vii). The Councils noted the issues 
raised by the commenter. The recommendations are outside of the scope 
of this case. These recommendations will be considered in the 
formulation of a new case.

13. Location

    There is no revision to the proposed rule based on this comment 
category. One respondent recommended revising FAR 45.501 and the 
amended FAR 45.502 to read as follows: ``45.501 Prime contractor 
alternate locations. (a) The property administrator assigned to the 
prime contract may request support property administration from another 
contract administration office, for purposes of evaluating prime 
contractor management of property located at the prime contractor's 
alternate locations. (b) Prime contractor consent is not required for 
support delegations involving prime contractor alternate locations. FAR 
section 45.502 Subcontractor locations. (c) The prime property 
administrator shall accept the findings of the delegated support 
property administrator and advise the prime contractor of the results 
of property management reviews, including deficiencies found with the 
subcontractor's property management system.'' The Councils did not 
agree. The Government is not required to seek prime contractor consent 
to conduct property reviews at alternate locations of the prime 
contractor.

14. Lost Property

    There is no revision to the proposed rule based on this comment 
category. Twenty-one comments were received from two respondents 
regarding lost property.
    (a) One respondent provided two comments requesting consistency in 
the use of language throughout the FAR regarding loss (loss, theft, 
destruction, or damage).
    (b) One respondent provided eighteen comments recommending that 
``loss, theft, destruction, or damage'' be replaced with ``lost'' only.
    (c) One respondent recommended that ``loss, theft, destruction, or 
damage'' be replaced with ``lost'' only and that ``all'' be removed at 
52.245-1(f)(1)(x) from ``inventorying all property.''
    The Councils recommend no change to the proposed rule. The Councils 
noted the recommendations for a new definition of ``loss.'' As a 
result, the Councils recommend including the definition of ``loss'' in 
a separate case. The Councils do not agree with the deletion of ``all'' 
at 52.245-1(f)(1)(x). The clause at FAR 52.245-1(b)(1) already allows 
``the contractor to initiate and maintain the processes, systems, 
procedures, records, and methodologies necessary for the effective 
control of Government property consistent with voluntary consensus 
standards and industry leading practices and standards.'' This 
requirement extends to the physical inventory required at FAR 52.245-
1(f)(1)(x).

15. Management Plan

    There is a revision to the proposed rule based on this comment 
category. One respondent recommended revising FAR 52.245-1(g)(1) to 
allow for multiple contractor property plans. The Councils agree. The 
language at FAR 52.245-1(g)(1) is revised to allow for multiple plans 
by revising ``plan'' to ``plan(s).''

16. Management System

    There is a revision to the proposed rule based on this comment 
category.
    Two respondents submitted four comments on this category. One 
respondent suggested that FAR 45.201(c)(4) be replaced with the 
following: ``A description of their Property Management System and the 
voluntary consensus standards or industry leading practices and 
standards to be used in the management of Government Property.'' 
Another comment recommended revising FAR 45.105(b) to change ``provide 
a schedule for their completion'' to ``request prompt correction of 
deficiencies and a schedule for their completion.'' Another comment 
recommended revising FAR 52.245-1(f)(1)(iii)(B) to delete the language 
``when approved by the Property Administrator.'' Another comment 
recommended revising FAR 45.105(b) to amend the proposed rule to 
provide more effective property management. The Councils disagree with 
the change to FAR 45.201(c)(4). This recommendation is outside the 
scope of this case. The Councils partially agree with the 
recommendation of one respondent to change FAR 45.105(b) and partially 
concur with another respondent to provide a schedule of completion; 
therefore, the language in FAR 45.105(b) is revised. The Councils 
disagree with the recommended request to delete the language ``when 
approved by the Property Administrator.'' The Councils believe it is in 
the best interest of the Government for such approvals by the 
Government to be made on a contract by contract basis.

17. Markings

    There is a revision to the proposed rule based on this comment 
category. One respondent recommended deleting ``Government-affixed'' at 
FAR 52.245-1(j)(8)(ii). The Councils agree.

