Damage to Government Property

Hoping this forum may be able to help with a question. Firm Fixed Price DOD Construction Contract. 

Contractor recently completed an outdoor project. As part of the project the lawn was re-sodded. There was a fence up protecting the site, but the Contractor took it down on Tuesday ahead of the pre-final inspection on Wednesday. That Tuesday night, someone (likely not the Contractor) drove all over the site, ruining the new sod. Stance is that the government had not taken possession, so it is still the Contractor's site, and thus, unfortunately theirs to fix. Counterpoint is FAR 52.245-1, 

Contractor Liability for Government Property. 

(1) Unless otherwise provided for in the contract, the Contractor shall not be liable for loss of Government property furnished or acquired under this contract, except when any one of the following applies-

(i) The risk is covered by insurance or the Contractor is otherwise reimbursed (to the extent of such insurance or reimbursement). The allowability of insurance costs shall be determined in accordance with 31.205-19.

(ii) Loss of Government property that is the result of willful misconduct or lack of good faith on the part of the Contractor’s managerial personnel.

(iii) The Contracting Officer has, in writing, revoked the Government’s assumption of risk for loss of Government property due to a determination under paragraph (g) of this clause that the Contractor’s property management practices are inadequate, and/or present an undue risk to the Government, and the Contractor failed to take timely corrective action. If the Contractor can establish by clear and convincing evidence that the loss of Government property occurred while the Contractor had adequate property management practices or the loss did not result from the Contractor’s failure to maintain adequate property management practices, the Contractor shall not be held liable.

Who is responsible for the repairs?

I am contending that it is not government property so they should not get paid. Then it is up to the contractor to deliver conforming sod that is accepted in order to get paid.

Is FAR Clause 52.236-7 in the contract?   If so it sets the general rule for such situations -

52.236-7  "The Contractor shall, without additional expense to the Government, be responsible for obtaining any necessary licenses and permits, and for complying with any Federal, State, and municipal laws, codes, and regulations applicable to the performance of the work. The Contractor shall also be responsible for all damages to persons or property that occur as a result of the Contractor’s fault or negligence. The Contractor shall also be responsible for all materials delivered and work performed until completion and acceptance of the entire work, except for any completed unit of work which may have been accepted under the contract."

A additional reference to assisst in doing additional research (do a find of 52.236-7 in the document) -  https://tile.loc.gov/storage-services/service/ll/llmlp/contract-attorney-deskbook_2022/contract-attorney-deskbook_2022.pdf 

The Contractor is responsible for protection of the new work prior to acceptance of the work.

See 52.236-7 Permits and Responsibilities.

As prescribed in 36.507  , insert the following clause:

“Permits and Responsibilities (Nov 1991)

The Contractor shall, without additional expense to the Government, be responsible for obtaining any necessary licenses and permits, and for complying with any Federal, State, and municipal laws, codes, and regulations applicable to the performance of the work. The Contractor shall also be responsible for all damages to persons or property that occur as a result of the Contractor’s fault or negligence. The Contractor shall also be responsible for all materials delivered and work performed until completion and acceptance of the entire work, except for any completed unit of work which may have been accepted under the contract.”

FAR 52.245-1 is not applicable. 

Thanks to all on the responses thus far, truly appreciated. My hesitancy in applying 52.236-7 (which is a part of the contract) was the "as a result of the Contractor's fault or negligence". We don't think the Contractor was at "fault"; it's generally accepted that an unknown third party and not the Contractor did the damage. Contractually I'm thinking that at the end of the day, the Contractor owned the site, so he is responsible, but that part of the clause concerned me. 

Joel. thank you for your response. Why is 52.245-1 non applicable in your view? 

The clause at  52.228-5, Insurance-Work on a Government Installation should be in a construction contract on an installation and there should be specified types of insurance required by the contract.

Builders Risk insurance should likely cover deliberate or accidental damages to materials and work prior to inspection and acceptance. 

6 minutes ago, Marcus Williams said:

We don't think the Contractor was at "fault"; it's generally accepted that an unknown third party and not the Contractor did the damage. Contractually I'm thinking that at the end of the day, the Contractor owned the site, so he is responsible, but that part of the clause concerned me. 

I beg to disagree. The contractor could have hired a night watchman or security guard to watch over the sod. If the contractor had considered the risks (and most rarely do), it would have concluded that the cost of security while the fence was down was a trivial expense to mitigate its risks. The probability of occurrence may have been low, but the consequences were high. Thus, the risk should have been identified and mitigated.

It was not.

That is negligence in my book.

1 hour ago, joel hoffman said:

The Contractor shall also be responsible for all materials delivered and work performed until completion and acceptance of the entire work, except for any completed unit of work which may have been accepted under the contract.”

This is in addition to the first stated responsibilities.

57 minutes ago, Marcus Williams said:

Joel. thank you for your response. Why is 52.245-1 non applicable in your view? 

