Effective Management of Government Property in Defense Contracts

The management of government property in defense contracts is a major responsibility that requires a slew of regulations, systems, and controls to ensure proper asset stewardship, utilization, and accountability. This responsibility is highlighted by the fact that the Department of Defense (DoD) has approximately $1.2 trillion in personal property, including tooling, equipment, materials, and special test equipment, known as Government Furnished Property (GFP).

The regulatory framework for managing government property is primarily outlined in FAR Clause 52.245-1 "Government Property," which is required in all cost-type contracts and other contracts with a government property provision. This clause provides a broad statement of work, describing what must be done to effectively manage government property, but leaves the specifics to the contractors' discretion. It provides maximum flexibility, allowing both large and small businesses to develop procedures that are tailored to their specific circumstances and systems, which range from sophisticated Enterprise Resource Planning (ERP) systems to simple spreadsheets.

Contractors are responsible for establishing a system of internal controls to manage government property in their possession. This includes creating procedures for evaluating the effectiveness of their systems, conducting internal reviews, and keeping complete, current, and auditable records of all transactions. The system criteria cover everything from the initial acquisition of property to its receipt, stewardship, custody, and use until the contractor is formally relieved of responsibility.

The results of a well-managed government property system are multifaceted. They include the acquisition of property, which is frequently handled by the purchasing system, and the receiving process, which represents the physical transfer of property. Records must be kept to track what was received and to ensure that transactions are properly posted. The use of the property must be authorized by the contract, and any excess government property must be properly retained or disposed. Maintenance is another critical outcome, particularly for equipment, and physical inventory responsibilities include ensuring that what is on the floor corresponds to what is on the records.

Subcontract control is critical to ensuring that suppliers follow the requirements of FAR 52.245-1, and disposition entails the timely disposal of property while distinguishing between authorized and unauthorized retention. Closeout procedures include notifying the government and arranging for authorized disposal, which may include subcontractors and suppliers. Finally, reporting is not solely a property issue; it frequently includes data submissions such as Contract Data Requirements Lists (CDRLs), Contract Line Item Number (CLIN) reporting, and physical inventory results.

Accountability and authorized use are critical in managing government property. Property can only be used on contracts that have been authorized, and only the Contracting Officer has the authority to allow its use on other contracts, authorize retention when it is no longer required for contract performance, add or remove GFP from a contract, or transfer property between contracts. Common audit findings frequently highlight issues in this area, emphasizing the importance of strictly following these rules.

To summarize, managing government property in defense contracts is a complex and critical task. To ensure regulatory compliance, a comprehensive set of internal controls, clear procedures, and rigorous oversight are required. Effective management of government property not only protects valuable assets, but also ensures the smooth execution of defense contracts, which contributes to national security.

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