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22 Property Management Elements to Achieve DCMA Audit Compliance

A worker repairing an aircraft. Text overlay reads: 22 Elements to Achieve DCMA Audit Compliance.

The Defense Contract Management Agency (DCMA) recently expanded its government property management guidelines from ten to 22 elements.

That’s double the elements you should to pay attention to in order to meet compliance when the DCMA performs an audit!

(Are you intimidated? I’m a little intimated…)

So to head that off, let’s go through each element briefly to discuss what they mean for you as a contractor. We’ll also give a few resources to learn more & suggestions for improving your performance of the 22 elements.

Let’s get started!

Quick Editor’s Note: In the NPMA Facebook group, Dr. Doug Goetz points out that you may be contractually obligated to more than is assessed through these 22 elements. These elements are a guideline that the DCMA uses during Property Management System Analyses (PMSAs), not a guideline for contractual compliance.

The Property Management Elements in DCMA Audits:

  1. Written Procedures
  2. Contractor Self-Assessments
  3. Acquisition
  4. Receiving
  5. Discrepancies Incident to Shipment
  6. Identification
  7. Records
  8. Receipt and Issue System
  9. Physical Inventory
  10. Subcontractor- Awards and Flow down
  11. Subcontractor- Reviews
  12. Reports
  13. Relief of Stewardship
  14. Utilization
  15. Declaration of Excess
  16. Consumption
  17. Movement
  18. Storage
  19. Storage Commingling
  20. Maintenance
  21. Disposal
  22. Property Closeout

(By the way, you can click each element above to skip to that section!)

1. Written Procedures

Written procedures are first on this list because they enable the rest of the outcomes.

FAR 52.245-1(b)(1) and (f)(1) state:

Contractors shall establish and implement property management plans, systems, and procedures at the contract, program, site or entity level to enable the following outcomes…

The Defense Acquisition University states that assessing a contractor’s written procedures “are critical to performing a PMSA .”

Thankfully, if you need assistance creating these procedures we have a few suggestions (and even a template)!

2. Contractor Self-Assessments

Ah, Contractor Self-Assessments. You either love them (shoutout to internal auditors!) or you hate them (almost everyone else).

But CSAs are a part of being a government contractor. According to FAR 52.245-1(b)(4):

The Contractor shall establish and maintain procedures necessary to assess its property management system effectiveness, and shall perform periodic internal reviews and audits. Significant findings and/or results of such reviews and audits pertaining to Government property shall be made available to the PA (Reports).

They’re also a great way to find problems in your government property management system before the DCMA discovers it (and you receive the dreaded Corrective Action Request).

Here are a few tips for performing Contractor Self-Assessments.

3. Acquisition

Acquisition is the most common start of an asset’s life in your organization. Acquisition occurs when your business purchases an asset. The assets that go through this process are likely considered Contractor Acquired Property, or CAP.

As FAR 52.245-1(f)(1)(i) says:

The Contractor shall document that all property was acquired consistent with its engineering, production planning, and property control operations.

4. Receiving

Receiving is another common start of the asset lifecycle. Receiving occurs when an asset is delivered to your location, whether it was purchased or transferred.

According to FAR 52.245-1(f)(1)(ii):

The Contractor shall receive Government property and document the receipt, record the information necessary to meet the record requirements of paragraph (f)(1)(iii)(A)(1) through (5) of this clause…

To learn more about these record requirements, click here to skip to our section on records.

5. Discrepancies Incident to Shipment

“Discrepancies incident to shipment” includes shortage, overage, damage, loss, and other differences between the quantity and/or condition of received property and the quantity and/or condition shown on the transportation document (such as a DD1149).

According to FAR 52.245-1 (f)(1)(ii):

The Contractor shall…manage any discrepancies incident to shipment.

(A) Government-furnished property. The Contractor shall furnish a written statement to the Property Administrator containing all relevant facts, such as cause or condition and a recommended course(s) of action, if overages, shortages, or damages and/or other discrepancies are discovered upon receipt of Government-furnished property.

(B) Contractor-acquired property. The Contractor shall take all actions necessary to adjust for overages, shortages, damage and/or other discrepancies discovered upon receipt, in shipment of Contractor-acquired property from a vendor or supplier, so as to ensure the proper allocability and allowability of associated costs.

6. Identification

This element is simple in concept, but can still trip contractors up.

FAR 52.245-1(f)(1)(ii) simply states that you are required to identify government property as, well, government-owned.

Most government property can be identified using whichever method is most appropriate for the asset, like tags, stamps, or markings. This includes tags, stamps, or markings. However, you should note that there are exceptions, such as IUID assets, which need to be marked with specific UID tags.

When in doubt on how to identify an asset, check your contract clauses or contact your Contracting Officer.

7. Records

As Angel Rosario notes in this blog post, the “Records” element is very important because it influences every other element.