18. New Coverage

    There is no revision to the proposed rule based on this category of 
comment. Three respondents submitted four comments for this category of 
comments. One respondent recommended new coverage in FAR 45.103 to 
cover the contract award process when considering competitive 
advantage. The Councils disagree. The scope of the effort on the 
contract or type of contract (e.g., A&E, construction) should not be 
the consideration for inclusion of the clauses at FAR 52.245-1 and 
52.245-9. The sole consideration for use of these clauses is whether 
Government property is to be provided.
    One respondent suggested making all references to ``property'' 
consistent by changing the term to ``Government property.'' The 
Councils disagree. The Councils believe that all references to property 
in FAR part 45 inherently mean Government property (see FAR 45.000 
Scope of part), and no further clarification is needed.
    One respondent submitted two comments proposing new coverage. The 
first comment recommended new coverage in FAR 45.103 to cover the 
contract award process when considering competitive advantage. The 
second comment requested a rewrite of FAR 45.603. The Council noted the 
issues raised by the commenter. The recommendations are outside of the 
scope of this case. The proposed revisions will be considered in the 
formulation of a new case.

19. Policy

    There is no revision to the proposed rule based on this category of 
comment.

[[Page 38678]]

Two respondents submitted four comments for this comment category.
    One respondent agrees with the revision.
    Two respondents proposed coverage outside of the scope of this 
case. The Councils noted the comments. The proposed revisions are 
outside of the scope of this case. The proposed revisions will be 
considered in the formulation of a new case.
    One respondent recommended adding a new paragraph (e) in FAR 45.102 
to read: ``Intangible property, e.g., intellectual property, software, 
etc., are not subject to this requirements of this FAR part or the 
Government property clauses found at 52.245.'' The Councils disagree. 
The issue of whether Intellectual property is covered under FAR 
contract property regulations is addressed in the scope of part in FAR 
45.000 and in the definitions in FAR 45.101.

20. Profit and Fee

    There is a revision to the proposed rule based on this comment 
category. The proposed language in FAR 15.404-4(a)(3) is relocated to 
FAR 15.404-4(c)(3) and revised. Nine comments were received from eight 
respondents regarding profit and fee.
    One respondent suggests removal of the proposed language in 15.404-
4(a)(3) and inclusion of new language in 15.404-4(c)(3) that 
``instructs contracting officers to exclude the costs of contractor-
acquired property from pre-negotiation cost objectives when calculating 
the Government's pre-negotiation profit or fee objective, unless the 
contractor acquired property is a deliverable under the contract.'' The 
Councils partially agree with this recommendation and the language is 
revised accordingly.
    One respondent requests clarification of the language added in 
15.404-4. The Councils agree with this recommendation.
    One respondent suggests that requirement of the language added to 
15.404-4(a)(3) will be burdensome and require auditing to ensure zero 
profit; instead of this method, the respondent suggests that the 
contracting officer take the value of the contractor acquired property 
in consideration when negotiating profits. The Councils partially agree 
with this suggestion. The Councils disagree with the assertion that the 
requirement is burdensome. The language has been modified to clarify 
its use and limit its applicability to equipment as defined in FAR 
45.101.
    One respondent suggests changing the weighted guidelines to address 
the value of contractor acquired property. The Councils disagree with 
this suggestion; however, the revised language provides direction to 
the contracting officer as to how equipment should be treated within 
the current guidelines.
    Four respondents suggest removal of the language added in 15.404-
4(a)(3). The Councils disagree with these suggestions.
    One respondent believes there is no basis to eliminate profit on 
any allowable element of the contract cost, especially property that is 
required in the performance of a Government contract but not 
incorporated into the end item deliverable or listed as a deliverable. 
The Councils disagree with this suggestion. The language is revised to 
assure that it applies only to equipment as defined in FAR 45.101.
    The language has been revised and moved to 15.404-4(c)(3). The 
revision does not change, expand or constrict existing contracting 
policy. Rather, the purpose of the revised language is to clarify 
policy, and ensure its awareness within the acquisition community.
    Prior to the publication of FAR Case 2004-025, June 2007, FAR 
45.302-2(c) and FAR 45.302-3(c) contained language intended to prevent 
contractors from acquiring facilities and treating the facilities in 
the same manner as a contract line item deliverable with associated 
profit or fee. FAR Case 2004-025 deleted this language. The 
requirements of this language were added to the proposed rule in FAR 
15.404-4 because the policy still applies.
    While the application of this policy tended to be obfuscated by the 
term ``facilities,'' the underlying principle was clear--that when the 
contractor buys equipment or acquires real property on a ``pass 
through'' basis, i.e., when not part of a deliverable, it is the 
Government--not the contractor--who assumes the risk. Moreover, it is 
generally held that upon contract award, contractors are required to 
furnish all property necessary to perform Government contracts (FAR 
Part 45.102) as well as all the necessary resources needed for contract 
performance (FAR 9.104-1(f), General standards).
    Accordingly, it is not appropriate for the Government to include 
the cost of contractor acquired property (equipment) when calculating 
the Government's pre-negotiation profit or fee objective. Including 
such costs would unduly compensate the contractor for obtaining 
equipment it should already have; and for risks it did not incur. This 
is a long held view; however, up until the publication of the proposed 
rule FAR Case 2008-011, it had not been adequately addressed in the 
FAR.
    This policy does not exclude the otherwise allowable cost of 
depreciation under FAR 31.205-11.

