FOREWORD This Manual is issued under the authority of DoD Instruction.4161.2, "Acquisition, Management, and Disposal of Government-owned Contract Property," December 31, 1991. It provides uniform policies and procedures for accomplishing the contract property administration requirements of Federal Acquisition Regulation (FAR), Part 45, "Government Property," and Defense Federal Acquisition Regulation Supplement (DFARS), Part 245, "Government Property," current editions. This Manual applies to the Office of the Secretary of Defense; the Military Departments; the Defense Agencies; and the DoD Field Activities (hereafter referred to collectively as "the DoD Components"). This Manual's policies, procedures, and guidance relate to and are consistent with the FAR and the DFARS. A software program developed by the Air Force Institute of Technology (AFIT) may be used with this Manual for statistical sampling, instead of the hard copy sample tables in the Manual. This AFIT computer diskette is public property and DoD personnel may obtain copies through the headquarters of the DoD Components' Contract Property Administration offices. This Manual is effective immediately and is mandatory for use by all DoD Components. The DoD Components shall limit supplemental instructions to unique requirements. This Manual cancels and replaces DFARS Supplement #3, which will be removed from the Defense Acquisition Regulation (DAR) System. Implementing instructions and any proposed changes to this Manual shall be sent through channels to: Assistant Secretary of Defense (Production and Logistics) Attn: Government Contract Property Policy, Room 2A318 The Pentagon, Washington, DC 20301-8000 The DoD Components may obtain copies of this Manual through their own publications channels. Other Federal Agencies and the public may obtain copies from the Department of Commerce, National Technical Information Service, 5285 Port Royal Road., Springfield, VA 22161. TABLE OF CONTENTS Page FOREWORD2 TABLE OF CONTENTS3 REFERENCES5 DEFINITIONS6 ABBREVIATIONS AND/OR ACRONYMS18 CHAPTER 1 - GENERAL INFORMATION20 C1.1. PURPOSE OF MANUAL20 C1.2. OBJECTIVES OF PROPERTY ADMINISTRATION21 C1.3. DUTIES AND RESPONSIBILITIES OF THE PROPERTY ADMINISTRATOR22 C1.4. PROPERTY ADMINISTRATOR ROLE IN THE CONTRACT ADMINISTRATION MISSION24 C1.5. APPOINTMENT OF PROPERTY ADMINISTRATORS24 CHAPTER 2 - CONTRACTUAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS25 C2.1. INTRODUCTION25 C2.2. INITIATION OF PROPERTY ADMINISTRATION26 C2.3. ADMINISTRATION OF PROPERTY-RELATED CONTRACT PROVISIONS28 C2.4. TITLE TO GOVERNMENT PROPERTY28 C2.5. LIABILITY FOR LOSS, DAMAGE, OR DESTRUCTION OF GOVERNMENT PROPERTY30 C2.6. OTHER CONTRACTUAL ACTIONS36 C2.7. CLOSEOUT OF PROPERTY ADMINISTRATION36 CHAPTER 3 - TECHNICAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS39 C3.1. SCOPE39 C3.2. GENERAL39 C3.3. POLICY ON PROVIDING GOVERNMENT PROPERTY41 C3.4. CONTRACTOR MANAGEMENT OF GOVERNMENT PROPERTY43 C3.5. ACQUISITION OF GOVERNMENT PROPERTY44 C3.6. RECEIPT OF GOVERNMENT PROPERTY52 C3.7. IDENTIFICATION OF GOVERNMENT PROPERTY56 C3.8. RECORDS OF GOVERNMENT PROPERTY56 C3.9. MOVEMENT OF GOVERNMENT58 C3.10. STORAGE OF GOVERNMENT PROPERTY59 C3.11. PHYSICAL INVENTORIES OF GOVERNMENT PROPERTY60 C3.12. REPORTS OF GOVERNMENT PROPERTY65 C3.13. CONSUMPTION OF MATERIALS69 C3.14. UTILIZATION OF GOVERNMENT PROPERTY70 C3.15. MAINTENANCE OF GOVERNMENT PROPERTY74 C3.16. SUBCONTRACTOR AND ALTERNATE LOCATION PROPERTY MANAGEMENT77 C3.17. DISPOSITION OF GOVERNMENT PROPERTY86 C3.18. CLOSURE OF CONTRACTS FOR PROPERTY ADMINISTRATION87 C3.19. INFORMATION REQUIREMENTS88 CHAPTER 4 - SYSTEMS ANALYSIS ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS89 C4.1. PROPERTY CONTROL SYSTEM ANALYSES89 C4.2. SAMPLING100 C4.3. SYSTEM ANALYSIS TECHNIQUES BY PROPERTY FUNCTION105 CHAPTER 5 - SPECIAL TOPICS RELATED TO THE PROPERTY ADMINISTRATION PROCESS115 C5.1. PROPERTY ADMINISTRATOR SUPPORT TO PROGRAM MANAGERS AND LOGISTICS PERSONNEL115 C5.2. MANAGEMENT CONTROL ACTIVITY116 C5.3. MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM (MMAS)118 C5.4. PROGRESS PAYMENTS INVENTORY120 C5.5. ADMINISTRATION OF SPECIAL TOOLING CLAUSE PROVISIONS121 C5.6. AUTOMATED DATA PROCESSING EQUIPMENT123 C5.7. GOVERNMENT-OWNED REUSABLE CONTAINERS125 C5.8. SENSITIVE PROPERTY126 C5.9. PROPERTY AT NON-PROFIT CONTRACTORS129 C5.10. MILITARY STANDARDS REQUISITION AND ISSUE PROCEDURES131 C5.11. NASA PROPERTY133 APPENDICES AP1. FUNCTIONS, FUNCTIONAL SEGMENTS, AND CRITERIA137 AP2. DOUBLE SAMPLING PLAN148 AP3. TABLE OF RANDOM NUMBERS149 AP4. CONSUMPTIONS ANALYSIS WORKSHEET AND INSTRUCTIONS156 AP5. INSTRUCTION FOR THE USE, COMPLETION, AND DISTRIBUTION OF DD FORM 1149, "REQUISITION AND INVOICE/SHIPPING DOCUMENT"163 REFERENCES (a) Federal Acquisition Regulation (FAR), December 1990 (b) Department of Defense Federal Acquisition Regulation Supplement (DFARS), November 1988 (c) Joint Service Regulation, AR 55-38, NAVSUPINST 4610.33C, AFR 75-18, MCO P4610-19D, and DLAR 4500.15, "Reporting of Transportation Discrepancies in Shipment," April 15, 1985 (d) Joint Service Regulation, DLAR 4140.55, AR 735-11-2, SECNAVINST 4355.18, AFR 400-54, MCO 4430-3E, "Reporting of Item and Packaging Discrepancies," October 1, 1986 (e) DLAH 4105.4, "DoD Directory of Contract Administration Services Components," July 1990 (f) DoD Instruction 4140.48, "Control and Access to DoD Material Inventories Required by Defense Contracts," March 6, 1984 (g) DoD 7950.1-M, "Defense Automation Resources Management Manual," September 1988 (h) DoD 5100.76-M, "Physical Security of Sensitive Conventional Arms, Ammunition and Explosives at Contractor Facilities," February 1983 (i) DoD 4145.26-M, "Contractor's Safety Manual for Ammunition and Explosives," March 1986 (j) DoD 4000.25-1-M, "Military Standard Requisition and Issue Procedures," May 1, 1987 (k) National Aeronautics and Space Administration Federal Acquisition Regulation Supplement DL1. DEFINITIONS DL1.1.1. ACCESSORY ITEM. See FAR 45.501. DL1.1.2. ACQUISITION. See FAR 2.1. DL1.1.3. AGENCY. See FAR 9.403. DL1.1.4. AGENCY-PECULIAR PROPERTY. See FAR 45.301. DL1.1.5. ALTERNATE LOCATION. Another location of the prime contractor differing from its primary place of performance either geographically or organizationally. DL1.1.6. ARMS, AMMUNITION, AND EXPLOSIVES. See DFARS 223.7001. DL1.1.7. ASSIST WORK AUTHORIZATION. See Interorganization Transfer. DL1.1.8. AUTOMATIC DATA PROCESSING EQUIPMENT. See FAR 31.001. DL1.1.9. AUXILLARY ITEM. See FAR 45.501. DL1.1.10. AWARD FEE. See FAR 16.404-2. DL1.1.11. BAILMENT. A delivery of Government property to a contractor for a specified purpose normally related to a prime contract. Bailed property is usually returned to the Government when no longer required by the contractor. Bailment does not include sale, donation, lease, the furnishing of property to a contractor under facilities contracts, or the furnishing of property for consumption or for incorporation in such a manner as to lose its identity in an end product delivered to the Government. DL1.1.12. BAILMENT AGREEMENT. A contractual arrangement that accomplishes the actual bailment of Government property and contains all of the information concerning the bailment. Included are an adequate description of the property, the purpose of the bailment, use of the property, authorization for modifications that may be made to the property, the period of the bailment, the place from or to which the property is to be delivered or returned, maintenance requirement, if any, and any other provisions considered necessary. DL1.1.13. BASIC ORDERING AGREEMENT. See FAR 16.703. DL1.1.14. BENCH STOCK. Low cost, high usage, non-sensitive consumable material issued to work areas for contract performance. Quantities of such stock shall not exceed that amount that would normally be consumed within a 30 day period, or as established in the contractor's approved property control system. DL1.1.15. BILL OF MATERIAL. See DFARS 210.001. DL1.1.16. BLANKET PURCHASE AGREEMENT. See FAR 13.201. DL1.1.17. CAGE CODE. A unique number identifying the Commercial and Government Entity. DL1.1.18. CALIBRATION. See DFARS 246.101. DL1.1.19. CAPITAL TYPE REHABILITATION. Work that is clearly above and beyond normal recurring maintenance, such as major repairs, replacement, and rehabilitation of deteriorated property. DL1.1.20. CHANGE ORDER. See FAR 43.101. DL1.1.21. COMMON ITEM. See FAR 45.601. DL1.1.22. CONFIDENCE LEVEL. A measure of how well the sample represents the status of a lot. A 90 percent confidence level means that a sample will be an accurate representation 90 out of a 100 times. DL1.1.23. CONTRACT. See FAR 2.1. DL1.1.24. CONTRACT ADMINISTRATION OFFICE. See FAR 2.1 and DFARS 204.670-2. DL1.1.25. CONTRACTING OFFICER. See FAR 2.1. DL1.1.26. CONTRACTOR. See FAR 9.403 and 44.100. DL1.1.27. CONTRACTOR-ACQUIRED MATERIAL. Material that is acquired for the Government by the contractor. Title is vested by the provisions contained in FAR 52.245-2 or 52.245-5. DL1.1.28. CONTRACTOR-ACQUIRED PROPERTY. See FAR 45.101. DL1.1.29. CONTRACTOR INVENTORY. See FAR 45.601. DL1.1.30. CONTROLLED SUBSTANCES. See DFARS 245.601. DL1.1.31. CORRECTIVE MAINTENANCE. Maintenance required to return property to such condition that it may be effectively utilized for its designated purpose. DL1.1.32. COST CONTRACT. See FAR 16.302. DL1.1.33. COST-PLUS-AWARD-FEE CONTRACT. See FAR 16.404-2. DL1.1.34. COST-PLUS-FIXED-FEE CONTRACT. See FAR 16.306. DL1.1.35. COST-PLUS-INCENTIVE-FEE CONTRACT. See FAR 16.404- 1. DL1.1.36. COST REIMBURSEMENT CONTRACT. See FAR 16.301-1. DL1.1.37. CRITERION. An evaluative item of a property system function subject to analysis by the appropriate method. DL1.1.38. CUSTODIAL RECORDS. See FAR 45.501. DL1.1.39. DEFECT. A condition in which a functional segment, a sample item or sample item element of a contractor's property control system contains one or more deficiencies. DL1.1.40. DEMILITARIZATION. See DFARS 245.601. DL1.1.41. DISCREPANCIES INCIDENT TO SHIPMENT. See FAR 45.501. DL1.1.42. DoDAAC. Department of Defense Address Activity Code. A unique number incorporated into a MILSTRIP document number, used by any activity requisitioning through the DoD supply system. DL1.1.43. DoDAAD. Department of Defense Address Activity Directory. A listing of DoDAACs. DL1.1.44. ELEMENT DEFECT. A single sample item element of data that is either erroneous or omitted as part of a criterion. DL1.1.45. ENCOURAGE. See Qualifiers. DL1.1.46. EXCESS PROPERTY. Property no longer required in the performance of the contract for which it was acquired. DL1.1.47. FACILITIES. See FAR 45.301. DL1.1.48. FACILITIES CONTRACT. See FAR 45.301. DL1.1.49. FIRM-FIXED-PRICE CONTRACT. See FAR 16.202. DL1.1.50. FIXED-PRICE-INCENTIVE CONTRACT. See FAR 16.403. DL1.1.51. GOVERNMENT-FURNISHED MATERIAL. Material owned by the Government and furnished to a contractor for utilization for specific contract purposes. Title to all material furnished by the Government will remain in the Government. DL1.1.52. GOVERNMENT-FURNISHED PROPERTY. See FAR 45.101. DL1.1.53. GOVERNMENT PROPERTY. See FAR 45.101. DL1.1.54. HAZARDOUS MATERIAL. Any used or unused personal property, including scrap and waste, that is ignitable, corrosive, reactive, or toxic because of its quantity, concentration, or physical, chemical, or infectious characteristics. The property can be in a solid, liquid, semi-liquid, or contained gas form and may cause or significantly contribute to an increase in mortality or serious illness, or pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, disposed of, or otherwise managed. DL1.1.55. HAZARDOUS WASTE. Any used or unused hazardous material that has no known utility and, therefore, must be discarded. This includes hazardous material not otherwise disposed of through plant clearance that the contractor has been authorized by the Plant Clearance Officer to dispose of as a hazardous waste. DL1.1.56. INDIVIDUAL ITEM RECORD. See FAR 45.501. DL1.1.57. INDUSTRIAL PLANT EQUIPMENT. See DFARS 245.301. DL1.1.58. INDUSTRIAL PREPAREDNESS PLANNING. See DFARS 208.0-3. DL1.1.59. INSPECTION. See FAR 45.101. DL1.1.60. INTERDIVISIONAL WORK AUTHORIZATION. See Interorganizational Transfer. DL1.1.61. INTERORGANIZATIONAL TRANSFER (IOT). Those materials, supplies, and services that are, or will be, transferred to a performing division from other divisions, subsidiaries, or affiliates under the control of the same parent entity as the performing division. IOTs are also referred to as Interdivisional Work Authorization (IDWA) or Assist Work Authorization (AWA). DL1.1.62. INVENTORY CONTROL POINT. An organizational unit or activity within the DoD supply system that is assigned primary responsibility for material management for a group of items, either for a particular service or for the Department of Defense as a whole. Material management includes cataloging direction, requisition computation, procurement direction, distribution management, disposal direction, and generally rebuild direction. DL1.1.63. ITEM DEFECT. A reviewed sample item containing single or multiple element discrepancies having significant impact. DL1.1.64. ITEM MANAGER. An individual within the organization of an inventory control point or other such organization assigned the management responsibility for one or more specific items of material. DL1.1.65. JUDGMENT SAMPLING. The process by which a number of items or areas are selected from the population for analysis without meeting the random selection and sample size criteria in Appendix 4. DL1.1.66. LACK OF GOOD FAITH. Failure to honestly carry out a duty including gross neglect or disregard of the terms of the Government property clause or of appropriate directions from the Property Administrator (PA). DL1.1.67. LEASE. Grant or rights by a lessor to a lessee to possess and use real or personal property for a period of time in exchange for rent or other consideration. DL1.1.68. LINE ITEM. See FAR 45.601. DL1.1.69. LOT. An aggregation of documents, records, articles, or actions selected for review due to common characteristics. Also referred to as universe or population. For evaluation of the lot, all characteristics for which a lot is tested must be common to all units within the lot. DL1.1.70. MANAGEMENT CONTROL ACTIVITY. DoD Component-designated activity that initially receives and controls requisitions for Government-furnished material supplied from the wholesale DoD supply system to support defense contracts or requirements. DL1.1.71. MANAGERIAL PERSONNEL. Includes the contractor's directors, officers, and any of the contractor's managers, superintendents, or equivalent representatives who have supervision or direction of all or substantially all of the contractor's business, all or substantially all of the contractor's operation at any one plant or separate location at which the contract is being performed, or a separate and complete major industrial operation connected with performing the contract. DL1.1.72. MASTER GOVERNMENT-FURNISHED EQUIPMENT LIST. A listing of Government-furnished equipment to be furnished a contractor in support of a particular weapon system. The listing identifies Government-furnished equipment by quantity and nomenclature for the production of one fully configured fly away aircraft. The listings are developed each fiscal year, through Government and/or Contractor negotiations, and are specific to a type, model, and series of production