FAR 32.1010—Risk of loss.
Plain-English Summary
FAR 32.1010 explains who bears the risk of loss when a contract uses the Performance-Based Payments clause at 52.232-32 and Government property is involved. It addresses the default rule that the contractor bears the risk of loss for Government property, even when title has vested in the Government, except for normal spoilage and unless the Government has expressly assumed the risk. It also clarifies that the clauses on performance-based payments, default, and terminations do not by themselves shift that risk to the Government. The section then explains the payment consequences if a loss occurs: when the contractor bears the risk, the contractor must repay performance-based payments tied to the lost property if the property is needed for performance; when the Government has assumed the risk, the contractor does not have to repay for that loss. Finally, it notes that even a Government-assumed loss can still disrupt performance, potentially requiring contracting officer action under paragraph (e)(2) of the Performance-Based Payments clause and possibly preventing the contractor from making the required certification. In practice, this section is about allocating loss exposure, protecting the Government’s financial position, and giving contracting officers a framework for deciding when a loss affects continued contract performance and payment eligibility.
Key Rules
Contractor bears loss risk
Under the Performance-Based Payments clause, the contractor generally bears the risk of loss for Government property, even if title has already vested in the Government. The only express exception in this section is normal spoilage, and the Government must expressly assume the risk if a different allocation is intended.
No implied Government assumption
The presence of clauses dealing with performance-based payments, default, or terminations does not mean the Government has assumed the risk of loss. A Government assumption of risk must be express; it is not created automatically by other contract clauses.
Repayment required after contractor-risk loss
If property is lost and the contractor bears the risk, and that property is needed for performance, the contractor must repay the Government the performance-based payments associated with that property. The repayment obligation is tied to the lost property’s role in contract performance and the payments already made against it.
Government-risk loss shifts repayment
If the Government has assumed the risk of loss, the contractor is not required to repay prior performance-based payments because of that loss. The contractor is protected from repayment liability for the covered loss, but the contract may still be affected operationally.
Loss may still disrupt performance
Even when the Government bears the risk, a serious loss can hinder satisfactory progress of performance. In that situation, the contracting officer may need to take action under paragraph (e)(2) of the Performance-Based Payments clause, including addressing whether continued payments or performance conditions remain appropriate.
Certification may be affected
A Government-assumed loss does not automatically preserve the contractor’s ability to make the certification required by the Performance-Based Payments clause. If the loss undermines the factual basis for the certification, the contractor may be unable to certify compliance even though repayment is not required.
Responsibilities
Contractor
Monitor and protect Government property used in performance, understand whether the contract allocates risk of loss to the contractor or the Government, and repay performance-based payments tied to lost property when the contractor bears the risk and the property is needed for performance. The contractor must also assess whether a loss affects its ability to make the required performance-based payment certification.
Contracting Officer
Determine whether the Government has expressly assumed the risk of loss, evaluate the effect of any serious loss on contract performance, and take appropriate action under paragraph (e)(2) of the Performance-Based Payments clause when a loss threatens satisfactory progress. The contracting officer must also ensure the contract language does not inadvertently imply a Government assumption of risk.
Government
Expressly state any assumption of risk if the Government intends to bear loss exposure for specific property, rather than relying on default clauses to do so. The Government must also consider whether a loss, even one it has assumed, affects performance progress and payment administration.
Practical Implications
This section matters most when Government property is being used, consumed, or incorporated into performance under a performance-based payment arrangement. Contractors should know exactly which property is covered and who bears the loss risk before relying on payment milestones.
A common pitfall is assuming that title in the Government means the Government also bears the loss. FAR 32.1010 says the opposite: title alone does not shift risk unless the Government expressly assumes it.
Another frequent issue is treating default or termination clauses as if they automatically protect the contractor from repayment. They do not; the risk allocation must be read separately from those remedies clauses.
If a loss occurs, the key question is whether the lost property was needed for performance and whether the contractor or Government bore the risk. That answer drives whether repayment is required and whether the contractor can still certify compliance for further payments.
Contracting officers should respond quickly to serious losses because even a Government-assumed loss can stall progress, create certification problems, and require action under the Performance-Based Payments clause to protect the Government’s interests.
Official Regulatory Text
(a) Under the clause at 52.232-32 , Performance-Based Payments, and except for normal spoilage, the contractor bears the risk of loss for Government property, even though title is vested in the Government, unless the Government has expressly assumed this risk. The clauses prescribed in this regulation related to performance-based payments, default, and terminations do not constitute a Government assumption of risk. (b) If a loss occurs in connection with property for which the contractor bears the risk, and the property is needed for performance, the contractor is obligated to repay the Government the performance-based payments related to the property. (c) The contractor is not obligated to pay for the loss of property for which the Government has assumed the risk of loss. However, a serious loss may impede the satisfactory progress of contract performance, so that the contracting officer may need to act under paragraph (e)(2) of the Performance-Based Payments clause. In addition, while the contractor is not required to repay previous performance-based payments in the event of a loss for which the Government has assumed the risk, such a loss may prevent the contractor from making the certification required by the Performance-Based Payments clause.