Overview
This section outlines the conditions under which the Government assumes the risk of loss for its property and identifies the specific contract types where contractors are generally exempt from liability. It also establishes the Government's authority to revoke this assumption of risk and the process for seeking restitution.
Key Rules
- General Liability Relief: Contractors are typically not held liable for the loss of Government property under cost-reimbursement, time-and-material, labor-hour, and certain fixed-price contracts (specifically those awarded based on certified cost or pricing data).
- Revocation Clause: The Contracting Officer maintains the right to revoke the Government’s assumption of risk if the contractor’s property management practices are determined to be noncompliant.
- Prime Contractor Accountability: Providing Government property to a subcontractor does not relieve the prime contractor of its original responsibilities or liabilities to the Government.
- Determination of Loss: The Contracting Officer, supported by the property administrator, is responsible for calculating the extent of liability and deciding the method of recovery (e.g., repair, replacement, or financial restitution).
- Restitution Handling: Any financial recovery for lost property must be credited to the U.S. Treasury as miscellaneous receipts unless a specific statute directs otherwise.
Practical Implications
- System Compliance is Critical: While certain contract types offer "self-insurance" by the Government, this protection is contingent upon a validated property management system; a "system deficiency" finding can lead to a sudden and significant shift in financial risk to the contractor.
- Subcontractor Oversight: Prime contractors must implement rigorous flow-down provisions and oversight because they remain the sole point of financial accountability to the Government for property lost while in a subcontractor's possession.