Overview
FAR 45.402 establishes the criteria for determining whether the Government or the contractor holds legal title to property acquired or fabricated during contract performance, primarily based on the contract type and payment structure.
Key Rules
- Fixed-Price Contracts: The contractor generally retains title to property acquired for use on the contract unless specific financing provisions (e.g., progress payments) or other title-passage clauses are included.
- Deliverable End Items: Regardless of contract type, the Government acquires title to any property identified as a deliverable item.
- Cost-Type and Time-and-Material (T&M) Contracts: The Government acquires title to all property for which the contractor is entitled to reimbursement under the terms of the contract.
- Conversion to GFP: If a contractor is to retain a deliverable item for use after the Government has accepted it, the item must be formally made accountable to the contract as Government-Furnished Property (GFP) through a contract modification.
Practical Implications
- Contractors under cost-reimbursement contracts must maintain rigorous property management systems, as almost all purchased materials and equipment become Government property immediately upon reimbursement.
- In fixed-price environments, contractors should be aware that accepting financing provisions (like progress payments) typically triggers a transfer of title to the Government for the underlying property, increasing oversight and compliance requirements.