Cover Article
By Dr. John I. Paciorek, CPPM, CF
The views expressed in this paper are those of the author and do not necessarily reflect the views of the Defense Acquisition University
or the Department of Defense.
Life-Cycle Processes
The effective management of
property and assets can be attained
through the application of the
life cycle processes or “outcomes”
which are found in the Government
Property Clause (FAR 52.245-1 (f)),
Contractor Plans and Systems. They
include: Acquisition; Receipt; Records;
Physical Inventory; Subcontractor
Control; Reports; Relief of Stewardship
Responsibility; Utilization; Maintenance; and Property Closeout.
Included under these major headings
are several more. They are very similar
to the fifteen functions described in
Appendix A of the DoD Manual for
the Performance of Contract Property
Administration (DoD 4161.2-M).
An overview of the life cycle
processes of Acquisition; Receipt;
Records; Physical Inventory; and
8 | The Property Professional | Volume 22, Issue 6
Subcontractor Control will be
presented in this article as Part One.
Part Two of this article will include
Reports; Relief of Stewardship
Responsibility; Utilization;
Maintenance; and Property Closeout.
The Government Property Clause
requires the contractor to “establish
and implement property management
plans, systems, and procedures at the
contract, program, site or entity level
to enable…” these outcomes.
The Government Property
Clause requires contractors to
“initiate and maintain the processes,
systems, procedures, records, and
methodologies necessary for effective
control of government property,
consistent with voluntary consensus
standards and/or industry-leading
practices and standards for government
property management except where
inconsistent with law or regulation.”
There are industry leading practices
and voluntary consensus standards
that are applicable to the processes
identified in this clause. Contractors
must choose which one is best suited
for the property in their property
management system.
Establishing Contractor Plans
and Systems
The Government Property
Clause (FAR 52.245-1) states that
“Contractors shall establish and
implement property management
plans, systems, and procedures at the
contract, program, site or entity level
to enable the following outcomes.”
The order in which they are presented
is often referred to as the “life cycle”
of government property because it
follows an orderly progression of
events that mimic the birth, life, and
end of a project or program. Outcomes
or processes are discussed below and
continue in Part Two of this article.
its engineering, production planning,
and material control operations.”
Acquisition is typically the first
process associated with the life cycle
of managing property and assets. It
happens when items are acquired from
a vendor or subcontractor. This process
may also include the fabrication of
items in-house; issuance of items
from contractor-owned stores or from
stock or stockrooms; transfers; and
reutilization (FAR 52.245-1(f)(1)(i)).
When a contract is awarded, the
products and/or services are carefully
assessed to determine what items are
needed and when they will be needed.
The person responsible for purchasing
will contact suppliers and place orders
via subcontracts, purchase orders, etc.
to make sure that the items will be
available when needed. When making
purchases that will be used to support
a contract, the purchasing agent needs
to know if they will be purchased with
company or government funds. They
also need to know who will have title
to the acquired items.
Contractors are ordinarily required
to furnish all property necessary
to perform government contracts.
However, there are times when it is
in the government’s best interest to
furnish property. Property may be
provided if government requirements
cannot otherwise be obtained or
if it is economically beneficial to
the government. Other reasons for
providing property include security,
standardization, expedited production,
scarcity of assets, maintenance of the
industrial base, and support of small
business. A contractor’s inability
or unwillingness to use its own
property is not a good reason for the
government to furnish theirs. In order
for acquisitions to be legitimate they
must be consistent with the policy on
providing property.
In government contracting
there are times when the contract
1. Acquisition of Property
“Acquisition is the process of
acquiring government property
either through requisition or transfer
from government sources or through
purchase, including those made from
contractor stores.” (DoD 4161.2-M)
This process requires the
contractor to “document that all
property was acquired consistent with
December 2010 | www.npma.org | 9
stipulates that the government will
directly furnish property to the
contractor as government furnished
property. By definition government
furnished property means “property
in the possession of, or directly
acquired by, the government and
subsequently furnished to the
contractor for performance of a
contract” (FAR 52.245-1). Title to
government furnished property
always vests in the government.
Contractors should be mindful
that the government does not
arbitrarily provide government
furnished property to contractors.
FAR 45.102 states that “Contractors
are ordinarily required to furnish
all property necessary to perform
government contracts.” Contracting
Officers need to know that
furnishing government property
to a contractor can provide them
with a significant competitive
advantage over other contractors.