FAR 52.245-1(f)(iii)(A) states:

Property records shall enable a complete, current, auditable record of all transactions and shall, unless otherwise approved by the Property Administrator, contain the following:

  1. The name, part number and description, National Stock Number (if needed for additional item identification tracking and/or disposition) and other data elements as necessary and required in accordance with the terms and conditions of the contract.
  2. Quantity received (or fabricated), issued, and balance-on-hand.
  3. Unit acquisition cost.
  4. Unique-item identifier or equivalent (if available and necessary for individual item tracking).
  5. Unit of measure.
  6. Accountable contract number or equivalent code designation.
  7. Location.
  8. Disposition.
  9. Posting reference and date of transaction.
  10. Date placed in service (if required in accordance with the terms and conditions of the contract).

It can be difficult to maintain records with all 10 of these data points when you have hundreds or thousands of line items. If you’re currently using spreadsheets to keep your property records, you likely know this struggle.

However, there are less cumbersome ways to ensure you have all the record data you need (find one solution here). Accurate records are a key element to your government property management system.

8. Receipt and Issue System

A “receipt and issue system” is an exception sometimes allowed for tracking material when that material will be immediately consumed after being issued.

As stated in FAR 52.245-1 (f)(1)(iii)(B):

When approved by the Property Administrator, the Contractor may maintain, in lieu of formal property records, a file of appropriately cross-referenced documents evidencing receipt, issue, and use of material that is issued for immediate consumption.

In his 2012 NPMA NES presentation, Dr. Doug Goetz notes that if you keep records under a receipt and issue system, an auditor will test if that material was actually consumed immediately.

So, don’t assume that the receipt and issue system will not be assessed as vigorously as other elements of your property management system!

9. Physical Inventory

Conducting physical inventory is not only a normal part of a healthy property management operation, but it’s also a necessary element in achieving compliance. FAR 52.245-1(f)(iv) states that physical inventories need to be conducted “periodically,” as well as upon contract completion or termination.

How often “periodically” means is up for debate. Many contractors perform physical inventory once a year, and some do so more frequently, such as by inventory by exception. If you’re unsure if you’re conducting inventory audits frequently enough, you should talk to your Contracting Officer.

10. Subcontractor Awards and Flow Down

In addition to maintaining property management best standards in your own organization, you often need to encourage these best standards in your subcontractors as well. Depending on the nature of the subcontract(s), your subcontractors may need to adhere to the same terms and conditions as you do in the prime contract.

According to FAR 52.245-1(f)(1)(v)(A):

The Contractor shall award subcontracts that clearly identify items to be provided and the extent of any restrictions or limitations on their use. The Contractor shall ensure appropriate flow down of contract terms and conditions (e.g., extent of liability for loss of Government property).

Angel Rosario suggests you evaluate subcontractor terms and conditions, and consider updating terms and conditions regularly.

11. Subcontractor- Reviews

Because your subcontractor needs to maintain a compliant property management system, you need to conduct reviews of subcontractor systems occasionally.

FAR 52.245-1(f)(1)(v)(B) states:

“The Contractor shall assure its subcontracts are properly administered and reviews are periodically performed to determine the adequacy of the subcontractor’s property management system.”

The great thing about this element is not only can subcontractor reviews ensure FAR compliance, but they can decrease the risk of waste and inefficiencies. Just as CSAs help us get better, so can subcontractor reviews help subcontractors improve.

12. Reports

Access to useful reports is vital to managing government property effectively because they allow you to communicate with others about any problems you encounter and curb problems before they get worse.

In addition to those benefits, they’re required! FAR 52.245-1(f)(1)(vi) states:

The Contractor shall have a process to create and provide reports of discrepancies, loss of Government property, physical inventory results, audits and self-assessments, corrective actions, and other property related reports as directed by the Contracting Officer (e.g. IUID Registry, Final contract completion certificate, SF1428 (Inventory Disposal Schedule/PCARSS), and contract CDRLS/DIDs).

If you use an asset management system like eQuip, you can easily create all of the above reports within the system. Check out our blog for more reports you can create for all assets, whether they’re government property or not.

13. Relief of Stewardship

This element involves when you are responsible for the loss of government property and the Property Administrator has granted you relief of stewardship.

According to FAR 52.245-1(f)(1)(vii)(B):

The Contractor shall have a process to enable the prompt recognition, investigation, disclosure and reporting of loss of Government property, including losses that occur at subcontractor or alternate site locations.

(A) This process shall include the corrective actions necessary to prevent recurrence.

(B) Unless otherwise directed by the Property Administrator, the Contractor shall investigate and report to the Government all incidents of property loss as soon as the facts become known.

 (C) Unless the contract provides otherwise, 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;
  2. Property Administrator grants relief of responsibility and liability for loss of Government property;
  3. Property is delivered or shipped from the Contractor’s plant, under Government instructions, except when shipment is to a subcontractor or other location of the Contractor; or
  4. Property is disposed of in accordance with paragraphs (j) and (k) of this clause.

14. Utilization

This element is the first of several that reference one concise FAR clause: FAR 52.245-1(f)(1)(viii)(A).

