Purchasing equipment w/ contract funds for exclusive govt use.

Michael11,

Title would transfer as determined by the contract type, CLIN/SLIN structure, and funding. For example, if you have a reimbursable material/supply CLIN then (unless your contract says otherwise) title transfers when the cost is charged to the contract. If all CLINs are FFP then title transfers only as specified in the contract.

Have you read your contract? Does it have any 52.245 clauses? If so, what does the clause say about title transfer?

Hope this helps.

Michael11 said:

is this allowable? On one hand there is no doubt this equipment is reasonable and needed to further the program. On the other hand if the govt is capable of purchasing the unit for themselves I don’t see why that would be problematic.

It is probably unlawful, unless the contract requires the contractor to make such purchases on the government's behalf. It seems to me that government is trying to bypass its own procurement laws and regulations. Moreover, such a purchase might be a misuse of appropriated funds.

If you're the contractor, you probably think you're in a tough spot. The government folks are probably looking at the issue as a matter of customer service. If so, you have my sympathy. 

In my view it matters very much who is issuing the direction to the contractor. Is it the person with the Certificate of Appointment, acting within their authority, or is it somebody else?

If somebody else, the contractor acts at some risk.

https://www.justice.gov/usao-edva/pr/former-navy-comptroller-sentenced-accepting-illegal-gratuities

If someone in the government requests or directs a contractor to do something that is not expressly required by the contract, and if the contractor does not object to doing it but worries or suspects that the thing it has been asked or directed to do may not be, shall we say, proper, then the contractor should demand the request or direction in writing from the contracting officer.

If the contracting officer submits the request or direction in writing but the contractor is still worried about the propriety of the request, it should respond by confirming that the request to do X was received and stating that it presumes that the request or direction is proper. It should obtain a receipt of delivery to the contracting officer.

Of course, the contractor should refuse the request in writing, with explanation, if it knows that the request is improper.

I agree that the situation as painted does sound fishy.  Consider the following along with responses already received -

Contractor Acquired Property is allowed within federal government contracting.   FAR Part 45 addresses this broadly at FAR subpart 45.4 and agency FAR supplements give a little guidance as well.   

If the CAP is not already included in the contract, the contract could be modified to include it.

Determination by a contractor that CAP is improper becomes a very detailed issue,  it even takes an agency in some cases a lot of research to determine if it could include CAP in a contract (appropriation law, ADP equipment approvals and certifications, etc.).

Want to explore how the request you have gotten could be framed by the government as something proper within the contract requirements do both an internet and WIFCON search on "Contractor Acquired Property".

In the end if the inquiry was not made by the Contracting Officer, or an authorized representative of the Contracting Office (example - Contracting Officers Representative) your question might be better posed to one or both of the individuals filling these authorized positions for your contract.

See FAR 45.101:

Quote

“Contractor-acquired property” means property acquired, fabricated, or otherwise provided by the contractor for performing a contract and to which the Government has title.

Emphasis added.

See FAR 45.000:

Quote

(a) This part prescribes policies and procedures for providing Government property to contractors; contractors’ management and use of Government property; and reporting, redistributing, and disposing of contractor inventory.

FAR Part 45 does not prescribe policies and procedures for having contractors buy items, like laptops, that the contractor does not need but that the government wants for its own use. It is not authority to have a contractor purchase a laptop "to be used by the programs’ feds at trade shows and the like in support of the program."

I

Vern Edwards said:

FAR Part 45 does not prescribe policies and procedures for having contractors buy items, like laptops, that the contractor does not need but that the government wants for its own use.

I do not know the details of the Governments contract, nor do I want to ask a bunch of questions that finally bleed out all the information about the OP's situation and the OP's contract.   But I will say this....what if, again only a "what if", the contract is for the development of an exhibit/presentation for tradeshows and now the Government rather than providing GFP wants the contractor to provide because the Governments processes for buying the laptop are too darn complicated.

