The term abandonment seems to be a hot topic within government property (GP) circles for both contractors and government procurement professionals. Many more contractors are requesting abandonment as a method of disposition. But exactly what is abandonment? When can it be used? And is it a last resort for the government?
Disposition—What to do with Property
The first thing to address is this: When should government property possessed by a contractor be dispositioned? FAR 52.245-2 and 52.245-5 both provide very clear direction on proper disposition. FAR guidance basically states that when a contract is complete, or even earlier, contractors should submit in a CO approved form, inventory schedules covering all government property (including scrap) not consumed in performance of the contract. The FAR clauses also state the contracting officer can direct the contractor to ship, deliver or dispose of the government property, where any net proceeds should be credited back to the contract or paid to the government.
Best practices would be reasonable here. All government property which is no longer needed for contract performance should be dispositioned. Whether due to a contract ending, or the property is in excess of contract requirements, it should be listed on the proper inventory schedule for disposition.
What Exactly IS Abandonment?
Abandonment is an authorized method of government property disposition. It is not, however, the preferred method of that disposal. Abandonment basically means that the government no longer owns, claims or intends to claim the property again. The agency owning a piece (or pieces) of government property has the right to decide what method of disposition is used. This right extends to all forms of government property, including government furnished property, contractor acquired property, excess property/scrap, and any inventory at termination. The contract should specify how and where the government property disposal should happen.
What happens if it isn’t specified, or is not specified for all pieces of property? If the government-owning agency does not specify what will happen to the property—which can be delivery or transfer to another contract—then FAR 45.603 can be used by DCMA for disposition.
FAR 45.603 Disposition Methods
FAR 45.603 lists possible disposition methods in the order they are to be followed.
- Purchase or retention at cost by prime contractor or subcontractor of contractor-acquired property;
- Return of contractor-acquired property to suppliers;
- Use within the government through prescribed screening procedures;
- Donation to eligible parties;
- Sale at less than cost, and can be purchased by contractor or subcontractor;
- Donation to public institutions;
- Abandonment or destruction.
Abandonment as Last Resort
You can see where abandonment falls in the eyes of the government. FAR 45.603 states that DCMA must try all six other alternatives before arriving at abandonment. It also puts abandonment and destruction on the same level, giving DCMA the choice of the two as a last resort. FAR 45.611 provides guidance for DCMA in determining abandonment or destruction as a disposition method. All these methods must be researched, documented and in writing. The clause also states that the contractor must agree in writing to any property that will be abandoned on the contractor’s premises as follows:
- The property can have no commercial value or value to government;
- The estimated cost of care/handling is greater than probable sale price;
- Nature of property in question constitutes a danger to public health and safety.
The last bullet is misleading. DCMA is not going to research, document and then put in writing a decision to abandon any property that is a danger to the public. DCMA can only abandon property that is not hazardous.
The Final Word on Abandonment
In conclusion, we can see that abandonment is an authorized and acceptable method of government property disposition. It is not the preferred method for a contracting officer or DCMA but can be used in certain situations. It can never be used to shorten contract close-out, or as a remedy for funding shortfalls. For contractors, NEVER assume the government has abandoned property, even if it is located on your property. Make sure the government clearly specifies in writing exactly what property it is abandoning.
At Redstone Government Consulting, our objective is to ensure your company has a property control system which is transparent and accountable for all government property in your possession. Our professionals can help answer questions on this topic or any other related to government property. For additional information, consider our Government Contractor Business Ethics Webinar.