ACQUISITION AND TITLE TO GOVERNMENT PROPERTY UNDER GOVERNMENT CONTRACTS. Presented by Dr. Douglas N. Goetz, CPPM, CF, MIAM.

Transcription

1 ACQUISITION AND TITLE TO GOVERNMENT PROPERTY UNDER GOVERNMENT CONTRACTS Presented by Dr. Douglas N. Goetz, CPPM, CF, MIAM This Presentation WHAT may a contractor acquire? To WHAT does the Government take title? When does the Government take title? Are there restrictions on what the Contractor may acquire to which the Government takes title? So, there are lots of questions with lots of answers!!! LLC

2 So, to start -- we need to remember THE PROCESS OF ACQUISITION FAR (f)(1) (i) Acquisition of Property. The Contractor shall document that all property was acquired consistent with its engineering, production planning, and property control operations. Really doesn t tell us much. So, let s dig into this issue! LLC

3 THE PROCESS OF ACQUISITION It is a CONTRACTUAL requirement that contractors have a PROCESS for managing the ACQUISITION of PROPERTY that IS or BECOMES GOVERNMENT PROPERTY Government Property Clause FAR (f) LLC THE PROCESS OF ACQUISITION IT IS EXPECTED THAT THE CONTRACTOR WILL ADDRESS THIS PROCESS/OUTCOME IN ITS PROPERTY MANAGEMENT SYSTEM (PMS) AND: DESCRIBE THE PROCESS IN SUFFICIENT DEPTH AND DETAIL AS TO THESE REQUIREMENTS WHO, WHAT, WHERE, WHEN, and HOW! NOTE 1: Some elements of this process are also reviewed under the Contractor Purchasing System Review (CPSR) NOTE 2: THERE IS NO VCS AVAILABLE FOR THIS PROCESS. LLC

4 THE GOOD STUFF!!! CAP TITLE TO CAP LLC TITLE TO CAP The OLD Thought Hey, it s simple I have a cost reimbursement type contract everything I buy is Government Property! The Government has title!!! Right??? Uhhhhh, NOT SO FAST!!! There are LOTS of Variables we have to address! So let s discuss this! LLC

5 CONTRACTOR ACQUIRED PROPERTY (CAP) TITLE TO CAP IS DRIVEN BY MULTIPLE FACTORS: TYPE OF CONTRACT GOVERNMENT PROPERTY CLAUSE OTHER CLAUSES COST PRINCIPLES COST ACCOUNTING STANDARDS CONTRACTOR S ACCOUNTING POLICIES AND PROCEDURES LLC CONTRACTOR ACQUIRED PROPERTY (CAP) TYPES OF CONTRACTS TWO BROAD PRICING ARRANGEMENT FIXED PRICE COST REIMB. PLUS LOTS OF VARIANTS LLC

6 CONTRACTOR ACQUIRED PROPERTY (CAP) TITLE TO PROPERTY UNDER FIXED PRICE CONTRACTS QUICK Think about buying something at Home Depot, Lowe s, Sears and JC Penney! Under a FP Contract what do YOU the BUYER own?!?!?! THE DELIVERABLE END ITEM!!! LLC CONTRACTOR ACQUIRED PROPERTY (CAP) So, what is CONTRACTOR ACQUIRED PROPERTY? Well, it IS Government property! But it is Government property acquired by the Contractor anddddddd Well, let s look at the DEFINITION in the FAR FAR states, Contractor-acquired property means property acquired, fabricated, or otherwise provided by the contractor for performing a contract and to which the Government has title.

7 CAP UNDER FIXED PRICE CONTRACTS CONTRACTOR ACQUIRED PROPERTY (CAP) Title to Contractor-Acquired Property. (a) Title vests in the Government for all property acquired or fabricated by the contractor in accordance with the financing provisions or other specific requirements for passage of title in the contract. Under fixed-price type contracts, in the absence of financing provisions or other specific requirements for passage of title in the contract, the contractor retains title to all property acquired by the contractor for use on the contract, except for property identified as a deliverable end item.

8 CONTRACTOR ACQUIRED PROPERTY (CAP) So, unless this is a hybrid contract, i.e., FP with CR CLINS, I am really NOT WORRIED about CAP. WHY??? There should not be any as the Government takes TITLE ONLY to the DELIVERABLE END ITEM(S). NOTE: I am NOT going to discuss Progress or Performance based payments title issues in this presentation THOSE TOPICS open a whole can of worms! And they really don t apply to THIS presentation! CAP UNDER COST TYPE CONTRACTS

9 CONTRACTOR ACQUIRED PROPERTY (CAP) Title to CAP. (b) Under cost type and time-and material contracts, the Government acquires title to all property to which the contractor is entitled to reimbursement, in accordance with paragraph (e)(3) of clause CONTRACTOR ACQUIRED PROPERTY (CAP) FAR (e) TITLE TO PROPERTY UNDER COST REIMBURSEMENT CONTRACTS TITLE to ALL PROPERTY purchased by the contractor for which the contractor is ENTITLED to be REIMBURSED as a DIRECT ITEM OF COST shall pass to and VEST IN THE GOVERNMENT upon VENDOR S DELIVERY» PLUS OTHER TIMES on the next slide

