Contractors who receive equipment, materials, or facilities from a federal agency to perform a contract are stepping into one of the most detailed compliance regimes in the acquisition system. FAR Part 45 — Government Property sets the rules for how that property must be tracked, used, maintained, and eventually disposed of, and the obligations attach the moment the property arrives, not just when something goes wrong.
Background
Government property shows up in contracts in a few common forms: government-furnished property (GFP) issued to a contractor to perform the work, and contractor-acquired property where the contractor buys or fabricates an item but title vests in the government. Either way, once that property is in a contractor's hands, FAR Part 45 and its implementing clause, FAR 52.245-1, govern what happens to it from receipt through final disposition. The clause is deliberately outcome-focused rather than a rigid checklist — it requires contractors to run "a system of internal controls to manage (control, use, preserve, protect, repair, and maintain) Government property," but leaves the specific mechanics to the contractor's own management system, as long as that system delivers the required results. FAR 45.103(b) reinforces this by barring agencies from forcing a contractor to stand up a separate, GFP-only tracking system if its existing commercial property-management practices already satisfy the clause's outcomes. That flexibility matters for contractors who already run commercial inventory systems — they don't have to duplicate the effort in a government-only silo, but they do have to prove the existing system meets the FAR's requirements.
The responsibility doesn't stop at the prime contractor's own walls. FAR 52.245-1 extends coverage to property held by subcontractors and vendors, meaning a prime can't treat government property as someone else's problem just because it physically sits at a lower tier. For contractors working DoD contracts specifically, DFARS 252.245-7003 layers on additional requirements on top of the FAR-level clause, tying an "acceptable" property management system to FAR 52.245-1's own standards and adding a formal process for flagging material weaknesses, so the practical compliance bar is often higher than the FAR text alone suggests.
Key Details
FAR 52.245-1 spells out what a compliant property management system has to include. At the core is a set of auditable records for every item: description, National Stock Number where applicable, quantities, unit acquisition cost, a unique identifier, current location, disposition status, and posting dates showing when the record was last updated. Contractors also have to conduct periodic physical inventories to confirm those records match what's actually on hand, with a final inventory generally required at contract completion, though the property administrator can waive it in limited circumstances. When records don't reconcile with physical counts — a lost item, a damaged item, an item that's simply unaccounted for — the contractor has to report the discrepancy along with any corrective action taken.
Liability for loss, damage, or destruction of government property varies by contract type. Under FAR 45.104, contractors performing cost-reimbursement, time-and-material, and labor-hour contracts are generally not liable for loss or damage to government property — the government effectively assumes that risk as a function of how those contracts are priced. But that assumption isn't unconditional. The contracting officer can revoke it if the property administrator determines the contractor's property management system is noncompliant with contract requirements, shifting liability back onto the contractor. When a loss does happen and it's not clearly covered by the government's assumed risk, FAR 45.104(d) requires the contracting officer, in consultation with the property administrator, to determine the extent of the contractor's liability and the appropriate form of government recovery — through repair, replacement, or some other form of restitution. Any funds recovered that way go to the U.S. Treasury as miscellaneous receipts unless a specific statute directs otherwise; a contractor can't simply write a check to the program office and consider the matter closed.
On the other end of that process, FAR 45.105(d) gives contractors a formal off-ramp: when a loss qualifies as a government-assumed risk, the property administrator must issue the contractor written "relief of stewardship responsibility." That document closes out the contractor's liability for that specific loss, and contractors should treat it as a required deliverable to keep on file, not an optional courtesy.
Disposal is its own regulated process under FAR Subpart 45.6. When government property is authorized for disposal, a plant clearance officer has to promptly prepare an inventory disposal report once the property has been disposed of and any related proceeds credited. That report closes out the same audit trail that runs from initial receipt through final inventory — the government's records of an item shouldn't go dark at any point in a contract's lifecycle.
What It Means for Contractors
The practical takeaway is that a property management system isn't a back-office formality — it directly determines financial exposure. A contractor on a cost-reimbursement contract with a documented, functioning property system is largely insulated from the cost of an accidental loss. The same contractor with a sloppy system can lose that protection entirely if a property administrator flags deficiencies, at which point a routine equipment loss turns into a liability question resolved by the contracting officer in consultation with the property administrator, with the contractor potentially on the hook for repair or replacement costs.
That makes the recordkeeping requirements in 52.245-1 worth treating as a floor, not a suggestion. Every item needs a clean record — description, ID, cost, location, disposition status, and an up-to-date posting date — because those are exactly what a property administrator will pull during a periodic inventory or when investigating a discrepancy. Contractors who wait until the final inventory at contract closeout to reconcile records against what's physically on hand are taking on unnecessary risk; discrepancies are far easier to explain when they're caught and reported close to when they happen rather than surfacing all at once at the end of performance.
Contractors managing subcontractor or vendor-held property carry the same exposure as if they held it themselves, so flow-down requirements and periodic checks with lower-tier holders aren't optional extras — they satisfy the prime's own obligation under the clause. DoD contractors should read their contract's DFARS 252.245-7003 requirements alongside FAR Part 45 rather than assuming FAR-level compliance is enough, since the DoD clause adds its own material-weakness process a generic property system may not satisfy. Finally, when a loss occurs, contractors should push for the written relief-of-stewardship documentation under 45.105(d) once liability is resolved in their favor — it's the record that protects against the issue being reopened later.
