Contractor Business Systems Series: Part 3 — Contractor Property Management System

Contributors: Christopher Morris, Senior Associate

If you find yourself responding to a solicitation with Federal Acquisition Regulation (FAR) 52.245-1 and if a Department of Defense (DoD) solicitation Defense Acquisition Regulation Supplement (DFARS) 252.245-7003 Contractor Property Management System Administration, your company will need to have and implement a property management plan if you are awarded the contract. The property management plan will require you to demonstrate that you possess adequate policies to achieve the outcomes listed in FAR 52.245-1(f).

The property management plan will need to outline when your company receives government furnished property (GFP) that your staff is capable of initiating property management and maintaining the processes, systems, procedures, records, and methodologies necessary for effective and efficient control of government property throughout the performance of the contract. In this regard, government property includes not only GFP but also contractor-acquired property to which the government obtains title as described in FAR 52.245-1. However, see FAR 52.245-1 Alt I for an exception to this title vesting rule.

Understanding Government Property Management System

A Government Property Management System (GPMS) is a set of processes and procedures designed to ensure the effective control, management, and utilization of government property in the possession of contractors. It includes the acquisition, receipt, recording, maintenance, utilization, and disposal of government property. A well-implemented GPMS ensures compliance with federal regulations and standards, helps in maintaining accountability, and reduces risks associated with mismanagement or loss of property. The system must be comprehensive, integrated with other business systems, and capable of providing accurate and timely information on government property.

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10 Elements of Property Administration

To demonstrate the ability to successfully manage government property, you will need comprehensive internal property management policies with documented processes for the 10 elements of property administration listed in FAR 52.245-1(f)(1)(i) through (x). In doing so, you may employ customary commercial practices, voluntary consensus standards, or industry-leading practices and standards that provide for an effective and efficient government property management system that is necessary and appropriate for the performance of the contract (except where inconsistent with law or regulation). The ten elements are:

1. Acquisition: In this regard, keep in mind the requirements of FAR 52.244-5 and -6 as they may apply to the acquisition of contractor-acquired property.
2. Receipt: The performance schedule of the contract is predicated on the government providing GFP in a timely manner and in a condition suitable for its intended use. If the government fails in regard to either of these duties, you may be entitled to an equitable adjustment to the contract price.
3. Records: Maintain accurate records of all government property, including the identification, documentation, and status of each item.
4. Physical Inventory: Conduct regular physical inventories to ensure the accuracy of records and proper accountability.
5. Sub-contractor Control: Ensure that subcontractors are aware that the property you provide to them is government property and that they are not permitted to place any incumbrance such as a lien, on the property.
6. Reports: Regularly submit required reports on the status, utilization, and condition of government property.
7. Relief of Stewardship and Liability: If government property is lost, damaged, or destroyed, you will only be held liable for such loss, damage, or destruction as provided in FAR 52.245-1.
8. Utilization: Ensure that government property is used only for purposes authorized under the contract.
9. Maintenance: Be sure to factor the maintenance of government property in the price you propose for the contract. Similarly, some jurisdictions may impose a tax on you for possessing or using government property. This should be considered in pricing the contract.
10. Property Closeout: Ensure that all government property is accounted for and appropriately disposed of at the end of the contract.

For a more detailed discussion of these elements, see FAR 52.245-1(f)(1).

Common Items Included in Property Manuals

When developing a property management plan, certain key elements are typically included in the Property Manuals to ensure comprehensive coverage and compliance. These common items include:

1. Policy, responsibility, definitions, list of acronyms
2. Level of frequency for internal reviews, surveillance, self-assessments, or audits
3. Roles and responsibility for personnel who oversee shipping and receiving functions
4. Process for handling discrepancies incident to shipping
5. Storage locations for government property including contractor-acquired property, and sensitive property
6. Various mechanisms for initiation of movement of property (e.g., request forms, emails, phone calls, government requests)
7. Process for identifying contracts approaching closeout and for determining whether any excess property exists
8. Process for disposal of all excess property upon contract completion
9. Subcontractor(s) responsibility for property in their possession

