Properly and appropriately accounting for GFP, and maintaining it while it is on contract, requires the attention and participation of all the members of the acquisition team.
The Department of Defense (DOD) has more than a trillion dollars of property,and more than 10% of that property value is in the custody of defense contractors.
Put another way, there is approximately $116 billion of government-furnished property (GFP) in the DOD supply chain. Properly and appropriately accounting for that GFP, and maintaining it while it is on contract, requires the attention and participation of all the members of the acquisition team. The partnership between the property administrators and the contracting officer is particularly important, as the contract dictates all rights, privileges, and responsibilities for the stewardship and accountability of the GFP. And in today’s environment, DOD’s Financial Improvement and Audit Remediation (FIAR) effort is driving increased focus on accountability and good record keeping.
Good Planning Up Front
The introduction of GFP into the supply chain all begins with the contract, and as with any good contract, good planning up front makes all the difference. As Federal Acquisition Regulation (FAR) Subpart 45.1 states:
- Contracting officers shall provide property to contractors only when it is clearly demonstrated—
- To be in the government’s best interest;
- That the overall benefit to the acquisition significantly outweighs the increased cost of administration, including property disposal;
- That providing the property does not substantially increase the government’s assumption of risk; and
- That government requirements cannot otherwise be met.
These issues must be addressed in the acquisition planning phase of the contract effort and should be discussed in the program acquisition plan when required and provided to the contracting officer. The DOD Procedures, Guidance, and Information (PGI) require the contracting officer to address these issues prior to furnishing government property to the contractor, and to document them in the contract file.
Contracting officers need to consider the administrative costs DOD will incur to administer any GFP. For defense contracts, the inclusion of GFP will trigger administrative costs for reviewing and approving the contractors’ property systems, which is normally done by property administrators and administrative contracting officers assigned to the Defense Contract Management Agency (DCMA). Other administrative costs include the costs of maintaining and eventually disposing of the GFP, which can include transporting or destroying the GFP when it is no longer needed.
Contracting officers should also be aware that much of the contractors’ costs associated with controlling and managing GFP may be charged to overhead accounts. These overhead costs must also be acknowledged and considered by the contracting officer.
Once the planning steps are completed and documented, attention should shift to preparing the GFP attachment, which is the actual listing of all GFP that the government intends to provide to the contractor. The PGI directs the use of the fillable PDF formatted “GFP Attachment” that can be found at the DOD Procurement Toolbox.The GFP Attachment is often misunderstood and it can lead to costly complications if it is not properly managed. The GFP Attachment does not provide real-time status of GFP in the possession of a contractor; it is merely the plan of GFP that the government intends to provide to the contractor over the course of the contract effort. Further, it is not updated to reflect when the property was actually provided or received by the contractor — those records can be found within the contractors’ property system and in today’s GFP Module, a defense IT tool found within the Procurement Integrated Enterprise Environment (PIEE). The GFP attachment does not need to be updated to remove items that are returned by the contactor and does not need to be “zeroed out” at contract closeout. However, it does need to be modified if additional GFP is later planned to be provided by the government. If additional items provided by the government are not added to the GFP Attachment, both parties become exposed to risks and liabilities that would otherwise be clearly defined by the GFP clauses.
All the Right Clauses
Speaking of clauses, it is important for the contracting officer to put the right clauses, and all the right clauses, in the contact. While this may seem like it should be a simple task, DOD has struggled with less-than-acceptable rates of compliance on the proper inclusion of GFP clauses.
The Government Property Clause
FAR 45.107(a)(1)(i) instructs the contracting officer to include the clause 52.245-1, “Government Property,” in all cost-reimbursement and time-and-material type solicitations and contracts. This is a “shall” provision — meaning inclusion is mandatory for these contract types. One common error is the thinking that if the government does not intend to provide GFP, the clauses are not needed. This is not true, as the cost reimbursement and time-and-material contracts allow for property to be purchased by the contractor in order to perform the work scope of the effort. This property is termed “contractor-acquired property” (CAP), and when billed, the government gains a title interest in the CAP. The Government Property clause includes CAP within its definitions of the terms government property and government-furnished property. Contracting officers should understand that the Government Property clause may be mandatory based on the contract type, even if no GFP Attachment is included in the contract.
The Use and Charges Clause
Inclusion of the Government Property clause will also trigger the requirement at FAR 45.107(c) to include the clause at 52.245-9, “Use and Charges.” This requirement is another “shall” provision, and therefore mandatory when FAR 52.245-1 is included in the solicitation or contract.