21. Rental

    There is no revision to the proposed rule based on this category of 
comment. One respondent submitted two comments recommending amending 
FAR 45.301 and 45.303. One comment recommended amending FAR 45.301 by 
inserting a comma after the word ``authorized'' in paragraph (b) and 
making two sentences out of paragraph (b) so that it reads as follows: 
``(b) Rental charges, to the extent authorized, do not apply to 
Government property that is left in place or installed on contractor-
owned property for mobilization or future Government production 
purposes; (c) Rental charges shall apply to property to be used for 
non-government commercial purposes.'' The second comment recommended 
amending FAR 45.303 to read ``The contracting officer may authorize a 
contractor to use the property on an independent research and 
development (IR&D) program rent free, 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 claim rental value against any 
Government contract for the property; and
    (c) Estimated rental proceeds are immaterial or rental cost to the 
contractor would subsequently, in a substantial way, be charged back to 
the Government as part of indirect cost.''
    The Councils note the issue raised by the commenter. The 
recommendations are outside of the scope of this case. The proposed 
revisions will be considered in the formulation of a new case.

22. Responsibility vs. Liability

    There is no revision to the proposed rule based on this category of 
comment. One respondent recommended moving the coverage in FAR 52.245-
1(f)(vii) to FAR 45.104 or moving this paragraph to FAR 52.245-1(h)(1) 
and being repeated in 45.104, or replace the word ``responsibility'' 
with ``liability.'' The Councils note the issue raised by the 
commenter. The recommendations are outside of the scope of this case. 
The proposed revisions will be considered in the formulation of a new 
case.

23. Sale

    One respondent agreed with the proposed language in FAR 45.604-3.

[[Page 38679]]

24. Scrap List

    There is no revision to the proposed rule based on this category of 
comment. One respondent requested that the paragraph (FAR 45.606-1(b)) 
be revised as follows: ``For scrap from other than production or 
testing, the contractor may prepare scrap lists in lieu of inventory 
disposal schedules (provided such lists are consistent with the 
property management plan or approvals by the property administrator or 
contracting officer). The Councils note the issue raised by the 
commenter. The recommendations are outside of the scope of this case. 
The proposed revisions will be considered in the formulation of a new 
case.

25. Screening

    One respondent agreed with the proposed language at FAR 45.602-
3(b)(3).

26. Storage

    One respondent agreed with the proposed language at FAR 52.245-
1(j)(7)(ii).

27. Supply Source

    One respondent agreed with the proposed language at FAR 52.251-1.

28. Title

    There is no revision to the proposed rule based on this category of 
comment. The respondent agrees, in two comments, with the proposed 
language at FAR 52.245-1(e)(2)(ii) and (iii).
    The respondent also proposes revising FAR 45.402(a). The Councils 
note the issue raised by the commenter. The recommendations are outside 
of the scope of this case. The proposed revisions will be considered in 
the formulation of a new case.

29. Use

    One respondent agreed with the proposed language at FAR 52.245-
1(c).

30. Administrative

    One respondent agreed with the proposed language at FAR 52.245-1.