This is prohibited in FAR 45.103
where agencies must “eliminate to
the maximum practical extent any
competitive advantage a prospective
contractor may have by using
government property.” Because
the government must treat all
contractors equally, the Contracting
Officer must obtain consideration
or a cost adjustment in situations
where one contractor is provided
government property and another
one is not. This can be done via an
equitable adjustment to the contract
or by obtaining a rental equivalent
in accordance with the Use and
Charges Clause (FAR 52.245-9).
Rental charges are more applicable
after the award of a contract where
the contractor must compensate the
government for using its property in
a manner that was not expressed in
the contract.
The Federal Acquisition
Regulation is quite clear about
10 | The Property Professional
describing when the government
will take title to property. The
government retains title to all
Government Furnished Property
(GFP). If the contractor has a costreimbursable contract, they are
authorized to acquire items for
contract performance as Contractor
Acquired Property (CAP) so long
as it is reasonable, allowable, and
allocable. This includes “property
acquired, fabricated, or otherwise
provided by the contractor for
performing a contract and to which
the government has title” (FAR
52.245-1). Any item purchased for
the government must be compliant
with contractual requirements and
authorizations.
Determining Allowability,
Reasonableness, and
Allocability
Allowability of costs is found in
Section 31.201-2 of the FAR.
(a) A cost is allowable only when the cost complies with all of the following requirements:
1) Reasonableness.
2) Allocability.
3) Standards promulgated by
the CAS Board, if applicable;
otherwise, generally accepted accounting principles and practices appropriate to the
circumstances.
4) Terms of the contract.
5) Any limitations set forth in
this subpart.
Reasonableness is found in
Section 31.201-3 of the FAR.
(a) A cost is reasonable if, in its nature and amount, it does
not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of
| Volume 22, Issue 6
specific costs must be examined
with particular care in connection with firms or their
separate divisions that may not
be subject to effective competi- tive restraints. No presumption of reasonableness shall be
attached to the incurrence of
costs by a contractor. If an initial review of the facts results in a challenge of a specific cost
by the contracting officer or the
contracting officer’s representa-
tive, the burden of proof shall
be upon the contractor to
establish that such cost is reasonable.
Allocability is found in Section
31.201-4 of the FAR. A cost is
allocable if it is assignable or
chargeable to one or more cost
objectives on the basis of relative
benefits received or other equitable
relationship. Subject to the
foregoing, a cost is allocable to a
government contract if it -(a) Is incurred specifically for the contract;
(b) Benefits both the contract and
other work, and can be distrib uted to them in reasonable
proportion to the benefits received; or
(c) Is necessary to the overall operation of the business, although a direct relationship to
any particular cost objective cannot be shown.
Items should not be acquired
without the required authority.
Property Management Systems
should describe the acceptable
methods or processes.
2. Receipt of Government Property (Included: Identify)
This process requires the
contractor to “receive government
property (document the receipt), record the
information necessary to meet the record
requirements of paragraph (f)(1)(iii)(A)(1) through
(5) of this clause, identify as government owned in
a manner appropriate to the type of property (e.g.,
stamp, tag, mark, or other identification), and manage
any discrepancies incident to shipment” (FAR 52.2451(f)(1)(ii)). Identification will be discussed toward the
end of this section since it is included under receipt.
The Federal Acquisition Regulation requires
contractors to describe their standard operating
procedure for receiving property in their Property
Management System, including the two methods
by which government property is provided in the
contract: Government-Furnished Property and
Contractor-Acquired Property. The Government
Property Clause requires the following:
(A) Government-furnished property. The Contractor shall furnish a written statement to the Property Administrator containing all relevant facts, such as cause or condition and recommended course(s) of action, if overages, shortages, or damages and/
or other discrepancies are discovered upon receipt of government furnished property.
(B) Contractor-acquired property. The Contractor shall
take all actions necessary to adjust for overages,
shortages, damage and/or other discrepancies
discovered upon receipt, in shipment of contractor-acquired property from a vendor or supplier to ensure the proper allocability and allowability of associated costs.
It is an industry leading practice for contractors
to establish a process to receive property from internal
and external supply sources such as vendors, suppliers,
individuals, internal warehouses, etc. When these items
are delivered they must be identified and recorded as
being received. Any discrepancies incident to shipment
is noted and corrections are made. It is at the point
of receipt that the contractor becomes accountable
and responsible for the property and stewardship
is established. According to the Merriam-Webster
dictionary, stewardship is “the careful and responsible
management of something entrusted to one’s care.”
