LIABILITY FOR LOSS, DAMAGE, DESTRUCTION OR THEFT OF GOVERNMENT PROPERTY

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LIABILITY FOR LOSS, DAMAGE, DESTRUCTION OR
THEFT OF GOVERNMENT PROPERTY
Presented by Dr. Douglas N. Goetz, CPPM,
CF Professor of Contract Management Defense
Acquisition University MidWest Campus, OH

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Liability for Loss, Damage, Destruction or Theft
of Government Property
Breakout Session 306 Name Dr. Douglas N.
Goetz, CPPM, CF Professor of Contract
and Property Management Defense Acquisition
University Date Wednesday, April 8th Time
1130 100
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LDDT

• Liability for Loss, Damage, Destruction or Theft
  of Government Property in the possession of the
  contractor takes MANY different forms.
• This presentation will cover
• Loss of Pure Government Property
• This presentation will NOT cover other liability
  provisions such as
• Loss of Progress Payments Inventory
• Loss of Delivered End Items
• Loss under the Ground and Flight Risk clause

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SIMPLY PUT

• LDDT HAPPENS!!!

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GOVERNMENT OVERARCHING POLICY45.104

• Generally, contractors are NOT held liable for
  loss, damage, destruction or theft of Government
  Property under the following types of contracts
• COST REIMBURSEMENT contracts
• TIME AND MATERIAL contracts
• LABOR HOUR contracts
• NEGOTIATED Fixed Price contracts for which price
  is NOT based upon an exception at FAR 15.403-1

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LDDT45.104

• Therefore, by process of elimination, without the
  policy stating such, under WHAT TYPE of contract
  is the contractor held liable for Loss, damage,
  destruction of theft?
• FIXED PRICE for which there IS an exception at
  FAR 15.403-1

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LIABILITY FOR L,D,DT

• SO, in ESSENCE there are TWO FORMS of LIABILITY
• LIMITED RISK OF LOSS PROVISIONS
• Found at 52.245-1(h)
• And the
• FULL RISK OF LOSS PROVISIONS
• Found at 52.245-1 (Alternate I)

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FULL RISK OF LOSS

• FIXED PRICE Contract
• (Where there is adequate COMPETITION)
• (52.245-1 Alternate I)
• The contractor assumes the risk of and shall be
  responsible for any loss, damage, destruction, or
  theft of Government property upon its delivery to
  the contractor as Government-furnished property.
  However, the contractor is NOT responsible for
  reasonable wear and tear to Government property
  or for Government property properly consumed in
  performing this contract.

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FULL RISK OF LOSS

• IN ENGLISH
• CONTRACTOR IS LIABLE FOR ANY
• LOSS DAMAGE OR DESTRUCTION EXCEPT FOR
• REASONABLE WEAR AND TEAR OR
• REASONABLE AND PROPER CONSUMPTION

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FULL RISK OF LOSS

• SOME AUDIENCE PARTICIPATION!!!
• SCENARIO
• CONTRACTOR HAS 1 ITEM OF ST
• ACQUISITION COST - 200
• AGE - 10 Years Old
• CONTRACTOR LOSES THE ST
• TWO QUESTIONS
• IS THE CONTRACTOR LIABLE?
• If yes, then FOR HOW MUCH IS THE CONTRACTOR
  LIABLE?

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LIABILITY FOR LDDT

• QUANTUM
• ACQUISITION COST?
• APPRECIATED COST?
• DEPRECIATED COST?
• SCRAP VALUE?
• REPLACEMENT COST?

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CASE LAW

• QUANTUM was Determined by a Court Case
• Dynalectron Corporation vs U.S.
• ASBCA No 29,831
• 85-3 BCA Para 18,320

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LIABILITY FOR LDDT

• The Court used the term
  Intrinsic Value
• To define QUANTUM
• The QUANTUM therefore may range from
• Replacement cost where the G has need --either
  current or probable future
• Repair cost for DAMAGED GP where the G has a
  current or future need for the GP
• Salvage value for DAMAGED GP where the Government
  has no need for the GP
• Scrap value for LOST GP where the Government has
  no need for the GP

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(No Transcript)
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LIMITED RISK OF LOSS

• WHEN IS THE LIMITED RISK OF LOSS CONCEPT APPLIED?
• Cost Reimbursement Contracts
• TM Contracts
• LH Contracts
• FP Contracts (Non-Competitive)
• USING the regular version of the GP Clause
  52.245-1
• In other words we use the regular paragraph (h)
  in the clause

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LIMITED RISK OF LOSS 52.245-1 (h)

• Unless otherwise provided in the contract, the
  contractor shall
• NOT
• be liable for loss, damage, destruction or theft
  to the Government property EXCEPT

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LIMITED RISK OF LOSS

• EXCEPT THE CONTRACTOR SHALL BE LIABLE when one
  of the following applies
• 1. The Risk is Covered by INSURANCE
• 2. WILLFUL MISCONDUCT, LACK OF GOOD FAITH ON THE
  PART OF MANAGERIAL PERSONNEL
• 3. WITHDRAWAL of the Governments Assumption of
  Risk

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INSURANCE

• Generally we have two instances where insurance
  may come into play
• INSTANCE 1
• INSURANCE that the Government REQUIRES the
  contractor to acquire
• MUST BE SPECIFIED IN THE CONTRACT
• IF Contract is SILENT INSURANCE IS NOT REQUIRED
  and therefore NOT ALLOWABLE
• Generally INSURANCE for GP is NOT an ALLOWABLE
  expense (See FAR Part 31)

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INSURANCE

• INSTANCE 2 for Insurance
• In Fact Insurance
• Anyone got an example???

