Friday, October 18, 2019

Should You Insure Government Property in Your Possession?

Continuing on with our discussion of insurance costs and the allowability of such, we move now form our discussion of self-insurance to a few other types of insurance that have conditions upon whether associated costs are allowable.

Many Government contractors have Government property in their possessions for various reasons - usually temporary. The question often arises over whether the risks of loss of Government property should be insured and then if insured, whether the costs are allowable. FAR 31.205-19(e)(2)(iv) answers that question. FAR states that the cost of insurance for the risk of loss, damage, destruction, or theft to Government property are allowable only when three conditions are met:

  1. the contractor is liable for such loss, damage, destruction or theft
  2. the contracting officer has not revoked the Government's assumption of risk (in accordance with FAR 45.104(b). The contracting officer can revoke the Government's assumption of risk when the property administrator determines that the contractor's property management practices are noncompliant with contract requirements, and
  3. such insurance does not cover loss, damage or destruction which results form willful misconduct or lack of good faith on the part of any of the contractor's management personnel. Contractor's managerial personnel are defined in FAR 52.245-1(a) as directors, officers, managers, superintendents, or equivalent representatives who have supervision or direction of the company's business, plant, or separate location.

DFARS (Defense FAR Supplement) adds one other consideration to the allowability question. DFARS 231.205-19(e)(7) states that in addition to the FAR limitations listed above, the allowability of insurance costs are also subject to other limitations. These limitations are listed in DFARS 252.217-7012 and essentially related to contractor negligence.

The key to ensuring the allowability of insurance costs related to Government property is to maintain close coordination with your contracting officer as to what is insurable and to make sure your internal controls over Government property in your possession are adequate.

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