There are a number of controls associated with
the process of receiving. Contractors must include
this process in their Property Management System
and ensure that their employees follow the specified
procedure. This procedure includes a notification to
the receiving department of assets that are due in.
ÅÅ
ÅÅÅÅÅ
ÅÅÅÅ
ÅÅÅ
ÅŁ
Åŋ §Å
«ÅÅÅÅŁ
7HA?D=…ÅFH?DJ?D=…ÅI97DD?D=…ÅL7B?:7J?D=Å7D:Å;B;9Ä
JHED?9ÅH;FEHJ?D=ÅÅECFBO‹Å:E;IÅ?JÅ7BBÅ>?IÅJEJ7BÅ
Å9ECFB?7D9;ÅIEBKJ?EDÅ<HECÅsÅH79A?D=ÅC7A;IÅ
I97DD?D=Å 7D:Å ?DJ;HFH;J?D=Å 7BBÅ EÅ IJ7D:7H:I…Å
<EHC7JIÅ 7D:Å 9EDIJHK9JIÅ 7Å ID7FÅ ?7Å 7DÅ ;7IOÄJEÄ
KI;Å >7D:>;B:Å :;L?9;Å OEKÅ 97DÅ DEJÅ EDBOÅ I97DÅ 8KJÅ
7BIEÅJH7DIC?JÅOEKHÅ:7J7Å879AÅJEÅJ>;ÅŚÅÅ
;=?IJHOÅ >?IÅ ?IÅ @KIJÅ J>;Å 8;=?DD?D=Å E<Å M>7JÅ Å
ECFBO‹Å97DÅ:EÅEDJ79JÅKIÅJE:7OÅ<EHÅ7Å<H;;ÅD;;:IÄ
7D7BOI?IÅÅ?CFB;Å7IÅs
8)9KI8:B@E>JFCLK@FEJ
rÄy{{ÄxttÄxvzs
MMM7s8JH79A?D=9EC
December 2010 | www.npma.org | 11
Receiving documents and due-in
data are provided for comparison
with items physically received,
as well as for proper posting to
the accounting record. A physical
delivery may be followed by an
inspection of the property to make
sure that what was ordered was in
fact delivered. Also upon delivery,
an inspection is conducted to
ascertain that there is no obvious or
visible damage and the quantity of
items agrees with the transportation
document.
Identification and resolution
of discrepancies may occur at
any time in this process. These
actions may be accomplished either
manually or through electronic
methods with bar code readers
or RFID. The assets received are
reconciled against due-in records.
If a government supply source
discrepancy is noted, then a “Supply
Discrepancy Report” (SDR), SF 364
will be prepared by the appropriate
government representative, unless
12 | The Property Professional
contractor preparation of the form is
contractually specified.
Before acceptance of the
shipment, the carrier’s signature
should be obtained to acknowledge
any discrepancies. A “Transportation
Discrepancy Report” (TDR), SF361
will be prepared by the appropriate
Government representative, unless
contractor preparation of the form
is contractually specified, to report
discrepant condition disclosed as
a result of the inspection, when
appropriate.
Receiving documents such as
receiving reports are prepared. They
must clearly indicate the quantity
and condition of the property
at the time of receipt and any
discrepancy must be noted including
overages, shortages, incorrect
item(s), misdirected shipments,
and/or damage disclosed during
the receiving operation. The items
are eventually released from the
receiving area. After the receiving
department prepares and processes
| Volume 22, Issue 6
appropriate documentation, the
assets are generally released for
quality or technical acceptance
inspection, storage, or use as
required.
Upon completion of any
required quality inspection,
acceptance testing, and/or
physical identification, the items
are delivered to the appropriate
storage area or stockroom, or
they are released for use as
authorized. Concurrent with
the distribution of assets, the
associated receiving notification
is distributed either manually or
electronically. The distribution
generally includes a copy in the
Receiving Department files, one
or more copies to Purchasing, a
copy to the department where the
asset is delivered, and a copy to the
Accounting Department to use as a
voucher for invoices.