For DOD contracting officers, the inclusion of the Government Property clause in a solicitation or contract also triggers the requirement to include five other Defense FAR Supplement (DFARS) clauses. (Again, inclusion of these DFARS clauses is not optional. It is mandatory to include these clauses whenever the Government Property clause is in the solicitation or contract.) These DFARS clauses include:
DFARS 252.211-7007, “Reporting of Government-Furnished Property” — Provides for recording of applicable GFP in the DOD Item Unique Identification (IUID) Registry, which is critical for providing the means to uniquely identify and then track the GFP.
DFARS 252.245-7001, “Tagging, Labeling, and Marking of Government-furnished Property” — Requires the contractors to properly identify, tag, label, and mark GFP (which is crucial in enabling the ability to track GFP).
DFARS 252.245-7002, “Reporting Loss of Government Property” — This clause not only enables traceability and accountability, but also includes the procedures for relief of liability as may be applicable.
DFARS 252.245-7003, “Contractor Property Management System Administration” — Provides the requirement for the contractor to establish and maintain an acceptable property management system. (This clause is also the important linkage to the clause at DFARS 252.242-7005, “Contractor Business Systems,” which is required in certain Cost Accounting Standards (CAS)–covered contracts, under which a percentage of payments must be withheld in the event the contractor’s property management system is deemed to be unacceptable and does not appropriately track and maintain the GFP.)
DFARS 252.245-7004, “Reporting, Reutilization, and Disposal” — Provides the general requirements for the disposition of GFP when it is no longer needed in the performance of the contract, or at the conclusion of the contract effort. This function is commonly referred to as “plant clearance.”
Taken together, the Government Property clause, the Use and Charges clause, and the five DFARS clauses (required for DOD contracts) provide for the complete management, accounting, and recording of GFP throughout the contract life cycle.
Within DOD, keeping track of all this GFP is supported by the GFP Module, which is housed within the PIEE. The GFP Module is being developed and fielded in phases. Phase 1 was launched in April 2018 and provided the capability to create the GFP Attachment, which provides the authorization for the contractor to have custody of government property. Phase 2 was launched in July 2018 and provided the capability for property transfers of GFP and included the capability to record shipments and receipts of GFP, which is foundational to providing real-time position reports. Phase 2 also provides for the reuse of data in the Module to prepopulate these transactions, which should reduce the data entry burden and increase accuracy. Phase 3 is scheduled for fielding in November 2019, the first installment of which will include the “Property Loss” function. Later installments of Phase 3 will replace the functionality of the DCMA Plant Clearance Automated Reutilization Screening System (PCARSS); Phase 4 will address updating items in contractor custody, which includes the functionality to track repair items; and Phase 5 will focus on data integration and will automate data sharing with the Accountable Property Systems of Record (APSRs).
Eventually, the GFP Module will provide complete traceability of GFP from contact award through contract closeout. Each phase of deployment should ease the burden of data entry and increase data accuracy, as each module builds on the records and transactions associated with the GFP Attachment.
Through FIAR, DOD is driving increased data demands for the status of GFP, as reporting entities are being called upon to prove the accuracy of their APSRs. FIAR requirements are based upon the Generally Acceptable Government Accounting Standards (GAGAS), and those standards are not always aligned with the current FAR, DFARS, and DOD Instructions. These policy and procedure “gaps” are being identified as part of the FIAR effort and are being addressed across the DOD enterprise. Simply put, the FIAR auditors are concerned with proving the accuracy of the APSR — both in terms of ensuring all the items that should be recorded are indeed recorded and that the record is properly valued from a financial perspective.
All government property is required to be recorded in the APSR, with some exceptions, and the APSR is therefore the primary record for the physical assets of a reporting entity. GFP is a subset of government property, and therefore any property identified in a GFP Attachment to be provided to a contractor should first have been recorded in the APSR. GAGAS includes requirements for the timely recording of changes to asset status. In the big picture, slightly more than 10% of the APSR assets are currently out on contract as GFP, and that generally makes GFP of material interest to the FIAR audit. As a result, it will no longer be sufficient for the APSR record to simply show that an asset was provided to a contractor as GFP in one year and returned or dispositioned perhaps several years later. Accounting and validation within the reporting period is the audit requirement, which will in turn drive changes to existing policies and procedures to close the “gap.” The GFP Module, currently, and with the deployment of its future phases, will be a key enabler to satisfying the audit and accountability requirements, which in turn enable better utilization of these assets.
