Don’t Forget the Government Property During Contract Closure

So, the title is maybe a little misleading, and don’t worry – DCMA won’t let you forget the Government property during contract closure. Government property closeouts are only a singular piece to the contract closeout process. And like with all things Government property, the closeout process takes teamwork from both the contractor side and the Government side to be successful.

The Importance of Government Property Closeouts

The contract closeout process is stressful enough without allowing lots of Government property issues to sidetrack it. Let’s look at the requirements behind Government property closeouts and then look at ways to make it easier for contractors. There are three elements (and requirements) of a having an adequate property management system in discussing Government property closeout. All three are closely related and all are reviewed in the Property Management System Analysis (PMSA).

Declaration of Excess Property

First, declaration of excess is just as it sounds. The contactor must have a process in place to review for and then “declare” all excess property. This can be any type of property that is no longer needed for contract performance. Best practice is to declare excess property annually. A property auditor will tell you to look for and declare excess property constantly. But that is not a practical solution for most contractors. Most small business contractors are lucky to have a Government property administrator at all. And if they do have one, the employee normally wears at least one more hats besides property administration. A good practice is to declare excess after your annual physical inventory (another requirement) each year.

Government Property Disposition

Second, Government property disposition should occur after the declaration of excess. Property disposition occurs when a contractor no longer needs Government property. For most contractors who deal with the Department of Defense, property disposition occurs in the Procurement Integrated Enterprise Environment or PIEE. Contractors can submit excess or unneeded property through PIEE. The Plant Clearance Officer (PLCO) from DCMA then instructs the contractor how the excess property should be handled. Remember, contractors can’t use their own judgement on excess property. Disposition instructions must either come from the contract itself, or from the Plant Clearance Officer. Disposition is part of property closeout, but it is not solely tied to the closeout outcome. Government property can be dispositioned at any time it is no longer needed. Most contractors will wait until the end of the contract to disposition property, during the closeout process. But “excess” property can be dispositioned at any time during the property lifecycle. The new DFARS clause 252.245-7005 Management and Reporting of Government Property gives more details on property disposition. Back to this later when we discuss how to make the closeout process easier for contractors.

Property Closeout Requirements in FAR 52.245-1

And third, and reason for this article, the actual property closeout outcome from FAR 52.245-1 Government Property. This outcome must be enabled through your property management system.

This outcome states “The Contractor shall promptly perform and report to the Property Administrator contract property closeout, to include reporting, investigating and securing closure of all loss of Government property cases; physically inventorying all property upon termination or completion of this contract; and disposing of items at the time they are determined to be excess to contractual needs.”

DCMA Guidance on Contract Closeout

FAR 52.245-1, or the FAR clause most contractor property systems are based on, gives very little detail on the closeout process or any of the required elements. The clause simply lists the outcome that must be enabled. To really understand the processes, or what an auditor is looking for in the closeout process, you would need to reference the DCMA Government Property Administration Guidebook. This publication, which is updated often by DCMA, discusses declaration of excess, disposition and contract closeout processes in great, and some would say overwhelming detail.

Key Requirements for Government Property Closeout

Now that we know declaration of excess and disposition are closely tied to contract closeout, let’s define the requirements for closing out Government property. Below are requirements to enable the property closeout outcome:

• Ensuring all cases of property loss are closed. Make sure there are no loss, damage or destruction cases outstanding.
• Performing a final inventory of all contract property. Ensure all inventory adjustments have been posted and results provided to the cognizant property administrator.
• Excess property disposal should be completed by the contractor after instruction from PLCO. Depending on the PLCO instructions for property disposition - return, mutilate/scrap, destroy or sell, should be carried out within a reasonable timeframe.
• Excess property can also be purchased by the contractor or transferred to another contract where needed. These two options require Contracting Officer approval. These two disposition actions would not be entered into PIEE, at least not at first.
• Ensure all property item records for contracts in question have been updated to reflect zero balances.

Final Property Closeout Letter to DCMA

And, after all these steps, the contractor gets to document these actions in a final property closeout letter to the DCMA property administrator. This needs to occur after the above steps are concluded. This closeout letter should state:

• There is no residual accountable property left on the contract
• Dates and results of the final inventory
• That all Government furnished or acquired property under the contract has been consumed, transferred, returned, shipped or disposed of only as authorized in the contract.
• That all inventory adjustments have been posted and all loss cases have been adjudicated and closed.
• Disposition actions for all items submitted through PIEE have been carried out as instructed by the PLCO.

Best Practices for a Smooth Closeout Process

What makes this process easier for contractors? For one – declaring excess on an annual basis. Don’t wait until the end of the contract to try and disposition all property. Disposition excess property as you recognize it. If you haven’t been declaring excess and dispositioning along the way, start the process ninety-days or so before closeout. Getting a good start on closeout always helps the process. Most auditors want to get property closeouts finished as soon as possible. It makes their lives easier. Another best practice, and requirement, is to conduct an annual contractor self-assessment. As mentioned, this is a requirement but also the best way to grade the overall health of your property management system. A good self-assessment will review all twenty-two applicable elements of the PMSA.

The Importance of Teamwork in Contract Closeout

Contract closeout is a required outcome that will be tested in the PMSA. The elements of declaring excess and disposition are also tested. It is very important that a contractor has sound policies and procedures for these and all the required elements. Closing out property on contracts makes your life easier and helps DCMA. And as mentioned early on, it takes teamwork on both sides.

It should be noted that PLCO disposition instructions and the importance of PIEE could be an article unto themselves; not to mention the requirements of the new (February 2024) DFARS clause 252.245-7005 which consolidated four old DFARS clauses on reporting, labeling and managing Government property. Look for articles on these topics soon.

We assist contractors constantly with property system issues on the entire lifecycle of Government property, from acquisition to closeout. Let us know if you have any questions about this article or any other topic related to Government property.