31. Wrong Case

    One respondent submitted one comment opposing FAR 2009-005.
    Summary of Proposed Rule Changes. The Councils made the following 
changes to the proposed rule as a result of the public comments.
    Revised FAR 45.101 and 52.245-1 to clarify the definition of 
``equipment'' by including special test equipment and special tooling 
in the exclusions.
    Revised FAR 45.101 and 52.245-1 to clarify the definition of 
``cannibalize.''
    Revised FAR 45.101 and 52.245-1 to clarify the definition of 
``Government-furnished property.''
    Revised FAR 45.105 and FAR 52.245-1(g)(3) to clarify language 
necessary for contractors to take the necessary corrective action as 
specified by the schedule within the corrective action plan.
    Revised FAR 52.245-1(j)(3)(iv)(A) to delete the language as 
proposed in the proposed rule and by moving and retaining the language 
at FAR 52.245-1(j)(3)(iv)(F) as paragraph (A).
    Revised FAR 45.201, FAR 52.245-1(f)(1)(iii)(A)(4) and FAR 52.245-
1(f)(1)(vi)(B)(4) to delete the proposed rule language and retain the 
current FAR language.
    Revised FAR 52.245-1(j)(8)(ii) by deleting the language 
``Government-affixed.''
    Revised FAR 52.245-1(a) by removing language duplicating the 
definition of contractor's managerial personnel.
    Revised FAR 15.404-4(a)(3) by relocating the language to FAR 
15.404(c)(3) and clarifying that contracting officers shall exclude the 
cost of contractor-acquired property when calculating the Government's 
pre-negotiation profit or fee objective.
    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 Department of Defense, the General Services Administration, and 
the National Aeronautics and Space Administration certify that this 
final rule will not 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 does not 
impose any additional requirements on small businesses. The rule does 
not affect the method of managing Government property. The rule merely 
clarifies and corrects the previous FAR rule.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does apply; however, these changes to 
the FAR do not impose additional information collection requirements to 
the paperwork burden previously approved under OMB Control Number 9000-
0075.

List of Subjects in 48 CFR Parts 2, 4, 15, 31, 32, 42, 45, and 52

    Government procurement.

    Dated: June 25, 2010.
Edward Loeb,
Director, Acquisition Policy Division.
    Therefore, DoD, GSA, and NASA amend 48 CFR parts 2, 4, 15, 31, 32, 
42, 45, and 52 as set forth below:

0
1. The authority citation for 48 CFR parts 2, 4, 15, 31, 32, 42, 45, 
and 52 continues 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 2--DEFINITIONS OF WORDS AND TERMS


2.101   [Amended]

0
2. Amend section 2.101, in paragraph (b)(2), by removing from the 
definition ``Plant clearance officer'' the words ``plants and Federal 
installations'' and adding ``plants, Federal installations, and Federal 
and non-Federal industrial operations,'' in its place; and removing 
from the definition ``Special tooling'' the words ``test equipment, 
and'' and adding ``tooling, and'' in its place.

PART 4--ADMINISTRATIVE MATTERS

0
3. Amend section 4.705-3 by adding paragraph (h) to read as follows:


4.705-3   Acquisition and supply records.

* * * * *
    (h) Property records (see FAR 45.101 and 52.245-1): Retain 4 years.

PART 15--CONTRACTING BY NEGOTIATION

0
4. Amend section 15.404-4 by adding a sentence after the first sentence 
of paragraph (c)(3) to read as follows:


15.404-4   Profit.

* * * * *
    (c) * * *
    (3) * * * Before applying profit or fee factors, the contracting 
officer shall exclude from the pre-negotiation cost objective amounts 
the purchase cost of contractor-acquired property that is categorized 
as equipment, as defined in FAR 45.101, and where such equipment is to 
be charged directly to the contract. * * *
* * * * *

PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES


31.205-19   [Amended]

0
5. Amend section 31.205-19(e)(2)(iv)(C) by removing ``52.245-
1(h)(1)(ii)'' and adding ``52.245-1(a)'' in its place.

[[Page 38680]]

PART 32--CONTRACT FINANCING


32.503-16   [Amended]

0
6. Amend section 32.503-16 by removing from paragraph (a) ``loss, 
theft, destruction, or damage to'' and adding ``lost, stolen, damaged, 
or destroyed'' in its place.


32.1010   [Amended]


0
7. Amend section 32.1010 by removing from paragraph (a) ``loss, theft, 
destruction, or damage to property affected by the clause'' and adding 
``lost, stolen, damaged, or destroyed property'' in its place.

PART 42--CONTRACT ADMINISTRATION AND AUDIT SERVICES

0
8. Amend section 42.302 by revising paragraphs (a)(30)(iii) and 
(a)(30)(v) to read as follows:


42.302   Contract administration functions.

    (a) * * *
    (30) * * *
    (iii) Evaluate the use of Government property on a non-interference 
basis in accordance with the clause at 52.245-9, Use and Charges;
* * * * *
    (v) Modify contracts to reflect the addition of Government-
furnished property and ensure appropriate consideration.
* * * * *

PART 45--GOVERNMENT PROPERTY

0
9. Amend section 45.101 by--
0
a. Revising the definitions ``Cannibalize'', ``Equipment'', 
``Government-furnished property'', and ``Government property'';
0
b. Removing from the definition ``Material'' the words ``and special 
test equipment'' and adding ``special test equipment or real property'' 
in its place;
0
c. Removing the definition ``Plant equipment'';
0
d. Adding the definition ``Property records''; and
0
e. Revising the definition ``Real property.''
0
The revised and added text reads as follows:


45.101  Definitions.

* * * * *
    Cannibalize means to remove parts from Government property for use 
or for installation on other Government 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.
    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-furnished 
property includes, but is not limited to, spares and property furnished 
for repair, maintenance, overhaul, or modification. Government-
furnished property also includes contractor-acquired property if the 
contractor-acquired property is a deliverable under a cost contract 
when accepted by the Government for continued use under the contract.
    Government property means all property owned or leased by the 
Government. Government property includes both Government-furnished 
property and contractor-acquired property. Government property includes 
material, equipment, special tooling, special test equipment, and real 
property. Government property does not include intellectual property 
and software.
* * * * *
    Property records means the records created and maintained by the 
contractor in support of its stewardship responsibilities for the 
management of Government property.
* * * * *
    Real property. See Federal Management Regulation 102-71.20 (41 CFR 
102-71.20).

* * * * *

0
10. Amend section 45.102 by revising paragraph (d) to read as follows:


45.102  Policy.

* * * * *
    (d) Exception. Property provided under contracts for repair, 
maintenance, overhaul, or modification is not subject to the 
requirements of paragraph (b) of this section.


0
11. Amend section 45.104 by revising the introductory text of paragraph 
(a) to read as follows:


45.104  Responsibility and liability for Government property.

    (a) Generally, contractors are not held liable for loss, theft, 
damage or destruction of Government property under the following types 
of contracts:
* * * * *
0
12. Amend section 45.105 by revising the first sentence of paragraph 
(b); revising paragraph (b)(1); and removing from paragraph (d) 
``damage, destruction or theft'' and adding ``theft, damage or 
destruction'' in its place.
    The revised text reads as follows:


45.105  Contractors' property management system compliance.

* * * * *
    (b) The property administrator shall notify the contractor in 
writing when the contractor's property management system does not 
comply with contractual requirements, and shall request prompt 
correction of deficiencies and shall request from the contractor a 
corrective action plan, including a schedule for correction of the 
deficiencies and shall provide a schedule for their completion. * * *
    (1) Revocation of the Government's assumption of risk for loss, 
theft, damage or destruction; and/or
* * * * *


45.201  [Amended]

0
13. Amend section 45.201 by removing from paragraph (d) ``When use of 
property on more than one contract is anticipated, any'' and adding 
``Any'' in its place.
0
14. Amend section 45.402 by revising paragraph (a) to read as follows:


45.402  Title to contractor-acquired property.

    (a) Title vests in the Government for all property acquired or 
fabricated by the contractor in accordance with the financing 
provisions or other specific requirements for passage of title in the 
contract. Under fixed-price type contracts, in the absence of financing 
provisions or other specific requirements for passage of title in the 
contract, 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.
* * * * *


0
15. Revise section 45.502 to read as follows:


45.502  Subcontractor and alternate prime contractor locations.

    (a) To ensure subcontractor compliance with Government property 
administration requirements, and with prime contractor consent, the 
property administrator assigned to the prime contract may request 
support property administration from another contract

[[Page 38681]]

administration office. If the prime contractor does not provide consent 
to support property administration at subcontractor locations, the 
property administrator shall refer the matter to the contracting 
officer for resolution.
    (b) The prime property administrator shall accept the findings of 
the delegated support property administrator and advise the prime 
contractor of the results of property management reviews, including 
deficiencies found with the subcontractor's property management system.
    (c) Prime contractor consent is not required for support 
delegations involving prime contractor alternate locations.


45.602-3  [Amended]


0
16. Amend section 45.602-3 by removing from paragraph (b)(3) ``North 
Capitol and H Streets'' and adding ``732 North Capitol Street'' in its 
place.
0
17. Revise section 45.604-3 to read as follows:


45.604-3  Sale of surplus personal property.

    Policy for the sale of surplus personal property is contained in 
the Federal Management Regulation, at Part 102-38 (41 CFR Part 102-38). 
Agencies may specify implementing procedures.


0
18. Amend section 45.606-1 by revising paragraph (b) and adding 
paragraph (c) to read as follows:


45.606-1  Contractor with an approved scrap procedure.

