Government Property Management (FAR 52.245)

Government property also includes material (property that may be consumed or expended during performance), special tooling (jigs, dies, fixtures, molds, and similar manufacturing aids), and special test equipment (equipment used to inspect, test, or evaluate items). Each category has specific management requirements, and contractors must maintain accountability for all categories regardless of value.

It is important to distinguish government property from contractor property. Items that a contractor brings to a contract using its own funds, or items purchased under a firm-fixed-price contract (where the government does not reimburse costs), are generally contractor property and are not subject to the FAR 52.245-1 property clause.

FAR 52.245-1(f) requires contractors to establish and maintain a property management system that includes processes for acquisition, receiving, records, physical inventory, subcontractor control, reports, relief of stewardship responsibility, utilization, maintenance, and property closeout. The system must be documented in written procedures and applied consistently across all contracts containing government property.

The property management system must maintain a complete, accurate, and auditable record of all government property in the contractor's possession. Records must include the contract number, item description, manufacturer, model number, serial number (where applicable), national stock number, unit acquisition cost, acquisition date, quantity, location, condition, and disposition. Records must be updated as changes occur and reconciled through periodic physical inventories.

For smaller contractors managing limited government property, the system can be relatively simple — a well-maintained spreadsheet or database with documented procedures may suffice. For large defense contractors managing thousands of GFP items across multiple facilities, a dedicated property management software system integrated with the contractor's ERP is typically required.

FAR 52.245-1(f)(1)(vii) requires contractors to perform periodic self-assessments of their property management system. Self-assessments evaluate the effectiveness of the property management system, identify deficiencies, and drive corrective actions. The contractor must document the self-assessment results and make them available to the property administrator and contracting officer upon request.

Self-assessments should cover all aspects of the property management system, including the accuracy of property records, the effectiveness of physical inventory procedures, the adequacy of maintenance programs, and compliance with disposition requirements. Best practice is to conduct self-assessments at least annually, with more frequent assessments for high-risk areas or when significant deficiencies have been identified.

The Defense Contract Management Agency (DCMA) property administration function reviews and evaluates contractor property management systems. For contractors with significant government property holdings, DCMA assigns a Property Administrator (PA) who conducts system analyses, property audits, and ongoing surveillance. The PA evaluates the system against the criteria in DFARS 252.242-7005 and FAR 52.245-1.

DCMA property system analysis can result in one of three determinations: approved (the system complies with all requirements), approved with recommendations (minor deficiencies exist but do not materially affect system reliability), or disapproved (significant deficiencies exist that undermine the reliability of the property system). A disapproved property system can result in withheld payments (up to 5% of contract billings), increased oversight, and negative contractor performance assessments.

Common audit findings include incomplete property records, failure to conduct timely physical inventories, inadequate segregation of government and contractor property, missing or incorrect property tags, failure to report excess property, and inadequate maintenance programs.

Under FAR 52.245-1(h), the contractor is responsible for the loss, damage, destruction, or theft of government property unless the contractor can demonstrate that the loss was not caused by the contractor's willful misconduct or lack of good faith, or by the contractor's failure to maintain an approved property management system.

When government property is lost, damaged, or destroyed, the contractor must promptly investigate the circumstances, report the loss to the property administrator and contracting officer, and submit a written report including the facts and circumstances, the cause, the corrective actions taken to prevent recurrence, and the contractor's assessment of liability.

If the government determines that the contractor is liable, the government may require the contractor to repair or replace the property at the contractor's expense, reduce the contract price, or assert a claim for the value of the property. The financial exposure can be substantial for high-value equipment, and contractors should ensure adequate insurance coverage for government property in their possession.