aircraft. DL1.1.73. MATERIAL. See FAR 45.301. DL1.1.74. MATERIAL REQUIREMENTS LIST. A type of bill of material used in material requirements planning systems. DL1.1.75. MATERIAL REQUIREMENTS PLANNING. A purchasing system that provides for the efficient acquisition of materials by analyzing, timing, and combining purchases required for all work performed by a contractor. DL1.1.76. MATERIAL MANAGEMENT AND ACCOUNTING SYSTEM. See DFARS 242.7202 and 242.7203. DL1.1.77. MAY. See FAR 2.101. DL1.1.78. MILITARY STANDARD REQUISITIONING AND ISSUE PROCEDURE. A requisitioning and issue procedure for use by the Military Departments and contractors authorized by the terms of a contract to requisition or move Government material to supply control cognizance. MILSTRIP is a system with uniform codes and punchcard formats designed to provide standard procedures of requisitioning, receiving, and returning Government material and to permit the maximum use of automatic data processing equipment. DL1.1.79. MIN-MAX. A system of maintaining stock control levels of material by establishing maximum stock levels and minimum reorder points, determined by the contractor based on production schedule requirements plus pipeline time. DL1.1.80. NATIONAL STOCK NUMBER. A thirteen-digit catalog code consisting of a four-digit Federal supply class code and a nine-digit national item identification number. DL1.1.81. NONSEVERABLE. See FAR 45.301. DL1.1.82. OFF-THE-SHELF ITEM. See FAR 46.101. DL1.1.83. OPERATOR MAINTENANCE. Maintenance tasks of a minor nature, including preventive maintenance, performed by equipment operators at the most convenient time; i.e., before, during, and after operations. DL1.1.84. OTHER PLANT EQUIPMENT. See DFARS 245.301. DL1.1.85. PLANT CLEARANCE. See FAR 45.601. DL1.1.86. PLANT CLEARANCE OFFICER. See FAR 45.601. DL1.1.87. PLANT EQUIPMENT. See FAR 45.101. DL1.1.88. POPULATION. An aggregation of documents, records, assets, or actions selected for review due to common characteristics. See Lot. DL1.1.89. PRE-AWARD SURVEY. See FAR 9.101. DL1.1.90. PRECIOUS METALS. See FAR 45.601. DL1.1.91. PREVENTIVE MAINTENANCE. See FAR 45.509-1(b). DL1.1.92. PRIME CONTRACTOR. See DFARS 246.770.1. DL1.1.93. PRIVITY OF CONTRACT. The contractual relationship that exists between two parties; i.e., Government and prime contractor, or prime contractor and subcontractor. DL1.1.94. PROCEDURES. A detailed written description of the contractor's operation for the control, use, and care of property while in the contractor's possession. It should identify individuals or components of the contractor's organization having specified and delineated functions and authorities for property management, precisely what must be done by whom. It should provide coverage for each element of control that applies to the type and use of the property provided under the contract. Suspense controls should exist for time-phased obligations, submission of reports, time-scheduled maintenance, and/or physical inventory. DL1.1.95. PRODUCTION SCRAP. See DFARS 245.601. DL1.1.96. PRODUCTION SPECIAL TEST EQUIPMENT. See DFARS 215.873. DL1.1.97. PRODUCTION SPECIAL TOOLING. See DFARS 215.873. DL1.1.98. PROGRESS PAYMENT INVENTORY. That property acquired by the contractor to which the Government has a vested interest solely through FAR 52.232-16, the Progress Payment Clause provisions. DL1.1.99. PROPERTY. See FAR 45.101. DL1.1.100. PROPERTY ADMINISTRATOR. See FAR 45.501. DL1.1.101. PROPERTY CONTROL SYSTEM. The system that identifies a contractor's internal management program encompassing the protection, preservation, accounting for, and control of property from its acquisition through disposition. DL1.1.102. PROPERTY RECORDS. Records that are construed to include all documents reflecting the status of property and are not restricted to stock record cards or other forms used as an inventory record. DL1.1.103. PROPERTY SYSTEM FUNCTION. A major portion of a contractor's property control system; e.g., property management, acquisition, receiving, identification, records, movement, storage, physical inventories, reports, consumption, utilization, maintenance, subcontractor and/or alternate location control, disposition, and contract close out. DL1.1.104. PROPERTY SYSTEM FUNCTIONAL SEGMENT. A portion of a property system function of property control that may be separately identified and contains similar properties, procedures, and conditions of control that can be isolated for purpose of analysis. DL1.1.105. PURPOSEFUL SAMPLING. The process by which known, suspected, or reported conditions of a critical or substantial nature are used to select areas, items, or actions for review to determine the possible adverse systemic impact. It is closely related to judgment sampling in that a purely random sample is not drawn. DL1.1.106. QUALIFIERS DL1.1.106.1. ENCOURAGED. Used where it is recommended an action be taken but not imperative. Factors affecting whether the action is to be taken or not may include: DL1.1.106.1.1. PA is not in residence. DL1.1.106.1.2. Time constraints or workload. DL1.1.106.1.3. Non-applicability of the item being reviewed. DL1.1.106.2. MAY. See FAR 2.101. DL1.1.106.3. SHALL. See FAR 2.101. DL1.1.107. QUALITY ASSURANCE REPRESENTATIVE. See DLAH 8200.1, AR 7002-4-1, AFP 74-17. DL1.1.108. REAL PROPERTY. See FAR 45.101. DL1.1.109. REPAIRABLE ITEM. An unserviceable item that can be reconditioned or economically repaired for reuse. DL1.1.110. RESIDUAL VALUE. See FAR 31.001. DL1.1.111. RISK. A measure of those instances where a sample will not be an accurate representation of the lot. For example, a sampling plan having a 90 percent confidence level means that a sample will not be an accurate representation of the lot 10 out of 100 times. DL1.1.112. RISK OF LOSS. Liability or responsibility for bearing the cost of loss, damage, or destruction of Government property. DL1.1.113. SALVAGE. See FAR 45.501. DL1.1.114. SAMPLE. A number of items; e.g., documents, records, articles, or actions, selected from a lot for a review in order to draw inferences regarding and generalizable to the status of the lot. DL1.1.115. SAMPLE ITEM. A single document, record, article or action from the sample. DL1.1.116. SAMPLE ITEM ELEMENT. A single element from a sample item subject to evaluation; e.g., name or nomenclature, description, National Stock Number, quantity received, quantity issued, balance on hand, etc. DL1.1.117. SCRAP. See FAR 45.501. DL1.1.118. SELF INSURANCE. See FAR 31.001. DL1.1.119. SENSITIVE. Property for which the theft, loss, or misplacement could be potentially dangerous to the public safety or community security, and which must be subject to exceptional physical security, protection, control, and accountability. The following types of property should be designated as "sensitive" in the contractor's property management system: DL1.1.119.1. Weapons such as carbines, grenade launchers, rocket launchers, machine-guns, pistols, recoilless weapons, revolvers, rifles, or shotguns. DL1.1.119.2. Ammunition for the above weapons. DL1.1.119.3. Explosives including demolition material; e.g., detonators, charges, blasting caps, firing devices, fuses, primers, timers, grenades, mines (hand placed), and explosive waste developed from the manufacture of the foregoing. DL1.1.119.4. Narcotics and dangerous drugs. DL1.1.119.5. Radioactive Material. Any item or material that is, in itself, radioactive or that is contaminated with radioactive material giving readings in excess of background radiation as measured on an instrument designed specifically for the type of radiation being emitted. DL1.1.119.6. Hazardous Material. Any used or unused personal property, including scrap and waste, that is ignitable, corrosive, reactive, or toxic because of its quantity, concentration, or physical, chemical, or infectious characteristics. The property can be in a solid, liquid, semi-liquid, or contained gas form and may cause or significantly contribute to an increase in mortality or serious illness, or pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, disposed of, or otherwise managed. DL1.1.119.7. Hazardous Waste. Any material that is a solid waste, as defined under the Resource Conservation and Recovery Act (RCRA), and has also been classified as hazardous in conformity with the provisions of RCRA. The Environmental Protection Agency (EPA) criteria for hazardous waste classification are specified in 40 CFR 261 and will be used to decide whether to deal with a solid waste as hazardous. Also, EPA-approved State hazardous waste programs may identify additional solid wastes as hazardous. These State designations will also be complied with. DL1.1.119.8. Precious Metals. Uncommon and highly valuable metals characterized by their superior resistance to corrosion and oxidation. DL1.1.119.9. Any other item designated by a Defense Agency to be sensitive. DL1.1.120. SERVICEABLE OR USABLE PROPERTY. See FAR 45.601 and DFARS 245.601. DL1.1.121. SHALL. See Qualifiers. See FAR 2.101. DL1.1.122. SOURCE DOCUMENT. A document that serves as a basis for posting information to the records of property to provide an auditable record of all transactions, evidencing acquisition, receipt, consumption, utilization, maintenance, physical inventory, and disposition; e.g., purchase or fabrication order, receiving report, stores requisition, record of equipment usage, record of maintenance performed, inventory ticket, and shipping documentation. DL1.1.123. SPECIAL TEST EQUIPMENT. See FAR 45.101. DL1.1.124. SPECIAL TOOLING. See FAR 45.101. DL1.1.125. STATISTICAL SAMPLING. A technique by which evaluation of attributes or transactions, or facts or conditions obtained from randomly selected samples forms the basis for determining the degree to which an entire lot conforms to standards. DL1.1.126. STOCK RECORD. See FAR 45.501. DL1.1.127. STRATIFICATION. A method of establishing a dollar threshold for the purpose of physical inventory of material; e.g., material under $25.00, items between $25.01 and $99.99, and all items $100 and above as the upper and lower limits by which property is stratified. DL1.1.128. SUBCONTRACT. See FAR 44.101. DL1.1.129. SUBCONTRACTOR. See FAR 44.101. DL1.1.130. SUPPLIES. See FAR 2.101. DL1.1.131. SUPPORTING PROPERTY ADMINISTRATION. Performance of specific property administration functions by another Contract Administration Office (CAO) as requested by the assigned CAO, or the contracting office retaining contract administration responsibility. DL1.1.132. SURPLUS PROPERTY. See FAR 45.601. DL1.1.133. SYSTEM ANALYSIS. An analysis of all applicable functions of a contractor's property control system for the purpose of obtaining overall knowledge of the contractor's performance in complying with the approved property control system and contractual obligations as they pertain to property. DL1.1.134. SYSTEMIC. Pertaining to, affecting, or found throughout a contractor's overall property control system. DL1.1.135. TERMINATION INVENTORY. See FAR 45.601. DL1.1.136. TIME-AND-MATERIALS CONTRACT. See FAR 16.601. DL1.1.137. UNALLOWABLE COST. See FAR 31.001. DL1.1.138. WILLFUL MISCONDUCT. Either a deliberate act or failure to act that causes or results in Loss, Damage or Destruction to Government property. DL1.1.139. WORK-IN-PROCESS. See FAR 45.501. AL1. ABBREVIATIONS AND/OR ACRONYMS AL1.1. AA&E Arms, Ammunition, and Explosives AL1.2. ACO Administrative Contracting Officer AL1.3. ADPE Automated Data Processing Equipment AL1.4. APP Agency-Peculiar Property AL1.5. ASBCA Armed Services Board of Contract Appeals AL1.6. AWA Assist Work Authorization AL1.7. CAM Contractor-Acquired Material AL1.8. CAO Contract Administrative Office AL1.9. CAP Contractor-Acquired Property AL1.10. CNA Certificate of Non-Availability AL1.11. CO Contracting Officer AL1.12. CRAG Contractor Risk Assessment Guide Program AL1.13. CRE Centrally Reportable Equipment AL1.14. CTR Capital Type Rehabilitation AL1.15. DARIC Defense Automation Resources Information Center AL1.16. DFARS DoD Federal Acquisition Regulation Supplement AL1.17. DIPEC Defense Industrial Plant Equipment Center AL1.18. DIS Defense Investigative Service AL1.19. DoD Department of Defense AL1.20. DoDAAC DoD Activity Address Code AL1.21. DoDAAD DoD Activity Address Directory AL1.22. FAR Federal Acquisition Regulation AL1.23. FBI Federal Bureau of Investigation AL1.24. FFP Firm-Fixed Price AL1.25. FIFO First-in, First-out AL1.26. FPI Fixed-Price Incentive AL1.27. FSC Federal Supply Class AL1.28. GAO General Accounting Office AL1.29. GBL Government Bill of Lading AL1.30. GCAHB Grant and Cooperative Agreement Handbook AL1.31. GFM Government-Furnished Material AL1.32. GFP Government-Furnished Property AL1.33. GP Government Property AL1.34. GSA General Services Administration AL1.35. IDWA Inter-Divisional Work Authorization AL1.36. IG Inspector General AL1.37. IPE Industrial Plant Equipment AL1.38. IPMS Industrial Property Management Specialist AL1.39. IOT Inter-Organizational Transfer AL1.40. LDD Loss, Damage, and Destruction AL1.41. MCA Management Control Activity AL1.42. MDR Material Deficiency Report AL1.43. MGFEL Master Government-Furnished Equipment List AL1.44. MMAS Material Management and Accounting System AL1.45. MILSTRIP Military Standard Requisitioning and Issue Procedure AL1.46. NASA National Aeronautics and Space Administration AL1.47. NEMS NASA Equipment Management System AL1.48. NEVS NASA Equipment Visibility System AL1.49. NFS NASA FAR Supplement AL1.50. OM Operator Maintenance AL1.51. O&R Overhaul and Repair AL1.52. OMR Overhaul, Maintenance, and Repair AL1.53. OPE Other Plant Equipment AL1.54. OSD Office of the Secretary of Defense AL1.55. PA Property Administrator AL1.56. PCO Procuring Contracting Officer AL1.57. PE Plant Equipment AL1.58. PEP Plant Equipment Package AL1.59. PLCO Plant Clearance Officer AL1.60. PM Preventive Maintenance AL1.61. PO Purchase Order AL1.62. PR Purchase Request AL1.63. QAR Quality Assurance Representative AL1.64. QDR Quality Deficiency Report AL1.65. R&D Research and Development AL1.66. RoD Report of Discrepancy AL1.67. RTTST Right to Title Special Tooling AL1.68. SPA Support Property Administration AL1.69. ST Special Tooling AL1.70. STE Special Test Equipment AL1.71. TDR Transportation Discrepancy Report C1. CHAPTER 1 GENERAL INFORMATION C1.1. PURPOSE C1.1.1. This Manual sets forth instructions to ensure uniformity and consistency in the administration of contract provisions relating to Government property in the possession of contractors. It also provides direction for Property Administrators (PAs) to perform other specific responsibilities. This Manual is applicable to all DoD personnel having responsibilities in this area. It prescribes procedures and techniques to: C1.1.1.1. Meet management data requirements of the Government. C1.1.1.2. Ensure performance of property management to protect the interests of the Government at minimum cost through a uniform DoD contract property administration program. C1.1.2. The scope of the program shall be determined by the complexity of the contractor's property control system, the amount of Government property, and other conditions revealed by review of the contracts and correlation of their provisions with the property control system. C1.1.3. Management of Government property must be based on the objective of maximizing return on investment in property. It must consider the types and amounts of property, program criticality, an assessment