Government Contracts Monitor

Government Property: Don’t Sell What’s Not Yours!

June 22, 2015

A recent decision by the Armed Services Board of Contract Appeals (ASBCA) provides a reminder to contractors that the Government owns equipment for which it pays the contractor, and the contractor cannot sell or otherwise dispose of that equipment without the Government’s express consent. Moreover, if the contractor nevertheless sells the equipment without such consent and direction, the contractor certainly cannot keep the proceeds of the sale, and must pay the proceeds to the Government. Specifically, in Snowdon, Inc., ASBCA No. 59705 (May 20, 2015), the ASBCA denied a contractor’s appeal challenging a Government claim for the proceeds, plus interest, from the contractor’s sale of equipment for which the Government had reimbursed the contractor during contract performance.

The subject contract was for certain research and development work, and incorporated the standard FAR 52.245-1, GOVERNMENT PROPERTY (JUN 2007) and FAR 52.232-17, INTEREST (OCT 2008) Clauses. During contract performance, Snowdon purchased two pieces of equipment, the costs of which were reimbursed by the Government. Because the Government paid, title to the equipment vested in the Government.

Upon contract completion, Snowdon and the Government engaged in a series of communications regarding disposition of the then Government-owned equipment. Snowdon was anxious to dispose of the equipment, as it was vacating its facility at the end of June 2012. On May 17, 2012, the Government informed Snowdon by email that "[i]f none of the equipment is deemed good enough for use here or transferred to another project then it will be left to Snowdon," ending the email with the postscript, "More to follow …." Later the same day, in response to Snowdon asking when the Government might make its decision, the Government representative stated "I think 2 weeks at the most." On June 20, 2012 – more than a full month later – Snowdon followed-up, again asking that the Government provide disposition instructions because Snowdon was vacating its facility at the end of the month. On July 30, 2012, having heard nothing further from the Government, Snowdon sold the equipment to a third party.

Incredibly, some two years later, the Government asked Snowdon about the equipment. Snowdon responded that "no instructions [regarding the equipment] were ever provided to Snowdon," and that "[a]bsent guidance from the [contracting officer], the company was forced to take responsibility for the equipment and sold it." The contracting officer subsequently issued a final decision demanding payment to the Government of the equipment sale proceeds. Snowdon appealed this final decision to the Board.

On appeal, Snowdon argued that the Government had abandoned the equipment, and that Snowdon therefore was entitled to keep the sale proceeds. The Board made short shrift of this argument, noting that the abandonment provision of the Government Property clause explicitly requires affirmative Government "notice" of abandonment to the contractor. Here, however, the Government had provided no such notice. As stated by the Board, "[a]t most, the communications between Snowdon and the government establish that the government was considering its options for disposing of the equipment, including abandonment, but did not communicate any disposal decision to Snowdon." Rather, "without any instructions or guidance from the government, Snowdon took matters into its own hands and sold the equipment to a third party."

In reaching its decision, the Board reviewed the contract’s Government Property clause. First, the Board noted that paragraph (a) of that clause defines "contractor inventory" as including "[a]ny property acquired by and in the possession of a Contractor … under a contract for which title is vested in the Government and which exceeds the amounts needed to complete full performance under the entire contract." The Board stated that there was no dispute here, and the Board so found, that the subject equipment was "contractor inventory." Second, the Board pointed out that paragraph (j)(9) of the Government Property clause states that "[a]s directed by the Contracting Officer, the Contractor shall remit the net proceeds from the disposal of Contractor inventory to the contract, or to the Treasury of the United States as miscellaneous receipts." The Board held that this language required Snowdon to pay the equipment sale proceeds to the Government.

The Board sustained the Government’s claim, denied Snowdon’s appeal and directed Snowdon to pay the sale proceeds, plus interest in accordance with the Interest clause, running from the date of the Contracting Officer’s August 27, 2014 final decision until the payment date.

The bottom line is that contractors need to obtain clear direction from the Government prior to taking it upon themselves to dispose of Government property. At a minimum, understanding the Government Property clause might at least avoid the time and costs wasted by Snowden in pursuing this appeal.