32.503-16 Risk of loss
Source: FAR 32.503-16 on acquisition.gov
Contractors are generally responsible for loss of Government property under progress payment contracts and must repay unliquidated progress payments if such loss occurs, unless the Government has expressly assumed the risk.
Overview
FAR 32.503-16 addresses the allocation of risk of loss for Government property under contracts with progress payments. It clarifies that, except for normal spoilage, contractors bear the risk of loss for Government property even though the title may have passed to the Government, unless the Government has explicitly assumed this risk. The regulation also outlines the contractor's obligation to repay unliquidated progress payments if a loss occurs for property under their risk, and specifies that contractors are not liable for losses where the Government has assumed the risk. However, significant losses may still impact contract performance and require contracting officer intervention.
Key Rules
- Contractor Risk of Loss
- Contractors bear the risk of loss for Government property under progress payment clauses unless the Government expressly assumes the risk.
- Repayment Obligation
- If property is lost while under the contractor's risk, the contractor must repay the Government for unliquidated progress payments related to that property.
- Government-Assumed Risk
- Contractors are not liable for losses where the Government has assumed the risk, but major losses may still trigger contracting officer action to address contract performance.
Responsibilities
- Contracting Officers: Must determine and clarify risk of loss in contracts, and may need to intervene if significant losses affect contract progress.
- Contractors: Must understand when they bear risk of loss, maintain adequate controls to prevent loss, and repay unliquidated progress payments if required.
- Agencies: Oversee contract compliance and ensure risk allocation is clear and enforced.
Practical Implications
- This section ensures clear allocation of risk for Government property during contract performance, especially under progress payment arrangements.
- Contractors must have robust property management and loss prevention practices, as they are financially liable for losses unless the Government has assumed the risk.
- Misunderstanding risk allocation can lead to unexpected financial obligations and contract performance issues.
(a) Under the Progress Payments clause, and except for normal spoilage, the contractor bears the risk of loss for Government property under the clause, even though title is vested in the Government, unless the Government has expressly assumed this risk. The clauses prescribed in this regulation related to progress payments, default, and terminations do not constitute a Government assumption of this risk.
(b) If a loss occurs in connection with property for which the contractor bears the risk, the contractor is obligated to repay to the Government the amount of unliquidated progress payments based on costs allocable 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 (c)(5) of the Progress Payments clause.