If you’re familiar with USG contracting, and mostly have experience with CPFF or T&M contracts, you likely are aware that any tangible property you acquire under your contract is considered government property, as per Federal Acquisition Regulation (FAR) 52.245-1 “Government Property”. But did you know that ownership does not necessarily transfer to the USG under a firm-fixed-price (FFP) contract?
Per FAR Section 45.402, when a FFP contract is issued, title to contractor-acquired property ultimately depends on whether or not the property is listed as part of the deliverable requirements in the contract or if the contract outlines specific financing provisions for the property in question. In fact, FAR 52.245-1 is not incorporated into fixed price contracts at all unless the government intends to furnish property to the contractor. And even then, paragraph (e)(2) mirrors FAR 45.402 for the fixed price exception. Thus, for fixed-price contracts, the general rule under the FAR alone is that the contractor bears the cost and risk of acquiring necessary property to implement the contract.
However, USAID-issued contracts – regardless of the contract mechanism (i.e. CPFF, T&M or FFP) – must incorporate AIDAR clause 752.245-71 Title to and Care of Property “when the contractor will acquire property under the contract for use overseas and the contract funds were obligated under a Development Objective Agreement (DOAG) (or similar bilateral obligating agreement) with the cooperating country”. Inclusion of this clause can shift the ownership landscape and make determining ownership of property purchased under fixed price contracts a complex puzzle.
The clause requires that title to non-expendable property* “purchased with contract funds…and used in the Cooperating Country, shall at all times be in the name of the Cooperating Government [or their designee]…unless title…is reserved to USAID under provisions set forth in the schedule of this contract”.
Interpreting this clause under fixed price contracts is tricky due to the phrase “purchased with contract funds”. Such phrasing generally does not fit in the context of a fixed price contract, since use of contract funds are not invoiced or reported to USAID. A contractor could argue (though a contracting officer may disagree) that on the basis of the fundamental attributes of a fixed price contract, this clause under the FFP mechanism is not applicable.
A more appropriate interpretation is that contractor-acquired property that is not part of an explicitly identified deliverable requirement, is ancillary/incidental to the technical scope of work, and the needs for which may shift during implementation, should remain with the contractor. Otherwise, the requirement to purchase and deliver the ancillary equipment must be explicitly outlined in the contract terms and conditions outside of the AIDAR clause. Short of such a provision, the ownership requirements remain murky.
To illustrate, let's consider a case scenario. Imagine a non-profit organization, Global Aid, enters a fixed-price contract with USAID to install water purification systems in a developing nation. Per the FAR’s prescriptive language, the contract excludes FAR 52.245-1, but in accordance with AIDAR prescriptive language, the contract DOES incorporate AIDAR 752.245-71.
In this scenario, Global Aid purchases pipes and filtration units for the project to build the systems. These pipes and filtration units will become part of the water purification system deliverable. Based on AIDAR 752.245-71, even though it's a fixed-price contract, either the Cooperating Government or the US government (if required elsewhere in the contract) becomes the owner of these items due to their inclusion in the final delivered product.
Mid-way through the project, Global Aid unexpectedly needs to purchase a new laptop for its construction manager. As the laptop is not a required deliverable, is ancillary to the work, is not included as part of the water filtration system, and is not otherwise outlined as a deliverable in the contract, a case can be made that Global Aid retains ownership.
But, let’s assume that a further complicating factor has been added to the mix: USAID will provide pre-existing water pumps for some locations. If the government intends to furnish property to a contractor under a fixed price contract, then they must include FAR 52.245-1 in the contract.
FAR 52.245-1 establishes that USAID retains ownership of the government-furnished property it provides (i.e. the pre-existing water pumps). Simple enough. But paragraph (e)(2) also reinforces the standard fixed price exception from FAR 45.402(a) for contractor acquired property:
“Under fixed-price type contracts, in the absence of financing provisions or other specific requirements for passage of title in the contract, the contractor retains title to all property acquired by the contractor for use on the contract, except for property identified as a deliverable end item.”
So now that we have the FAR Government Property clause in the contract, does it affect our interpretation of title to contractor-acquired property AIDAR 752.245-71? Most likely, yes.
If anything, inclusion of FAR 52.245-1 provides greater clarification that ancillary property acquired by the contractor is titled to the contractor. The contractor may invoke paragraph (e)(2) of FAR 52.245-1 in order to retain ownership of any contractor-acquired property that is not a deliverable requirement or which has no financing provisions outlined in the contract.
Of course, contracting officers may interpret these regulations differently, and so if you are in doubt about whether you should retain ownership of ancillary property acquired under your fixed price contract, it is best to discuss the issue with your client.
The key takeaway? When interpreting FAR and AIDAR clauses, due diligence is paramount. Here are some steps to ensure smooth sailing:
Meticulously review the contract: Pay close attention to FAR and AIDAR clauses and any specific title transfer, itemized property acquisition requirements, or property financing terms.
Seek expert advice: Consult with subject matter experts, such as those of us at Akiri, who are familiar with both FAR and AIDAR regulations, especially for complex contracts.
Clarity is crucial: Clearly document the intended ownership of each property item to avoid future disputes and obtain your contracting officer’s concurrence at project start-up to ensure both parties are on the same page from the outset.
By understanding the interplay between the FAR, AIDAR, and specific contract terms, you can navigate the ownership maze of contractor-acquired property and ensure your project's success. Remember, a clear understanding of the applicable regulations and contractual specifics is the key to unlocking ownership and avoiding any unpleasant surprises down the road.
*Non-expendable personal property is defined in the AIDAR as personal property that is complete in itself, does not lose its identity or become a component part of another article when put into use; is durable, with an expected service life of two years or more; and that has a unit cost of more than $500.
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