Intermediate Government Furnished Property for Contracting Professionals Carol Vigna, OSD AT&L DPAP carol.a.vigna.civ@mail.mil David Guinasso, supporting OSD AT&L DPAP dguinasso@altamconsult.com www.dodprocurementtoolbox.com 2 August 2016

Topics The areas covered in this training are recurring areas of concern for audit, accountability and ensuring that contracts protect the governments assets and public’s interests. -Contractor Acquired Property -Bailment -Exchange or Sale -Use and Rental -Loans

Definitions Government Furnished Property (GFP) – is defined as property in the possession of or acquired by the Government and subsequently furnished to the Contractor for performance of a contract. It includes items like spares and property furnished for repair, maintenance, overhaul, or modification. It can be items taken or requisitioned from Government inventory or purchased by the Government specifically to be provided on a contract. GFP also includes contractor-acquired property if the contractor-acquired property is a deliverable under a cost contract that has been accepted by the Government for continued use under that contract or a future contract. Contractor Acquired Property (CAP) - is property purchased or fabricated by a contractor for use on a contract to which the Government has title.

Not considered GFP Government property that is incidental to the place of performance, when the contract requires contractor personnel to be located on a Government site or installation, and when the property used by the contractor within the location remains accountable to the Government. Located on a Government site or installation Used within the location Remains accountable to the Government 4

Contractor Acquired Property

Cost Contract Title Provision in GP Clause FAR 52.245-1 Government Property Title under Cost-Reimbursement or Time-and-Material Contracts or Cost-Reimbursable contract line items under Fixed-Price contracts. 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 the vendor's delivery of such property. (ii) Title to all other property, the cost of which is reimbursable to the Contractor, shall pass to and vest in the Government upon— (A) Issuance of the property for use in contract performance; (B) Commencement of processing of the property for use in contract performance; or (C) Reimbursement of the cost of the property by the Government, whichever occurs first. 52.245-1 Must be in all Cost Reimbursable and T&M contracts

An Illustration CAP Deliverable

Important Things to Remember Title is not changed by incorporation of Government property into property owned by the contractor. Title to cost reimbursable line items on Fixed Price contracts is the same as title under a cost contract. CAP can not be used on a different contract unless it is: Delivered and accepted and provided as GFP Repurchased or credited by the contractor* *Subject to the requirements of the Materials Management and Accounting System (MMAS)

Sharing CAP under MMAS FAR 252.242-7004 …the Contractor may accomplish the material transaction using a loan/pay-back technique. The “loan/pay-back technique” means that the physical part is moved temporarily from the contract, but the cost of the part remains on the contract. When the technique is used, the Contractor shall have controls to ensure— (A) Parts are paid back expeditiously; (B) Procedures and controls are in place to correct any overbilling that might occur; (C) Monthly, at a minimum, identification of the borrowing contract and the date the part was borrowed; and (D) The cost of the replacement part is charged to the borrowing contract; 9

What Happens to CAP May be consumed in production of the deliverable May be delivered May be credited to the contract and charged to a different contract if needed on the succeeding contract (Reasonable, Allocable, and Allowable test) May be repurchased by the contractor At full cost; or, Returned to suppliers less reasonable restock costs If not consumed, repurchased or delivered, must be reported to the Government for plant clearance whenever no longer required for performance Either during or at the completion of the contract May be provided to succeeding contracts as GFP after inspection and acceptance and delivery

How CAP is Delivered PGI 245.402-71 Delivery of contractor-acquired property. (1)(i) When delivery of contractor-acquired property is required, the contracting officer shall direct that the delivery be accomplished by contract line item, except as described in paragraph (1)(ii) of this section. (2) Each contract line item of contractor-acquired property shall include the following information: Contractor-Acquired Property Delivery Contract Line Item *Contractor-acquired property items shall be marked as required by DFARS clause 252.245-7001. CLIN Item Description/ Nomenclature Type Designation NSN PIN Quantity Unit of Measure Serial Number (UII)* Original Unit Acquisition Cost Date Placed in Service by the Contractor x As required If known

Delivery of CAP Once Contract Line Items are created, CAP will be delivered as any other deliverable line item, using WAWF iRAPT in accordance with: DFARS 252.232-7003 (b) Except as provided in paragraph (c) of this clause, the Contractor shall submit payment requests and receiving reports using WAWF, in one of the following electronic formats that WAWF accepts: Electronic Data Interchange, Secure File Transfer Protocol, or World Wide Web input. Information regarding WAWF is available on the Internet at https://wawf.eb.mil/. DFARS 252.246-7000  "(b) Contractor submission of the material inspection and receiving information required by Appendix F of the Defense FAR Supplement by using the Wide Area WorkFlow (WAWF) electronic form (see paragraph (b) of the clause at 252.232-7003 <http://www.acq.osd.mil/dpap/dars/dfars/html/current/252232.htm> ) fulfills the requirement for a material inspection and receiving report (DD Form 250).“ DFARS Appendix F (b) The use of the DD Form 250 is on an exception basis (see DFARS 232.7003 <http://www.acq.osd.mil/dpap/dars/dfars/html/current/232_70.htm> (a)) because use of the WAWF RR is now required by most DoD contracts