Subsidiary receiving areas
in outlying locations are usually
responsible for performing the same
processes as the main receiving
areas and should be required to
submit necessary documentation
to the main receiving activity. The
contractor’s written procedures need
to ensure discussion of this action,
i.e., the use of alternate or subsidiary
receiving areas.
Some contractors maintain
separate receiving areas that
specialize in the receipt,
inspection, identification, and
release of government property
for certain classes of property
such as sensitive, classified, etc.
Normally, special tooling, special
test equipment, or other items
fabricated in-house do not go
through receiving. Care should be
taken to ensure that these items
are recorded on the stewardship
records upon completion of the
fabrication in accordance with the
contractor’s established procedures.
Identification
Identification is the act of
providing or ascribing a unique
characteristic to an item for
the purpose of distinguishing it
from other items. This may be
accomplished by placing a mark on
the item, labels, stickers, atomic or
chemical tracers, stamping, etching,
engraving, bar codes, unique
identifiers (UID), radio frequency
identification (RFID), bio-metrics,
and nano-technology.
3. Records of Government Property
Establishing and keeping records
is perhaps the most important
requirement for effectively
managing assets and property.
A record is permanent evidence
of an event such as a financial
transaction, proof of ownership, or
the quantity of specific items in a
warehouse. It preserves knowledge
and can be used as evidence to settle
disputes such as in a court of law.
Contractors may use either paper or
electronic records or a combination
of both. The Government Property
Clause requires the contractor
to “create and maintain records
of all government property
accountable to the contract,
including Government-Furnished
and Contractor-Acquired Property.”
Furthermore, it requires that
they “enable a complete, current,
auditable record of all transactions”
(FAR 52.245-1(f)(1)(iii)). The
following information is required:
(1) The name, part number and description, manufacturer,
model number, and National Stock Number (If needed for additional item identification tracking and/or disposition).
(2) Quantity received (or fabri
cated), issued, and balance
on hand. (For example: shipping, receiving, transfer, inspection, issue documents, reports, etc.)
(3) Unit acquisition cost. (For
example: the cost each, per ounce, or per gallon.)
(4) Unique-item identifier or October/November 2010 | www.npma.org | 13
equivalent. (If available and necessary for individual item tracking.)
(5) Unit of measure. (For example: inch, foot, yard, centimeter, meter, ounce, pound, ton, gram, kilogram, etc.)
(6) Accountable contract number or equivalent code designation. (Note: an equivalent code may be used in lieu of the contract number but it must be auditable back to the contract.)
(7) Location. (Note: This is important. If an item cannot be located then it cannot be used for the intended purposes and will have a detrimental effect upon the products and services being provided.)
(8) Disposition. (Current status of
the property or asset.)
(9) Posting reference and date of transaction.
(10)Date placed in service.
The government acknowledges
that there may be situations when
the standard method of establishing
records is not adequate for the task.
An allowance is made for a variation
to the standard records requirement
by the use of a “Receipt and Issue
System for Government Material”
but it must be approved by the
Government Property Administrator.
The Government Property Clause
states that “the contractor may
maintain, in lieu of formal property
records, a file of appropriately crossreferenced documents evidencing
receipt, issue, and use of material
that is issued for immediate
consumption.” This permission to
deviate from the standard procedure
would be very useful in a situation
where the contractor exhausts its
supply of a critical item required
for production or is necessary to
maintain the service being provided.
For example, a contractor
14 | The Property Professional
fabricating armor plates for the
Army’s MRAP vehicle runs out of
welding wire critical for production.
The fabrication work would cease
until the item could be supplied.
If the contractor had a Receipt
and Issue System, the purchasing
agent could contact a supplier
of the welding wire and request
an emergency shipment of that
critical item. The supplier would
rush the material directly to the
fabrication department where it is
needed. Upon receipt, the welding
wire would be used for “immediate
consumption.” This action would
circumvent the contractor’s standard
method for establishing records.
The shipping documents from the
supplier would contain sufficient
evidence that would satisfy the
record keeping requirements for
this emergency including the name,
part number, description, quantity
received, unit of measure, etc.
Records must account for other
contractor transactions including
physical inventories, reports,
acquisition, receipt, subcontract
control, relief of stewardship
responsibility, utilization, consumption, maintenance, liability actions,
property disposal and closeout. The
contractor is required to keep records
of its internal self audits.
Section 4.703 of the Federal
Acquisition Regulation requires
that contractors make records
available to the government
“to satisfy contract negotiation,
administration, and audit
requirements of the Contracting
Agencies and Comptroller General.”