Vern Edwards said:

provided by the contractor for performing a contract and to which the Government has title.

Lets do the whole emphasis and add "AND TO WHICH THE GOVERNMENT HAS TITLE."

And let me add emphasis that can only add the context and information needed by the OP to determine whether the request is legit -  ASK THE CO!

C Culham said:

But I will say this....what if, again only a "what if", the contract is for the development of an exhibit/presentation for tradeshows and now the Government rather than providing GFP wants the contractor to provide because the Governments processes for buying the laptop are too darn complicated.

Here is how the OP presented the background to the question:

On 1/6/2018 at 9:48 AM, Michael11 said:

An agency has inquired to us about purchasing a piece of equipment with contract funds to be used for program purposes, but for exclusive government use. Let’s say it is a laptop. It is to be used by the programs’ feds at trade shows and the like in support of the program.

is this allowable?

Emphasis added.

So the question was whether such a transaction would be proper. At the outset, I said:

Quote

It is probably unlawful, unless the contract requires the contractor to make such purchases on the government's behalf.

It's okay for the government to buy a laptop from the contractor, as long the purchase complies with applicable regulations, such as the changes clause and FAR Part 6. (Is the government asking the contractor to provide an item of supply or the service of buying an item of supply? Does the contractor ordinarily make or sell laptops or include laptops in its deliverables?) But the authority for that kind of transaction would not come from FAR Part 45.

FAR Part 45 is about (a) the use of government property by contractors for performance and (b) title to property acquired by the contractor for performance. It is not authority to buy anything from anybody. That's a different matter altogether. The government cannot cite FAR Part 45 as authority for asking a contractor to buy something for it that the contractor does not need and will not use for its own performance. It is not authority to modify a contract to acquire additional items, whether the modification would be within or out of scope.

If the government wants to modify the contract to make the laptop a deliverable, it must do so pursuant to the changes clause, FAR Part 6, and any other applicable rules about the government's acquisition of such things.

In short, don't bring FAR Part 45 into this. It has nothing to do with the matter at hand.

As for asking the CO, I said:

Vern Edwards said:

If someone in the government requests or directs a contractor to do something that is not expressly required by the contract, and if the contractor does not object to doing it but worries or suspects that the thing it has been asked or directed to do may not be, shall we say, proper, then the contractor should demand the request or direction in writing from the contracting officer.

I suspect that Michael11's question relates to a contract for program support services.

On ‎1‎/‎6‎/‎2018 at 9:48 AM, Michael11 said:

If the contractor would make this purchase how would they mitigate their liability for property that is not in their possession or under their control? Can a title be transferred to the government thereby neutralizing the contractors risk of tracking equipment they aren’t privy to?

Vern, I disagree with your assertion that the Part 45 contract clauses have nothing to do with answering the OP's questions, quoted above. I agree with your other points.

"Authority to acquire" is a tricky topic for contractors. I haven't been able to find much in the way of guidance on the topic. Certainly, Government Property people with whom I've worked in the past have been concerned when they discovered that a program acquired equipment that wasn't expressly called-out on the BOM or on a drawing somewhere.

H2H:

I don't know why authority to acquire should be tricky. Contractors can acquire whatever they like. The issues are: (1) whether the cost of contractor acquired property is allowable, if cost allowability is an issue, and (2) whether the stuff is contractor-acquired government property.

Anyway, FAR Part 45 does not apply to the question of whether it is proper for the government to ask the contractor to buy a laptop for the government's use. It does apply to these other questions:

On 1/6/2018 at 9:48 AM, Michael11 said:

If the contractor would make this purchase how would they mitigate their liability for property that is not in their possession or under their control? Can a title be transferred to the government thereby neutralizing the contractors risk of tracking equipment they aren’t privy to?

I have had nothing to say about those questions. The contractor should read the government property clause in its contract to seek an answer to those.

Does this make my position clearer?

