Overview
FAR Subpart 37.3 establishes the procedures and regulatory requirements for federal contracts involving the dismantling, demolition, or removal of buildings, ground improvements, and other real property structures. It specifically clarifies which labor standards apply to these projects and provides a framework for financial arrangements, particularly regarding the salvage value of materials.
Key Rules
- Labor Standard Determination:
- If the contract is solely for demolition/removal, the Service Contract Labor Standards (41 U.S.C. chapter 67) apply.
- If further construction, alteration, or repair is contemplated at the same location (even under a separate future contract), the Construction Wage Rate Requirements (Davis-Bacon Act) apply.
- Bonds and Security: The Miller Act (40 U.S.C. chapter 31, subchapter III) does not automatically apply to solo demolition contracts. However, the Contracting Officer (CO) has the discretionary authority to require performance bonds or security to protect government property and ensure completion.
- Payment Structures:
- The Government may pay the contractor for services.
- The Contractor may pay the Government for the right to salvage materials.
- Property Title: The contractor typically receives title to all property resulting from demolition unless the contract expressly designates specific items to be retained by the Government.
Responsibilities
- Contracting Officer (CO):
- Determines which labor statute is applicable based on the intended future use of the site.
- Evaluates the usefulness of salvageable property to the Government and designates retained items.
- Determines the fair market value of salvageable property to calculate appropriate contract pricing or termination settlements.
- Decides whether to require performance bonds and sets the amount to protect against damage to adjoining property or ensure completion.
- Selects and inserts the appropriate clauses (52.237-4, 52.237-5, or 52.237-6) based on whether the Government is paying or being paid.
Practical Implications
- Compliance Risk: Misclassifying a demolition contract as a "service" when subsequent construction is planned can lead to significant labor law violations and back-pay liabilities under the Construction Wage Rate Requirements.
- Revenue Potential: For projects involving high-value materials (e.g., copper wiring, structural steel), the Government can generate revenue by structuring the contract so the contractor pays for salvage rights.
- Small Business Participation: By utilizing "Incremental Payment" clauses (FAR 52.237-6), COs can encourage small business participation. This allows contractors to pay for salvage rights in stages rather than in one large lump sum, lowering the barrier to entry for firms with limited upfront capital.
- Risk Mitigation: Since demolition is inherently risky to adjacent structures, COs should exercise their right to require performance security even when not mandated by the Miller Act to protect the Government's interests.