Overview
FAR Subpart 46.8 establishes the policies and procedures for limiting a contractor's liability for loss or damage to Government property that occurs after acceptance, provided the loss results from defects or deficiencies in the supplies delivered or services performed. In essence, it defines the extent to which the Government acts as a "self-insurer" for its property rather than requiring the contractor to carry private insurance for post-acceptance risks.
Key Rules
- Self-Insurance Policy: The Government generally relieves contractors of liability for loss or damage to Government property (other than the end item itself) occurring after acceptance.
- High-Value Items: For items designated as "high-value" (typically exceeding $100,000 per unit), the Government extends liability relief to the end item itself.
- Exclusions from Applicability: This subpart does not apply to:
- Commercial products and commercial services.
- Information Technology (including telecommunications).
- Construction and Architect-Engineer services.
- Maintenance and rehabilitation of real property.
- Exceptions to Relief: The Government will not provide liability relief if:
- Liability can be preserved without increasing the contract price.
- The defect resulted from willful misconduct or lack of good faith by the contractor’s managerial personnel.
- The contractor has existing insurance (or a self-insurance reserve) that covers the specific loss or damage.
- Discovery Rights: Even for high-value items, the Government retains the right to have defects corrected/repaired if discovered before a loss occurs, or to seek equitable relief if discovered after.
Responsibilities
- Contracting Officer (CO):
- Responsible for officially designating specific contract end items as "High-Value Items."
- Must ensure the correct Limitation of Liability clauses (FAR 52.246-23, 24, or 25) are inserted into solicitations and contracts exceeding the Simplified Acquisition Threshold (SAT).
- May, upon contractor request, include these clauses in contracts below the SAT in exchange for an appropriate price reduction.
- Must clearly identify high-value line items in the contract schedule when mixed item types are present.
- Contractor Managerial Personnel:
- Accountable for maintaining "good faith" and avoiding "willful misconduct." If management-level negligence leads to a defect, the liability protections of this subpart are voided.
- The Government:
- Assumes the financial risk of loss for most property damage post-acceptance to prevent contractors from passing the high cost of insurance premiums back to the Government.
Practical Implications
- Cost Control: By acting as a self-insurer, the Government avoids paying the "built-in" costs of commercial insurance premiums that contractors would otherwise include in their bid prices to cover catastrophic risks (e.g., a missile failure or an aircraft crash).
- Risk Allocation for Major Systems: For major defense and aerospace systems (ships, aircraft, satellites), this subpart is critical. It ensures that a contractor isn't bankrupted by a multi-million dollar loss occurring after the Government has technically accepted the delivery, provided the contractor wasn't acting in bad faith.
- Commercial Exclusion: Because this subpart excludes commercial products and services, contractors providing "off-the-shelf" items are generally subject to standard commercial warranties and liability terms, which are often more stringent regarding contractor responsibility for defects.
- Management Oversight: Contractors must ensure their quality control and managerial oversight are robust. Since the liability protection vanishes in the face of "willful misconduct" by management, documentation of due diligence is a vital legal safeguard for the company.