Bailment

Bailment What is a “Bailment”? When do you use it? DFARS PGI 217_75 defines bailment as: “The process whereby a part is loaned to a recipient with the agreement that the part will be returned at an appointed time. The government retains legal title to such material even though the borrowing agency has possession during the stated period.” Items remain accountable to the DoD activity that loans them (Loaning Activity) and will be recorded in accountable property system of record as required by DoDI 5000.64 When do you use it? Under PGI 217_75 used to loan parts to a contractor that DoD believes qualified to become a “second source” for items which are only available sole source (Spare Parts Breakout Program) To provide military unique items for contractors to use in IR&D and B&P Should Not be used to provide property for use in performing a contract If there is a contract, the property should be provided as GFP Bailment agreements and loans are not governed by FAR Part 45 and associated DFARS clauses

Bailment Agreements Loaning Activity must work with counsel to prepare a bailment or loan agreement Bailment/Loan agreement should: Specify the allowed use for the item (and disallow any other use) Set the term of the loan (beginning and ending dates) Specify transportation arrangements and costs Reserve the right for the government to inspect the item at reasonable times Require regular confirmation of the existence of the item (physical inventory) Allow for government to require return of the property at any time, without compensation to the contractor Discuss responsibility for liability associated with the use or loss of the property Require reporting of any loss of government property Specify any export restrictions or intellectual property considerations

Exchange or Sale

Exchange or Sale Exchange – most commonly thought of as a “trade in” Sell – disposal sales as part of the federal disposal process Plant Clearance under FAR and Federal Management Regulations (FMR) 102-38 FMR Disposal Process under FMR 102-38

Exchange or Sale Legal Authority - 40 USC § 503. Exchange or sale of similar items (a) Authority of Executive Agencies. – In acquiring personal property, an executive agency may exchange or sell similar items and may apply the exchange allowance or proceeds of sale in whole or in part payment for the property acquired. (b) APPLICABLE REGULATION AND LAW – REGULATIONS PRESCRIBED BY ADMINISTRATOR OF GENERAL SERVICES. – A transaction under subsection (a) must be carried out in accordance with regulations the Administrator of General Services prescribes, subject to regulations prescribed by the Administrator for Federal Procurement Policy under division B (except sections 1704 and 2303) of subtitle I of title 41. IN WRITING – A transaction under subsection (a) must be evidenced in writing. SECTION 6101(b) to (d) OF TITLE 41 – Section 6101(b) to (d) of title 41 applies to a sale of property under subsection (a), except that fixed price sales may be conducted in the same manner and subject to the same conditions as are applicable to the sale of property under section 545(d) of this title.

Personal Property [Exchange or Sale] FMR 102-36.40 “Personal property” means any property, except real property. For purposes of this part, the term excludes records of the Federal Government, and naval vessels of the following categories: battleships, cruisers, aircraft carriers, destroyers, and submarines. FAR 2.101 “Personal property” means property of any kind or interest in it except real property, records of the Federal Government, and naval vessels of the following categories: (1) Battleships; (2) Cruisers; (3) Aircraft carriers; (4) Destroyers; and (5) Submarines.

Similar Items [Exchange or Sale] Defined in FMR 102-39.20 “Similar” means the acquired item(s) and replaced item(s): (1)  Are identical; or (2) Fall within a single Federal Supply Classification (FSC) Group of property (includes any and all forms of property within a single FSC Group); or (3) Are parts or containers for similar end items; or (4) Are designed or constructed for the same purpose (includes any and all forms of property regardless of the FSC Group to which they are assigned).

When You Can Do An Exchange Replacement of property that is still required, but is no longer functional due to wear or obsolescence May be accomplished as part of the acquisition of new property May be used to acquire property under a service contract provided the property is similar to that being exchanged or sold

Prohibitions on Exchange or Sale Prohibited Federal Supply Groups 10 – Weapons (DoD exception for all except FSC 1005 Guns) 11 – Nuclear ordnance 42 – Firefighting, rescue, and safety equipment 44 – Nuclear reactors (FSC Class 4470 only ) 51 – Hand tools 54 – Prefabricated structure and scaffolding FSC 5410 Prefabricated and Portable Buildings FSC 5411 Rigid Wall Structures FSC 5419 Collective Modular Support System only 68 – Chemicals and chemical products, except medicinal chemicals 84 – Clothing, individual equipment, and insignia

