32.1010
Risk of loss
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.