Read the definition of contractor acquired property and government property.

This isn’t “Government Property” provided to the contractor for performance of the work. The Permits and Responsibilities clause requires the contractor “to be responsible for” the contractor provided materials and work prior to inspection and acceptance of the work.

As discussed above, there should be insurance required to cover deliberate or accidental damages to the materials. Builders Risk policies likely cover damage to the work for deliberate vandalism. What does the contract require??

I am out in the woods, walking my dog right now. I don’t have access to my reference books. However, you should obtain a copy of or access to the Nash and Cibinic series “Administration of Government Contracts”. Mine is at home. I’m sure that it covers the situation and the clauses that apply here .

You need to determine what insurance was required or otherwise voluntarily provided to cover such contractor risk of loss or damage for this contract.

it appears that you work for the government side of this contract. At the very least, I would think that you would have a contract attorney that should at least be knowledgeable with the contract Attorneys Deskbook and the contract clauses.

Sorry about the quality of voice dictation.

@Marcus Williams

It's not GFP, right?  It's not CAP pursuant to 52.245-1 is it?  Isn't it a product incorporated into the work to satisfy performance.  I hope you are not saying if it was a bunch of screws that someone got on to the site, unscrewed and took you would call it GFP or CAP?   

Insurance or no insurance the contractor is generally holding the bag.

3 hours ago, C Culham said:

@Marcus Williams

It's not GFP, right?  It's not CAP pursuant to 52.245-1 is it?  Isn't it a product incorporated into the work to satisfy performance.  I hope you are not saying if it was a bunch of screws that someone got on to the site, unscrewed and took you would call it GFP or CAP?   

Insurance or no insurance the contractor is generally holding the bag.

You are completely right, and I appreciate your input. For whatever reason until you explained that I wasn't looking at it that way. Thank you to all for your input. General feeling was that until the Contractor had BOD, the responsibility lies with the Contractor. But since this was so egregiously something done by a 3rd party, I wanted a more detailed response to give than, "No BOD, sorry about your luck". This is a long term Contract with multiple task orders, so there is value in preserving relationships (while still enforcing the contract). 

5 hours ago, Marcus Williams said:

This is a long term Contract with multiple task orders, so there is value in preserving relationships (while still enforcing the contract). 

If the contractor has Builders Risk coverage, there should be no risk of damaging relationships. Especially if the contract requires such coverage. Regardless, the cost for such insurance coverage should be reflected in the task order prices that the government is paying…

16 hours ago, Marcus Williams said:

This is a long term Contract with multiple task orders, so there is value in preserving relationships (while still enforcing the contract). 

A relationship matter set by the contract, correct?  As a document that goes both ways each party has rights and responsibilities.   Might be a tough lesson learned by the contractor but I would suggest that if the government trips, so to speak, during contract performance the contractor would want to excercise their rights under the contract too.

As to insurance, as required, while alluding to it with regard to conversations with the contractor I personally would be careful.   Unless you have a very inexperienced contractor I would suggest they known they have insurance with the pinch point for them as to whether they would seek a claim under it for the problem or simply cover the rework cost with their own expenses.   Afterall that is the purpose of profit to some extent in a firm fixed priced contract is it not - risk!  If I were the contractor I would be looking forward as a claim on insurance for a today job may be cause for raising my premium on a future job.  It will be a business decision for them.

Bottomline - There is a contract clause that generally covers the situation, a clause that both parties "shook hands" over and if appliction of the clause is as straight forward as the information you have provided suggests the contractor is left to their own devices on how to repair the sod.  Good communication on this matter and the future is what will preserve the relationship.

I pretty much agree with Carl l. I would explain the risk allocation under the Permits and Responsibilities clause to my contractors is such cases or to my contract admin offices when I was at District or Division Level. However, I would also explain that, depending upon the circumstances, the Builders Risk policy may likely cover expenses to repair damaged work. Also, that a time extension could be considered under the Defaults Clause, if necessary and warranted for delays to completion not due to fault or negligence of the contractor or it’s sub(s) or suppliers.

Its up to the contractor as to whether or not they want to submit an insurance claim or absorb the repair costs.

Open and honest communications with my contractors, including mitigation options fostered good relationships. Construction contracts usually allocate risk assumptions both ways. 

18 hours ago, Marcus Williams said:

...since this was so egregiously something done by a 3rd party...

Then your contractor can sue the third party for any damages the third party caused to the contractor -- that's between them. 

As for you and your contractor, the clause at FAR 52.236-7 applies.  That clause has been litigated before, and it works -- the contractor's duty to provide appropriate fencing or night watchman or whatever is generally understood.  Of course, we cannot read your contract -- if the contract puts responsibility for site security on the Government, well, that changes things.

Generally in a fixed-price construction contract, the contractor is responsible for delivering a finished and complete result.  The contractor should know how to deal with risks of vandals, weather, thieves, and so forth as part of its firm fixed price.