More Prohibitions on Exchange or Sale Materials in the National Defense Stockpile NRC Controlled materials (except for §101-42.1102-4) Controlled substances (except for §101-42.1102-3) Scrap condition property except Property that had utility when exchange/sale authority was determined Property that was determined in scrap condition due to damage after exchange/sale determination Scrap gold for fine gold Other agency excess, forfeited property or property not obtained from an acquisition, unless it has been in use for no less than 1 year since obtaining

Still More Prohibitions on Exchange or Sale Dangerous property not rendered innocuous Combat material without demil or other DoD authorization Flight Safety Critical Aircraft Parts and Critical Safety Items Unless meeting the provisions of 102-33.370 For acquisition of unauthorized replacement property Acquisition of replacement property that violates any Restriction on procurement of a commodity or commodities Replacement policy of standard prescribed by the President, Congress or the Administrator of GSA Contractual Obligation Vessels subject to 40USC548 Aircraft and aircraft parts, unless there is full compliance with all exchange/sale provisions in Part 102-33 of the FMR

Conducting an Exchange Procurements may carry a line item which identifies the value of items to be traded in In order to comply with 40 USC and FMR annual reporting requirements transactions must be documented

Aircraft Parts in Exchange or Sale §102-33.115—Special requirements for acquiring military Flight Safety Critical Aircraft Parts (FSCAP) When you acquire Flight Safety Critical Aircraft Parts (FSCAP), you must— (a) Accept a FSCAP only when it is documented or traceable to its original equipment manufacturer (a FSCAP’s DOD FSCAP Criticality Code should be marked or tagged on the part or appear on its invoice/transfer document; see 102-33.375 for further explanation of the FSCAP Criticality Codes); and (b) Not install undocumented, but traceable FSCAP until you have the parts inspected and recertified by the original equipment manufacturer or FAA- approved production approval holder (see 102-33.370 on FSCAP). §102-33.120—Special requirements for acquiring life-limited parts When you acquire new or used life-limited parts, you must— (a) Identify and inspect the parts, ensuring that they have civil or military- certified documentation (i.e., complete life histories); and (b) Mutilate and dispose of any expired life-limited parts (see 102-33.370 on handling life-limited parts).

Exchange or Sale Summary Agencies are encouraged to utilize the proceeds from sale or trade-in of existing property when purchasing replacement property. Under contracts, even service contracts, property must be acquired. Property must be similar, but need not be equivalent in quantity, as long as the function remains the same, e.g. several small trucks could be sold or exchanged for one large truck that can haul the same or better volume Agencies must report exchange/sale transactions in list form to GSA annually List form implies that individual transactions are recorded AND reported

Use and Rental of Government Property

Policy FAR 45.3 Authorizing the Use and Rental of Government Property DFARS 245.3 Authorizing the Use and Rental of Government Property (Contracts with foreign governments or international organizations). Contract Clause 52.245-9 Use and Charges Clause Authorizing use of GFP outside of the contract to which it is accountable 29

Authorizing Use Authorization comes from the Contracting Officer cognizant of the property (the Contracting Officer for the contract the property is accountable to) 30

Rent Free Use The Contractor may use the Government property without charge in the performance of— (1) Contracts with the Government that specifically authorize such use without charge; (2) Subcontracts of any tier under Government prime contracts if the Contracting Officer having cognizance of the prime contract— (i) Approves a subcontract specifically authorizing such use; or (ii) Otherwise authorizes such use in writing; and (3) Other work, if the Contracting Officer specifically authorizes in writing use without charge for such work. 31

Rent Free Use Property at 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. 32

Consideration Fixed-Price In exchange for consideration 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. 33

Consideration Cost Type 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. 34

Commercial Use 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. 35

Rental Calculation of rent is detailed in 52.245-9 See the DFARS 245.3 for special rule for FMS and foreign direct sales Material cannot be rented The Government may revoke nongovernmental use authorization at any time and require the Contractor to return the property in its pre-rental condition (less normal wear and tear), or both. The unauthorized use of Government property can subject a person to fines, imprisonment, or both under 18 U.S.C. 641. 36

Non-Interference All use, Rental and Rent-Free, can not interfere with the use of the property on the contract it is accountable 37

Use and Charges - Summary The owning Contracting Officer can authorize use outside the accountable contract Consideration is required on Fixed-Price contracts or for non-Government use All use is on a Non-Intereference Basis. 38

Loans

There are no Loans* Property is provided to contractors: As CAP As GFP Through Non-Interference Use Through Bailment As an Exchange/Sale (Title transferred) *Except Loan/Pay-Back as discussed on slide 9 40

GFP Policy Training, Procedures, For more information GFP Policy Training, Procedures, Tools http://www.acq.osd.mil/dpap/pdi/gfp/index.html www.dodprocurementtoolbox.com

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