Government-Furnished Property and Contractor Risk of Loss Under FAR 52.245-1 in 2026

When the Government hands a contractor tooling, test sets, or material — or reimburses the contractor for property it acquires to perform the work — an unusual arrangement settles onto the shop floor. The contractor holds the asset and controls it, yet does not own it. FAR 52.245-1, the Government Property clause, is where that arrangement is written down, and its allocation of the risk of loss deserves the same intentional review a contractor gives any provision that can convert an operational mishap into a balance-sheet liability. In 2026, with the Defense Department tightening how furnished property is tracked and reported, understanding where that risk actually sits is a matter of discipline rather than paperwork.

The general relief, and the logic behind it. The clause draws a deliberate line. Under its liability paragraph, a contractor is generally relieved of responsibility for loss, theft, damage, or destruction of Government property in its possession or control. The Government, in effect, self-insures the property it furnishes and the property a contractor acquires on its behalf. The reasoning is fiduciary rather than generous — the Government owns the asset and already carries its risk on the public books, and it has no interest in paying a second time through insurance premiums a contractor would load back into its rates. That relief is the rule most contractors rely on, and the exceptions are precisely where the exposure hides.

Where liability returns. The clause names the conditions under which the contractor does become responsible. Loss caused by willful misconduct or lack of good faith on the part of the contractor's managerial personnel — a defined term reaching those with supervisory and management authority over the property — is not relieved. Neither is risk the contractor expressly assumed under the contract, nor loss arising from property used outside the scope for which it was furnished. And critically, the relief does not extend to loss covered by insurance or self-insurance: to the extent a contractor carries proceeds, the Government reaches them. Each exception is a door the contractor controls. Managerial discipline, a property system operated exactly as written, and clarity about how furnished assets are used keep those doors closed.

The property management system is the hinge. The same clause requires the contractor to establish and maintain a property management system, or PMS, addressing the full life cycle — acquisition, receipt, records, physical inventory, subcontractor control, reporting, relief of stewardship, utilization, maintenance, property closeout, and more. For Defense work, the Defense Contract Management Agency administers this property through Property Administrators and conducts a Property Management System Analysis to judge whether the system is adequate. A system found deficient is not a clerical footnote — it can surface as a business-system disapproval, withheld payments, and, when a loss occurs, a harder argument that the contractor exercised the reasonable care the relief presumes. The PMS, run well, is both the compliance obligation and the evidence that protects the relief.

Loss reporting and 2026 accountability. When property is lost, damaged, or destroyed, the contractor must report it to the Property Administrator and the Government retains the right to hold the contractor liable where an exception applies. On the DoD side, accountability has been consolidating. Under DFARS Case 2020-D029, finalized in December 2023, the Department folded a scatter of legacy property clauses into DFARS 252.245-7005, Management and Reporting of Government Property, which directs contractors to report government-furnished and contractor-acquired property through the GFP module in the Procurement Integrated Enterprise Environment, or PIEE. Through 2025 and into 2026, serialized-item reporting and receipt acknowledgment in that module have moved from aspiration to expectation. The practical effect is that the Government now has a far clearer, item-level view of what a contractor holds — which sharpens both accountability and the questions asked when something goes missing.

Where commercial insurance meets the clause. Here the interaction turns counterintuitive. Because the clause reaches into insurance proceeds, a contractor who buys first-dollar property coverage on Government-owned assets can inadvertently manufacture a liability the relief would otherwise have absorbed — and the cost of insuring property the Government has already assumed the risk for is generally an unallowable charge. The intentional structure is narrower and more surgical: inland-marine and installation floater coverage for contractor-acquired property and for fixed-price situations where the contract expressly shifts risk back to the contractor; a considered self-insurance posture where scale supports it; and a clear read of which assets the clause actually relieves. The goal is to insure the gap, not to duplicate a risk the Government is holding.

Sorting the relieved risk from the assumed one is a matter of sequence, not guesswork. At Peoples First Tennessee, we move through our 4-Step Strategic Process — Strategic Discovery to map the furnished and acquired property across your contract portfolio; Risk Assessment to uncover the exceptions and fixed-price shifts hidden in the clause language; Solution Design to build inland-marine, floater, and self-insurance structures around the risk that is genuinely yours; and Ongoing Optimization to keep the program aligned as awards, inventories, and DoD reporting rules evolve. Handled that way, FAR 52.245-1 stops being a clause you hope never matters and becomes a line of control you understand before a loss ever tests it.

Sources: Acquisition.gov — FAR 52.245-1 Government Property; Defense Acquisition University (Acquipedia) — Risk of Loss and Liability for Government Property; Acquisition.gov — DFARS 252.245-7005 Management and Reporting of Government Property; Federal Register — Defense Federal Acquisition Regulation Supplement: Consolidation of DoD Government Property Clauses (DFARS Case 2020-D029); Office of the Under Secretary of Defense (ASD(A)/DPC) — Government Furnished Property (GFP) Contracting eBusiness; Cherry Bekaert — Contractor Property Management System Compliance Guide; Baker Tilly — Government Property Management Systems: From Obscurity to Center Stage; DCMA — Guidebook for Government Contract Property Administration

— Ryan Mefford, President & Risk Advisor