Overview
FAR 46.803 establishes the policy that the Government generally acts as a self-insurer, relieving contractors of liability for loss or damage to Government property that occurs after acceptance and results from defects or deficiencies. This policy distinguishes between standard items and high-value items to determine the extent of the contractor's financial responsibility for the contract end item itself.
Key Rules
- General Liability Relief: The Government relieves contractors of liability for damage to Government property caused by defective supplies or services after they have been accepted.
- End Item Liability: For standard contracts, the contractor remains liable for the contract end item itself; however, for "high-value items," the Government assumes this risk.
- High-Value Item Provisions: Even when the Government assumes the risk for high-value items, it retains the right to have defects corrected/replaced if discovered before a loss, or to seek equitable relief if discovered after a loss.
- The Price Exception: Relief from liability is not granted if the contractor's liability can be preserved without increasing the contract price.
- Exclusions from Relief: Contractors are not relieved of liability if:
- Loss results from willful misconduct or lack of good faith by the contractor’s managerial personnel.
- The contractor has existing insurance or self-insurance reserves covering the loss.
- Another specific contract clause expressly provides for contractor liability.
Practical Implications
- Cost Reduction: By acting as a self-insurer, the Government prevents contractors from including high-cost insurance premiums in their bid prices, theoretically lowering the overall acquisition cost.
- Management Accountability: Because "willful misconduct" by managerial personnel voids these protections, contractors must maintain rigorous internal oversight to ensure they do not inadvertently assume massive financial risks.