10 CONTRACTOR ACQUIRED PROPERTY (CAP) TITLE TO PROPERTY UNDER COST REIMBURSEMENT CONTRACTS TITLE to ALL OTHER PROPERTY The cost of which is reimbursable to the contract, shall pass to and vest in the GOVERNMENT upon Issuance of Material Commencement of Processing of Material or its use Reimbursement of the cost, Whichever comes first! CONTRACTOR ACQUIRED PROPERTY (CAP) So, let s break this portion of the GP CLAUSE down into its smallest components!!!

11 CONTRACTOR ACQUIRED PROPERTY (CAP) FIRST PART TITLE TO ALL PROPERTY VESTS IN THE GOVERNMENT On the surface it sounds good but, it is a FALSE/INCOMPLETE STATEMENT! The Government DOES NOT take title to ALL Property! We have to address the VARIABLES EMBEDDED within the paragraph. CONTRACTOR ACQUIRED PROPERTY (CAP) SECOND PART for which the contractor is ENTITLED to be REIMBURSED

12 CONTRACTOR ACQUIRED PROPERTY (CAP) What does ENTITLED to be REIMBURSED mean??? We have to go the Allowable Cost and Payment Clause. FAR (a) Invoicing. (1) The Government will make payments in amounts determined to be ALLOWABLE by the Contracting Officer in accordance with Federal Acquisition Regulation (FAR) Subpart 31.2 in effect on the date of this contract and the terms of this contract. CONTRACTOR ACQUIRED PROPERTY (CAP) So, ENTITLED to be REIMBURSED Takes us to FAR which Takes us to FAR 31.2, as an incorporation by reference! FAR 31, Contract Cost Principles and Procedures FAR 31.2, Contracts with Commercial Organizations

13 CONTRACTOR ACQUIRED PROPERTY (CAP) So, under FAR What does ENTITLED to be REIMBURSED mean??? THREE CRITERIA -- Cost must be: REASONABLE ALLOCABLE and FAR PART 31 ALLOWABLE REASONABLE FAR (a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. REASONABLY PRUDENT PERSON COMPETITIVE BUSINESS LLC

14 REASONABLE Reasonableness can be determined by the Terms and conditions of the Contract Items specifically called out to be acquired Reasonableness can be determined by reviewing drawings, blueprints, bills of material, or other documents showing: Need of the item Quantity needed Scrap and spoilage rates Etc. LLC ALLOCABLE FAR A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship.

15 ALLOWABLE FAR (a) A cost is allowable only when the cost complies with all of the following requirements: (1) Reasonableness. (2) Allocability. (3) Standards promulgated by the CAS Board, if applicable; otherwise, generally accepted accounting principles and practices appropriate to the circumstances. (4) Terms of the contract. (5) Any limitations set forth in this subpart. QUICK are alcoholic beverages allowable? FAR Costs of alcoholic beverages are unallowable. COST ACCOUNTING STANDARDS What are Standards promulgated by the CAS Board, if applicable. COST ACCOUNTING STANDARDS DEFINITION The set of RULES on cost accounting for Government contracts which were promulgated by the Cost Accounting standards Board» Government Contracts Guidebook» Arnavas and Ruberry b.html

16 COST ACCOUNTING STANDARDS Cost Accounting Standards. (a) Public Law (41 U.S.C. 422) requires certain contractors and subcontractors to comply with Cost Accounting Standards (CAS) and to disclose in writing and follow consistently their cost accounting practices Contract clauses. (a) Cost accounting standards. (1) The contracting officer shall insert the clause at FAR , Cost Accounting Standards, in negotiated contracts COST ACCOUNTING STANDARDS COST ACCOUNTING STANDARDS AFFECT THE WAY CONTRACTORS CHARGE THE GOVERNMENT FOR PROPERTY For example whether or not contractors may direct charge the Contract for GENERAL PURPOSE EQUIPMENT A BIGGEE FOR US IN GOVERNMENT PROPERTY CAS 402 The CONSISTENCY Standard Kitchen English BUY LIKE ITEM, USE FOR LIKE PURPOSE, THEN KTR MUST CHARGE IN LIKE FASHION

17 COST ACCOUNTING STANDARDS Contractors must be CONSISTENT in their charging practices!!! IF THEY BUY LIKE ITEM, THAT IS USED FOR LIKE PURPOSE, THEN THE CONTRACTOR MUST CHARGE IN A CONSISTENT read that the same FASHION!!! COST ACCOUNTING STANDARDS BOTH Sides of the Property world Government and performing contractor -- need to have ACCESS TO and READ and UNDERSTAND the contractor s Disclosure Statement in order to deal PROPERLY with PROPERTY! CASB-DS-1 FORM tm#p332_70916

18 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) If the contractor is NOT a CAS covered Contractor then they are required to follow GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) DEFINITION -- The common set of accounting principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) Federal Accounting Standards Advisory Board (FASAB) The most authoritative source of GAAP developed by FASAB for federal entities is contained in The FASAB Handbook of Accounting Standards and Other Pronouncements, As Amended (FASAB Handbook).