of areas of greatest risk to the Government, and past contractor performance. It must also minimize the administrative burden for the Government and contractor. Use of commercially established property management practices are encouraged unless they are in conflict with contractual requirements or create an unacceptable risk to the Government. C1.1.4. It is the Government's policy to rely upon Government contractors to be accountable for and maintain official records of Government property in their possession. Contractor records are essential for contract property management. Maintenance of duplicate records by the Government is discouraged as it is costly and creates significant administrative burden for both the Government and contractor to reconcile records. The efficacy of contractor records and other aspects of contractor property control systems will be reviewed through Government-conducted property system analyses with augmentation by contractor audit personnel when determined appropriate by the Government. The PA is responsible for the adequacy of these Government reviews. The extent of documentation needed is to be determined by the PA as long as it can be demonstrated that evaluation methods are effective in identifying and resolving significant problems. System analyses documentation is secondary in importance to the quality of technical aspects of the reviews. PAs are cautioned to avoid compromise of other responsibilities for the sake of cosmetic improvements in systems analyses documentation. C1.1.5. It is the Government's objective to clearly establish contractor requirements for management of Government property. The Government encourages contractor internal audits and systems analyses to identify the need for and to implement improved property management practices. The PA shall consider the extent and effectiveness of these reviews in determining the extent of Government review. C1.1.6. All facets of Government property management require the highest degree of ethical standards to be applied by both Government and contractor personnel. Contractors are encouraged to develop and implement policies and procedures addressing ethics in Government property management. Questionable and unethical property practices must be immediately reported through appropriate management levels and disciplinary action taken. C1.1.7. The primary responsibility of the PA is to administer the provisions of Government contracts that deal with Government property. As such, Government property personnel must also emphasize providing support and assistance to contracting officers, program offices and logisticians, as well as direction to contractors. C1.2. OBJECTIVES OF PROPERTY ADMINISTRATION The primary objective of the property administration function is to attain efficient, economic, and uniform management of all Government property required for the performance of contracts. The function is mainly to administer the terms of contract provisions that specify the contractor's obligations to acquire, control, use, care for, report, and dispose of Government property, and to advise contracting activities and other DoD officials of the known level of efficiency of the contractor's management of Government property. C1.3. DUTIES AND RESPONSIBILITIES OF THE PROPERTY ADMINISTRATOR The PA shall be responsible for: C1.3.1. Administering contract provisions, requirements, and obligations relating to Government property in the possession of contractors. General clauses include the FAR 52.245 clauses. C1.3.2. Participating in pre-award surveys and post-award reviews. C1.3.3. Reviewing contracts assigned for property administration to assure that property is identified in the contract and that general and special contract provisions dealing with property are included, when applicable. C1.3.4. Ensuring that contractor property organizations are aware of and understand applicable provisions of Government contracts dealing with property including FAR 45.5. C1.3.5. Establishing contract property control data files. C1.3.6. Providing the contractor officer with recommendations concerning liability for loss, damage, or destruction (LDD) of property on the basis of contract terms and conditions. C1.3.7. Granting relief of responsibility for LDD of Government property on the basis of contract terms and conditions when authorized through the PA's certificate of appointment. C1.3.8. Performing functions as prescribed by FAR 45.5. C1.3.9. Developing and applying a property systems analysis program to assess the effectiveness of contractor Government property management systems. C1.3.10. Evaluating the contractor's property management system; approving the system or recommending disapproval where systems create an unacceptable risk of loss, damage, or destruction of property. C1.3.11. Advising the Contracting Officer (CO) and other affected Government managers regarding the contractor's noncompliance with approved procedures, contractual requirements, and other significant problem areas. C1.3.12. Notifying the CO in the event of excessive acquisition by the contractor and recommending cost disallowance, or other appropriate remedy. C1.3.13. Performing program or Agency-oriented reviews of property acquisition, control, management, use, and disposition as dictated by contracting conditions where applicable. C1.3.14. Supporting and assisting contractor's management, contracting officers, program managers, and other functions in resolution of property administration matters. C1.3.15. Reviewing Government-furnished material for receipt and reconciliation in accordance with FAR 45.5 and the reports provided by the Management Control Activity (MCA) in accordance with DoD Instruction 4140.48. C1.3.16. Providing guidance, counsel, and direction to Government and contractor managers and technicians related to regulatory and contractual requirements for management of Government property. C1.3.17. Ensuring that the contractor promptly reports excess Government property for disposition in accordance with contract provisions. C1.3.18. Supporting the assigned Plant Clearance Officer to ensure prompt and proper disposition of contractor inventory. C1.3.19. Obtaining and reviewing contractually required reports of property for all assigned contracts. C1.3.20. Preparing and submitting other reports prescribed by higher headquarters. C1.3.21. Requesting supporting property administration. C1.3.22. Performing supporting property administration. C1.3.23. Recognizing the functions of other Government personnel having cognizance of property, and obtaining their assistance when required. (These functions include, but are not limited to, contract administration, plant clearance, contract audit, quality assurance, engineering, pricing, subcontracting, production, transportation, and other technical areas. Assistance and advice on matters involving analyses of the contractor's accounting records, financial aspects of contractor property reports, and on any other appropriate financial audit matters shall be obtained from the Defense Contract Audit Agency auditor, through the CO.) C1.4. PROPERTY ADMINISTRATOR ROLE IN THE CONTRACT ADMINISTRATION MISSION The role of the PA is to support the contract administration function. The PA is an authorized representative of the CO regarding the contractual and technical aspects of Government property. The PA is part of the contract administration team that includes the CO, Price Analyst, Industrial Specialist, Transportation Specialist and Quality Assurance Representative (QAR). As a team member, the PA must establish effective communications with these other functional elements. C1.5. APPOINTMENT OF PROPERTY ADMINISTRATORS The PA acts on behalf of the CO and is appointed in writing by a "Certificate of Appointment" in accordance with Agency directions. Direction for appointment of PAs is provided in DFARS 245.7001. Specific procedures for appointment and the issuance of a certificate of appointment shall be established by the individual Agencies. C2. CHAPTER 2 CONTRACTUAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS C2.1. INTRODUCTION C2.1.1. PAs have a variety of responsibilities to ensure that Government property in the possession of Government contractors is properly managed. The most critical and basic of these responsibilities is the administration of specific contract provisions relating to Government property. Most other responsibilities, including property system analyses, are intended to support this primary responsibility. C2.1.2. PAs are responsible for having a thorough understanding of all contract provisions pertaining to Government property. These include: C2.1.2.1. The contract clauses in FAR 52.245 and DFARS 252.245, and other applicable clauses, as well as any special contract provisions. C2.1.2.2. The requirements of FAR Part 45, DFARS 245, and as supplemented by agency-unique regulations. C2.1.2.3. The PA is responsible for the enforcement of those provisions in the FAR, DFARS, and Agency supplements that are binding upon the contractor either through incorporation by reference of an appropriate Government property clause, or by direct incorporation in the contract. C2.1.2.4. The Government property clauses at FAR 52.245-2, 52.245-5, and other clauses in FAR 52.245, are the most important for PAs to understand and properly administer. They establish the title, property control, risk of loss, and disposition provisions that generally apply to all Government property. Clauses, such as FAR 52.232-16, 52.249-2, 52.249-6, 52.252-1, etc., may impact the control of other property accountable to Government contracts at various times. The PA shall be familiar with the implications of these clauses and their application where appropriate. C2.1.2.5. PAs must be similarly familiar with special contract requirements relating to Government property. These include the amount of authorized Government-furnished property (GFP), contractor-acquired property (CAP) specified as a line item, authorized use of Military Standard Requisitioning and Issue Procedures (MILSTRIP) for ordering Government property, warranty provisions, and other special provisions. C2.2. INITIATION OF PROPERTY ADMINISTRATION C2.2.1. Control of Assignments. The Contract Administration Office (CAO) shall establish and maintain a Contract Assignment Control Register, or automated equivalent, for each contractor, showing: C2.2.1.1. Contractor's name and address. C2.2.1.2. Procurement instrument identification (PII)(contract) number. C2.2.1.3. Type of contract. C2.2.1.4. Name of the assigned PA and date of assignment. C2.2.1.5. Date of completion or rescission of the contract, or reassignment of the PA. C2.2.2. Contract Review. The PA shall review each contract providing for Government property to estimate the property administration effort that must be applied. The analysis shall be sufficient to determine the types and amounts of Government property to be provided, the administrative effort required, and the management controls necessary for ensuring compliance with contract requirements and development of an appropriate property management plan. C2.2.3. Establishment of Contract Property Control Data Files C2.2.3.1. A Property Summary Data Record shall be established by the PA containing as a minimum the following information: C2.2.3.1.1. Contractor's name and address. C2.2.3.1.2. Contract number. C2.2.3.1.3. Type of contract and applicable property clauses, including special or nonstandard clauses, pertaining to Government property. C2.2.3.1.4. Date of final review and date of execution and transmittal of the DD Form 1593, "Contract Administration Completion Record," or automated equivalent. C2.2.3.1.5. Supporting property administration assignments. C2.2.3.1.6. Name(s) of the PA(s). C2.2.3.2. The PA shall establish a Contract Property Control Data File that shall include as a minimum: C2.2.3.2.1. Property Summary Data Record. C2.2.3.2.2. Copy of the contract or extract of provisions thereof pertinent to property administration, including modification(s) and change orders, relating to Government property, and comparable data regarding any subcontracts involving Government property. C2.2.3.2.3. Record of property system analyses performed, deficiencies disclosed, and corrective actions taken. C2.2.3.2.4. Record of final review and execution of the PA's statement of closure of the contract property account. C2.2.3.2.5. Other pertinent correspondence and documents, including, as applicable, inventory adjustments, investigations, recommendations, and liability determinations. C2.2.3.2.6. Records concerning supporting property administration delegations, assist actions involving special reviews, and other applicable reviews at subcontractor plants. C2.2.3.2.7. Records of inspection and audits pertaining to the pertinent contract that are performed by other activities. C2.2.3.2.8. Reports relating to Government property prepared by the contractor pursuant to the contracts. C2.2.3.3. When a contractor is performing multiple Government contracts, records and other data relating to more than one contract shall be maintained in a general property management file for the contractor. C2.2.3.4. In instances where an improper clause pertaining to Government property is incorporated within the contract, or the appropriate Government property clause is omitted, action shall be taken to resolve the matter with the CO; e.g., issue a "Contract Data Package Recommendation/Deficiency Report" (DD Form 1716) or letter. C2.2.3.5. Property reported to have been received by the contractor without contractual coverage shall be documented in a suspense file by the PA, pending investigation and resolution. C2.2.3.6. When the PA determines that property is accountable to a contract but property administration has not been delegated, the PA shall determine if contract administration has been delegated. If contract administration has been delegated, the PA shall initiate property administration and establish a Property Control Data File, unless specifically excluded by the CAO delegation. Where contract administration has not been delegated, the PA shall coordinate with the CO for resolution. C2.3. ADMINISTRATION OF PROPERTY RELATED CONTRACT PROVISIONS The PA is directed to FAR 45.106 for discussion on the use of the various Government property clauses. The text of these clauses is found in FAR 52.245 and the corresponding DFARS. It is imperative that PAs become familiar, knowledgeable and conversant with these clauses and their application. C2.4. TITLE TO GOVERNMENT PROPERTY C2.4.1. Material C2.4.1.1. Title to all material furnished by the Government remains with the Government. C2.4.1.2. Title to material acquired by the contractor is governed by various contract clauses. The title provisions of FAR 52.245-5 contain two provisions about passage of title of materials to the Government for contractor-acquired materials on cost-reimbursement type contracts. C2.4.1.2.1. When material is purchased by the contractor, the cost of which is reimbursed as a direct item of cost under the contract, title passes to and vests in the Government on delivery of such material by the vendor. C2.4.1.2.2. Title to other material, the cost of which is reimbursable to the contractor, shall pass to and vest in the Government upon: C2.4.1.2.2.1. Issuance of the property for use in contract performance; C2.4.1.2.2.2. Commencement