The length of record retention will
vary and it will depend upon the
event. It includes the following:
• After final payment is received:
retain three years
• Accounts receivable invoices:
retain four years;
• Material, work order, or service
| Volume 22, Issue 6
•
•
•
•
•
•
•
order files, including purchase
orders for material or services:
retain four years
Accounts payable records to
support disbursement of funds
for materials: retain four years
Store requisitions for materials:
retain two years
Work orders for maintenance:
retain four years
Equipment records: retain four
years
Expendable property: retain four
years
Receiving and inspection report
records: retain four years
Purchase Order files for supplies,
equipment, material: retain four years
Contractors should check their
contract for specific requirements
to establish, maintain, and
retain records. There are many
voluntary consensus standards
and/or industry-leading practices
and standards available including
commercially available software that
will facilitate this process.
4. Physical Inventory
A physical inventory is the
process of locating the physical
property and verifying the count in
a particular location, recording that
information, comparing that
information with the record,
reconciling any discrepancies, and
reporting the results. A methodology
and repeatable process should be
established and followed when
conducting a physical inventory.
This process is described in the
Government Property Clause as
the “Contractor shall periodically
perform, record, and disclose
physical inventory results. A final
physical inventory shall be
performed upon contract completion
or termination. The Property
Administrator may waive this final
inventory requirement, depending
on the circumstances
(e.g., overall reliability of the
contractor’s system or the property
is to be transferred to a follow-on
contract).” (FAR 52.245-1(f)(1)(iv))
It is the contractor’s
responsibility to establish the process
to accomplish this outcome in
accordance with and using industry
leading practices and voluntary
consensus standards. Barron’s
describes a physical inventory as the
“actual count of items in inventory,
as contrasted with accepting the
values shown on accounting records”
(Barron’s 1995). The National
Property Management Association
states that it is “The determination of
inventory quantity by actual count”
(NPMA 1999). ASTM calls it “the
NPMA AD 3-09.doc
3/11/09
12:33 PM
verification of the existence, location
and quantity of property items”
(ASTM E2132-01 2004).
Some of the methodologies that
are available for performing physical
inventories involve sighting, tagging
or marking using a manual
methodology. This may include the
use of stickers, labels, tags, paint,
marker, etching, etc. to identify and
count the items. Contractors may
also use electronic reading for
recording and reporting inventory
such as bar codes and scanners. Radio
frequency identification (RFID) may
use an active or passive method to
collect the information required.
There are many types of
physical inventories. The traditional
“wall-to-wall” type is performed by
many organizations on an annual
basis where everything within a
defined space is counted “wall to
wall.” Closed stores are another type
of physical inventory where the
defined space is closed and restricted
to the personnel who are doing the
counting. Retail and department
stores will typically perform an
annual physical inventory after the
Christmas-New Year Holiday. This
type of inventory will be done wall
to wall with the doors closed to the
public. Open store inventories are
not as restrictive and can be done
during normal business hours.
Supermarket chains often employ
people with handheld recording
devices to check inventory while the
store is open for business. One of
the most widely used methods of
inventory is the cyclic inventory
Page 1
Advance your Property Management Career Online
Get the salary and security you deserve with fast and flexible online degree programs.
Study anytime, anywhere — at home, at work, or even on vacation.
You owe it to yourself to investigate this unique opportunity to advance your career.
Why should I choose Stevens-Henager College?
• Property Management emphasis courses are endorsed by NPMA
• Financial Aid is available for those who qualify
• Classes start monthly so you don’t have to wait to enroll
Online Degrees available:
• Associate’s degree in Business Management & Accounting
Endorsed by:
with an emphasis in Property Management
• Bachelor’s degree in Business Administration
with an emphasis in Property Management
NEW! iness
Bus
or’s in ration
l
e
h
c
Ba
ist
Admin phasis in
ement
Managle!
ty
r
e
p
b
Pro
availa
n em
with a
now
• Bachelor’s degree in Accounting
• Master’s degree in Business Administration
Receive your complementary credit assessment and information about
the degree program. Contact us today!