Vern, we're good

Thanks for the feedback everybody.

Beginning with H2H’s inquiry the contract does not contain any 52.245 clauses but does say the provisions of 52.245 shall apply to all property acquired under such authorization.

This request originated with the COR and I agree with folks that no matter what we will likely bring in the CO ahead of purcashing this item so that they are aware.

C Culham said:

because the Governments processes for buying the laptop are too darn complicated.

I would be speculating but I think this may be part of the issue.

We don’t normally make or sell laptops but this feedback has brought some fresh perspectives like how the changes clause or FAR part 6 may apply so I will look into that.

FWIW I’ll try to make the situation a little clearer because I don’t think it’s as bad as I may have initially framed - I’ll make this up and let’s say the contract is for the 2020 Census. We have helped develop research and applications on the upcoming Census. Graphics and marketing materials, etc.  This is part of our scope. A program mgr would like the ability to show these things off at events they attend over the next two years in furtherance of the (our) program.

Rather than do this with their own fed laptop which could probably be configured to do all this, they want a dedicated unit for this purpose. The contractor would still never possess the unit but let’s say it would either be in the field or at fed agency until program is over. 

What I think I heard with others’ (Vern) feedback is that if this arrangement wasn’t contemplated as part of the proposal, and it’s not specified in the SOW, the parties could consider adding the equipment as part of a bilateral modification using the changes clause, formally adding the equipment to the contract and making it a specified deliverable. And it’s there we could specify the terms and use of the equipment (agency responsible for liability, theft, etc)? Contractor would not want to be held liable if doesn’t have control over the unit.

Do these details make it sound any less fishy? Am I in the right track?

Thanks for the helpful feedback. I have some reading to do.

Michael11 said:

What I think I heard with others’ (Vern) feedback is that if this arrangement wasn’t contemplated as part of the proposal, and it’s not specified in the SOW, the parties could consider adding the equipment as part of a bilateral modification using the changes clause, formally adding the equipment to the contract and making it a specified deliverable. And it’s there we could specify the terms and use of the equipment (agency responsible for liability, theft, etc)? Contractor would not want to be held liable if doesn’t have control over the unit.

Do these details make it sound any less fishy? Am I in the right track?

Generally, yes.

Some thoughts: I think that you can add the laptop as a deliverable by mod if you and the CO concur that the delivery of the laptop is within the scope of the research and applications service that you are providing. It would be good if the mod specified that the laptop was to be configured with any deliverable applications prior to delivery. Close scrutiny of the mod might lead to some questions for the CO if it is noticeably pricey, but it should pose no problems for your company under any circumstances as long as the CO is handling it and it's not done under cover, so to speak.

If the laptop is added as a deliverable, and if it won't be handed back to you as GFP, then you don't have to worry about loss or damage after the government receives it. You would be responsible for it only until the date the government receives. You don't need to negotiate special terms if the transaction is as straightforward as you described. However, if your contract is subject to the government property rules through applicability of one of the government property clauses, make sure you keep the required records. Find out which FAR 52.245 clause applies and read it carefully.

You should charge the government for all of the work that you must do to fulfill its request, not just the cost of the laptop.

Vern Edwards said:

If the laptop is added as a deliverable, and if it won't be handed back to you as GFP, then you don't have to worry about loss or damage after the government receives it. You would be responsible for it only until the date the government receives. You don't need to negotiate special terms if the transaction is as straightforward as you described.

Thank you Vern, that makes good sense

If your company and your Government customer run into difficulties incorporating the request into the current contract, you may wish to consider a separate bailment agreement between your company and the Government for a company laptop that is configured with the information. Standard bailments include liability clauses.

Neil:

How would the government cover a contingent liability of unknown amount with appropriated funds? How would the agency avoid violation of the Anti-deficiency Act?

Who would be authorized to sign the bailment on the part of the government? 

What laws and regulations might apply to such a transaction?

