Overview
This section defines the financial liability for lost or damaged Government property when a contract utilizes Performance-Based Payments (PBP), establishing that the contractor generally retains the risk of loss even when title has transferred to the Government.
Key Rules
- Contractor Liability: Under the Performance-Based Payments clause (52.232-32), the contractor bears the risk of loss for property (excluding normal spoilage) unless the Government has explicitly assumed that risk in writing.
- Standard Clauses Not Assumption of Risk: The inclusion of standard PBP, default, or termination clauses does not constitute an assumption of risk by the Government.
- Repayment Requirement: If property for which the contractor is liable is lost and is necessary for performance, the contractor must repay the Government the PBPs associated with that specific property.
- Impact of Government-Assumed Risk: If the Government has assumed the risk, the contractor is not liable for the loss; however, the loss may still lead to a "reduction or suspension" of payments by the Contracting Officer if it impedes progress or prevents the contractor from certifying that progress is being made.
Practical Implications
- Contractors should ensure their commercial insurance or self-insurance programs account for Government property, as the transfer of title under PBP terms does not provide the same liability protection as other Government Property clauses.
- Even in cases where the Government assumes risk, a significant loss can cause a cash-flow crisis by halting future performance-based payments if the contractor can no longer certify that the work is progressing according to the contract schedule.