of processing of the property or use in contract performance; or C2.4.1.2.2.3. Reimbursement of the cost of the property by the Government, whichever occurs first. C2.4.1.2.3. The title provisions of FAR 52.245-2 provide that the Government may similarly take title to materials acquired on fixed-price contracts, but only if the contract contains specific provisions for the Government to reimburse the contractor for materials as a direct item of cost under the contract. C2.4.2. Agency-Peculiar Property. APP is generally Government furnished where title remains with the Government. C2.4.3. Special Test Equipment (STE). Acquisition of STE under cost-type contracts. The Government acquires title to all STE purchased or fabricated by the contractor because this acquisition is reimbursable to the contractor. The title to STE shall vest with the Government at the time of acquisition or acceptance according to Government property clauses (52.245-2/5) and STE clause (52.245-18). C2.4.4. Special Tooling. The following are methods by which title to special tooling may be acquired and the differences in contractual requirements that apply to each method of acquisition: C2.4.4.1. Special tooling that is provided as GFP, acquired or manufactured by the contractor under a cost-type contract or acquired for the Government as a line item under a fixed-price contract, is Government property. This special tooling is subject to the provisions of the applicable Government property clauses. C2.4.4.2. The Government may reserve the right to take title to other special tooling acquired or fabricated on fixed-price contracts by incorporation of the special tooling clause (FAR 52.245-17) in the contract. This special tooling is often referred to as right-to-title special tooling. It is recognized that the Government has a vested interest in this tooling and may acquire title to the tooling at a later date to maintain production, support, or spare parts capability for a program. Normally, the Government should avoid taking title to this right-to-title special tooling if it is no longer required by the accountable contract and the Government has not identified a firm or probable requirement for the special tooling. If the Government takes title to this special tooling, it will generally increase the Government's liability and administrative burden associated with Government ownership. C2.4.4.3. Special tooling may also be acquired or manufactured by a contractor for the performance of a fixed-price contract that does not contain the special tooling clause and does not specify that special tooling is to be acquired for the Government. When this occurs, the Government has no rights to the tooling. C2.4.4.4. Production Special Tooling. In these cases, special contract provisions may provide the Government the option to take title to production special tooling acquired by the contractor. The PA shall follow the directions in the special clause on title and control. C2.4.5. Facilities. Facilities may be either Government-furnished or contractor-acquired. The facilities contract clauses, FAR 52.245-7, - 10, and - 11 set forth the title provisions. Facilities may also be acquired on contracts other than facilities contracts. In this instance, the title provisions in the Government property clause included in that instant contract will prevail. C2.5. LIABILITY FOR LOSS, DAMAGE, OR DESTRUCTION OF GOVERNMENT PROPERTY C2.5.1. Scope. This section provides policy and guidance to the PA and other Government and contractor personnel regarding loss, damage, or destruction (LDD) of Government property provided to contractors. C2.5.2. General. Definitions: C2.5.2.1. "Lack of Good Faith." Failure to honestly carry out a duty including gross neglect or disregard of the terms of the Government property clause or of appropriate directions from the PA. Examples are a failure to establish and maintain proper training and supervision of employees, or failure to apply adequate controls to ensure compliance with contract terms. C2.5.2.2. "Willful Misconduct." Includes either a deliberate act or failure to act that causes or results in loss, damage, or destruction to Government property. C2.5.2.3. "Managerial Personnel." Includes the contractor's directors, officers, and any of the contractor's managers, superintendents, or equivalent representatives who have supervision or direction of: C2.5.2.3.1. All or substantially all of the contractor's business. C2.5.2.3.2. All or substantially all of the contractor's operation at any one plant or separate location at which the contact is being performed; or C2.5.2.3.3. A separate and complete major industrial operation connected with performing this contract. This usually refers to the top person in charge of a plant location and is normally the chief executive officer or a vice president or general manager. C2.5.3. Policy. DoD policy generally provides for the Government to act as a self insurer of Government property provided under certain contractual arrangements. This is largely due to DoD studies that have concluded it is more economical for the Government to be a self insurer than to allow a contractor to purchase insurance as an allowable cost (direct or indirect) under a contract. The studies estimated the extent of cost savings to the Government by comparing the cost of a commercial insurance policy to the amount of property losses plus the cost of employing Industrial Property Management Specialists (IPMSs). This means that one of the PA's roles is to represent the Government's interests as a self insurer by determining, through surveillance of the contractor's property control system, whether the contractor is an acceptable insurance risk. However, there are certain situations in which the Government is not a self insurer. An example of this would be under fixed-price contracts awarded through full and open competition (See FAR 52.245-2(g)). In such cases, the contractor is liable for all LDD of Government property with the exceptions of reasonable wear and tear to Government property or for Government property properly consumed in performing the contract. C2.5.4. Contractor Requirements C2.5.4.1. FAR 45.504 requires the contractor to promptly investigate and report all cases of loss, damage, or destruction of Government property to the PA. The PA shall ensure that the contractor's procedures and property control system provide for: C2.5.4.1.1. Internal reporting of any LDD to the responsible contractor property control organization. C2.5.4.1.2. Investigation of such LDD in accordance with the Government property clauses and FAR 45.504. C2.5.4.1.3. Prompt reporting by the responsible contractor organization to the PA, in accordance with FAR 45.504(b) and FAR 45-508-2. C2.5.4.1.4. Additional reporting may be imposed by specific Agency requirements for other types of property, including precious metals, explosives, firearms, hazardous materials, controlled substances, etc. C2.5.4.2. The following information should be requested from the contractor, where applicable, for each case of LDD of Government property: C2.5.4.2.1. Date of incident. C2.5.4.2.2. Description of property including National Stock Number or applicable Part Number or Identification number. C2.5.4.2.3. Contract number. C2.5.4.2.4. Acquisition cost. C2.5.4.2.5. Full narrative of the incident, location, etc. C2.5.4.2.6. Cause and corrective action taken or to be taken to prevent recurrence. C2.5.4.2.7. Estimated scrap proceeds (when applicable). C2.5.4.2.8. Repair direct-labor and material costs (when applicable). C2.5.4.2.9. Estimated cost to replace (when applicable). C2.5.4.2.10. Copies of supporting documentation. C2.5.4.2.11. The contract provision under which relief of responsibility is sought. C2.5.4.2.12. Date of report. C2.5.4.2.13. Statement that no insurance costs or other means of covering LDD of Government property were charged to the contract, if applicable. C2.5.4.2.14. Statement that, in the event the contractor was or will be reimbursed or compensated for LDD of Government property; e.g., reimbursement by a subcontractor, the Government shall receive equitable reimbursement. C2.5.5. PA Requirements C2.5.5.1. Investigation. It is the PA's responsibility to investigate the circumstances of LDD of Government property and review the risk of loss and other contract provisions to determine which party assumes the risk of loss. When the Government assumes the risk of loss, investigations, in some circumstances, may be limited to verifying whether the contractor's report of LDD is accurate. Extensive investigations should only be performed when dollar amounts, nature of the property, and circumstances of the incident warrant it. The assistance of other CAO technical personnel should be requested when appropriate. Where the PA's investigation reveals that the loss or damage was caused by deficiencies in the contractor's property control system, the PA will ensure that: C2.5.5.1.1. The deficiencies are well documented. C2.5.5.1.2. The contractor is notified of the deficiencies. C2.5.5.1.3. Appropriate corrective action's are implemented. If the contractor fails to correct deficiencies in its property control system within a reasonable period of time, the PA must then advise the CO to initiate action under FAR 45.104(c). C2.5.5.2. Records. Each PA shall maintain LDD records that include, as a minimum, the following: C2.5.5.2.1. A log or register of all events of LDD. C2.5.5.2.2. A copy of the contractor's loss report. C2.5.5.2.3. PA investigative report that summarizes the circumstances, causal factors, trends, contract provisions, and recommendation. C2.5.5.2.4. Final resolution. C2.5.6. Determining Contractor Liability C2.5.6.1. Full Risk-of-Loss Provision. This provision is contained in the FAR 52.245-2 Government Property Clause. It specifies that the contractor is liable for any loss of or damage to Government property provided under the contract except for reasonable wear and tear or for consumption in performing the contract. C2.5.6.2. Limited Risk-of-Loss Provision. This provision is contained in the FAR 52.245-2 (ALT 1), 52.245-5 Government Property Clauses and the Liability for Facilities Clause, 52.245-8. One of the circumstances for which the contractor is liable for loss of or damage to Government property is if it is the result of "willful misconduct" or "lack of good faith" on the part of contractor "managerial personnel." Additional circumstances for which the contractor is liable for loss of or damage to Government property would be if it is the result of a risk required to be insured, or a risk that was in fact insured, or where the contractor was responsible under another contract clause. It is important to note that this provision also specifies that when a contractor has failed to establish and maintain an acceptable system for the management of Government property in accordance with the above clauses, and has been notified by certified mail of withdrawal of system approval by the CO, it shall be conclusively presumed that such failure was due to "willful misconduct" or "lack of good faith" on the part of contractor "managerial personnel." Under an approved property control system, the burden of proof rests with the Government to prove that the LDD of Government property resulted from willful misconduct or lack of good faith on the part of the contractor's top-level managerial personnel. However, under a property management system in which approval has been withdrawn, the burden of proof shifts to the contractor who must prove that the LDD of Government property was not connected with any deficiency that caused withdrawal of system approval, or that the loss occurred before withdrawal of system approval. Similarly, under a property management system in which approval has been withheld due to deficiencies discovered in the initial evaluation, the burden of proof rests with the contractor to prove that the LDD of Government property was not connected with any deficiency that caused initial approval of the property control system to be withheld. C2.5.6.3. Risk of Loss Assumed by the Government. If authorized through the PA's Certificate of Appointment, the PA may take direct action as described below if the Government has assumed the risk of loss. The contractor must identify the circumstances that led to the incident, and the provisions under the contract through which risk of loss was assumed. If the PA determines that the LDD of Government property constitute risks assumed by the Government, the PA shall notify the contractor in writing, that the risk of loss is the responsibility of the Government. A copy of the documentation and notification to the contractor shall be retained in the Contract Property Control Data File for the contract. An informational copy shall be provided to the CO. Additional reporting may be prescribed by Agencies. C2.5.6.4. Recommending Liability. If the PA concludes that the contractor should be liable, a fully documented and detailed case file, including the PA's recommendation, will be forwarded to the CO for review and determination. The file shall contain the following: C2.5.6.4.1. A statement of facts as supported by the investigation. C2.5.6.4.2. Recommendations as to the contractor's liability and the amount thereof. C2.5.6.4.3. Recommendations as to actions to be taken with regard to third-party liability, if appropriate. C2.5.6.4.4. Requirements for disposition, repair, replacement of the damaged property. C2.5.6.4.5. Other pertinent comments. A copy of the CO's determination shall be furnished to the contractor, to the PA, and a copy shall be retained in the files of the CO. The PA's copy shall be filed in the Contract Property Control Data File for the contract when all pertinent actions, such as compensation to the Government or repair or replacement of the property, have been completed. In the event that the contractor acknowledges liability, the PA will notify the CO in writing requesting a decision as to course of action required for equitable settlement. C2.5.6.5. Quantification of Liability. When the contractor is liable for LDD of Government property, the PA is responsible for providing the CO a recommended amount for which the contractor should be held liable. Historically, the maximum amount that the Government could recover was the asset's original acquisition cost. Generally, the Government can recover the market value of the item. However, depending on the circumstances, replacement value or value to the Government may be recovered. In a case where the PA determines that the lost, damaged, or destroyed item would have had no reasonable prospect of continued use by the Government, the contractor would only be liable for the sales or scrap value the Government would have received if the item had been properly processed through plant clearance. C2.5.6.6. Special Contract Provisions. The contracting officer may insert nonstandard risk-of-loss provisions in the contractor where the Government does not assume the risk of loss for Government property provided under the contract. Therefore, nonstandard risk-of-loss provisions shall be thoroughly reviewed by the PA before a determination of liability is made by the CO. In such cases, the CO should obtain legal assistance before determining liability. C2.6. OTHER CONTRACTUAL ACTIONS C2.6.1. In addition to the non-acceptance or