1-800-444-1104
www.stevenshenager.com
December 2010 | www.npma.org | 15
where a segment is completed
within a set period of time. For
example, ten percent of the
inventory could be completed
monthly, twenty-five percent
quarterly, or fifty percent
semiannually. Another method,
known as “sampling” involves
taking a representative sample of the
population on which to conduct the
inventory. If a statistically valid
sample is taken then it is possible to
predict the count of the inventory to
extremely high levels of accuracy. When sampling is used on
inventories consisting of high,
medium, and low value items the
statistical probability of selecting
low value items is very high. High
value items have a lower statistical
probability of being selected. To
compensate for this tendency
samples could be stratified (ABC
sampling) where representative
samples are selected from
populations according to value or
other criteria. Using this method
one could select a representative
sample consisting of items valued
from $0 to $100; over $100 to
$1,000; and, above $1,000. This will
assure that low, medium, and high
value items are accurately counted.
Remember that the setting of values
is arbitrary and will depend upon
the inventory being examined. The
need to physically touch each asset
during an inventory can also be
reduced by employing “inventory by
exception” practices. Routine asset
events such as maintenance,
location changes or disposal can be
counted as valid finds if they occur
during the inventory period. Only
those assets that have not had such
an event during the inventory
period need to be scanned when
using this method.
The contractor is responsible for
establishing the type and frequency
16 | The Property Professional
of physical inventory. This is based
upon the following criteria: the
established practices of the
contractor; type of government
property; use of government
property; dollar value; whether or
not the property is critical or
sensitive; and, the reliability of the
contractor’s property management
system. The contractor must provide
the written procedures describing
the process and outcomes.
ASTM E-2132 describes the key
points of physical inventory planning: management and accountability;
key results required; population
(determination and selection);
independence; data requirements;
validation techniques; result
validation (third party independent
validation); period (for performance); resources; information
management; training and
communication; and, project plan.
Contractual and regulatory
requirements stipulate that the
results of physical inventories shall
be reported to the Government
Property Administrator. The
minimum reporting requirements
include prompt reporting as well as
the identification of all discrepancies. This not only includes
shortages but also the inventory
that is above the recorded amounts
(overages). These need to be posted
to the record after reconciliation by
the contractor. The Government
Property Administrator does not
need to review or approve these
adjustments before posting by the
contractor to the record for two
reasons; 1) It does not affect the
actual count, and 2) The issue of
liability must still be addressed and
resolved.
Consider this scenario: The
profit margin on grocery store items
is reported by one chain of grocery
stores to be about one percent. That
| Volume 22, Issue 6
means that for every $100 of
inventory sold the store makes one
dollar. At a very large distribution
center for groceries in the Midwest,
the management reported the results
of their physical inventory to be
consistently above 99%. This is
amazing because the inventory
results account for typical grocery
items that are mostly low dollar
items below five dollars. In contrast,
many DoD contractors do not want
to control so called low-value
government property. This low-value
property was initially valued at
$1,500 in 1995 but was later raised
to $5,000 in 1999. The reason for
not wanting to control this property
was because it was time consuming
and expensive to manage. Because
the government is generally
responsible for any loss, damage,
destruction, or theft to this property
most contractors have little
incentive to maintain inventory
accuracy levels as high as a grocery
chain. When the manager of the
grocery distribution/warehouse
center was asked what was driving
them to maintain such high
inventory accuracy levels his answer
was that it is necessary to control
costs and be competitive.
The Government Property
Clause requires that “a final physical
inventory shall be performed upon
contract completion or termination.” However, the Government
Property Administrator may “waive
this final inventory requirement,
depending upon the circumstances
(e.g. the overall reliability of the
contractor’s system or the property
is to be transferred to a follow on
contract).” If the contractor is
transferring property to a follow on
contract the Property Administrator
should review that authorization
exists to transfer property and that
record balances have been
transferred and accountability
moved to a follow-on contract.
In general, personnel who
perform the physical inventory
should not be the same individuals
who maintain the records or who
have custody of the property. This
should help to make the results less
subjective and more accurate.
5. Subcontractor Control
Prime contractors are allowed
to provide government property to
subcontractors as long as it directly
supports the effort on the prime
contract. The subcontract must
include language that is similar to
the prime contract for controlling,
protecting, preserving, maintaining,
and disposing of the government
property. This is often referred to as
the “flow down” of contract terms
and conditions. The subcontract
should include the provisions for
limitations for use, liability, title,
sensitive property, disposal, etc.
