DoD Issues Final Rule on Government Property

August 19, 2011

DoD is issuing a final rule amending the Defense Federal Acquisition Regulation Supplement (DFARS) regarding Government Property, to reflect the recent revisions to Government Property elsewhere in the Code of Federal Regulations. Effective Date: August 19, 2011. Federal Register Volume 76, Number 161 (Friday, August 19, 2011).

DoD is revising subparts 245.6 and 245.7 to be consistent with the changes to FAR subparts 45.6 and 45.7, published in the Federal Register at 72 FR 27364 on May 15, 2007. A proposed DFARS rule was published in the Federal Register at 75 FR 75444 on December 3, 2010. The public comment period for the proposed rule closed February 1, 2011. Comments were received from three respondents. A discussion and analysis of the comments is provided in section II of this notice. Any revisions to the final rule based on public comments are addressed in the DoD responses to the comments received.

Comments received in response to the proposed rule are organized into six categories and are discussed in the paragraphs that follow.

Clarifying Responsibilities
Comment: A respondent recommended that ''* * * or the head of the contract administration office'' be added to DFARS 201.670(a).
DoD response: DFARS 201.670(a) has been revised to specify that the appropriate agency authority may delegate contract administration functions to the cognizant contract administration office, in which case the contract administration office appoints the property administrators and plant clearance officers in writing. This language was formerly found at DFARS 245.70.

Comment: A respondent recommended that DFARS 252.245-70XX(i) be revised to make the contractor's responsibility for compliance with export control law and regulations a ''due diligence responsibility.''
DoD Response: In the context of surplus sales, it is the buyer's responsibility to adhere to export control laws and regulations. Therefore, the referenced paragraph has been deleted and a new paragraph (g) has been inserted to specify that disposition shall be in accordance with foreign and U.S. laws and regulations, including regulations involving export controls, host nation requirements, Final Governing Standards, and Government-to-Government agreements, and that the contractor's responsibility to comply with all applicable laws and regulations regarding export-controlled items exists independent of the information provided by the clause. The new language is consistent with the respondent's recommendation and current DFARS language at 252.204-7008.

Inventory Schedules
Comment: A respondent stated that the requirement at DFARS 245.602-1 for ''obtaining bills of material and reviewing recent purchases, and stock record entries'' is not a part of the disposal process. The respondent commented that these duties require the plant clearance officer to have a working knowledge of every contract and that the process will drive up costs.
DoD Response: The proposed language at 245.602-1 exists today in the current DFARS at 245.7201. The proposed rule moved 245.7201 to subpart 245.6, and renamed the subpart Reporting, Reutilization, and Disposal, to conform with the FAR; however, the language at DFARS 245.602-1 has been clarified to specify applicability only to termination inventory.

Comment: In reference to DFARS 245.602-1, Inventory disposal schedules, a respondent asked for guidance on when a physical count was required and suggested ways of addressing efficiency.
DoD response: Generally, the Government relies on quantity data provided by the contractor, and physical counts are usually required only if the plant clearance officer suspects data integrity issues; however, 245.602-1(2) has been clarified to specify potential methods of verifying quantities.

Comment: A respondent was concerned about the requirement at 252.245-70XX(b)(1)(i)(A) and (B) to provide Federal Supply Codes (FSCs) and manufacturer name, because this information is not always available or known.
DoD Response: The language at 252.245-7004(b)(1)(i)(A) and (B) has been modified in the final rule to require the FSC and manufacturer name only if the information is assigned and/or available.

Comment: A respondent recommended that new definitions for the terms ''manufacturer name'' and ''manufacturer part number'' be added at the clause at 252.245-70XX.
DoD response: These terms are used commonly; therefore, they have not been added to the definitions section of the clause.

Comment: In reference to 252.245-70XX(b), Inventory disposal schedules, a respondent recommended that the supplier name and part number be required for all items in Federal condition code A1 being reported as excess on inventory schedules.
DoD Response: The respondent's recommendation would require reprogramming of the Plant Clearance Automated Redistribution and Screening System (PCARSS). The cost of such reprogramming would largely offset the marginal increase in reutilization realized.

Sales of Surplus Property
Comment: In reference to 245.604-3, Sale of surplus property, a respondent suggested that risk-based techniques be used. For example, high value items should be treated differently, according to the respondent, from items with little potential for proceeds.
DoD Response: The language at 245.604-3(1) has been clarified to ensure that plant clearance officers consider the market potential of items prior to authorizing surplus sales and determine the best value sales approach.