disapproval of the contractor's property control system, the PA may recommend to the CO the following: C2.6.1.1. Suspension or Reduction of Progress Payments under Fixed-Price Contracts. If deficiencies affecting Government property identified by the PA have a known or perceived impact on fixed-price contract performance, the PA shall report the condition to the CO for possible reduction of progress payments, if appropriate. C2.6.1.2. Disallowance or Reimbursement of Costs Under Cost-Type Contracts. When the PA believes there may be grounds for disallowance of costs under cost-type contracts, the PA's recommendation and supporting documentation to suspend reimbursement or disallow costs on the contracts shall be forwarded to the CO for a decision. C2.6.1.3. Award Fee Determinations. The criteria in the contract for determining the amount of award fee is sufficiently flexible so that unsatisfactory conditions in the contractor's property control system may be a factor for reducing the amount of the award fee. The PA may take the following steps affecting the amount of award fee: C2.6.1.3.1. Prepare and document the proposed action, including brief descriptions of each action previously taken to resolve problem areas. C2.6.1.3.2. Forward the proposed action to the CO for incorporation into their recommendations to the Award Review Board. C2.7. CLOSE OUT OF PROPERTY ADMINISTRATION C2.7.1. Final Review and Closing of Contracts for Property Administration C2.7.1.1. When informed that disposition of Government property under a contract has been completed, the PA shall perform a final review, which shall determine whether: C2.7.1.1.1. Disposition of Government property has been properly accomplished and documented. C2.7.1.1.2. Adjustment documents, including request of the contractor for relief from responsibility, have been processed and completed. C2.7.1.1.3. Proceeds from disposals or other property transactions, including adjustments, have been properly credited to the contract or paid to the Government as directed by the contracting officer. C2.7.1.1.4. All questions regarding title to property fabricated or acquired under the contract have been resolved and appropriately documented. C2.7.1.1.5. The close out DD Form 1662, "DoD Property in the Custody of Contractors," or comparable document prescribed for non-DoD Agencies (e.g., NASA 1018), has been prepared and submitted to the PA. C2.7.1.1.6. The Contract Property Control Data File is complete and ready for closure. C2.7.1.2. When final review pursuant to paragraph C2.7.1.1., above, reveals that property-related actions for contracts are complete, the PA shall sign or process a "Contract Administration Completion Record" (DD Form 1593), or automated equivalent, and attest that: C2.7.1.2.1. All Government property provided under the contract has been properly accounted for. C2.7.1.2.2. There are no unresolved questions related to contractor liability for Government property and/or title to property acquired or fabricated under the terms of the contract. C2.7.1.2.3. The PA has accomplished all pertinent duties and responsibilities as required by the FAR, the contract, and this Manual. C2.7.1.3. The completed DD Form 1593, or automated equivalent, shall be provided to the CO and the Property Summary Data Record shall be so annotated. C2.7.2. PA Interface with Other Contract Administration Personnel During Contract Closure C2.7.2.1. The PA shall interface with the CO and other technical personnel, as required, during contract closure to ensure that all Government property accountable to the contract is promptly transferred to other contracts or otherwise disposed of. C2.7.2.2. Closure of property records is required before final contract closeout and may be completed significantly before contract closeout. C2.7.3. Premature Closeout of Contracts. The PA shall take action to have any prematurely closed contract reopened by the cognizant CO. When this is impractical, a suspense file shall be maintained for that contract by the PA to ensure that all property is properly disposed of without creating an undue risk to the Government. C3. CHAPTER 3 TECHNICAL ELEMENTS OF THE PROPERTY ADMINISTRATION PROCESS C3.1. SCOPE. This chapter provides policy and guidance for PAs in performing the technical elements of the property administration process. C3.2. GENERAL C3.2.1. Material. Material is defined in FAR 45.301. Material is further subdivided into Government-furnished material (GFM) and Contractor-acquired material (CAM). C3.2.1.1. GFM is material that is owned by the Government and furnished to a contractor for utilization for specific contract purposes. C3.2.1.2. CAM is material acquired for the Government by the contractor. C3.2.1.3. Material management is the process of providing the required quantity and quality of material needed for contract performance, at the required time and place, with the minimum overall investment. Material control includes planning of material requirements, initiating transfers, requisitioning of GFM, ordering materials and parts from vendors, ordering fabrication of parts, receiving and incoming inspection, recordkeeping of materials on hand to determine when and what to reorder, and the storing and issuing of raw materials and component parts. It pertains to research and development operations as well as production. Management of material is essential to effective contract performance. C3.2.2. Agency-Peculiar Property (APP). APP is defined in FAR 45.301 and DFARS 245.301. C3.2.2.1. Special reusable containers for transportation or storage of end items, equipment, or materials will normally be controlled as APP. Containers for storage or transportation of special tooling and special test equipment are generally considered as an accessory to the special tool or special test equipment. C3.2.2.2. Items returned for rework or repair under warranty provisions of Government contracts will be controlled as APP until repaired or replaced and returned to the Government. C3.2.2.3. Items returned as exhibits on material deficiency reports (MDRs) or quality discrepancy reports (QDRs) shall be controlled in accordance with agency procedures. C3.2.3. Special Test Equipment (STE). STE is defined in FAR 45.101. STE units or assemblies generally consist of interconnected special or general purpose electrical, hydraulic, pneumatic, mechanical, or other items. This arrangement causes the individual items to become a unified assembly used in the performance of special testing. Unless otherwise specifically provided by terms of a contract, STE includes all dedicated components of any STE assembly. General purpose plant equipment used for common tests on products do not qualify as STE. C3.2.4. Special Tooling (ST) C3.2.4.1. ST is defined in FAR 45.101. Management of special tooling includes the specific areas of acquisition, identification, control, maintenance, and disposition. The area of special tooling also involves nonstandard clauses that impact and affect Government title and ownership. PAs should become thoroughly familiar with the requirements and controls to be exerted over special tooling. C3.2.4.2. Contractor's Procedures. The contractor's procedures concerning storage, movement, and maintenance of special tooling must be complete and adequate to protect the Government's interests. When the management of special tooling will not provide adequate control of tooling, significant losses of tooling may occur and costly work delays could result. An effective move order system is essential to maintain the integrity of the location system. The contractor's system must also provide for proper maintenance and preservation of the tooling, depending on the nature of the items. C3.2.5. Facilities. Definitions of facilities, and facilities contracts are found at FAR 45.301. The definition of a facilities project is found at DFARS 245.301. Facilities consist of plant equipment and real property (see FAR 45. 101). The Department of Defense further subdivides plant equipment as Industrial Plant Equipment (IPE) and Other Plant Equipment (OPE) (see DFARS 245.301). PAs should be thoroughly familiar with the basic Government regulations and directives applicable to the management of facilities. PAs are also involved in the preparation and submission of various accounting reports to procurement activities and higher headquarters for administrative and budgetary control purposes. C3.2.5.1. Control of IPE can be enhanced by reconciliation between contractor records and records maintained by the Defense Industrial Plant Equipment Center (DIPEC). DIPEC publishes a computer printout report by DoD activity showing what IPE they have on record. This printout can be requested from DIPEC/OAC, 2163 Airways Blvd., Memphis TN 38114-5051. C3.2.5.2. The DIPEC Handbook (DLAM 4215.1, AR 700-43, NAVSUP PUB 5009, and AFM 78-9) shall be used for guidance and direction in completing any DIPEC required forms or reporting. C3.3. POLICY ON PROVIDING GOVERNMENT PROPERTY C3.3.1. Policy on Providing Material. See FAR 45.303-1. C3.3.2. Policy for Providing Agency Peculiar Property. See FAR 45.310. C3.3.2.1. APP is ordinarily furnished under a facilities, supply or service contract but may be furnished under a contract, lease, or bailment agreement. C3.3.2.2. A bailment consists of the delivery of Government property to a contractor for a specific purpose normally related to a prime contract. Bailed property is usually returned to the Government when no longer required by the contractor. Bailment does not include sale, donation, lease, the furnishing of property to a contractor under facilities contracts, or the furnishing of property for consumption or for incorporation in such a manner as to lose its identity in an end product delivered to the Government. A bailment agreement is a contractual agreement that accomplishes the actual bailment of Government property and contains all of the information concerning the bailment. Included are an adequate description of the property, the purpose of the bailment, the use of the property, authorization for modifications that may be made to the property, the period of the bailment, the place from and/or to which the property is to be delivered and/or returned, maintenance requirements, if any, and any other provisions considered necessary. C3.3.2.3. Under 10 U.S.C. 2667, APP, generally major weapon systems, may also be leased to contractors when it is determined that the property is not, for the period of the lease, needed for public use; is not excess property; and the lease will promote the national defense or be in the public interest. It is the Government's policy that leases of military property (Agency-peculiar) will not be made when a counterpart exists on the commercial market. Leases of Government property are awarded to contractors for use as a standard or model for testing their end item, to establish compatibility, commercial sales, Independent Research and Development (IR&D) or for Government improvement and/or developmental programs. The lease shall include all the provisions necessary to describe the property, the purpose of the lease, use of the property, period of the lease, maintenance requirements, inspections upon receipt and return, and other controls deemed necessary. C3.3.3. Policy for Providing Special Test Equipment. See FAR 45.307. C3.3.4. Policy for Providing Special Tooling. See FAR 45.306. C3.3.5. Policy for Providing Facilities. See FAR 45.302. The Government's policy on providing facilities is that contractors shall furnish all facilities required to perform Government contracts. There are very specific policy exceptions, set forth in FAR 45.302-1, where facilities may be furnished to a contractor or a contractor may be authorized to acquire facilities. For example, general purpose plant equipment may be furnished to a contractor for use as a component of STE, or the contractor may be operating a Government-owned plant on a cost reimbursement basis where the contractor is directed to acquire an item of facilities for the Government. As a general policy, facilities shall be provided to a contractor only under a facilities contract. Exceptions to this policy are set forth in FAR 45.302-3. If facilities are provided under a contract other than a facilities contract as set forth in FAR 45.302-3, they will be managed in the same manner as prescribed in this chapter. Conversely, other types of property are normally provided to a contractor under a supply or services type contract but may also be provided under a facilities ontract. Contractors are not allowed profit or fee on the acquisition of facility items, as set forth in FAR 45.302-2. C3.3.5.1. FAR 45.301 describes the three forms of facilities contracts: C3.3.5.1.1. Facilities acquisition contracts that provide for the acquisition, construction, and installation of facilities. C3.3.5.1.2. Facilities use contracts that provide for the use, maintenance, accountability, and disposition of facilities. C3.3.5.1.3. Consolidated facilities contracts that cover both forms described above in C3.3.5.1.1. and C3.3.5.1.2., above. C3.3.5.2. PAs should read and become familiar with all facilities contract clauses, FAR 52.245-7, 8, 9, 10, and 11. Specific attention should be given to clauses applicable to location of facilities, use and rental charges, maintenance, property control, liability for facilities, notice of use, disposition, and facilities equipment modernization. A facilities contract may also include appropriate provisions for maintenance and storage of Government facilities in standby or layaway status such as a Plant Equipment Package (PEP). Such provisions include specifications for the care and maintenance of the property appropriate for its intended use and may be the same as, or different from, the standard maintenance provisions of the FAR clauses. Facilities contracts normally cover a period of 5 years and may be extended when conditions warrant renewal of such contracts. The facilities to be acquired by the contractor at Government expense and furnished by the Government will be described in the schedule attached to the contract. The authorization for use of such facilities will also be identified by a related procurement contract under the definitions provision of the FAR clauses. This is referred to as the primary purpose for which facilities are provided. Upon completion of the primary purpose, facilities should be declared excess unless a new primary purpose is established, justified, and approved by the Government. C3.3.5.3. Approvals for Facility Projects. See DFARS 245.302-70. C3.3.6. Policy on DoD-Provided Motor Vehicles. See FAR 45.304. When contractors are furnished motor vehicles, the terms of the contract that authorized the vehicles should be carefully reviewed ensure it includes how the vehicles are to be maintained and identified. As a minimum, the contract should reference guidance contained in DoD 4500.36-R, "Management, Acquisition, and Use of Motor Vehicles." If the contract does not provide appropriate instructions for exercising management control of the utilization, operation, maintenance, and recordkeeping of vehicles, the CO should be notified and requested to incorporate in the contract the requirements of DoD 4500.36-R. C3.4. CONTRACTOR MANAGEMENT OF GOVERNMENT PROPERTY C3.4.1. The contractor's management personnel are required to establish and maintain a