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DEFINITIONS

• 2nd allowance where we MAY hold the Contractor
  Liable
• Willful Misconduct
• Lack of Good Faith
• On The Part Of Managerial Personnel

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DEFINITIONS

• DEFINE
• Willful Misconduct
• Lack of Good Faith

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The Saga of the Drunken Fork Lift Operator
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ONE MORE DEFINITION

• DEFINE Managerial Personnel?

Im the Prez!
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MANAGERIAL PERSONNEL

• As used in this clause means
• the Contractors directors, officers, managers,
  superintendents, or equivalent representatives
• who have supervision or direction of
• ALL OR SUBSTANTIALLY ALL of the contractors
  business
• ALL OR SUBSTANTIALLY ALL of the contractors
  operation at any one plant or a separate and
  complete major industrial operation connected
  with performing the contract

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CASE LAW

• Fairchild Hiller Corporation ASBCA No. 14387
  (1971)
• Contract for the Stripping, Washing, and Cleaning
  of C-130 Aircraft
• The burning of aircraft No. 1
• The burning of aircraft No. 2
• Methylethyl-ketone Naptha Based Solution
• The court was concerned with the actions of the
  CONTRACTORS MANAGERIAL
  PERSONNEL.
• Not its lower level employees!

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LIMITED RISK OF LOSS

• LAST OPTION TO HOLD A CONTRACT LIABLE
• WITHDRAWAL of the Governments Assumption of Risk
  due to a determination that the Contractors
  property management practices are INADEQUATE
  and/or present an UNDUE RISK to the Government.

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LIMITED RISK OF LOSS

• When the Government WITHDRAWS its ASSUMPTION OF
  RISK for LDDT the contractor becomes liable for
  ANY Loss, damage, destruction or theft of
  Government Property, regardless of how it occurs,
• UNLESS

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LIMITED RISK OF LOSS

• Contractor may be granted relief if clear and
  convincing evidence is presented that shows
• Loss, damage, destruction or theft occurred while
  system was adequate
• Loss, damage, destruction or theft did not occur
  as a result of PCS status (NEXUS)
• NOTE The burden of proof rests with the
  contractor

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WHY?

• Why does the Government have this policy?
• It is an economically advantageous methodology to
  have the Government act as a Self Insurer. So
  long as the Contractor is a Good Insurance
  Risk. (In other words, maintains an adequate
  Property Management System!)

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SUBCONTRACTOR LIABILITY
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CAREFUL ON FLOW DOWN!!!

• 52.245-1 (f)(1)(v) Subcontractor control.
• (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).
• (B) The Contractor shall assure its
  subcontracts are properly administered and
  reviews are periodically performed to determine
  the adequacy of the subcontractor's property
  management system.

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CAREFUL ON FLOW DOWN!!!

• LIMITED RISK OF LOSS FLOWDOWN
• Simplest analysis if you flow down the
  requirement for Cert of Current Cost and Pricing
  data You flow down the Limited R of L
• FAR 52.215-12 or 52.215-13 for Mods
• Subcontractor Cost and Pricing Data
• Other Applications
• It depends Some examples
• Large quantity of GP
• High Dollar Value of GP

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CAREFUL ON FLOW DOWN!!!

• FULL RISK OF LOSS 52.245-1
• Simple answer flow down FULL R of L when
  ALT. I is in contract.
• If Limited R of L is in the Prime then the PRIME
  must make a CONSCIOUS DECISION as to the
  APPLICATION of the FULL R of L.
• Competitive Contracts
• Multiple bidders
• No Negotiations
• Where situation WARRANTS FULL R of L

RHETORICAL QUESTION For Your companys
property, if they loan it out, what do THEY
require? FullLimited?
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CAREFUL ON FLOW DOWN!!!

• BOTTOM LINE
• CONTRACTORS -- You need to speak with you
  SUBCONTRACTS PEOPLE to ensure that the RULES your
  company establishes are
• KNOWN and
• APPLIED!!!
• CPSR ELEMENT OF REVIEW

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THE END

• Or is it???
• There are a whole bunch of other LIABILITY
  ISSUES.
• We just dont have time for all!!!
• But, if you cant sleep at night

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CHECK OUT THESE OTHER CLAUSES!!!

• Progress Payments Clause
• 52.232-16
• Loss of Delivered End Items
• 52.247-19
• Ground and Flight Risk Clause in the DFARS
• 252.228-7001 (Bonds Insurance)
• Protection of Government Buildings, Equipment,
  and Vegetation.
• 52.237-2 (Service Contracting Provision)
• Limitation of Liability.
• 52.246.23 (Quality Assurance Provision)

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THANK YOU!!!
CONTACT INFO

• Dr. Douglas N. Goetz
• Defense Acquisition University
• 3100 Research Blvd
• Pod 3, 3rd Floor
• Kettering, OH 45420
• 937-781-1077
• Douglas.Goetz_at_dau.mil