Overview
FAR 32.1009 establishes that the Government acquires title to specific property under performance-based payment (PBP) arrangements and mandates that the Contracting Officer ensure this title remains free from third-party encumbrances.
Key Rules
- Government Title: Under the clause at FAR 52.232-32, the Government is granted title to property associated with PBPs to secure its financial interest.
- Contracting Officer (CO) Responsibility: The CO must ensure Government title is not compromised; however, they may generally rely on the contractor's certification in payment requests unless there is a reason to doubt its validity.
- Remediation of Impaired Title: If the CO discovers arrangements that impair the Government’s title, they must require additional protective provisions to secure the Government's interest.
- Contract Violations: The existence of an encumbrance is a violation of contract obligations, granting the CO authority to suspend or reduce payments due to failure to comply with a material requirement.
- Legal Consequences: Failing to disclose an encumbrance in a certification may be considered a violation of the False Claims Act (31 U.S.C. 3729), requiring consultation with legal counsel.
Practical Implications
- Contractors must ensure that any property or work-in-progress tied to performance-based payments is not pledged as collateral to lenders, as this creates a conflict with the Government's title rights.
- The discovery of a lien or security interest by a third party can lead to an immediate cessation of cash flow and potential civil or criminal penalties for the contractor under fraud statutes.