19 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) WHICH STILL REQUIRES CONSISTENT APPLICATION OF THEIR CHARGING PRACTICES!!! LAST ITEM AS A DIRECT ITEM OF COST! The Government, under the GP Clause does NOT take title to property charged INDIRECT! Title to Government Property: Applications and Implications for Property Management, Taxation, and Unintended Consequences -

20 So, under a Cost Reimbursement Type Contract is it a correct statement to say that the Government has title to ALL property Acquired by the Contractor? NO! Analyzing BOTH the GP CLAUSE and the ALLOWABLE COST AND PAYMENT CLAUSE we reach a different conclusion: For the Government to take TITLE IT MUST BE CHARGED DIRECT It must be a cost to which the Contractor is ENTITLED TO BE REIMBURSED: REASONABLE ALLOCABLE and ALLOWABLE CAS or GAAP Applied

21 SOME QUESTIONS!!! Question # 1 Can a contractor acquire general purpose equipment and direct charge it to a cost reimbursement type contract? SOME ANSWERS IT DEPENDS!!! CASB-DS1 WHAT DOES IT SAY??? CAS 402 Was it charged in a consistent fashion? CAS 409 Depreciation of capital assets would come into play. And would have to be handled in a consistent fashion also! MY opinion GENERALLY the contractor probably would have to capitalize the equipment and only charge the Government for the depreciation of the General Purpose Equipment.

22 SOME QUESTIONS!!! Question # 2 Can a contractor acquire Office or Custodial supplies (Paper, pencils, paper clips, toilet paper) and direct charge it to a cost reimbursement type contract? CAP So, for CAP, WHEN does the Government take title??? Technical Answer IT DEPENDS! We need to go BACK to the GP CLAUSE, FAR !

23 FAR (e) We saw the issues of Direct Charge, and Entitled to Reimbursement now we need to look at the INSTANT IN TIME when title vests in the Government. TITLE shall pass to and VEST IN THE GOVERNMENT upon VENDOR S DELIVERY Clarification a supplier or vendor or subcontractor to the contractor, delivers an item to the contractor. FAR (e) TITLE to ALL OTHER PROPERTY The cost of which is reimbursable to the contract, shall pass to and vest in the GOVERNMENT upon: Issuance of Material Commencement of Processing of Material or its use Reimbursement of the cost, Whichever comes first!

24 FAR (e) So under (e) we see the decisions that have to be made regarding TITLE Direct Charge and RAA and CAS and The exact instant in TIME or by ACTION that the Government takes title: Vendor s Delivery Issuance Commencement of Processing Reimbursement or Whichever comes first! So, at a contractor s location how DOES acquisition take place???

25 CONTRACTOR ACQUIRED PROPERTY (CAP) ACQUISITION may take many different forms and may use many different processes: Acquisition/Purchase items from a vendor/subcontractor Fabricating items in-house Issuing items from contractor-owned stores/stock and stockrooms Transfer Reutilization Lease (CAREFUL WITH THIS ONE more later!) CONTRACTOR ACQUIRED PROPERTY (CAP) PURCHASE from Vendor Contractor issues a P.O. or Subcontract to a vendor or supplier ISSUANCE from Stock Contractor may already have an item in his/her stockroom and may issue it and use it on the contract.

26 CONTRACTOR ACQUIRED PROPERTY (CAP) FABRICATED PROPERTY Though not specifically called out as such the GOVERNMENT takes title to property that is FABRICATED under cost reimbursement type contracts E.g., parts machined from raw materials Special tooling fabricated in the contractor s tool shop. CONTRACTOR ACQUIRED PROPERTY (CAP) TRANSFER of MATERIAL (Other forms of Government property are different. Contractor may use a system to move property, generally material of the CAP Variety, from one contract to another WITH ITS ASSOCIATED COSTS, i.e., generally crediting the losing contract and debiting the gaining contract. The Material Management Accounting System referred to as the MMAS DFARS and DFARS More on this later!!! LLC

27 CONTRACTOR ACQUIRED PROPERTY (CAP) LEASING OF PROPERTY If a contractor LEASES property (Even under a Cost Reimbursement contract) it DOES NOT become Government Property. If the CONTRACTOR leases property, that property is bound by the terms and conditions of the Lease and the LESSOR still retains title to it! If the GOVERNMENT leases the property, then the Government TASKS the Contractor to MANAGE that property by furnishing it as GFP (Think Vehicles) because the contractor has an obligation to return it to the Government, and the Government has an obligation to return it to the LESSOR. CONTRACTOR ACQUIRED PROPERTY (CAP) ALL ACQUISITIONS MUST BE SUPPORTED BY A VALID NEED OR REQUIREMENT. Some Examples: Engineering Requirements in R&D Bill of Material (BOM), Material requirements list (MRL), Drawings or Blueprints in a Production setting Contractual Unit requirements in an O&M or Services setting When a contractor acquires an item or items there must be supporting documentation for that item/asset and its NEED/REQUIREMENT in and for performing the contractually required work. See Records Requirements under: FAR (f) and FAR 4.7 Contractor Records Retention