property control system for the control, use, maintenance, repair, protection, and preservation of Government property in accordance with sound business practice, the applicable provisions of FAR 45.5, and other contractually imposed requirements. C3.4.2. The property management activity established by the contractor's management personnel is usually tasked with the establishment and maintenance of the system. This involves establishment of the procedures, performing or coordinating property administration tasks, and controlling the system. This may include internal review, self-audit, or audit of other activities within the company that perform property administration tasks and that affect Government property control. C3.4.3. Placement of this activity within the organization is critical to the system's effectiveness. Company organization structures differ widely, but placement will facilitate or effectively curtail efficient property management. Analysis of the contractor's system may reveal that the organizational placement of the property administration function has impacted the establishment or maintenance of the system, or has prevented reporting and/or resolution of deficiencies. Effective placement will facilitate communications between other company activities and upper management. C3.5. ACQUISITION OF GOVERNMENT PROPERTY C3.5.1. Material C3.5.1.1. Determination of Material Requirements. The material control system is closely related to several other functions in the manufacturing process. Engineering organizations provide technical data in the form of drawings, bills of material, and material specifications. Production planning initiates production orders for fabrication of component parts and materials. Material control manages availability of parts and materials necessary for contract performance. To adequately evaluate and understand the contractor's property control system, the PA must be thoroughly familiar with the operation and function of each of these organizational units. C3.5.1.2. Methods of Acquisition. There are two basic methods of providing material to a contractor. The Government may furnish the material (GFM) or the Government may authorize the contractor to acquire material for the Government (CAM). The following paragraphs reflect the basic means of acquisition by the two methods, and the differences in contractual requirements that apply to each. C3.5.1.2.1. GFM. There are two subcategories of GFM, Government Source Material and Transferred Material. C3.5.1.2.1.1. Government Source Material C3.5.1.2.1.1.1. "Government Directed" (Pushed) material may be provided to a contractor according to specific contract terms and provisions. No request from the contractor is required to obtain delivery of the items. This may be either Military Standard Requisitioning and Issue Procedure (MILSTRIP) (Pushed) or contract source where the Government performs all the tasks associated with furnishing this material. C3.5.1.2.1.1.2. "Contractor Requisitioned" Government material is provided to a contractor when the contractor requests the material in accordance with the contract terms. The form of the request will be dictated by contract, utilizing the MILSTRIP system, that includes electronic transmission of orders (requisitions), requisitioning by telephone, mailed requisitions, or formatted messages (teletype). C3.5.1.2.1.1.3. The PA must be fully aware of the contractor's authority to requisition GFM and be similarly aware of the GFM that is authorized for each Government contract. The PA must ensure that the contractor's property control system requisitions only those items and quantities of GFM authorized and fully accounts for those assets. The PA must also ensure that GFM delivered from the Government is received, controlled, and consumed in accordance with the contract provisions. In the event that the contractor receives items or quantities of GFM that are not contractually authorized, it must be reported in accordance with FAR 45.502(g). The PA shall encourage contractors to advise the CO of such discrepancies and request disposition instructions or contractual authorization for retention. C3.5.1.2.1.2. "Transferred" Government material means that the Government has authorized the accountability of material to be transferred to a contract from another contract or Government source. When beneficial to the Government, and when consideration has been received, for fixed-price gaining contracts usually in the form of a reduction in the contract price, the Government may authorize a transfer from one contract to another; the material provided to the gaining contract is considered to be Government-furnished material (GFM). When COs give verbal approval for transfer, the approvals must be confirmed by the COs in writing, as required by the Government property clauses under changes in Government-furnished property. These written approvals should be in the form of appropriate contract modifications. In situations where the PA finds that contracts have not been modified, the facts should be provided to the CO for action. The practice of verbal approvals is discouraged, and should only be implemented due to the exigency of the situation. Written follow-up shall be provided. C3.5.1.2.2. Contractor-Acquired Material C3.5.1.2.2.1. Cost-type and time-and-materials contracts allow the contractor to acquire material for the Government as a direct charge to the contract. Title vests with the Government through the provisions of the Government property clause FAR 52.245-5(c). Fixed-price type contracts may provide for the contractor to acquire material for the Government as a direct charge to the contract when specifically listed as a line item in the contract. Title vests with the Government through the provisions of the Government property clause FAR 52.245-2(c). The method the contractor selects to acquire material for the Government is based upon several factors (determination of items needed, schedules of production or delivery, source identification, and quantities required). C3.5.1.2.2.2. The first source for acquiring material should be an internal review of available in-house assets that are excess to other requirements. These materials are made available to meet new requirements through internal material transfer practices. Such transfers must be carefully monitored to ensure that they are authorized and properly accomplished. C3.5.1.2.2.2.1. Credit-Debit System. The preferred method of transfer is a credit-debit system for contractor-acquired material where the losing contract is credited for the cost of the material and the gaining contract is debited for the costs. This supports the FAR 31.205-26 policy that material costs should be home by the contract that consumes material when materials are required for specific contracts. Note that this system applies only to contractor-acquired material. It does not apply to Government-furnished material. C3.5.1.2.2.2. Transfer of Material through Contract Modification. CAM material may be transferred to a contract when authority to receive such property as GFM is in the schedule or specifications of the gaining contract, or when such items are a suitable substitute for material described in the schedule or specifications of the gaining contract or if the contract contains provisions for unilateral increase in the amount of material furnished by the Government. Transfers should be accomplished according to instructions in the gaining contract or, in the absence of complete instructions in the contract, documentation pertaining to the transfer should be forwarded to the CO for equitable adjustment of the gaining contract and any other required action. Transfers should not be accomplished unless authorized in the receiving contract and no longer required on the losing contract. The Government should receive consideration whenever CAM is so transferred; if not, the Government may pay more than it should and the contractor stands to receive a competitive advantage. Upon transfer CAM becomes GFM. C3.5.1.2.2.3. Benefits of a Credit-Debit System Over Contract Modification Transfers C3.5.1.2.2.3.1. Credit-Debit systems charge material costs to the contract that benefits by the transfer that meets the intent of FAR 31.205-26. In contrast, Contract Modification transfers incur costs against one contract or program for property ultimately used on another contract or program. This could constitute a violation of the Anti-Deficiency Act. Credit-Debit system does not require contractual modifications as they are internal contractor accounting transactions. C3.5.1.2.2.3.2. Contract Modification transfers require modification to the gaining contract to authorize the property to be provided as GFM and to ensure that the Government receives consideration for the property. If this is not done properly, the Government may pay more than it should and contractors may receive a competitive advantage for materials provided as GFM. C3.5.1.2.2.3.3. When material is to be transferred to Government contracts with no other Government property, Contract Modification transfers require that a Government property clause be added to those contracts. This action would be unnecessary if a Credit-Debit system transfer was used. Contract Modification transfers frequently increase Government administrative burden and complicate the risk of loss provisions when material is transferred to fixed-price contracts. Credit-Debit system transfers retain the risk-of-loss provisions that apply to other material acquisitions for the contract. C3.5.1.2.2.3.4. Credit-Debit system transfers facilitate future transfers to later contracts since excess contractor-acquired materials can be retained at cost by the contractor for other uses in accordance with FAR 45.6. However, once the assets become GFM through a Contract Modification transfer, future transfers or contractor retention requires specific Government approval. C3.5.1.2.2.4. Contractor Procedures. Contractor procedures should include controls over all types of transfers. Procedures should include provisions that transfers are reviewed and approved at an appropriate level of contractor management. The review should validate necessity and authority on the gaining contract and ensure that the transfer will not adversely impact the losing contract. The review should also ensure that approvals are obtained where required. Contractor procedures should also provide controls to: C3.5.1.2.2.4.1. Ensure that all quantities and items being transferred are required in the receiving contract. C3.5.1.2.2.4.2. Ensure that, for Credit-Debit system transfers of contractor-acquired material, all costs pertaining to such material, including general and administrative, are withdrawn and transferred with the material, and costs for such material are allowable on the contract to which transferred. C3.5.1.2.2.4.3. Ensure that proper accountability for property is maintained during the transfer process. C3.5.1.2.2.5. Coordination of Transfer Practices. PAs shall coordinate property transfer procedures with the CO since they are involved with cost and contractual aspects of the transfer process. C3.5.1.2.3. If excess assets are not available, other methods of acquisition apply. Material is commonly acquired by the contractor through the company's purchasing system. Material control organizations initiate purchase requisitions for consolidated material requirements that are submitted to the contractor's purchasing function for purchase. Purchases are made from vendors or suppliers by use of a purchase order; material transfer documents are used to transfer material from the contractor's own stock to Government stock for use on the contract; or petty cash vouchers may be used for very small, infrequent purchases. The system must include the necessary controls to ensure that quantities purchased are reasonable according to contract type and scope, that documentation is adequate and consistent, and that acquisition actions are performed in a timely manner. Prime considerations are efficiency and overall economy as well as direct cost. C3.5.1.2.4. When the contractor has the capability of manufacturing parts or materials internally, material requirements may be satisfied through fabrication orders. These include orders within the plant or alternate locations of the company, or may include other corporate divisions. C3.5.1.2.5. When the purchase order is for material for more than one contract, the quantity that is being acquired for each contract should be specified in the purchase order or supporting documentation. Material acquired through such orders is also considered to be a direct purchase by the contractor and is to be controlled as Government-owned property upon delivery by the vendor. C3.5.1.2.6. MILSTRIP material may be considered either contractor-acquired material or contractor-owned material when "cash sales" have been authorized in accordance with Agency directions. C3.5.2. Agency-Peculiar Property. APP is generally furnished to the contractor through provisions in the contract, bailment agreement, or lease. It may also be created through the manufacture or fabrication as related peculiar-support equipment that is not readily available as a commercial item. C3.5.3. Special Test Equipment. The STE clause, FAR 52.245-18, requires the contractor to prepare and submit to the CO a notice of intent to acquire or fabricate items of STE. Failure on the part of the CO to respond to the contractor's notice of intent within 30 days allows the contractor to acquire or fabricate the equipment or components subject to any other applicable provisions of the contract. Within 30 days from the date of receipt of the contractor's notice, the CO should ensure the following actions have been completed: C3.5.3.1. Review proposed STE items and coordinate with the PA and other appropriate technical personnel, as required, to determine the necessity and classification as special. C3.5.3.2. On DoD contracts, screen requirements for availability of computer equipment per DFARS 245.302-72 and 270.602. C3.5.3.3. For NASA contracts, Agency screening and return of a NASA certificate of non-availability using a DD Form 1419, "DoD Industrial Plant Equipment Requisition," or equivalent, is required if the special test equipment or components qualify as centrally reportable equipment (CRE) as defined in the NASA FAR Supplement. C3.5.3.4. Ensure any funding problems have been resolved. C3.5.3.5. Notify the contractor: C3.5.3.5.1. Of the Government's approval of the proposed acquisition or fabrication, or C3.5.3.5.2. That the equipment will be furnished by the Government, or C3.5.3.5.3. Of the Government's disapproval of the proposed STE. C3.5.3.6. STE Cost Allocations. See FAR 31.205-40. C3.5.4. Special Tooling. There are various methods by which a contractor may acquire special tooling. It may be furnished to a contractor as GFP, or it may be acquired, fabricated or manufactured by the contractor during contract performance and the Government may either have title or the option or right to title to this special tooling. See FAR 45.306. C3.5.4.1. Special Tooling Containers. Specially designed and fabricated reusable containers for special tooling should be considered as special tools and accountability maintained either jointly with the tool or independently when: C3.5.4.1.1. Container design and fabrication costs