Vern Edwards said:

You should charge the government for all of the work that you must do to fulfill its request, not just the cost of the laptop.

This bears repeating. More often than you think, Government program management won't be expecting an invoice for higher than the laptop's sticker price. Be prepared to fight them on this, because procuring material has additional costs associated with it, and if you only bill the laptop sticker price, then you're losing money. And I don't know if your contract type allows profit on materials.

This whole deal can be a slippery slope. You might buy the laptop now, and then the program team decides it's a lot easier and quicker to have you buy their equipment rather than their contracts office. That's not a good position to find yourself in, and it's made significantly worse if you're losing money on every purchase. I suppose an extra benefit to billing actual costs is the Gov't might be less inclined to come back for more due to sticker shock (not always the case).

Vern Edwards said:

How would the government cover a contingent liability of unknown amount with appropriated funds? How would the agency avoid violation of the Anti-deficiency Act?

Who would be authorized to sign the bailment on the part of the government? 

What laws and regulations might apply to such a transaction?

Vern, those are good questions and I would hope some of the government side experts here could respond. Being only from the industry side, I would propose an industry commercial bailment agreement, wait for the Government response and negotiate to mutual agreement. Governing law includes contract/common law. See, discussion at  http://smallgovcon.com/claims-and-appeals/government-damages-contractors-equipment-board-awards-costs/

Okay, well, we've established that a bailment agreement is not necessarily a simple matter. To say that "governing law includes contract/common law" does not answer any of my questions, particularly, the question about avoiding Anti-deficiency Act violations.

I think that what you are suggesting is that the government lease the laptop instead of buying it. I don't know whether that is workable. I don't know the rules.

Vern Edwards said:

I think that what you are suggesting is that the government lease the laptop instead of buying it. I don't know whether that is workable. I don't know the rules.

If I were the contractor and you told me to enter into a lease with the customer for the duration of use, I would rather simply give the customer the laptop. It would be easier than accounting for that nightmare scenario.

Vern, in regard to your ADA question, it seems to me that what Neil was talking about was a form of indemnity.  Without going back and completely researching this issue, my recollection is that GAO has held that agencies do not need statutory authority, such as P.L. 85-804, in order to use appropriated funds to indemnify a contractor against specified loses.  Instead, they can do so as long as the indemnification is not open ended and is limited by available funds.

For an interesting GAO decision on bailments see, https://www.gao.gov/products/447483#mt=e-report

Neil was talking about a bailment agreement. A bailment agreement would not be a form of indemnity. Here is the definition of bailment from Black's Law Dictionary:

Quote

bailment n. (16c) 1. A delivery of personal property by one person (the bailor) to another (the bailee) who holds the property for a certain purpose, usu. under an express or implied-in-fact contract. • Unlike a sale or gift of personal property, a bailment involves a change in possession but not in title. Cf. PAWN.

Here is a link to a sample standard bailment agreement:

http://www.boeingsuppliers.com/bluebook/chapterI_IV/SP2.pdf

With the progression of this discussion I am reminded of the FAR guidance if the acquisition in question is for a commercial item or service where commercial marketplace practices are encouraged (FAR 12.213 and FAR 12.302 especially at (c)).    I could see where a bailment might be a way to approach the need of the laptop.  As already noted adding by a modification based on all the considerations noted seems the most reasonable, expedient and less debated route.

On ‎1‎/‎9‎/‎2018 at 9:12 AM, Neil Roberts said:

Standard bailments include liability clauses.

Vern, this is what I was talking about when I mentioned an indemnity provision.  I am well aware of what a bailment is.

Retreadfed said:

I am well aware of what a bailment is.

Retread, So you meant indemnity in a general sense of the word, not in connection with PL 85-804? I ask because you said:

Retreadfed said:

Without going back and completely researching this issue, my recollection is that GAO has held that agencies do not need statutory authority, such as P.L. 85-804, in order to use appropriated funds to indemnify a contractor against specified loses.