28 APPROVALS DOES THE CONTRACTOR REQUIRE APPROVAL PRIOR TO ACQUIRING PROPERTY FOR THE GOVERNMENT? GENERALLY NO! BUT SOMETIMES MAYBE! IT DEPENDS!!! APPROVALS FAR SUBCONTRACTS CLAUSE If the contractor DOES NOT have an approved Purchasing System, consent to subcontractor is required for ANY SUBCONTRACT that Is Cost Reimbursement Is FP and exceeds the Simplified Acquisition Threshold or 5% of the total cost of the contract. FAR (c) Or any items specified in the contract FAR (3) Many Agency Supplements, e.g., NFS and DEARS Have more detail in regard to thresholds, subcontract types, dollar levels, etc.

29 So What does all of this mean? A Quick Summary! OVERARCHING RULE: GFP is always TITLED to the GOVERNMENT! So What does all of this mean? A Quick Summary! FP Contracts: Contractor has TITLE to all Property it acquires EXCEPT GFP If listed as a Deliverable End Item/CLIN Upon inspection and acceptance it becomes PROPERTY OF THE GOVERNMENT

30 So What does all of this mean? A Quick Summary! CR Type Contracts: GOVERNMENT has TITLE to all Property the contractor acquires IF: IT IS CHARGED as a DIRECT ITEM OF COST IT IS: REASONABLE ALLOCABLE and ALLOWABLE and IN ACCORDANCE WITH THE CONTRACTOR S DISCLOSURE STATEMENT. AND THERE ARE ADDITIONAL SLIDES ON THIS TOPIC FOLLOWING THE CLOSING SLIDE!

31 THANK YOU!!! Dr. Douglas N. Goetz CPPM, CF, MIAM PRESIDENT, GP CONSULTANTS RECORDS OF CAP A QUESTION So, since CAP is Government Property the Government keeps the records of all CAP acquired by the Contractor?

32 RECORDS OF CAP The OLD PRE-2007 FAR said, Records of Government Property. (a) Contractor records of Government property established and maintained under the terms of the contract are the Government s official Government property records. Duplicate official records shall not be furnished to or maintained by Government personnel. RECORDS OF CAP BIG BOO BOO!!! That was in the PRE-2007 Iteration of the FAR and was INHERENTLY WRONG!!! WRONG!!! WRONG!!!

33 RECORDS OF CAP FAR 45.5 and the Government s Official Records Unraveling the Original Sin of Contract Property Management BY THOMAS RUCKDASCHEL, MSA, CPPM, CDFM RECORDS OF CAP I know that in previous conferences there was a LOT of discussion about the Government maintaining records of Government FURNISHED property!!! We can see this requirement in numerous regulations for example: DODI USC 524 DODI PLUS OTHERS!!! ALL of these talk about the GOVERNMENT s Responsibilities To maintain records of GP Not meant as a humorous comment but FIAR is getting ready to rain down! O.k., it was meant to SLIGHTLY humorous!

34 RECORDS OF CAP WHAT ABOUT CAP??? The CONTRACTOR is required to establish and maintain records of Government Property in its possession or control in accordance with FAR CAP falls under this requirement. And we generally refer to these records as STEWARDSHIP RECORDS vis-à-vis FIDUCIARY RECORDS of the Government. CAP CONSUMPTION So, the contractor acquires all of this CAP what can they do with it??? GOOD QUESTION!!!

35 ACTIONS WITH CAP So, what can a contractor DO with CAP of the Material Classification? Original intent CONSUME IT in the performance of a contract Consumption must be REASONABLE as determined by the Property Administrator (Army has PAs, Navy has PAs, Air Force has PAs, DCMA has PAs, and so on and so on!) FAR (f)(1)(vii) states, the Contractor shall be relieved of stewardship responsibility and liability for property when (1) Such property is consumed or expended, reasonably and properly, or otherwise accounted for, in the performance of the contract, including reasonable inventory adjustments of material as determined by the Property Administrator; ACTIONS WITH CAP So, what can a contractor DO with CAP of the other Classification (ST, STE and Equipment)? Original intent USE IT in the performance of a contract FAR (c) entitled Use of Government property states, (1) The Contractor shall use Government property, either furnished or acquired under this contract, only for performing this contract, unless otherwise provided for in this contract or approved by the Contracting Officer. This is ALSO tested by the PA during the performance of a Property Management System Analysis.

