LOSS OF GOVERNMENT PROPERTY Presented by: Tara S. Miller, And Rosanne (Beth) Green, Consultant Presented by Beth Green and Tara Miller 11/6/2018

What Constitutes a Loss? What is considered a loss? Unintended, unforeseen or accidental loss, damage, or destruction of Government property that reduces the Government’s expected economic benefits of the property. Does not include losses due to: Purposeful destructive testing Obsolescence Normal wear and tear Manufacturing defects Do not include in your loss report There is a new definition in the FAR under 52.245-1 Loss (definitions). This is really a great change from all of the previous written regulations. The FAR has removed references to LTDD, LDDT or LDD from the old FAR. Now the new term is Loss! The DoD FAR Supplement had this definition prior to the 2012 change. Reasonable inventory adjustments are usually related to material. We will talk about Resonableness during this class. Presented by Beth Green and Tara Miller 11/6/2018

What Constitutes a Loss? continued Does include: Items that cannot be found after a reasonable search Theft Damage resulting in unexpected harm to property requiring repair to restore the item to usable condition Destruction resulting from incidents that render the item useless for its intended purpose or beyond economical repair Presented by Beth Green and Tara Miller 11/6/2018

Responsibility and Liability Read this before going to the next slide! 45.104 Responsibility and liability for Government property (April 2012) says to the Government Contracting Officer “Generally, contractors are not held liable for loss of Government property…”. However the contracting officer may revoke the Government’s assumption of risk when a GPA determines that the contractor’s property management practices are noncompliant with contract requirements. Don’t forget about subcontractors they can hold the same risk of loss as the prime contract. This is something that is spelled out clearly now which was vague in the before. Need to be careful about non-compliance. Let’s talk about some of the things that you can prevent becoming revoked. Be proactive in correcting deficiencies found by you or GPA. Presented by Beth Green and Tara Miller 11/6/2018

Liability The CO / PA determine: The extent of contractor liability based upon the amount of damages corresponding to the associated property loss The appropriate form and method of Government recovery (may include repair, replacement, or other restitution) Presented by Beth Green and Tara Miller 11/6/2018

Relief of Stewardship and Responsibility Relief can be obtained when property is: Consumed or expended, reasonably and properly, or otherwise accounted for, in the performance of the contract Reasonable inventory adjustments of material GPA grants relief of responsibility for loss Delivered or shipped from the Contractor’s plant, under Government instructions Inventory disposal Abandoned FAR 45.105 tells the Government what to do in the case a Contractor does not complete their corrective action. Your Property Plan and/or Procedures should indicate you will disclose and report excess property to the Government or prime when it is no longer needed. By not reporting excess you may end up with losses. Also don’t forget if you are a subcontractor you must report all excess property to your prime. When certain circumstances prevail the contractor is relieved of stewardship responsibility and liability Presented by Beth Green and Tara Miller 11/6/2018

Liability for Loss The Contractor shall not be liable for loss except when any one of the following applies— The equipment is covered by insurance Loss was the result of willful misconduct or lack of good faith on the part of the Contractor’s managerial personnel Unless otherwise provided for in the contract…. Let’s talk about how the government may hold the contractor liable. These are some of the exceptions: The equipment covered by insurance The risk is covered by insurance or the Contractor is otherwise reimbursed (to the extent of such insurance or reimbursement). The allowability of insurance costs shall be determined in accordance with 31.205-19. Such as insurance required by contract or e.g. a private owned car runs into a building and damages building and equipment the insurance of the car will pay for the damages. The loss of Government property was the result of willful misconduct or lack of good faith on the part of the Contractor’s managerial personnel. Contractor’s managerial personnel, in this clause 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. Presented by Beth Green and Tara Miller 11/6/2018

