32.1010 Risk of loss
Source: FAR 32.1010 on acquisition.gov
Contractors are generally responsible for loss or damage to Government property under performance-based payments and may have to repay related payments if such property is lost and needed for contract performance.
Overview
FAR 32.1010 addresses the allocation of risk of loss for Government property under contracts that use performance-based payments. It clarifies that, unless the Government has expressly assumed the risk, the contractor is responsible for any loss or damage to Government property (except for normal spoilage), even though the Government holds title. This section also outlines the contractor's obligation to repay performance-based payments if property needed for contract performance is lost while the contractor bears the risk. Conversely, if the Government has assumed the risk, the contractor is not required to repay such payments, but significant losses may still impact contract performance and payment certifications.
Key Rules
- Contractor Bears Risk of Loss
- Contractors are responsible for loss or damage to Government property under performance-based payment clauses unless the Government has expressly assumed the risk.
- Repayment Obligation
- If property is lost and the contractor bears the risk, the contractor must repay the Government for related performance-based payments if the property is needed for contract performance.
- Government Assumption of Risk
- If the Government has assumed the risk, the contractor is not obligated to repay performance-based payments, but contract performance and payment certifications may still be affected by the loss.
Responsibilities
- Contracting Officers: Ensure contract clauses clearly state risk allocation and monitor contractor compliance; take action if significant loss affects performance.
- Contractors: Understand and comply with risk of loss provisions; repay performance-based payments when required; maintain ability to certify performance-based payment requests.
- Agencies: Oversee contract administration and ensure proper risk allocation is enforced.
Practical Implications
- This section exists to clarify financial responsibility for Government property under performance-based payment arrangements.
- Contractors must carefully manage and protect Government property, as loss can trigger repayment obligations and impact cash flow.
- Failure to understand risk allocation can result in unexpected liabilities or payment disruptions.
(a) Under the clause at 52.232-32, Performance-Based Payments, and except for normal spoilage, the contractor bears the risk of loss for Government property, even though title is vested in the Government, unless the Government has expressly assumed this risk. The clauses prescribed in this regulation related to performance-based payments, default, and terminations do not constitute a Government assumption of risk.
(b) If a loss occurs in connection with property for which the contractor bears the risk, and the property is needed for performance, the contractor is obligated to repay the Government the performance-based payments related to the property.
(c) The contractor is not obligated to pay for the loss of property for which the Government has assumed the risk of loss. However, a serious loss may impede the satisfactory progress of contract performance, so that the contracting officer may need to act under paragraph (e)(2) of the Performance-Based Payments clause. In addition, while the contractor is not required to repay previous performance-based payments in the event of a loss for which the Government has assumed the risk, such a loss may prevent the contractor from making the certification required by the Performance-Based Payments clause.