The Government Property Clause
specifies that, “(A) The Contractor
shall award subcontracts that clearly
identify assets to be provided and
shall ensure appropriate flow down
of contract terms and conditions
(e.g., extent of liability for loss,
damage, destruction or theft of
government property).”
The prime contractor is
responsible for monitoring the
subcontractor’s Property Management System for compliance to
contract/subcontract requirements.
The prime contractor may choose
to audit the subcontractor or they
may ask the government to do
it for them. The subcontractor
control section of FAR 52.245-1
states, “(B) The contractor shall
assure its sub-contracts are properly
administered and reviews are
periodically performed to determine
the adequacy of the subcontractor’s
property management system.” If
the government performs an audit
on the subcontractor because the
prime contractor requests it then the
government may be entitled to an
equitable adjustment.”
December 2010 | www.npma.org | 17
It must be remembered that
the government cannot audit a
subcontractor without the written
approval of the prime because of the
concept called “privity of contract.”
Privity of contract is the contractual
relationship that exists between the
legal parties in a contract. The prime
contractor normally has privity of
contract with their subcontractors
but the government does not.
Unless the subcontract authorizes
the government to conduct an audit,
perform surveillance, or do other
tasks, the government must ask the
prime for permission. Failure to do
so may create legal problems for the
government.
Alternate contractor locations
are not considered subcontract
control. Since an alternate location
is just another physical extension
of the prime, the government does
not need the contractor’s permission
to audit.
Good Processes Lead to
Good Property Management
Firms need to be able to use
assets and property in the most
efficient and cost effective ways
to provide products and services
to customers. In order to do this
well they need to have a Property
Management System with good
processes. The federal government
requires contractors to have a
Property Management System that
includes outcomes or processes.
These processes are also found in
businesses that do not do business
with the federal government. These
processes are frequently described
as the “life cycle” of government
property because they follow an
orderly progression of events that
18 | The Property Professional
mimic the birth, life, and end of a
project or program.
The government describes the
basic components of this system in
the Government Property Clause
at FAR 52.245-1. Furthermore, this
system must make use of existing
voluntary consensus standards and/
or industry leading practices and
standards. Together they contribute
to the use of best practices by the
contractor. This gives contractors
greater flexibility in designing a
system that will meet their needs
considering their size, product line,
and personnel.
Any firm needs to be able to use
its assets and property in the most
efficient and cost effective way to
provide products and services to its
customers. In order to do this they
need to focus on the processes that
will contribute to the success of the
mission. Contractors are strongly
advised to read their contracts before
they decide what best practices they
should or should not use. All the
pertinent information necessary
for a contractor to produce the
items, provide the services, establish
systems, such as the Property
Management System, are in the
contract. If it is not, or if there are
any questions regarding a contract, it
is advisable to contact the appropriate
government representative such as
the Property Administrator or the
Contracting Officer.
An overview of the life cycle
processes of Acquisition; Receipt;
Records; Physical Inventory; and
Subcontractor Control was presented
here in Part One. A second article will
include Reports; Relief of Stewardship
Responsibility; Utilization; Maintenance; and Property Closeout. n
| Volume 22, Issue 6
BIOGRAPHY
Dr. John Paciorek, CPPM, CF is the Course Director
for the Government Property Courses at The Defense
Acquisition University. These courses comply with the
requirements of the Defense Acquisition Workforce
Improvement Act (DAWIA). They are mandatory
for professionals in the Acquisition, Technology, and
Logistics (A, T, & L) community within the Department
of Defense who receive certification in the Industrial/
Contract Property Management field. He is responsible
for curriculum design and development, performance
support, and targeted training. Prior to this assignment,
he was a professor with the Air Force Institute of
Technology, Wright-Patterson Air Force Base, OH.
He was also a chemist, materials engineer, and quality
assurance manager. Dr. Paciorek is a member of the
National Property Management Association and the
National Contract Management Association. His received
his Ph.D. from Ohio State University.
References
nASTM E2132-01, Practice for Physical Inventory of Durable Moveable Property, September 2004
Barron’s Dictionary of Business Terms, 2nd Ed., 1995
n Defense Contract Property Administration and Disposition Fundamentals Notetaker and Readings, FY 2010 Edition.
n DoD Manual for the Performance of Contract Property Administration, DoD 4161.2-M, Assistant Secretary of Defense (Production and Logistics), 1991.
n Federal Acquisition Regulation 2010 edition
n