36 ACTIONS WITH CAP FOR ALL CAP (And this really includes GFP) REGARDLESS OF CLASSIFICATION, i.e., ST, STE, Equipment and Material that is EXCESS: FAR (j)(1)(i), (i) If the Contractor determines that the property has the potential to fulfill requirements under other contracts, the Contractor, in consultation with the Property Administrator, shall request that the Contracting Officer transfer the property to the contract in question, or provide authorization for use, as appropriate. TWO POINTS: CONTRACTOR initiates the Request and THERE MUST BE MODS!!! (More on this later!!!) ACTIONS WITH CAP The Contracting Officer MAY have inserted DISPOSITION DIRECTIONS in the contract (though this happens RARELY for CAP!) Why? Because you generally DO NOT KNOW WHAT CAP WILL BE ACQUIRED during the performance of the contract. NOTE: FAR (b) requires this for GFP, (2) That the overall benefit to the acquisition significantly outweighs the increased cost of administration, including ultimate property disposal;

37 ACTIONS WITH CAP Other actions with CAP of the Material Classification that is excess to the contract: CREDIT/DEBIT (at ACQUISITION cost) from the Accountable contract to another project. Could be to: Another Government Contract FP or CR The issue here is that the Government has been made WHOLE! FAR (j)(1) PREDISPOSAL REQUIREMENTS In lieu of transferring the property, the Contracting Officer may authorize the Contractor to credit the costs of Contractoracquired property (material only) to the losing contract, and debit the gaining contract with the corresponding cost, when such material is needed for use on another contract. Amplification or even to a commercial contract Ahhhh, but there is more on the next slide! ACTIONS WITH CAP Under DOD we have the Material Management Accounting System (DFARS ) which interacts with the GP Clause, , creating allowances for the CAP (Of the MATERIAL classification) to move AUTOMATICALLY back and forth, amongst and between: Government Contracts of any variety and Commercial Work. Its genesis was from the work of Wight and Plossl on MRP systems back in the 1960s and a DCAA audit of Bell Helicopter in the 1980s led to the creation of the Clause. TWO ISSUES: The actual crediting and debiting are done as part of the SYSTEM and do NOT require CO Approval of the transactions [NOTE this SYSTEM is one of the six DOD Business Systems under DFARS ] The Material DOES NOT need to be EXCESS!

38 ACTIONS WITH CAP Other actions with CAP that is EXCESS to the contract: FAR (j)(1) PREDISPOSAL REQUIREMENTS (ii) make reasonable efforts to return unused property to the appropriate supplier at fair market value (less, if applicable, a reasonable restocking fee that is consistent with the supplier's customary practices.) Patterned after the Elvis song Return to Vendor. Real world Tough to do! ACTIONS WITH CAP FOR ALL CAP (And GFP) REGARDLESS OF CLASSIFICATION, i.e., ST, STE, Equipment and Material that is EXCESS: REPORT TO PLANT CLEARANCE!!! (i) Absent separate contract terms and conditions for property disposition, and provided the property was not reutilized, transferred, or otherwise disposed of, the Contractor, as directed by the Plant Clearance Officer or authorizing official, shall use Standard Form 1428, Inventory Disposal Schedule or electronic equivalent, to identify and report (A) Government-furnished property that is no longer required for performance of this contract; (B) Contractor-acquired property, to which the Government has obtained title under paragraph (e) of this clause, which is no longer required for performance of that contract; and (C) Termination inventory.

39 TRANSFERS I mentioned earlier that CAP could be TRANSFERRED WITH MODS!!! So, I, as the contractor, have CAP And you, as the CO want to move it to another contract (Either with the same contractor, or even a different contractor). How do we do this? HUH and HOW? Essentially, I have to inspect and accept it as a deliverable end item! Why? I need to get it into the GOVERNMENT S FIDUCIARY ACCOUNTABLE RECORDS! Because under the NEW CONTRACT that item is now GFP!!! How do I do this? The DOD PGIs come to the rescue!!! Sorry, that was ALSO meant to be humorous! O.K., so where does it say this? DOD PGI

40 DELIVERY OF CAP PGI Delivery of contractor-acquired property. (1)(i) When delivery of contractor-acquired property is required, the contracting officer shall direct that the delivery be accomplished by contract line item, except as described in paragraph (1)(ii) of this section. (ii) DISCUSSES Contractor-performed logistics support or performance-based logistics support contracts have to save THAT one for another time as we can spend HOURS discussing those requirements and how to do it!!! CAP DELIVERY as a CONTRACT LINE ITEM So, how do I do this? (2) Each contract line item of contractor-acquired property shall include the following information: Contractor-Acquired Property Delivery Contract Line Item * Contractor-acquired property items shall be marked as required by DFARS clause