Comment: A respondent recommended that 252.245-70XX(c), be changed to read ''net proceeds.'' The respondent cited the Federal Property Administration Act of 1949, which states that a portion of the proceeds goes to the ''cost of the work.'' The respondent also claimed that paragraph (c) conflicts with FAR 31.201-5 and ASTM International standard 2279-09, Establishing the Guiding Principles of Property Management (costs of sales may outweigh the return).
DoD response: The respondent's recommendation implies that contractors are entitled to a share of sales proceeds to cover the contractor costs of conducting the sale. There is no basis for such policy or for otherwise directly reimbursing a contractor for costs incurred in conducting surplus property sales. Such action is a normal part of contractor responsibilities under the clause at FAR 52.245-1(b)(2). FAR 31.201-5 pertains to income, rebates, allowances, or other credits made to allowable costs. Because surplus property sales are a normal part of a contractor's property management responsibilities under the clause at FAR 52.245-1(b)(2) and are typically provided by the contractor as an overhead function, FAR 31.201-5 has no application here. ASTM International standard 2279-09 is not germane to the issue of proper deposit of sales proceeds received under surplus sales.

Comment: A respondent recommended that a certification statement or a standard form providing the terms and conditions of the sale between the Government and buyer be provided at 252.245-70XX(e). The respondent also asked what the expectation is here.
DoD Response: The language exists today in 245.604. As indicated in the proposed rule, 245.604 has been updated and the language moved to the final rule clause at 252.245.70XX. Its requirements are an important policy safeguard to ensure the integrity of the surplus sales process.

Comment: A respondent requested that the language at 252.245-70XX(l)(2) be changed as follows, ''(t)he Contractor shall solicit a sufficient number of bidders to obtain adequate competition and use informal invitations for bid unless the plant clearance officer approves use of formal bid procedures.''
DoD Response: The language, which has been revised and relocated to 252.245-7004(j)(4), specifies that informal bid procedures shall be used unless the plant clearance officer directs otherwise.

Comment: A respondent recommended that formal sales be considered a part of the Contract Data Requirements List (CDRL).
DoD Response: There is no basis for such policy. Including this on the CDRL would make the Government liable for directly reimbursing a contractor for costs incurred in conducting Surplus property sales. However, such expenses are a normal part of contractor responsibilities under FAR 52.245-1(b)(2) and are not subject to direct reimbursement.

Comment: A respondent recommended removing the dollar threshold at 252.245-70XX(l)(6) and requiring the plant clearance officer, not the contractor, to send the sales notice to FedBizOps.
DoD Response: The plant clearance officer, not the contractor, is the appropriate sender of the sales notice; therefore, the requirement has been deleted. A more general requirement on the use of FedBizOps has been included in the DFARS companion resource, Procedures, Guidance, and Information (PGI) for the plant clearance officer.

Comment: A respondent recommended changing the second sentence of 252.245-70XX(e)(9)(7) to, ''(b)id openings will be submitted to the plant clearance officer, either electronically or manually, two copies of the bid abstract.''
DoD Response: The language has been revised and relocated to paragraph (j)(8) of 252.245-7004, and clarifies that the contractor shall provide two copies of the bid abstract to the plant clearance officer.

Comment: A respondent recommended deleting the phrase ''(f)orwarded to the plant clearance officer'' from 252.245-70XX(c), Proceeds from sale of surplus inventory.
DoD Response: The language at 252.245-7004(c) has been clarified to require proceeds to be forwarded to the contracting officer or plant clearance officer, credited to the Government through a settlement agreement, credited to the contract, applied to the contract as directed by the contracting officer, or forwarded to the plant clearance officer unless otherwise provided for in the contract.

Comment: In reference to 252.245-70XX (l), a respondent asked if plant clearance officers must draw up and provide terms and conditions for the contractor to use on surplus sales. The respondent also requested that terms and conditions be included in this clause.
DoD Response: Contractors are required to use Government-provided sales terms and conditions. This is not a new requirement. DCMA is leading an effort to revise and update the
sales terms and conditions found today at 245.7309. Once completed, and in coordination with the Services, the sales terms and conditions will be incorporated into the DFARS. It should be noted that sales terms and conditions specific to demilitarization, mutilation, and destruction will remain within the clause at 252.245-7004 due to the general sensitivity of demilitarization, mutilation, and destruction actions.

Demilitarization, Mutilation, and Destruction
Comment: A respondent recommended that 252.245-70XX(e)(8) be deleted in its entirety and that special conditions be placed into the PGI, including that the agency must provide direction and funding.
DoD Response: It is incumbent upon the Government to provide the contractor, as part of contract terms and conditions, any demilitarization, mutilation, or destruction requirements (reference DoD 5000.2-R, paragraph C2.8.7., Demilitarization and Disposal Planning). No additional clarification is necessary.