Liability for Loss The Contractor shall not be liable for loss except when any one of the following applies— (continued) The Contracting Officer has, in writing, revoked the Government’s assumption of risk for loss The Contractor shall not be held liable if by clear and convincing evidence they maintained an adequate property management system The Contracting Officer has, in writing, revoked the Government’s assumption of risk for loss because: 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 of Government property occurred while the Contractor had adequate property management practices or the loss did not result from the Contractor’s failure to maintain adequate property management practices, the Contractor shall not be held liable. Presented by Beth Green and Tara Miller 11/6/2018

Actions to Take Immediate actions the Contractor must take: All reasonable actions necessary to protect the Government property from further loss Shall separate the damaged and undamaged property, place all the affected property in the best possible order Any other actions required by the GPA Presented by Beth Green and Tara Miller 11/6/2018

Responsibility and Liability The Contractor shall: Do nothing to prejudice the Government’s rights to recover against third parties for any loss of Government property Reimburse the Government for loss of Government property, to the extent that the Contractor is financially liable for such loss, as directed by the Contracting Officer Presented by Beth Green and Tara Miller 11/6/2018

Responsibility and Liability The Contractor shall, continued: At the Government’s expense, furnish to the Government – All reasonable assistance and cooperation, including the prosecution of suit and the execution of instruments of assignment in favor of the Government in obtaining recovery Presented by Beth Green and Tara Miller 11/6/2018

Relief of Stewardship Responsibility and Liability Presented by Beth Green and Tara Miller 11/6/2018

Contractor Responsibility The Contractor is responsible for promptly: Recognizing Investigating Disclosing Reporting losses of Government property If a loss occurs, the Contractor is also responsible for identifying and implementing corrective actions necessary to prevent recurrence. Includes losses at the subcontractor or alternate locations Presented by Beth Green and Tara Miller 11/6/2018

Loss Investigation The Contractor shall investigate and report all incidents of property loss as soon as the facts become known A report must be sent to the Government; there is a list of required elements listed in the FAR Handout the sample form (this form holds all of the elements listed in the FAR 52.245-1 (f) (vii) Relief of stewardship responsibility and liability (B) (April 2012) Presented by Beth Green and Tara Miller 11/6/2018

Loss Report On the loss report one of the required elements is to write a statement indicating current or future need Is the property still needed for the performance of your contract? Is it damaged beyond repair or can it be repaired? Determine value Intrinsic value What should be considered to recover the property? Repair Replace Other; i.e., compensation Let’s talk about some things that you might want to put in your report. Intrinsic (value to the owner) Scrap Value - GP is lost or destroyed. Government has NO current or probable future need. Salvage - GP is damaged Government has No current or probable Future need Repair - GP is damaged Government still has a current or probable Future need Replacement - GP is Lost or destroyed Government still has a current or probable future need Presented by Beth Green and Tara Miller 11/6/2018

Root Cause What is a root cause? Is a fundamental cause, basis, or essence of something, or the source from which something derives. Some root causes can be part of your system Human Resources Maintenance Required Environment Improvements are required to reduce common cause Define the discrepancy – don’t for get root cause Lack of training is usually the primary cause of Loss. One method to determine root cause is to ask “Why” a minimum of 5 times to each answer. An example of this would be: Why is the item lost? The item is lost because it is not in the right location Why is the item not in the right location? Because the record was not updated Why wasn’t the record updated? Because the property custodian wasn’t provided the information Why wasn’t the property custodian provided the right information? Because the user didn’t know they were supposed to Why didn’t the user know they were supposed to? Because they did not receive proper training Presented by Beth Green and Tara Miller 11/6/2018

Root Cause vs. Common Cause There are many degrees of differences in a process from common causes Are there separate systems (e.g. procurement, receiving, or property control program) Can it be a common cause and fixed immediately Can the cause be isolated to one event Are problems occurring irregularly or difficult to predict Presented by Beth Green and Tara Miller 11/6/2018

Corrective Action Plan Corrective action plan – required! Define discrepancy Timeline Action Responsible Individual Who to contact when complete Presented by Beth Green and Tara Miller 11/6/2018