41 One more item Back Doored Policy for item unique identification. (a) It is DoD policy that DoD item unique identification, or a DoD recognized unique identification equivalent, is required for all delivered items, including items of contractor-acquired property delivered on contract line items (see PGI for guidance when delivery of contractor acquired property is required) (1) For which the Government s unit acquisition cost is $5,000 or more; (2) For which the Government s unit acquisition cost is less than $5,000 when the requiring activity determines that item unique identification is required for mission essential or controlled inventory items; or (3) Regardless of value for any (i) DoD serially managed item (reparable or nonreparable) or subassembly, component, or part embedded within a subassembly, component, or part; (ii) Parent item (as defined in (a)) that contains the embedded subassembly, component, or part; (iii) Warranted serialized item; (iv) Item of special tooling or special test equipment, as defined at FAR 2.101, for a major defense acquisition program that is designated for preservation and storage in accordance with the requirements of section 815 of the National Defense Authorization Act for Fiscal Year 2009 (Pub. L ); and (v) High risk item identified by the requiring activity as vulnerable to supply chain threat, a target of cyber threats, or counterfeiting. No NO MORE PLEASE!!! WHICH ULTIMATELY TAKES US TO DFARS Contract clauses. (a)(1) Use the clause at , Item Unique Identification and Valuation, in solicitations and contracts, including solicitations and contracts using FAR part 12 procedures for the acquisition of commercial items, that require item identification or valuation, or both, in accordance with and (2) Identify in paragraph (c)(1)(ii) of the clause the contract line, subline, or exhibit line item number and description of any item(s) below $5,000 in unit acquisition cost for which DoD item unique identification or a DoD recognized unique identification equivalent is required in accordance with (a)(2). (3) Identify in paragraph (c)(1)(iii) of the clause the applicable attachment number, when DoD item unique identification or a DoD recognized unique identification equivalent is required in accordance with (a)(3)(i) through (v).

