C.  Contractor Property Management Systems

Comments: Two respondents recommended revisions to FAR subpart 45.1, General. One recommendation was to revise FAR 45.105(b) to prevent the Government from notifying a contractor of deficiencies in its property management system unless the deficiencies were "material." The other recommendation was to modify FAR 45.104(b) to add the following: "When determining noncompliance, FAR part 1 concepts apply, e.g., risk management, materiality, best value, and benefits of changes must justify their cost".

Response: FAR part 1 is always applicable to all parts of the FAR.  There is no need to repeat the statement in FAR part 45. "Materiality" is not defined in FAR part 2. If the Government determines that deficiencies in a contractor's property management system are significant enough to warrant a correction letter, then the contractor should treat those deficiencies as material.

Comments: A number of respondents proposed changes to the clause at FAR 52.245-1 that were associated with contractors' property management systems. These included the following:

FAR 52.245-1(b)(1): Add "internal controls,"  "efficient," and "a new;" and delete "except where inconsistent with law or regulation."

FAR 52.245-1(b)(4): Change "property" to "asset."

FAR 52.245-1(f)(1)(iii)(A): Substitute "as appropriate to the circumstances" in place of "auditable."

FAR 52.245-1(f)(1)(iii)(A)(1): Do not use "description;"  instead, retain "manufacturer and model number (if applicable) for Equipment, ST, and STE."

FAR 52.245-1(f)(1)(v)(A): Change "assets" to "items" and revise to read "shall have a process to manage Government property in the possession of subcontractors including identification and reporting of reportable items, as required in the contract as Government furnished or contractor acquired items."

FAR 52.245-1(f)(1)(vii)(C)(1): Clarify what is included in "consumed" and that the property administrator is the official determining the reasonableness of adjustments.

FAR 52.245-1(g): Change "analysis" to "audit."

FAR 52.245-1(j): Delete, at FAR 52.245-1(j)(1)(i), "in consultation with the Property Administrator," and retain existing language at (j)(2). Add "in accordance with agency procedures if included in the contract."

FAR 52.245-1(j): Delete (j)(3)(i)(B) and replace it with (j)(3)(i)(C). Revise the time allotted for contractor submission from "30 days" to "60 days or such other time frame agreed to by the PLCO."

FAR 52.245-1: Add a dollar threshold for the contractor's reporting and tracking, i.e., "* * * property in excess of $5,000 or in accordance with risk levels in voluntary consensus standards or industry leading practices." The respondent suggested allowing contractors to defer any reporting of certain low-risk or low-value items until contract termination.

Response:

FAR 52.245-1(b)(1): Two of the recommended additions to FAR 52.245-1(b)(1) are incorporated into the final rule because they better explain the Government's requirements for the contractor's property management system. However, "a new" was not added because of the associated element related to "time." The phrase "except where inconsistent with law or regulation" is not deleted because contractors are never authorized to employ commercial practices, voluntary consensus standards, or industry-leading practices if the former do not comply with law or regulation.

FAR 52.245-1(b)(4): The term "property" is retained to maintain consistency in terminology.

FAR 52.245-1(f)(1)(iii)(A) and (A)(1): The Councils did not revise "auditable" to "as appropriate for the circumstances" because the proposed change is too vague and does not provide an understandable or consistent standard. The final rule does not revert back to the use of "manufacturer and model number * * *" because this is a reasonable number of data elements at the Federal level.

FAR 52.245-1(f)(1)(v)(A): Applying the same principle as is used at the beginning of this response results in revising "assets" to "items" at FAR 52.245-1(f)(1)(v)(A). The language regarding the management of Government property in subcontractors' possession is not added to paragraph (f)(1)(v)(A) because it would be redundant to the requirement already at FAR 52.245-1(f)(1)(v)(B).

FAR 52.245-1(f)(1)(vii)(C)(1): It is not necessary to revise FAR 52.245-1(f)(1)(vii)(C)(1) because the text already clearly designates the property administrator as the deciding official, and the use of the term "consumed" is clear in the context of (C)(1) ("Such property is consumed or expended, reasonably and properly, or otherwise accounted for, in the performance of the contract, including reasonable inventory adjustments of material as determined by the Property Administrator").

FAR 52.245-1(g): "Analysis," not "audit," is the proper term.

FAR 52.245-1(j): Paragraph (j) of the clause addresses contractor inventory disposal. The lead-in to paragraph (j) makes all contractor inventory disposal decisions subject to the authorization of the plant clearance officer; therefore, it is unnecessary to restate the qualifier in subordinate paragraphs of paragraph (j). Paragraph (j)(2) of the clause addresses inventory disposal schedules. The existing text had elicited many questions over time, so a revision was determined necessary to provide additional clarity; reverting to the current paragraph (j)(2) would be a step backward.

The authority to revise a contractor's use and receipt system for Government material (see FAR 52.245-1(f)(1)(iii)(B)) "in accordance with agency procedures * * *" is not included in the final rule because it would result in inconsistencies in treatment and problems when more than one Government agency had authorized the use of Government property in a single contractor facility.

FAR 52.245-1(j): Effectively, the request to delete 52.245-1(j)(3)(i)(B) and replace it with (C) of the same paragraph would eliminate a 60-day period for submission of the contractor's inventory disposal schedule and replace it with a 120-day submission schedule. Allowing an extra two months for the contractor's submission is unnecessary if the contractor has an acceptable property management system. For the same reasons, the extension of the submission period from 30 days to 60 days is not made.

FAR 52.245-1: The final recommendation would have established a dollar threshold and allowed contractors to defer any reporting of low-dollar items during contract performance. However, the Government property management principles have departed from the use of dollar thresholds and recognized that some low-dollar items may be sensitive and require closer management.