* * * * *
    (b) For scrap from other than production or testing, the contractor 
may prepare scrap lists in lieu of inventory disposal schedules 
(provided such lists are consistent with the approved scrap 
procedures).
    (c) Inventory disposal schedules shall be submitted for all 
aircraft regardless of condition, flight safety critical aircraft 
parts, and scrap that--
    (1) Requires demilitarization;
    (2) Is a classified item;
    (3) Is generated from classified items;
    (4) Contains hazardous materials or hazardous wastes;
    (5) Contains precious metals that are economically beneficial to 
recover; or
    (6) Is dangerous to the public health, safety, or welfare.

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.232-16  [Amended]

0
19. Amend section 52.232-16 by--
0
a. Removing from the clause heading ``(JUL 2009)'' and adding ``(AUG 
2010)'' in its place;
0
b. Removing from paragraph (d)(2)(ii) ``under any other clause of this 
contract'';
0
c. Removing from paragraph (d)(3) ``or special tooling''; and
0
d. Removing from paragraph (e) ``is damaged, lost, stolen, or'' and 
adding ``is lost, stolen, damaged, or'' in its place.


52.232-32  [Amended]

0
20. Amend section 52.232-32 by--
0
a. Removing from the clause heading ``(JAN 2008)'' and adding ``(AUG 
2010)'' in its place;
0
b. Removing from paragraph (f)(2)(ii) ``under any other clause of this 
contract'';
0
c. Removing from paragraph (f)(3) ``or special tooling''; and
0
d. Removing from paragraph (g) ``is damaged, lost, stolen, or'' and 
adding ``is lost, stolen, damaged, or'' in its place.

0
21. Amend section 52.245-1 by--
0
a. Revising the date of the clause;
0
b. In paragraph (a) by--
0
i. Revising the definitions ``Cannibalize'' and ``Equipment'';
0
ii. Adding two sentences to the end of the definition ``Government-
furnished property'';
0
iii. Adding two sentences to the end of the definition ``Government 
property'';
0
iv. Removing from the definition ``Material'' the word ``end-item'' and 
adding the words ``end item'' in its place; and removing the words 
``and special test equipment'' and adding the words ``, special test 
equipment or real property'' in its place;
0
v. Removing the definition ``Plant equipment'';
0
vi. Adding, in alphabetical order, the definition ``Property records''; 
and
0
vii. Revising the definition ``Real property'';
0
c. Revising the first sentence of paragraph (b)(2), and paragraphs (c), 
and (e)(2)(ii);
0
d. Removing from paragraphs (e)(2)(iii) and (f)(1)(i) the word 
``material'' and adding the word ``property'' wherever it occurs (8 
times);
0
e. Revising paragraph (f)(1)(v)(A), introductory text of paragraph 
(f)(1)(vi), paragraphs (f)(1)(vi)(A), (f)(1)(vi)(B)(4), 
(f)(1)(vi)(B)(10), (f)(1)(vii)(A), (f)(1)(viii)(B), (f)(1)(x), (g), 
introductory text of paragraph (h)(1), paragraphs (h)(1)(ii) and 
(h)(1)(iii), the first sentence of paragraph (h)(2), (h)(3), 
introductory text of paragraph (i), and paragraph (j)(1)(i)(B);
0
f. Add paragraph (j)(1)(i)(C);
0
g. Revise paragraphs (j)(3)(iii)(E) and (j)(3)(iv);
0
h. Add paragraphs (j)(3)(v) and (j)(3)(vi);
0
i. Remove from paragraph (j)(7)(ii) the word ``facility'' and add the 
word ``area'' in its place;
0
j. Revise second sentence of paragraph (j)(8)(ii); and
0
k. In Alternate I, revise the date of the alternate, and the first 
sentence of paragraph (h)(1).
    The added and revised text reads as follows:


52.245-1  Government Property.

* * * * *

GOVERNMENT PROPERTY (AUG 2010)

    (a) * * *
* * * * *
    Cannibalize means to remove parts from Government property for 
use or for installation on other Government 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.
    Government-furnished property * * * Government-furnished 
property includes, but is not limited to, spares and property 
furnished for repair, maintenance, overhaul, or modification. 
Government-furnished property also includes contractor-acquired 
property if the contractor-acquired property is a deliverable under 
a cost contract when accepted by the Government for continued use 
under the contract.
    Government property * * * Government property includes material, 
equipment, special tooling, special test equipment, and real 
property. Government property does not include intellectual property 
and software.
* * * * *
    Property records means the records created and maintained by the 
contractor in support of its stewardship responsibilities for the 
management of Government property.
* * * * *
    Real property. See Federal Management Regulation 102-71.20 (41 
CFR 102-71.20).
* * * * *
    (b) * * *
    (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. * * *
* * * * *
    (c) Use of Government property. (1) The Contractor shall use 
Government property, either furnished or acquired under this 
contract, only for performing this contract,