Corrective Action Plan Before submitting a Corrective Action Plan determine the following: Examine all the facts and circumstances Determine the connection or link associated to the cause Decide what part of the processes were effected After a corrective action has been implemented, the process must be analyzed for effectiveness Presented by Beth Green and Tara Miller 11/6/2018

Corrective Action Plan Reasonableness Materiality Significance in absolute terms Upper management, may become aware of an adverse situation and must verify how deeply rooted is the problem how deep of an impact to the contract performance must be measured. Before these losses are judged to be a problem, a number of factors must be considered. Reasonableness: What do you consider acceptable. For example: If you have 100 bags of bolts (that cost $6.00 a bag) and one bag is missing – This is would be reasonable because they are low value, non-critical items this would not be reasonable to judge this a defect. BUT on the other hand what if they were stainless steel and they cost $100 a bag and you had 50% missing. Quantitative evaluations must be tempered by reasonableness. Materiality: Even if the material is low value or high value if the same losses came up several times there may be a systemic defect in the way the material is handled. Significance in Absolute Terms: There are certain dollar amounts that would be considered significant, no matter what the circumstances. When losses worth ten, five or even 1 million is would definitely be considered a defect. Presented by Beth Green and Tara Miller 11/6/2018

Corrective Action Plan Exposure Peril Hazard Incident Accident Occurrence Loss Claim Severity Terms These terms may help you describe losses in your reports:  EXPOSURE - The possibility of loss  PERIL - A cause of source of a loss  HAZARD - A condition within an exposure that may lead to an accident  INCIDENT - An event that disrupts normal activities and may result in a loss or a claim  ACCIDENT - An unexpected incident resulting in injury or property damage  OCCURRENCE - An accident with the limitation of time removed  LOSS - A reduction of asset value, a reduction of income, or an increase in expenses or an unintended, unforeseen, or accidental loss, damage or destruction that may reduce an expected economic benefits of the property  CLAIM - A demand or obligation for payment as a result of a loss  FREQUENCY - The number of times a loss occurs  SEVERITY - The monetary impact of a loss Presented by Beth Green and Tara Miller 11/6/2018

Non-Compliance Consequences Potential consequence of non-compliance include: Increased surveillance and findings Need to implement corrective action plans Increased liability and financial risk Increased insurance costs Increased borrowing costs Damaged credibility with customers If there are losses they must be put down in a final report – then a corrective action plan must be developed. Presented by Beth Green and Tara Miller 11/6/2018

Relief of Stewardship and Responsibility When the GPA determines a reported case of loss is a risk assumed by the Government, the GPA will grant relief When the GPA determines the risk of loss is not assumed by the Government, they will recommend the contracting officer hold the contractor liable FAR 45 is talking to the Government and telling them how to handle Relief of Stewardship Responsibility when a contractor has given them a report/request for Relief of Stewardship Responsibility and Liability Relief is granted is accordance w/FAR 52.245-1 (f)(1)(vii) Please note the GPA shall forward your request to the Contracting Officer when they feel the contractor should be held liable. They do not make the decision by themselves. Presented by Beth Green and Tara Miller 11/6/2018

References FAR 45.105 Contractors’ property management system compliance. (April 2012) FAR 52.245-1 (a) Definitions (April 2012) FAR 45.104  Responsibility and liability for Government property (April 2012) FAR 52.245-1 (f) Contractor plans and systems (vii) Relief of stewardship responsibility and Liability (April 2012) FAR 52-245-1(h) Contractor Liability for Government Property (April 2012) Presented by Beth Green and Tara Miller 11/6/2018

Contact us if you have any questions! Contact Information Contact us if you have any questions! Tara S. Miller tara.s.miller@nasa.gov 321.867.8910 Beth bethivangreen@cfl.rr.com Cell: 561-252-5224 Home: 321-751-9014 Presented by Beth Green and Tara Miller 11/6/2018