42 ! Item Unique Identification and Valuation. As prescribed in (a)(1), use the following clause: ITEM UNIQUE IDENTIFICATION AND VALUATION (DEC 2013) (a) Definitions. As used in this clause Automatic identification device means a device, such as a reader or interrogator, used to retrieve data encoded on machine-readable media. Concatenated unique item identifier means (1) For items that are serialized within the enterprise identifier, the linking together of the unique identifier data elements in order of the issuing agency code, enterprise identifier, and unique serial number within the enterprise identifier; or (2) For items that are serialized within the original part, lot, or batch number, the linking together of the unique identifier data elements in order of the issuing agency code; enterprise identifier; original part, lot, or batch number; and serial number within the original part, lot, or batch number. Data matrix means a two-dimensional matrix symbology, which is made up of square or, in some cases, round modules arranged within a perimeter finder pattern and uses the Error Checking and Correction 200 (ECC200) specification found within International Standards Organization (ISO)/International Electrotechnical Commission (IEC) Data qualifier means a specified character (or string of characters) that immediately precedes a data field that defines the general category or intended use of the data that follows. DoD recognized unique identification equivalent means a unique identification method that is in commercial use and has been recognized by DoD. All DoD recognized unique identification equivalents are listed at DoD item unique identification means a system of marking items delivered to DoD with unique item identifiers that have machine-readable data elements to distinguish an item from all other like and unlike items. For items that are serialized within the enterprise identifier, the unique item identifier shall include the data elements of the enterprise identifier and a unique serial number. For items that are serialized within the part, lot, or batch number within the enterprise identifier, the unique item identifier shall include the data elements of the enterprise identifier; the original part, lot, or batch number; and the serial number. Enterprise means the entity (e.g., a manufacturer or vendor) responsible for assigning unique item identifiers to items. Enterprise identifier means a code that is uniquely assigned to an enterprise by an issuing agency. Government s unit acquisition cost means (1) For fixed-price type line, subline, or exhibit line items, the unit price identified in the contract at the time of delivery; (2) For cost-type or undefinitized line, subline, or exhibit line items, the Contractor s estimated fully burdened unit cost to the Government at the time of delivery; and (3) For items produced under a time-and-materials contract, the Contractor s estimated fully burdened unit cost to the Government at the time of delivery. Issuing agency means an organization responsible for assigning a globally unique identifier to an enterprise (i.e., Dun & Bradstreet s Data Universal Numbering System (DUNS) Number, GS1 Company Prefix, Allied Committee 135 NATO Commercial and Government Entity (NCAGE)/ Commercial and Government Entity (CAGE) Code, or the Coded Representation of the North American Telecommunications Industry Manufacturers, Suppliers, and Related Service Companies (ATIS ) Number), European Health Industry Business Communication Council (EHIBCC) and Health Industry Business Communication Council (HIBCC)), as indicated in the Register of Issuing Agency Codes for ISO/IEC 15459, located at under Register. Issuing agency code means a code that designates the registration (or controlling) authority for the enterprise identifier. Item means a single hardware article or a single unit formed by a grouping of subassemblies, components, or constituent parts. Lot or batch number means an identifying number assigned by the enterprise to a designated group of items, usually referredto as either a lot or a batch, all of which were manufactured under identical conditions. Machine-readable means an automatic identification technology media, such as bar codes, contact memory buttons, radio frequency identification, or optical memory cards. Original part number means a combination of numbers or letters assigned by the enterprise at item creation to a class of items with the same form, fit, function, and interface. Parent item means the item assembly, intermediate component, or subassembly that has an embedded item with a unique item identifier or DoD recognized unique identification equivalent. Serial number within the enterprise identifier means a combination of numbers, letters, or symbols assigned by the enterprise to an item that provides for the differentiation of that item from any other like and unlike item and is never used again within the enterprise. Serial number within the part, lot, or batch number means a combination of numbers or letters assigned by the enterprise to an item that provides for the differentiation of that item from any other like item within a part, lot, or batch number assignment. Serialization within the enterprise identifier means each item produced is assigned a serial number that is unique among all the tangible items produced by the enterprise and is never used again. The enterprise is responsible for ensuring unique serialization within the enterprise identifier. Serialization within the part, lot, or batch number means each item of a particular part, lot, or batch number is assigned a unique serial number within that part, lot, or batch number assignment. The enterprise is responsible for ensuring unique serialization within the part, lot, or batch number within the enterprise identifier. Type designation means a combination of letters and numerals assigned by the Government to a major end item, assembly or subassembly, as appropriate, to provide a convenient means of differentiating between items having the same basic name and to indicate modifications and changes thereto. Unique item identifier means a set of data elements marked on items that is globally unique and unambiguous. The term includes a concatenated unique item identifier or a DoD recognized unique identification equivalent. Unique item identifier type means a designator to indicate which method of uniquely identifying a part has been used. The current list of accepted unique item identifier types is maintained at (b) The Contractor shall deliver all items under a contract line, subline, or exhibit line item. (c) Unique item identifier. (1) The Contractor shall provide a unique item identifier for the following: (i) Delivered items for which the Government s unit acquisition cost is $5,000 or more, except for the following line items: Contract Line, Subline, or Exhibit Line Item Number Item Description (ii) Items for which the Government s unit acquisition cost is less than $5,000 that are identified in the Schedule or the following table: Contract Line, Subline, or Exhibit Line Item Number Item Description (If items are identified in the Schedule, insert See Schedule in this table.) (iii) Subassemblies, components, and parts embedded within delivered items, items with warranty requirements, DoD serially managed reparables and DoD serially managed nonreparables as specified in Attachment Number. (iv) Any item of special tooling or special test equipment as defined in FAR that have been designated for preservation and storage for a Major Defense Acquisition Program as specified in Attachment Number. (v) Any item not included in (i), (ii), (iii), or (iv) for which the contractor creates and marks a unique item identifier for traceability. (2) The unique item identifier assignment and its component data element combination shall not be duplicated on any other item marked or registered in the DoD Item Unique Identification Registry by the contractor. (3) The unique item identifier component data elements shall be marked on an item using two dimensional data matrix symbology that complies with ISO/IEC International Standard 16022, Information technology International symbology specification Data matrix; ECC200 data matrix specification. (4) Data syntax and semantics of unique item identifiers. The Contractor shall ensure that (i) The data elements (except issuing agency code) of the unique item identifier are encoded within the data matrix symbol that is marked on the item using one of the following three types of data qualifiers, as determined by the Contractor: (A) Application Identifiers (AIs) (Format Indicator 05 of ISO/IEC International Standard 15434), in accordance with ISO/IEC International Standard 15418, Information Technology EAN/UCC Application Identifiers and Fact Data Identifiers and Maintenance and ANSI MH Data Identifier and Application Identifier Standard. (B) Data Identifiers (DIs) (Format Indicator 06 of ISO/IEC International Standard 15434), in accordance with ISO/IEC International Standard 15418, Information Technology EAN/UCC Application Identifiers and Fact Data Identifiers and Maintenance and ANSI MH Data Identifier and Application Identifier Standard. (C) Text Element Identifiers (TEIs) (Format Indicator 12 of ISO/IEC International Standard 15434), in accordance with the Air Transport Association Common Support Data Dictionary; and (ii) The encoded data elements of the unique item identifier conform to the transfer structure, syntax, and coding of messages and data formats specified for Format Indicators 05, 06, and 12 in ISO/IEC International Standard 15434, Information Technology Transfer Syntax for High Capacity Automatic Data Capture Media. (5) Unique item identifier. (i) The Contractor shall (A) Determine whether to (1) Serialize within the enterprise identifier; (2) Serialize within the part, lot, or batch number; or (3) Use a DoD recognized unique identification equivalent (e.g. Vehicle Identification Number); and (B) Place the data elements of the unique item identifier (enterprise identifier; serial number; DoD recognized unique identification equivalent; and for serialization within the part, lot, or batch number only: original part, lot, or batch number) on items requiring marking by paragraph (c)(1) of this clause, based on the criteria provided in MIL-STD-130, Identification Marking of U.S. Military Property, latest version; (C) Label shipments, storage containers and packages that contain uniquely identified items in accordance with the requirements of MIL-STD-129, Military Marking for Shipment and Storage, latest version; and (D) Verify that the marks on items and labels on shipments, storage containers, and packages are machine readable and conform to the applicable standards. The contractor shall use an automatic identification technology device for this verification that has been programmed to the requirements of Appendix A, MIL-STD-130, latest version. (ii) The issuing agency code (A) Shall not be placed on the item; and (B) Shall be derived from the data qualifier for the enterprise identifier. (d) For each item that requires item unique identification under paragraph (c)(1)(i), (ii), or (iv) of this clause or when item unique identification is provided under paragraph (c)(1)(v), in addition to the information provided as part of the Material Inspection and Receiving Report specified elsewhere in this contract, the Contractor shall report at the time of delivery, as part of the Material Inspection and Receiving Report, the following information: (1) Unique item identifier. (2) Unique item identifier type. (3) Issuing agency code (if concatenated unique item identifier is used). (4) Enterprise identifier (if concatenated unique item identifier is used). (5) Original part number (if there is serialization within the original part number). (6) Lot or batch number (if there is serialization within the lot or batch number). (7) Current part number (optional and only if not the same as the original part number). (8) Current part number effective date (optional and only if current part number is used). (9) Serial number (if concatenated unique item identifier is used). (10) Government s unit acquisition cost. (11) Unit of measure. (12) Type designation of the item as specified in the contract schedule, if any. (13) Whether the item is an item of Special Tooling or Special Test Equipment. (14) Whether the item is covered by a warranty. (e) For embedded subassemblies, components, and parts that require DoD item unique identification under paragraph (c)(1)(iii) of this clause or when item unique identification is provided under paragraph (c)(1)(v), the Contractor shall report as part of the Material Inspection and Receiving Report specified elsewhere in this contract, the following information: (1) Unique item identifier of the parent item under paragraph (c)(1) of this clause that contains the embedded subassembly, component, or part. (2) Unique item identifier of the embedded subassembly, component, or part. (3) Unique item identifier type.** (4) Issuing agency code (if concatenated unique item identifier is used).** (5) Enterprise identifier (if concatenated unique item identifier is used).** (6) Original part number (if there is serialization within the original part number).** (7) Lot or batch number (if there is serialization within the lot or batch number).** (8) Current part number (optional and only if not the same as the original part number).** (9) Current part number effective date (optional and only if current part number is used).** (10) Serial number (if concatenated unique item identifier is used).** (11) Description. ** Once per item. (f) The Contractor shall submit the information required by paragraphs (d) and (e) of this clause as follows: (1) End items shall be reported using the receiving report capability in Wide Area WorkFlow (WAWF) in accordance with the clause at If WAWF is not required by this contract, and the contractor is not using WAWF, follow the procedures at (2) Embedded items shall be reported by one of the following methods (i) Use of the embedded items capability in WAWF; (ii) Direct data submission to the IUID Registry following the procedures and formats at or (iii) Via WAWF as a deliverable attachment for exhibit line item number (fill in), Unique Item Identifier Report for Embedded Items, Contract Data Requirements List, DD Form DFARS Here s the clause I am sure you all know it and can read it! (g) Subcontracts. If the Contractor acquires by subcontract, any item(s) for which item unique identification is required in accordance with paragraph (c)(1) of this clause, the Contractor shall include this clause, including this paragraph (g), in the applicable subcontract(s), including subcontracts for commercial items. THOUGH PUT IN THIS FORMAT IN JEST YOU HAD BETTER KNOW WHAT IT SAYS!!! LAGNIAPPE!