[[Page 38682]]

unless otherwise provided for in this contract or approved by the 
Contracting Officer.
    (2) Modifications or alterations of Government property are 
prohibited, unless they are--
    (i) Reasonable and necessary due to the scope of work under this 
contract or its terms and conditions;
    (ii) Required for normal maintenance; or
    (iii) Otherwise authorized by the Contracting Officer.
    (3) The Contractor shall not cannibalize Government property 
unless otherwise provided for in this contract or approved by the 
Contracting Officer.
* * * * *
    (e) * * *
    (2) * * *
    (ii) Title vests in the Government for all property acquired or 
fabricated by the Contractor in accordance with the financing 
provisions or other specific requirements for passage of title in 
the contract. Under fixed price type contracts, in the absence of 
financing provisions or other specific requirements for passage of 
title in the contract, 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.
* * * * *
    (f) * * *
    (1) * * *
    (v) * * *
    (A) The Contractor shall award subcontracts that clearly 
identify assets to be provided and shall ensure appropriate flow 
down of contract terms and conditions (e.g., extent of liability for 
loss, theft, damage or destruction of Government property).
* * * * *
    (vi) Reports. The Contractor shall have a process to create and 
provide reports of discrepancies; loss, theft, damage or 
destruction; physical inventory results; audits and self-
assessments; corrective actions; and other property related reports 
as directed by the Contracting Officer.
    (A) Loss, theft, damage or destruction. Unless otherwise 
directed by the Property Administrator, the Contractor shall 
investigate and promptly furnish a written narrative of all 
incidents of loss, theft, damage or destruction to the property 
administrator as soon as the facts become known or when requested by 
the Government.
    (B) * * *
    (4) Unique-item Identifier (if available).
* * * * *
    (10) A statement that the Government will receive any 
reimbursement covering the loss, theft, damage or destruction in the 
event the Contractor was or will be reimbursed or compensated.
* * * * *
    (vii) * * *
    (A) Consumed or expended, reasonably and properly, or otherwise 
accounted for, in the performance of the contract, including 
reasonable inventory adjustments of material as determined by the 
Property Administrator; or a Property Administrator granted relief 
of responsibility for loss, theft, damage or destruction of 
Government property;
* * * * *
    (viii) * * *
    (B) Unless otherwise authorized in this contract or by the 
Property Administrator the Contractor shall not commingle Government 
material with material not owned by the Government.
* * * * *
    (x) Property closeout. The Contractor shall promptly perform and 
report to the Property Administrator contract property closeout, to 
include reporting, investigating and securing closure of all loss, 
theft, damage or destruction cases; physically inventorying all 
property upon termination or completion of this contract; and 
disposing of items at the time they are determined to be excess to 
contractual needs.
* * * * *
    (g) Systems analysis. (1) The Government shall have access to 
the Contractor's premises and all Government property, at reasonable 
times, for the purposes of reviewing, inspecting and evaluating the 
Contractor's property management plan(s), systems, procedures, 
records, and supporting documentation that pertains to Government 
property. This access includes all site locations and, with the 
Contractor's consent, all subcontractor premises.
    (2) Records of Government property shall be readily available to 
authorized Government personnel and shall be appropriately 
safeguarded.
    (3) Should it be determined by the Government that the 
Contractor's (or subcontractor's) property management practices are 
inadequate or not acceptable for the effective management and 
control of Government property under this contract, or present an 
undue risk to the Government, the Contractor shall prepare a 
corrective action plan when requested by the Property Administrator 
and take all necessary corrective actions as specified by the 
schedule within the corrective action plan.
    (h) Contractor Liability for Government Property.
    (1) Unless otherwise provided for in the contract, the 
Contractor shall not be liable for loss, theft, damage or 
destruction to the Government property furnished or acquired under 
this contract, except when any one of the following applies--
* * * * *
    (ii) The loss, theft, damage or destruction is the result of 
willful misconduct or lack of good faith on the part of the 
Contractor's managerial personnel.
    (iii) The Contracting Officer has, in writing, revoked the 
Government's assumption of risk for loss, theft, damage or 
destruction, due to a determination under paragraph (g) of this 
clause that the Contractor's property management practices are 
inadequate, and/or present an undue risk to the Government, and the 
Contractor failed to take timely corrective action. If the 
Contractor can establish by clear and convincing evidence that the 
loss, theft, damage or destruction of Government property occurred 
while the Contractor had adequate property management practices or 
the loss, theft, damage or destruction of Government property did 
not result from the Contractor's failure to maintain adequate 
property management practices, the Contractor shall not be held 
liable.
    (2) The Contractor shall take all reasonable actions necessary 
to protect the Government property from further loss, theft, damage 
or destruction. * * *
    (3) The Contractor shall do nothing to prejudice the 
Government's rights to recover against third parties for any loss, 
theft, damage or destruction of Government property.
* * * * *
    (i) Equitable adjustment. Equitable adjustments under this 
clause shall be made in accordance with the procedures of the 
Changes clause. However, the Government shall not be liable for 
breach of contract for the following:
* * * * *
    (j) * * *
    (1) * * *
    (i) * * *
    (B) For scrap from other than production or testing the 
Contractor may prepare scrap lists in lieu of inventory disposal 
schedules (provided such lists are consistent with the approved 
scrap procedures).
    (C) Inventory disposal schedules shall be submitted for all 
aircraft regardless of condition, flight safety critical aircraft 
parts, and scrap that--
    (1) Requires demilitarization;
    (2) Is a classified item;
    (3) Is generated from classified items;
    (4) Contains hazardous materials or hazardous wastes;
    (5) Contains precious metals that are economically beneficial to 
recover; or
    (6) Is dangerous to the public health, safety, or welfare.
* * * * *
    (3) * * *
    (iii) * * *
    (E) Precious metals in raw or bulk form;
* * * * *
    (iv) The Contractor shall provide the information required by 
FAR 52.245-1(f)(1)(iii) along with the following:
    (A) Any additional information that may facilitate understanding 
of the property's intended use.
    (B) For work-in-progress, the estimated percentage of 
completion.
    (C) For precious metals, the type of metal and estimated weight.
    (D) For hazardous material or property contaminated with 
hazardous material, the type of hazardous material.
    (E) For metals in mill product form, the form, shape, treatment, 
hardness, temper, specification (commercial or Government) and 
dimensions (thickness, width and length).
    (v) Property with the same description, condition code, and 
reporting location may be grouped in a single line item.