During contract performance, the contracting officer may be called upon to resolve GFP issues. Late delivery of GFP could impede the contractor’s ability to maintain production or performance schedules and could require an equitable adjustment to the contract. Sometimes GFP is delivered in a condition that is not suitable for contract performance, and that may require replacement or equitable adjustment. Sometimes GFP cannot be used for its intended purpose, and that may require changes to specifications and equitable adjustment to the contract. While performing the contract and using GFP, some GFP may be lost, stolen, damaged, or destroyed. Contractors are required to report property loss, and the assigned property administrator will conduct an investigation leading to a decision to grant relief of stewardship responsibility or a recommendation that the contracting officer hold the contactor liable, which could lead to a requirement for the contractor to reimburse the government for the value of the lost, stolen, damaged, or destroyed property. And in the rare event that a contract is terminated for convenience, the contracting office may have to determine the amount of property allocable to the contract. In all these situations, close communication with the property administrator will be essential.
And Finally, Closeout
Contract closeout will usually be the final task for the contracting officer in the GFP life cycle. Remember that during contract performance, the contractor is required to periodically identify GFP that is excess to the needs of performance — in which case a portion of the GFP may be returned or disposed of long before the end of the contract performance period. Remember too that the GFP Attachment was only the “plan” of what property might be provided; it is not an inventory of all GFP on the contract and does not need to be “zeroed out” to close a contract.
Unless other disposition instructions are included in the contract, DFARS 252.245-7004, “Reporting, Reutilization, and Disposal,” requires contractors to complete Standard Form 1428, “Inventory Schedule B,” within the Plant Clearance Automated Reutilization Screening System (PCARSS). Plant clearance officers, after accepting the inventory schedule, will go through a series of screening efforts to reutilize the property in a manner that creates the greatest value for the government. In some cases, the plant clearance officer may order the contractor to demilitarize and/or destroy excess property to prevent its release to the general public. Contracting officers may need to ensure funds are available for these post-production requirements.
At the conclusion of the plant clearance activities, the contractor is required to certify that all GFP has been properly dispositioned. The property administrator should reconcile the GFP Attachment with the contactor’s inventory records to ensure all property has been cleared from the contract. If GFP is transferred from one contract to another, both gaining and losing contracts must be modified. If GFP is simply returned to the owning agency, no contract modification is required to reflect that transaction prior to contract closeout. Also, don’t forget that a great deal of GFP, particularly in the category of government-furnished material, will be consumed in the course of contract performance, and is often delivered as a piece of some other end item. The contractor’s records, and eventually the GFP Module, will document those transactions. Ultimately, the property administrator is responsible for ensuring all GFP has been accounted for and dispositioned prior to administratively closing the contract for property administration, a step which precedes the contract closeout action.
This all may sound rather daunting, but given that DOD alone has over $110 billion of GFP on contract, the work involved in keeping track of it all begins to make sense in light of the value to the taxpayer and needs of the warfighter. Contracting officers and program office personnel should keep in mind that the government’s stated policy on government property can be found at FAR 45.102(a), which says “[c]ontractors are ordinarily required to furnish all property necessary to perform contracts.” Clearly, the complex and unique nature of the DOD contracting mission has led to billions of dollars of exceptions to this policy.
The acquisition team members, and particularly the contracting officers and property administrators, have a duty of good stewardship for these assets. The FIAR audits provide a measure of how well that stewardship is being executed. Increasingly, the GFP Module will improve the accounting and reporting of these assets. And every day, as each individual transaction is entered into the GFP Module, the overall accountability and record keeping improves. With every transaction entered, future data entry demands are reduced.
Every day, with every transaction, by following the procedures and using the designated tools, we improve accountability for the GFP portion of the supply chain. CM
Andrew Obermeyer, CPCM, Fellow
Director, Contract Planning & Performance Assessment, Defense Contract Management Agency.
Past president, NCMA Central Virginia Chapter.
1. As per Office of the Deputy Chief Financial Officer, Department of Defense (DOD), “Department of Defense Agency Financial Report for Fiscal Year 2018” (Washington, DC: DOD, 2019), available at https://comptroller.defense.gov/Portals/45/Documents/afr/fy2018/DoD_FY18_Agency_Financial_Report.pdf. (Editor’s Note: In this context, property refers to “all tangible property, both real and personal” that is “owned or leased by the government. Government property includes both government-furnished property and contractor-acquired property. Government property includes material, equipment, special tooling, special test equipment, and real property. Government property does not include intellectual property and software.” (FAR 45.101, “property” and “government property.”))
2. FAR 45.102(b).
3. DFARS PGI 245.103-70(2).
4. PGI 245.103-72, “Government-furnished property attachments to solicitations and awards.”
5. Editor’s Note: The GFP Attachment would only be included when the government intends to provide GFP, which does not necessarily occur under every cost reimbursement or time-and-materials contract.