RGCI - ASBCA No. 61709 – A Cautionary Tale for Subcontractors with Government Property

On June 24, 2021, the Armed Services Board of Contract Appeals (ASBCA) opinioned that Intellicheck, Inc., a subcontractor, did not have privity of contract or even an implied-in-fact contract with the Government to allow for the recovery of costs incurred by Intellicheck, Inc. to maintain and store Government property after the completion of a Task Order for the Navy. A tale as old as time, the Government lets years go by before taking action to dispose of its property being held by a subcontractor. Then finds a legal out for not paying the costs the Government caused to be incurred.

Importance of Understanding Government Property Responsibilities

Morale of the story – it is extremely important to understanding that as a subcontractor, or even a prime contractor, do not get left holding the bag on Government property.

Case Details and Cautionary Tale

The details of the case really do not matter for our cautionary tale but here is a little from the case. In this case, the prime settled with the Government and in the Settlement Agreement stated, “this Settlement Agreement also covers any and all costs of any kind to which Intellicheck Mobilisa or any other subcontractors or entity may be entitled to for any work related to the claim, whether known or unknown…” In reading the case, it appears the Board was sympathetic to the circumstances the subcontractor was in but could not address it based on the legal position taken.

Key Takeaways for Government Contractors

  • The subcontractor has a contract with the prime, no matter how good the subcontractor’s relationship is with the Government.
  • Do not let the Prime get out of its responsibility to manage the disposition of the Government property it passes down to a subcontractor.
  • Directly communicate with the Prime and copy the Contracting Officer regarding the cost being incurred and the need for direction to disposition the Government property and stop the incurrence of cost.
  • The flow down of the Government property contract clause (FAR 52.245-1) does not create any type of relationship between the subcontractor and the Government.

NOTE – FAR 52.245-1 was not addressed in the case, however it is clear from the language in the clause, even though the title to the property is still with the Government, it is the prime that must, “assure its subcontracts are properly administered.” This includes settling any claimed/incurred cost for the disposition or storage of Government property the prime provides to the subcontractor.

Recommendations and Support for Government Contractors

Our recommendation is for subcontractors to return Government property to the Prime contractor as soon as the period of performance is complete. Do not allow the Prime contractor to send you an email stating they are waiting for disposition instructions from the Government. Let the Prime continue to incur the cost to store and inventory the Government property.

Redstone GCI assists contractors throughout the U.S. and internationally with understanding the Government’s expectations and supporting contractors through DCMA reviews, as well as, developing Government property policies and procedures that comply with DFAR.

Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: DFARS Business Systems, Government Regulations, Government Property Management