When I clicked the link in your post I got a 1946 Comptroller General decision about bailment that makes no mention of indemnity, and PL 85-804 was enacted in 1958. What am I missing?

I searched for GAO decisions that mention bailment and found 22. The most recent decision is U-Save Auto Rental, B-270916, Sept. 13, 1996. In that case a government civilian employee rented a car while on authorized travel and the car was stolen. The employee had declined LDW insurance, which made him responsible for loss or damage. The rental company filed a claim with the agency for the value of the car. The rental car company was not a participant in the U.S. Government Car Rental Agreement. The agency requested an opinion from the GAO. The GAO concluded:

Quote

As between U-Save and Mr. Eslinger, the rental of the automobile constitutes a bailment for hire, which is a bailment for the mutual benefit of the parties, and it is well settled that under such a bailment, the bailee is required to exercise only ordinary diligence in the care of the property bailed. Allen Business Machines, 55 Comp. Gen. 356 (1975); 23 Comp. Gen. 907 (1944); and 8 Am. Jur. 2d, Bailments, § 221 (1980). Absent a contractual provision increasing the bailee's liability, where the bailee has met the standard of ordinary diligence, the bailee is not liable for loss of or damage to the property, including loss due to theft. 8 Am. Jur. 2d, Bailments § 216 (1980).

*     *     *

As noted above, the JTR authorizes reimbursing an employee for or paying directly to a rental car company a claim for damage to a rented vehicle incurred during the performance of official business, but the JTR does not mention paying a claim for theft of a rented vehicle in the same circumstances. However, we do not believe this omission precludes the agency from paying a valid claim asserted by a rental company for loss of a vehicle due to theft when the vehicle was properly rented by an employee for use on official business, as in this case.4 Although the rental contract was between U-Save and Mr. Eslinger, the agency authorized Mr. Eslinger to rent an automobile for use on official travel, and therefore he is entitled to reimbursement for the cost of doing so. We believe that such reimbursement (or payment directly to the rental company) may include the amount of a valid claim for loss due to theft of the vehicle on the same basis that such a claim for loss due to damage to the vehicle may be paid. Accordingly, the agency may pay U-Save's claim for the value of the vehicle ($13,430) to the extent that it does not exceed the reasonable value of the vehicle as verified by the agency.

Thus, that matter was settled pursuant to the terms of the car rental agreement and the JTR.

I found no bailment decision that included the term indemnify or mentioned indemnification in any way.

The next most recent decision was from 1981 and dealt with a bailment in which the bailor was the vice president of the U.S. It was settled under the Military Personnel and Civilian Employees' Claims Act of 1964, Pub. L. 88-558. See Rafael v. Capo, Esq., Office of the Vice President of the United States, B-202683, Dec. 9, 1981.

That's as much reading about this topic as I am willing to do.

On 1/6/2018 at 9:48 AM, Michael11 said:

If the contractor would make this purchase how would they mitigate their liability for property that is not in their possession or under their control? Can a title be transferred to the government thereby neutralizing the contractors risk of tracking equipment they aren’t privy to? ... Contractor would not want to be held liable if doesn’t have control over the unit.

Due respect to those debating bailment agreements and indemnification issues. It's been another of those WIFCON rabbit holes we fall into--which is not to say it's been without value.

In my view the original question is simply answered. Title is transferred in accordance with the contract clause(s). Once title has transferred there is very little liability (for the contractor) with respect to how the laptop is used by the government. In particular the contractor is not liable for the theft of the laptop while in the government's control, because it is no longer the contractor's laptop.

To the question "can a title be transferred to the government?" the forum's answer should have been a resounding "YES". To the related question of contractor liability for what happens after the government accepts the item, the forum's answer should have been "not a risk to worry about".