This clause states: “The Contractor shall utilize, consume, move, and store Government Property only as authorized under this contract.”

That’s a short sentence with a lot of meaning behind it.

Essentially what this means is equipment operation, consumption of materials, and any other use of the property should be restricted to what’s allowed in your contract.

For example, in order to use a tool for Contract A on Contract B, you need to check Contract A’s clauses and see if you may use this tool for purposes outside of the contract.

15. Declaration of Excess

FAR 52.245-1(f)(1)(viii):

The Contractor shall promptly disclose and report Government property in its possession that is excess to contract performance.

16. Consumption

This element mainly corresponds to material.

According to FAR 52.245-1(f)(1)(viii)(A) and (b)(1), “The Contractor shall utilize, consume, move, and store Government Property only as authorized under this contract.”

If we’ve said it once, we’ll say it a thousand times: read your contracts!

17. Movement

To continue with this broad clause, we’ll talk about asset movement.

FAR 52.245-1(f)(1)(viii)(A) and (b)(1) state: “The Contractor shall utilize, consume, move, and store Government Property only as authorized under this contract.”

This element covers any movement of an asset, big or small. Like temporarily transferring a machine to a different department… Storing tools in a new room where there’s more storage space… Or driving a government-owned vehicle to a new location.

Before you do any of this, you should double-check that it’s permissible under the contract. Asset movement often seems simple, but it’s an easy way to inadvertently violate your contract and become noncompliant. Keep in mind what assets require DD1149 or DD520 forms for movement.

18. Storage

Last but not least for this clause, we have storage. FAR 52.245-1(f)(1)(viii)(A) and (b)(1) state: “The Contractor shall utilize, consume, move, and store Government Property only as authorized under this contract.”

Government property storage can involve ensuring proper storage security measures as well as avoiding storage commingling (Commingling is covered in the next section). Clear labeling, proper organization, and clear instructions for those employees handling government property are key to ensuring compliance with this element.

19. Storage Commingling

While storage is a broad element DCMA auditors assess, they also assess storage commingling specifically.

FAR 52.245-1(f)(1)(viii)(B):

Unless otherwise authorized in this contract or by the Property Administrator the Contractor shall not commingle Government material with material not owned by the Government.

To prevent storage commingling, it’s best to create organized storage with labels for every piece of equipment and every kind of material. Bonus tip: instead of only using human-readable labels, add barcode labels to storage. This will make it easier for your team to check that your inventory is correct and government property is not commingled with other property.

20. Maintenance

Most government contractors know that efficient maintenance keeps operations running smoothly profits growing. However, maintenance is not only beneficial for your business operations but also helps you maintain compliance. FAR 52.245-1(f)(1)(ix) states:

The Contractor shall properly maintain Government property. The Contractor’s maintenance program shall enable the identification, disclosure, and performance of normal and routine preventative maintenance and repair. The Contractor shall disclose and report to the Property Administrator the need for replacement and/or capital rehabilitation.

It’s important to use a maintenance system that enables FAR requirements such as maintenance performance and reporting. Bonus points if it has features that make reporting to the Property Administrator easier.

21. Disposal

Asset disposal is the last part of the asset lifecycle and often leads to significant deficiencies if it isn’t handled correctly. According to FAR 52.245-1(f)(1)(x): “…and disposing of items at the time they are determined to be excess to contractual needs.”

But don’t go throwing away those bits and pieces as soon as you don’t need them. According to FAR52.245-1(j), you cannot dispose of this property until you are authorized to do so by your Plant Clearance Officer (PLCO). Your PLCO can also give you instructions on how to properly dispose of excess property.

Karen Yamnitz, in her presentation at NPMA NES 2018, suggests that if you have any questions about the disposal process, you should communicate with your PLCO. You can also read about your disposition instructions in your contract or in DFARS 252.245-7004

22. Property Closeout

This final element comes into play when a contract ends and final payment has been made. Once contract closeout begins, you must carefully manage all of the government property from that contract to comply with FAR standards.

Specifically, FAR 52.245-1(f)(1)(x) states:

The Contractor shall promptly perform and report to the Property Administrator contract property closeout, to include reporting, investigating and securing closure of all loss of Government property cases; physically inventorying all property upon termination or completion of this contract…

If you’d like more information about property closeouts and are an NPMA member, you should access the excellent presentation Gina Thompson on contract termination at NPMA SES 2019. AcqNotes also has a short guide on contract closeout here.

Conclusion

In the past few years, the DCMA has begun paying more attention to Government Property Management. The DCMA declared 2017 “The Year of the Property Management System.” Since then, we have seen stricter enforcement of FAR and DFARS requirements by the DCMA.

That’s why it’s important to continually educate yourself on the DCMA’s standards in particular and government property management in general. Reading this blog is a great first step to meeting these high standards. And if this list of property management elements still feels daunting to you? No need to worry; our team can make achieving compliance and passing a DCMA audit much easier. Learn more about how we make government property management easier here.

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