What to Expect During a Property Management System Analysis

During a Property Management System Analysis, expect a thorough review of your property management practices, procedures, and records. This analysis typically involves:

• Document Review: Examination of policies, procedures, and records related to property management to ensure they meet regulatory requirements.
• Interviews and Observations: Discussions with personnel responsible for managing government property and observations of how property management procedures are implemented in practice.
• Compliance Testing: Assessment of how well the property management system complies with FAR and DFARS requirements, including reviewing the accuracy of records and effectiveness of controls.
• Identifying Gaps: Identification of any gaps or deficiencies in the property management system and recommendations for improvements.
• Reporting Findings: Compilation of findings and recommendations in a report, which may include suggestions for corrective actions or enhancements to improve compliance and efficiency.

Best Practices and Processes for Handling Government Property

Implementing best practices in managing government property is crucial for maintaining compliance and avoiding common pitfalls. Some recommended best practices include:

• Regular Audits and Inventories: Regular audits and physical inventories help ensure that all government property is accurately tracked and properly maintained.
• Training and Awareness Programs: Training programs should be conducted regularly to keep employees informed about their roles and responsibilities in managing government property.
• Documentation and Record-Keeping: Maintaining detailed records of all transactions and movements of government property is essential for audit readiness and compliance.

Flow Down Requirements to Subcontractors

It is the contractor’s responsibility to ensure that subcontractors also comply with property management requirements. This involves establishing clear communication channels and implementing procedures that ensure subcontractors understand and adhere to the property management guidelines. Flowing down the requirements to subcontractors is crucial for maintaining control over government property throughout the supply chain.

Common Pitfalls in Contractor Property Management Systems

Government contractors often encounter challenges in maintaining effective property management systems. Some of the common pitfalls include:

1. No designated personnel responsible for maintaining (and updating) a Property Management Plan
2. Lack of process or timeline for developing corrective actions based on findings in self-assessments
3. Lack of defined timeline from receipt of inventory to updating inventory records in the accounting system
4. Lack of defined process for the resolution of non-conforming goods received
5. Lack of tracking movement of property that is initiated via phone calls
6. Lack of process for segregation of duties during physical inventory counts
7. Lack of procedures for segregating government property and contractor property

Disposal of Government Property

Proper disposal of government property is a critical aspect of the property management process. Contractors must follow specific procedures for the disposal of government property, ensuring compliance with federal regulations. This includes:

• Identification of Excess Property: Regularly review and identify property that is no longer needed or that exceeds contract requirements.
• Preparation for Disposal: Prepare government property for disposal by ensuring that it is properly documented and declassified if necessary.
• Disposal Methods: Dispose of property in accordance with regulatory guidelines. This may include returning it to the government, transferring it to another contract, or disposing of it through approved methods such as sale, recycling, or destruction. The disposal method used is usually determined by the government. However, in some circumstances, the government may abandon non-sensitive government property at the contractor’s facility, in which case, the disposition of the property is within the contractor’s discretion.
• Documentation: Maintain accurate records of the disposal process, including the method of disposal, date, and any relevant documentation required by FAR or DFARS.
• Compliance Checks: Ensure that disposal procedures comply with all applicable regulations and contractual obligations to avoid potential liabilities.

Integrating Other Business Systems Requirements

The property management system must be integrated with other essential business systems to ensure comprehensive control and oversight. This includes integration with:

• Accounting Systems: For accurate financial reporting and valuation of government property.
• Procurement Systems: To ensure that acquisitions of contractor-acquired property comply with FAR and DFARS requirements.
• Inventory Management Systems: To facilitate the tracking and control of government property throughout its lifecycle.

GFP Guidebook

Be aware that DCMA has a guidebook for government contract property administration. Although this guidebook applies to DCMA employees and is not a regulation binding on contractors, it is advised that you become familiar with the guidebook. Familiarity will help you understand what DCMA is looking for when it evaluates your property management system.

Your Guide Forward

Cherry Bekaert’s Government Contracting industry advisors are well-versed in business systems requirements and complex control environments. If you have any questions specific to your situation, we are readily available to discuss them with you.

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