On 1/8/2018 at 10:26 AM, Vern Edwards said:

If the laptop is added as a deliverable, and if it won't be handed back to you as GFP, then you don't have to worry about loss or damage after the government receives it. You would be responsible for it only until the date the government receives. You don't need to negotiate special terms if the transaction is as straightforward as you described.

Uh, H2H, as you can see, I said that a couple of days ago. Didn't expressly mention the word "title," but I supposed that everyone would understand that the government gets title to a "deliverable" upon receipt.

here_2_help said:

Once title has transferred there is very little liability (for the contractor) with respect to how the laptop is used by the government. In particular the contractor is not liable for the theft of the laptop while in the government's control, because it is no longer the contractor's laptop.

H2H:

I'm confused by that. Are you saying that liability follows title? And how does government control affect title ("while in the government's control, because it is no longer the contractor's laptop")?

Thanks guys!

I heard the resounding Yes answer earlier this week and was also pleased to follow along in the rabbit hold as we debated bailments. All told I agree adding the unit as a deliverable will likely be the simplest, most transparent and financially worthwhile way to go.

Vern Edwards said:

H2H:

I'm confused by that. Are you saying that liability follows title? And how does government control affect title ("while in the government's control, because it is no longer the contractor's laptop")?

Vern,

When title passes the laptop ceases being the contractor's property, and becomes the government's property. At that point, the government is responsible for protection against loss, theft, damage, destruction, etc. The contactor is no longer responsible for those things.

here_2_help said:

When title passes the laptop ceases being the contractor's property, and becomes the government's property. At that point, the government is responsible for protection against loss, theft, damage, destruction, etc. The contactor is no longer responsible for those things.

H2H:

That's not necessarily true. You have left something out. The contractor is responsible for properly managing (i.e., protecting) the government property in its possession. See FAR 45.104:

Quote

45.104 Responsibility and liability for Government property.

(a) Generally, contractors are not held liable for loss of Government property under the following types of contracts:

(1) Cost-reimbursement contracts.

(2) Time-and-material contracts.

(3) Labor-hour contracts.

(4) Fixed-price contracts awarded on the basis of submission of certified cost or pricing data.

(b) The contracting officer may revoke the Government’s assumption of risk when the property administrator determines that the contractor’s property management practices are noncompliant with contract requirements.

(c) A prime contractor that provides Government property to a subcontractor shall not be relieved of any responsibility to the Government that the prime contractor may have under the terms of the prime contract.

(d) With respect to loss of Government property, the contracting officer, in consultation with the property administrator, shall determine—

(1) The extent, if any, of contractor liability based upon the amount of damages corresponding to the associated property loss; and

(2) The appropriate form and method of Government recovery (may include repair, replacement, or other restitution).

(e) Any monies received as financial restitution shall be credited to the Treasury of the United States as miscellaneous receipts, unless otherwise authorized by statute (31 U.S.C. 3302(b)).

Emphasis added. See also FAR 45.105 and 28.303.

I wonder if the property manager can determine, after the fact, that the contractor's practices were noncompliant.

Vern Edwards said:

H2H:

That's not necessarily true. You have left something out. The contractor is responsible for properly managing (i.e., protecting) the government property in its possession. See FAR 45.104:

Vern,

Two points in rebuttal.

1. In the scenario described, the government property (laptop) was no longer in the contractor's possession.

2. Those FAR quotes are interesting, to be sure. But they are not binding on the contractor unless incorporated into the contract via clause. I believe in this case the OP stated that there were no Part 45 clauses in the contract.

Wait a minute! You're going back from general remarks to a specific scenario. And you, yourself, referred to contract property clauses. 

But I agree that under standard government contract clauses a contractor cannot be liable for property to which the government holds title and that was not in its possession when lost or damaged. In fact, I said that a couple of days ago.

Vern Edwards said:

Wait a minute! You're going back from general remarks to a specific scenario. And you, yourself, referred to contract property clauses. 

I am large, I contain multitudes.

So is/does the devil.