43 Government Property Administrator s ACTIONS One other Interesting issue regarding CAP If PA finds items that he/she believes are NOT allowable, the PA shall notify the ACO and request review by the ACO and the COGNIZANT DCAA Auditor for compliance with the contractor s Disclosure statement and CAS applicability. PA may also recommend to the ACO DISALLOWANCE of the REIMBURSEMENT OF THE COST for the item. BOTTOM LINE HOLY MOLY -- no one EVER told me all of that stuff about CAP!!! Well, these gross and fine points are all embedded within the CAP issues that require study, analysis and understanding of the issues surrounding CAP!

44 QUICK SUMMARY So, we talked about: Issues surrounding the Contractor's Acquisition of CAP, i.e., Direct Charge, entitled to be reimbursed, RA&A. How CAP can/may be acquired, i.e., from Vendor, Issuance, Commencement of Processing or reimbursement. Actions regarding EXCESS CAP in the possession of contractors including Transfers, Credit Debit, MMAS, Acceptance, etc. Even Disallowance of the Reimbursement of Cost. CLOSING THOUGHT Contracting Officers Please work to ensure the proper coverage and actions regarding CAP in the possession of contractors. Proper Clauses, CLINS, etc. And if you need to -- TALK TO YOUR COGNIZANT PROPERTY ADMINISTRATOR or STAFF PERSON for resolution of any technical issues!

45 ON THAT NOTE THANK YOU!!! Dr. Douglas N. Goetz, CPPM, CF, MIAM PRESIDENT, GP CONSULTANTS