[[Page 38683]]

    (vi) Scrap should be reported by ``lot'' along with metal 
content, estimated weight and estimated value.
* * * * *
    (8) * * *
    (ii) * * * Unless otherwise directed by the Contracting Officer 
or by the Plant Clearance Officer, the Contractor shall remove and 
destroy any markings identifying the property as U.S. Government-
owned property prior to its disposal.
* * * * *
    Alternate I (AUG 2010). * * *

    (h)(1) The Contractor assumes the risk of, and shall be 
responsible for, any loss, theft, damage or destruction of 
Government property upon its delivery to the Contractor as 
Government-furnished property. * * *
* * * * *

0
22. Amend section 52.245-2 by revising the date of the clause, and the 
first two sentences of paragraph (b) to read as follows:


52.245-2  Government Property Installation Operation Services.

* * * * *

GOVERNMENT PROPERTY INSTALLATION OPERATION SERVICES (AUG 2010)

* * * * *
    (b) The Government bears no responsibility for repair or 
replacement of any lost, stolen, damaged or destroyed-Government 
property. If any or all of the Government property is lost, stolen, 
damaged or destroyed or becomes no longer usable, the Contractor 
shall be responsible for replacement of the property at Contractor 
expense. * * *
* * * * *


0
23. Amend section 52.245-9 by revising the date of the clause, and the 
introductory text of paragraph (a); and removing the definitions 
``Acquisition cost'', ``Government property'', ``Plant equipment'', and 
``Real property''.
    The revised text reads as follows:


52.245-9  Use and Charges.

* * * * *

USE AND CHARGES (AUG 2010)

    (a) Definitions. Definitions applicable to this contract are 
provided in the clause at 52.245-1, Government Property. Additional 
definitions as used in this clause include:
* * * * *


0
24. Amend section 52.251-1 by revising the date of the clause, and the 
last sentence of the clause to read as follows:


52.251-1  Government Supply Sources.

* * * * *

GOVERNMENT SUPPLY SOURCES (AUG 2010)

    * * * The provisions of the clause entitled ``Government 
Property,'' at 52.245-1, shall apply to all property acquired under 
such authorization.

[FR Doc. 2010-15918 Filed 7-1-10; 8:45 am]
BILLING CODE 6820-EP-P