are charged to special tooling accounts. C3.5.4.1.2. The container is dedicated to the storage, movement, shipment, or protection of specific special tools. C3.5.4.2. For NASA contracts, Agency screening and return of a NASA certificate of non-availability using a DD Form 1419, or equivalent, is required if the special tooling or components thereof qualify as CRE, as defined in the NASA FAR Supplement. C3.5.5. Facilities C3.5.5.1. Government-Furnished Facilities. All facilities to be provided a contractor as Government-furnished property shall be described in the facilities contract schedule, specifications or attachments to the contract. In addition, facilities may be added to a contract through the use of a contract modification. C3.5.5.2. Contractor-Acquired Facilities. All Government facilities to be acquired by a contractor shall be described in the facilities contract schedule, or as otherwise authorized. Prior to the acquisition of any item of facilities the contractor shall comply with the notification requirements found in the Cost Reimbursement Subcontracts clause, FAR 52.244-2. Contracting Officer consent is required prior to the acquisition of all facilities not stated in the schedule. Prior to acquiring IPE having an item acquisition cost of $10,000 or more, the contractor, shall submit a DoD Industrial Plant Equipment Requisition (DD Form 1419) to DIPEC to ascertain whether existing Government-owned IPE is available for redistribution. In addition, NASA requires a DD Form 1419, or equivalent, to be submitted to NASA for Agency screening for all facilities items that qualify as CRE as defined in the NASA FAR Supplement. NASA will assign a Certificate of Non-Availability (CNA) number if the item is not available. The PA shall ensure that the contractor prepares a DoD property record (DD Form 1342) subsequent to the acquisition and submits it to NASA citing the CNA number. C3.5.5.2.1. If the item is not available, the DD Form 1419 will be returned by DIPEC to the cognizant CAO for transmittal to the contractor as authorization to procure the facilities item. Although the PA is not specifically tasked to obtain a certification signature on the DD Forms 1419 and 1342, the PA shall ensure such certifications are provided and the completed document is maintained in the contractor's official contract files, preferably in a historical file for each item of IPE. C3.5.5.3. Requests for contract transfers involving reclassification of general purpose components of STE acquired under supply contracts; e.g., any transfer or acquisition of an additional facilities item not covered by an approved contract schedule or specification must be treated as an increase of Government property to the contract. This requires prior approval of the CO. C3.5.5.4. PAs may also be involved in the acquisition of real property, which includes expansion or capital-type rehabilitation (CTR) projects. Such projects require completion of "Transfer and Acceptance of Military Real Property" (DD Form 1354), by the operating contractor at a Government-owned plant as part of the final inspection and acceptance of completed expansion and CTR projects. C3.5.5.5. Facilities Supporting Contractors at DoD Installations C3.5.5.5.1. FAR 45.302-3 states that facilities may be provided under other than a facilities contract when the contract is for the performance of work within an establishment or installation operated by the Government. Accordingly, facilities provided to contractors to support work at DoD installations may be provided under, and be accountable to, a supply or service-type contract. C3.5.5.5.2. Use of a contract other than a facilities contract for providing facilities does not negate the necessity for obtaining facilities project approval, when applicable. These approvals should be obtained by the procuring activity before the issuance of any contractual commitments relative to providing facilities items. See DFARS 245.302-70. C3.5.5.6. Proper Classification C3.5.5.6.1. Support equipment requirements may include several categories of property (special test equipment, general purpose test equipment, industrial facilities, construction equipment, etc.). To ensure proper identification and subsequent project approval processing for any facilities items, it is appropriate that all proposed support equipment requirements be subject to review by a technical specialist before submission to the program office to ensure that the equipment is properly classified. Items identified as facilities should then be referred to the appropriate facilities procuring activity for project approval, or processed in accordance with Agency directions. C3.5.5.6.2. All facilities items in possession of contractors at alternate locations of the prime contractor that have not been properly reported in accordance with FAR 45.505-14 and DFARS 245.505-14 due to misclassification will be brought to the attention of the prime PA for corrective action. The prime PA should review the items in question and take appropriate action with the contractor to have the records and reporting procedures corrected. C3.6. RECEIPT OF GOVERNMENT PROPERTY C3.6.1. General. This section covers the contractor's receiving procedures and practices whereby Government property is initially placed in the control or custody of the contractor. It is at this point that the contractor becomes accountable and responsible, and the PA must ensure that the contractor's procedures provide for proper documentation on receiving, actions pursuant to discrepancies, inspection, identification, calibration, movement to storage or using areas, and control of misdirected shipments. Most of the specific functions under receiving are common to all classes of property; however, the PA will have to determine the difference in requirements among the receiving functions for various types of property. C3.6.2. Control. Receiving Process - Contractors employ numerous methods and systems for controlling the receipt of property. The receiving process may consist of the following steps: notification to receiving department of due-in assets, physical delivery and initial inspection of the property, reconciliation of assets received against due-in records and preparation of receiving documents, release of assets from receiving organization, quality or technical acceptance inspection as required, identification as required, and distribution of assets and documentation. Resolution of discrepancies may occur at any time in this process. C3.6.2.1. Notification to Receiving Department of Due-In Assets. Receiving departments may be provided a copy of the originating purchase orders, MILSTRIP requisitions, and other requisitioning data that reflect the items and quantities ordered and/or due-in. The documents and due-in data are provided for comparison with items physically received, as well as for proper in-processing to accounting records. C3.6.2.2. Physical Delivery and Initial Inspection of the Property. Upon delivery an inspection is conducted to ascertain that there is no obvious or visible damage and the quantity of pallets, boxes or containers agrees with the transportation document. Before acceptance of the shipment, the carrier's signature will be obtained to acknowledge any discrepancies. A "Transportation Discrepancy Report" (TDR), SF 361, will be prepared to report discrepant conditions disclosed as a result of the inspection, when appropriate. The authorized use of the SF 361 is addressed in the "Joint" Service and Agency Regulation, AR 55-38, NAVSUPINST 4610.33C, AFR 75-18, MCO P4610.19D, and DLAR 4500.15. Contractors must also take action to resolve discrepancies incident to receipt of contractor acquired property. C3.6.2.3. Reconciliation of Assets Received. For contractor's using due-in records, the assets received will be reconciled against the due-in record. If a Government supply source discrepancy is noted at this time, a "Report of Discrepancy" (ROD), SF 364, is initiated. The SF 364 is addressed in the "Joint" Service Regulation, DLAR 4140.55, AR 735-11-2, SECNAVINST 4355.18, AFR 400-54, and MCO 4430-3E. Receiving reports are prepared at this time in a manner that clearly indicates the quantity and condition of the property at time of receipt and any discrepancies noted, including overages, shortages, incorrect item(s), misdirected shipments, and/or damage disclosed during the receiving operation. Documentation attached to the report may include freight bill, bill of lading, packing list, Government shipping document (DD Forms 250, "Material Inspection and Receiving Report"; DD Form 1149, "Requisition and Invoice Shipping Document"; or DD Form 1348, "DoD Single Line Item Requisition System Document (Manual)") and discrepancy report(s). C3.6.2.4. Release of Assets From Receiving Organization. After the receiving department prepares and processes appropriate documentation, the assets are generally released for quality or technical acceptance inspection, storage, or use as required. C3.6.2.5. Quality or Technical Acceptance Inspection as Required. The receiving department or other contractor activity designated the quality control responsibility may be responsible for a more stringent inspection. The contractor's procedures should clearly outline the inspection responsibilities and indicate the types of Government property that require further technical inspection, operational or acceptance test, and/or calibration before completion of final acceptance and transfer to storage, stockroom, or release for use authorized by contract terms. C3.6.2.6. Identification as Required. Designated personnel must determine whether assignment of a Government property tag is required. Tagging requirements are dependent upon the type of Government property. Government property that will not be consumed or otherwise lose its identity through incorporation into a larger end item or deliverable item, shall be tagged. Government property will be appropriately tagged or marked pursuant to FAR 45.506 requirements, during or immediately after completion of the receiving process. The specific coding, numbering sequence, or identification to be employed must be clearly set forth in the contractor's procedures. C3.6.2.7. Distribution of Assets. Upon completion of any required quality inspection, acceptance testing, and/or physical identification, the asset is delivered to the appropriate storage area, stockroom, or released for use as authorized by contract terms. C3.6.2.8. Distribution of Documentation. Concurrent with the distribution of assets, the associated receiving documentation is distributed. This distribution may include a copy retained in receiving department files, one or more copies to purchasing, a copy to the department to which the asset is delivered, and a copy to the accounting department for use as a voucher for invoices. At least one copy should accompany the shipment, and it is good practice to provide two, one of which is signed by the receiver and returned to the receiving department. It is most important that a copy be provided to the inventory control activity so that stock records can be accurately posted. Individual Agency directives may provide additional distribution requirements. C3.6.3. Discrepant Shipments C3.6.3.1. Transportation Discrepancies. When transportation discrepancies are noted, including those requiring preparation of the SF 361, the PA should ensure the matter is referred to the cognizant Transportation and Packaging Specialist or the responsible contractor organization. C3.6.3.2. Receiving Discrepancies C3.6.3.2.1. FAR 45.502-2 requires the contractor to take all actions necessary in adjusting shortages, overages, or damages in shipment of contractor acquired property from a vendor or supplier, except as described below. When receiving discrepancies involve Government-furnished property or assets shipped via Government Bills of Lading (GBLs), discrepancies will be reported on an a Report of Discrepancy (ROD), SF 364, by the appropriate Government representative. C3.6.3.2.2. The contractor will prepare a report and forward for processing in accordance with established contractor procedures. These procedures will be part of the contractor's property control system for receiving approved by the PA. This should include providing a completed copy of the report to the PA for informational purposes along with its normal distribution. C3.6.3.3. Misdirected Shipments. The contractor must initiate actions required to report, resolve, and dispose of misdirected shipments. SF 361 or 364 will be prepared, as applicable, by the appropriate Government representative. C3.6.4. PA Responsibilities for Discrepant Shipments C3.6.4.1. The PA's review of contractor receiving procedures must ensure that such procedures denote a clear distinction between all types of discrepancies incident to shipments and/or receipts of Government property. These may include Government supply source via GBL or parcel post shipments, contractor and/or vendor to contractor shipments by means of Commercial Bills of Lading, Freight Way Bills, etc. C3.6.4.2. When the PA has questions or concerns related to the SF 364 that are not adequately addressed by the contractor, the circumstances may be discussed with the Government quality assurance, transportation, manufacturing, and engineering personnel for advice on other discrepant conditions that may be present. C3.6.4.3. When the contractor is unable to obtain disposition instructions for misdirected shipments, the PA will be contacted and will provide assistance as necessary. C3.6.5. Subsidiary Receiving Areas. Subsidiary receiving areas in outlying locations are usually responsible for performing the same functions as the main receiving areas and should be required to submit necessary documentation to the latter. The PA's review of contractor receiving operations shall include local "subsidiary" receiving operations under the direct control of the contractor. Subsidiary contractor operations shall be required, by operation of the contractor's procedures, to maintain the same level of in processing accounting controls required of the primary receiving area. C3.6.6. Specialized Receipt of Government Property. Some contractors maintain separate receiving areas that specialize in the receipt, inspection, identification, and release of Government property. The majority of such property, which is shipped from Government supply sources, is consigned to the contractor on Government shipping documents and bills of lading. C3.6.7. Other C3.6.7.1. NASA Requirements. For all equipment received under NASA contracts that meets NASA criteria as controlled equipment, the contractor is required, in accordance with NFS 18-45-505-670, to submit a DD Form 1342, or equivalent, to the NASA representative designated in the NASA Property Administration Delegation Special Instructions within 15 days after receipt. For controlled equipment shipped by NASA to the contractor as GFP, the NASA Equipment Management System (NEMS) generates the DD Form 1342. The NEMS coordinator for the NASA installation sends the DD Form 1342 to the contractor at the time of shipment of the GFP. The contractor is required to add the zip code location of the property, and any identification number assigned by the contractor, and return a copy of the DD Form 1342 to the individual designated in the NASA Property Administration Delegation