Comment: A respondent requested confirmation that the requirement to validate disposal of contractor inventory in foreign countries at paragraph (d) of the clause at 252.245-70XX is a Government responsibility. The respondent also asked if validation takes place when the plant clearance officer reviews and accepts the bid and whether DCMA International should get involved. The respondent recommended indicating who has the responsibility, specifying that State Department approval is required, and adding a certification statement to the SF 1428 providing the validation to the contractor.
DoD Response: The language at DFARS 252.245-70XX(d) pertaining to disposal of contractor inventory overseas has been removed from the final rule. DFARS 252.245-7004, paragraph (g), has been clarified to ensure that disposal of contractor inventory located overseas is governed by contract terms and conditions. Additionally, the DoD responsibilities contained in the PGI sufficiently address this issue.

Comment: A respondent expressed concern that the language at DFARS 252.245-70XX could be interpreted as requiring the contractor to determine the appropriate level of demilitarization required; the respondent suggested clarifying the intent.
DoD Response: It is incumbent upon the Government to provide the contractor with, as part of contract terms and conditions, any demilitarization, mutilation, or destruction Requirements (reference DoD 5000.2-R, paragraph C2.8.7., Demilitarization and Disposal Planning). No additional clarification is needed.

Scrap Procedures
Comment: A respondent recommended deleting DFARS 252.245-70XX(j)(1), Contractor with an approved scrap procedure, in its entirety because the scrap procedures are typically incorporated within the contractor's property management system.
DoD Response: DoD agrees that a separate approval of contractor scrap procedures is neither practical nor necessary; however, the basic minimum requirements of an adequate scrap procedure are integral to proper application of the clause. Accordingly, the language referring to scrap procedure approvals at DFARS 252.245-70XX(j)(1) has been deleted from the final rule; the remaining language has been retained at paragraph (h) of 252.245-7004.

Comment: In reference to DFARS 252.245-70XX(j)(i)(ii), a respondent recommended retaining the current language found in DFARS 245.610-3(1)(iv)(B), as follows: ''When commingling is approved, the net proceeds for contractors with an approved scrap procedure will ensure (that sales) proceeds are appropriately applied to an overhead account.''
DoD Response: While the requirement is still relevant, it is a normal part of a property administrator's oversight function; therefore, the language is more suitable to internal DoD component guidance, e.g., DCMA instructions.

Comment: A respondent recommended deleting the requirement for a scrap warranty at DFARS 252.245-70XX(j)(3).
DoD Response: The referenced language has been modified to allow Government discretion in requiring a scrap warranty.    Comment: A respondent recommended moving the requirements of DFARS 252.245-70XX(k), Disposal of contractor inventory for NATO cooperative services, to DFARS part 245 or providing clarification that its requirements are a Government responsibility.
DoD Response: The language has been deleted from the final rule clause, as DoD support to NATO cooperative projects is already covered under DFARS 225.871.

Other Changes
Comment: A respondent identified ''untability'' as a typographical error at DFARS 252.245-70XX(j)(1)(i).
DoD Response: The term has been changed to ''accountability.''

Comment: A respondent stated that the proposed changes do a good job of cleaning up and consolidating the plant clearance process and that the new PGI for DFARS Case 2009-D008 also looks good.
DoD Response: Noted.

The following changes have been incorporated into the final rule based on internal DoD coordinations:
Deleted the reference to FAR 52.245-2 at 245.107 because the FAR clause 52.245-2 is not a stand-alone clause and can only be used in conjunction with FAR 52.245-1;
Added clarifying language on property condition at 245.602-1(3);
Clarified that 245.602-1 applies only to termination inventory and that such inventory may be verified by appropriate technical personnel;
Added clarifying language at 245.602-3 on disposition of contractor inventory in overseas locations; arrangement of inspection of property and security requirements; and consideration by the plant clearance officer of any special disposition requirements, such as demilitarization; and trade security requirements;
Added 245.7101-5(d), Other disposal actions, to conform to the DD Form 1641;
Added a caveat in the clause at 252.245-7004(b)(1) to use the Plant Clearance Automated Reutilization Screening System unless disposition instructions are otherwise included in the contract;
Relocated paragraph (e) of the 252.245 clause to paragraph (j) to better align language with actual process;
Deleted ''Commerce control list'' and ''Munitions list items'' from the definitions and added definitions of ''Export-controlled items'' and ''Ineligible transferees'' to the clause at
Added the terms ''mutilation/destruction'' and ''mutilate/destroy,'' as appropriate, after each instance of the term ''demilitarization'' for consistency with DoD policy;
Deleted supply condition codes from 252.245-7004(b)(1), and added a hyperlink to DoD 4000.25-2-M;
Added clarifying language for disposition of contractor inventory located in foreign countries to the clause at 252.245-7004;
Modified language at 252.245-7004(h)(2) to allow the plant clearance officer discretion in requiring scrap warranties;
Added clarifying language at 252.245-7004(j)(9)(i) on verification of demilitarization actions by Government representatives, including use of DRMS Form 145 or equivalent; and
Renumbered the DFARS text and clauses, as necessary.

FOR FURTHER INFORMATION CONTACT: Ms. Meredith Murphy, 703-602-1302. 

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