Special Instructions. C3.6.7.2. In-House Fabricated Items. Normally, ST, STE, or other items fabricated in-house do not go through receiving. Care should be taken to ensure that these items are recorded on accountable records in accordance with the contractor's established procedures. C3.7. IDENTIFICATION OF GOVERNMENT PROPERTY Government-owned property shall be identified, marked and recorded during the contractor's receiving process. The requirements of FAR 45.506 apply in most cases except for the exemptions given in that section. Proper identification serves to ensure the Government's assets are not confused with contractor-owned property and used for unauthorized purposes. The identification number is assigned by the contractor unless provided by the Government. In addition, it shall be marked on the property, where marking is not impractical, and referenced on support documentation for inventory control purposes. C3.8. RECORDS OF GOVERNMENT PROPERTY C3.8.1. General. Property records systems, whether manual or automated, must contain the prescribed data elements as set forth by FAR 45.505 and any other data elements required by specific contract provisions. Normally, the contractor's property control records are the official Government property records established and maintained to account for and control all Government property, including Government-furnished and contractor-acquired property. C3.8.2. Material C3.8.2.1. As materials and parts are received, they are either placed in stock or issued directly to the user. Documents reflecting receipt of purchased parts and materials are used as a basis for posting material records. Documents indicating completion of fabricated parts, as well as documents indicating issue or turn in of material, also serve as a basis for posting the material records. Transaction documents (evidence of receipt, inventory adjustments, debits and credits) to a contract property account are assigned voucher numbers or equivalent posting reference numbers. Vouchered documents include, but are not limited to, DD Form 1149, "Requisition and Invoice/Shipping Document"; DD Form 250, "Material Inspection and Receiving Report"; and DD Form 1348-1, "DoD Single Line Item Release/Receipt Document." Also included are those documents used in the contractor's purchasing system, such as the receiving report, material transfer document, petty cash document, and fabrication document. C3.8.2.2. Bench stock shall be limited to low dollar, non-sensitive, high usage consumable material and is normally found at the using location. Quantities at the using location shall not exceed amounts that would normally be consumed within 30 days, or as established in the contractor's approved property control system. C3.8.2.3. Contractors may be authorized in writing by the PA to use a "Receipt and Issue" system in accordance with FAR 45.505-3(d) when there is a clear benefit to the Government. This system is appropriate when material acquired by the contractor or furnished by the Government is issued for immediate consumption. This is an alternate method of recordkeeping instead of perpetual inventory records. When this system is authorized, the contractor is required to maintain a file of appropriately cross-referenced documents evidencing receipt and issue for immediate consumption of this material. These documents may consist of purchase requisitions, purchase orders, receiving documents, and issue slips. To justify the use of this material the PA may review the supporting documents (blueprint, drawing, etc.) that generated the purchase requisition as well as conduct discussions with the appropriate contractor personnel. The PA may elect to restrict the application of a receipt and issue system to specific contracts. C3.8.2.4. Custodial items issued from tool cribs, office stock rooms, uniform rooms, and the like shall have control records maintained that include essential data to accomplish effective control. Issues to contractor personnel will be covered by tool chits, uniform slips, or other mechanisms designed to ensure return or the ability to locate items that are to be returned. New items are not to be issued without return of worn-out items unless suitable explanation is provided. C3.8.3. Agency-Peculiar Property C3.8.3.1. Contractors are required to establish control over APP and maintain records in accordance with FAR 45.505-1 and 45.505-13, where applicable. C3.8.3.2. In accordance with FAR 45.310(c), special direction for the control, security, and maintenance of APP may be included in the contract by the contracting officer. C3.8.4. Special Test Equipment. The contractor is required to establish and maintain records of Government-owned special test equipment in accordance with FAR 45.505-1 and 45.505-4. The accuracy of these records is important for the proper control, utilization, and disposition of special test equipment. Records must clearly identify general purpose components that are readily removable. These items shall be identified on the item record. In addition, these items must be clearly reflected on inventory schedules in conjunction with plant clearance of STE. C3.8.5. Special Tooling. The contractor is required to establish and maintain records of Government-owned special tooling in accordance with FAR 45.505-1 and 45.505-4. The accuracy of these records is important for the proper control, utilization, and disposition of special tooling. Special emphasis should be placed on in-house fabricated tools to ensure that fabrication is properly documented and that the tooling is incorporated within the accountable inventory control and financial records. C3.8.6. Facilities. The minimum requirements for establishing contractor records on Government facilities are set forth in FAR 45.505-5 (plant equipment) and FAR 45.505-7 (real property). The PA should ensure that historical files on centrally reportable IPE are established and maintained as prescribed by DFARS 245.505-6. For NASA centrally reportable equipment, a DoD Property Record (DD Form 1342 or equivalent) shall be prepared in accordance with NASA PR B-31-1. C3.9. MOVEMENT OF GOVERNMENT PROPERTY C3.9.1. Material C3.9.1.1. Movement must be controlled through some type of documentation so that records may be updated to show changes in quantities and location. Various types of documents are used as authority for moving material and for recording movement thereof. Examples of proper documentation are receiving reports, issue documents, turn-in documents, move tickets, and shipping documents. C3.9.1.2. Movement of material requires use of a variety of material handling equipment such as conveyors, fork lifts, cranes, elevators, hoists, positioning equipment, motor vehicles, railroad cars, and aircraft. A variety of containers and supports are used to carry in-process or finished materials, parts, assemblies, or products through all phases of the manufacturing cycle. Training is necessary for all personnel involved in the movement and handling of materials and equipment. Practices shall be used that will minimize or are designed to prevent possible damage to property and injury to personnel. C3.9.2. APP. The contractor's procedures covering movement of APP should be established, when applicable, to provide for adequate controls while such property is moved from one location to another and stored pending reutilization or disposal. In accordance with FAR 45.310(c), when APP requires special handling or safeguards the contracting officer shall provide special instructions for security, etc. C3.9.3. Special Test Equipment. The contractor is contractually required by incorporation of FAR 45.5 in a contract to control and protect all Government property. This includes controlling and protecting all STE by ensuring proper movement practices. C3.9.4. Special Tooling. The contractor's procedures concerning movement of special tooling must be complete and adequate to protect the Government's interests. When the management of special tooling will not provide adequate control of tooling, significant losses of tooling may occur and costly work delays could result. An effective move order system is essential to maintain the integrity of the location system. C3.9.5. Facilities. The contractor's procedures covering movement of facilities, of a moveable nature, should be established to provide for adequate controls while such property is moved from one location to another and stored pending reutilization or disposal. The PA shall ensure that proper documentation is promptly processed to update the official Government property records. C3.10. STORAGE OF GOVERNMENT PROPERTY C3.10.1. General. Storage of Government property requires establishing controls that permit ready location and identification. Proper protection of Government property in storage includes but is not limited to security from pilferage; adequate prevention of handling damage; protection against water flows, insects and rodents, or from deterioration by dust, temperature, and humidity. Special controls shall be provided for sensitive property, shelf life items, classified property, and other similar situations. Storage layout and housekeeping are other important factors in the proper storage of Government property. C3.10.2. Segregation or Commingling of Materials C3.10.2.1. Commingling is the process by which materials that are common to multiple contractor projects or contracts are stored in a single location. Normally, commingling consists of storing both Government and contractor material in the same room or building, and specifically identifying the material as to ownership by physical segregation of marked bin box, shelf, or package. FAR 45.507 provides criteria for PAs to authorize in writing commingling of materials. The disadvantage in commingling lies in that the property may lose its identity as Government property. Convenience and apparent ease for the contractor alone will not be considered to be advantageous to the Government. There must be clear benefit to the Government. The PA's determination as to whether commingling is advantageous to the Government should include consideration of the following: C3.10.2.1.1. Whether it is practical and economical to combine Government and contractor property in the manufacturing or processing operation. C3.10.2.1.2. Whether issue, use, and identification controls are adequate to prevent loss in excess of that which might be reasonable under conditions of segregation. C3.10.2.1.3. Whether procedures exist for the equitable apportionment of inventory loss. C3.10.2.2. A MMAS differs in its allowance of commingling. See Chapter 5 for MMAS information. C3.11. PHYSICAL INVENTORIES OF GOVERNMENT PROPERTY C3.11.1. General. It is standard industry practice for a contractor to periodically physically inventory company assets for the purposes of material management and production control. The Government requires the contractor to do likewise for Government property in the contractor's possession. The PA has the authority and the responsibility to approve the contractor's physical inventory practices and procedures in accordance with FAR 45.508. C3.11.2. Inventory Requirements C3.11.2.1. Frequency of Inventories. Contractors may have various inventory frequencies for different types of property as authorized in FAR 45.508. C3.11.2.1.1. Contractors normally accomplish physical inventory of material on an annual or semiannual basis. This is imperative to ensure that the quantity on hand is known and recorded, especially for the purchasing organization and the requirements planning organization to prevent over procurement or work stoppage due to material shortages. However, inventorying all the line items (100 percent) of material is a very time consuming and seldom cost-effective method of checking for discrepancies within the contractor's material control system. Two alternative methods are currently in use in commercial practice: statistical sampling and stratification. C3.11.2.1.1.1. Statistical sampling is a method that will reduce costs, yet not increase the Government's risk significantly. In approving the contractor's use of a sampling-type inventory, the PA should examine the contractor's plan to ensure that it does not exceed the risk the Government is willing to accept, and that it provides for use of valid sampling techniques. If the contractor's sample indicates that they have dropped below the approved error rate, they will have to perform a complete inventory and correct the deficiency in the system. C3.11.2.1.1.2. Stratification is appropriate where the contractor does not have specific controls, such as physical inventory, for their own material for items under a certain dollar value. More specifically, the contractor does not physically inventory material that falls below a set dollar value, for example, below $10.00, or $25.00, or at some pre-established level. This does not relieve the contractor of responsibility for record keeping but does allow the contractor to expend the greatest amount of time and effort on the high dollar value items. For example, the contractor may be authorized to use a stratified physical inventory process whereby material under $25.00 is not inventoried, items between the dollar value of $25.01 and $99.99 are statistically sampled, and all items above $100 are inventoried 100 percent. The contractor may be authorized by the PA to stratify material by dollar value for tie purposes of physical inventory. This determination should be based on the contractor providing supporting rationale for this type of inventory and the PA's assessment of reliability of the contractor's system. C3.11.2.1.1.3. A combination of stratification and statistical sampling may be useful and could be done by authorizing the contractor to perform statistical sampling of low value items and a complete inventory of high value items. Decisions as to types or methods of inventory must be determined at each location. Criteria for separating low value items from high value items is a matter of judgment and should be based on the PA's knowledge and confidence of the contractor's operation. If inventory methods can be cost-effective without requiring the Government to assume an unreasonable risk, this method should be authorized in accordance with the PA's authority to approve the type of inventory that the contractor will perform (FAR 45.508). C3.11.2.1.2. Physical inventory of non-consumable assets (ST, STE, Facilities, etc.) should be based on the contractor's established practices; the type, use, and amount of Government property involved; the monetary value of the property; and the reliability of the contractor's property control system. C3.11.2.2. Types of Inventories. The contractor's method of accomplishing the physical inventory must be detailed in the procedures portion of their property control system. The two primary means of performing an inventory are periodic and cyclical. C3.11.2.2.1. A periodic inventory is taken at predetermined intervals, usually accomplished in a short period of time, on a wall-to-wall basis. The interval between inventories may be semiannual, annual, biennial, and so forth, but must be based on the contractual considerations such as type, amount, value, and usage of Government property and the established practices and reliability of the contractor's property control system. C3.11.2.2.2. An inventory by exception is t