FAR 32.503-16—Risk of loss.
Plain-English Summary
FAR 32.503-16 explains who bears the financial risk when Government property is involved under the Progress Payments clause. It covers three core subjects: the contractor’s risk of loss for Government property even when title has vested in the Government, the contractor’s repayment obligation when a loss occurs for property at the contractor’s risk, and the opposite rule when the Government has expressly assumed the risk of loss. It also clarifies that the standard clauses used for progress payments, default, and terminations do not by themselves shift that risk to the Government. In practice, this section matters because a property loss can trigger immediate repayment of unliquidated progress payments and can affect contract performance, cash flow, and the contracting officer’s remedies. It is a risk-allocation rule that helps both parties understand when a loss is a contractor financial responsibility and when it is a Government responsibility.
Key Rules
Contractor bears loss risk
Under the Progress Payments clause, the contractor generally bears the risk of loss for Government property covered by the clause, even though title is vested in the Government. The only express exception is normal spoilage, and the Government must expressly assume the risk if it is to shift away from the contractor.
Standard clauses do not shift risk
The clauses prescribed for progress payments, default, and terminations do not, by themselves, constitute a Government assumption of the risk of loss. Contractors should not assume that title in the Government or the presence of these clauses means the Government has taken on the loss risk.
Loss triggers repayment
If a loss occurs for property for which the contractor bears the risk, the contractor must repay the Government the amount of unliquidated progress payments based on costs allocable to that property. This means the contractor may have to return progress payment amounts tied to the lost property.
Government-assumed risk changes liability
If the Government has expressly assumed the risk of loss, the contractor is not obligated to pay for the loss of that property. However, the loss may still affect contract performance and may require the contracting officer to consider action under paragraph (c)(5) of the Progress Payments clause.
Performance impact still matters
Even when the contractor is not financially liable because the Government assumed the risk, a serious loss can still impede satisfactory progress. The contracting officer may need to take corrective or protective action to address schedule, performance, or funding concerns.
Responsibilities
Contractor
Bear the risk of loss for Government property under the Progress Payments clause unless the Government has expressly assumed that risk; account for normal spoilage as an exception; repay unliquidated progress payments attributable to lost property when the loss is at the contractor’s risk; and continue to manage performance impacts even when the Government bears the loss risk.
Contracting Officer
Determine whether the Government has expressly assumed the risk of loss; avoid treating standard progress payment, default, or termination clauses as a risk transfer; require repayment when the contractor bears the loss; and consider action under paragraph (c)(5) of the Progress Payments clause if a serious loss threatens satisfactory progress.
Government
Expressly state when it is assuming the risk of loss if that is intended; recognize that title alone does not shift the loss risk; and, when it has assumed the risk, not demand contractor payment for the loss, while still addressing any resulting performance issues through appropriate contract administration.
Practical Implications
Title in the Government does not automatically mean the Government pays for a loss; the risk allocation is separate from title.
A property loss can create an immediate repayment obligation for unliquidated progress payments, which can create cash-flow pressure for the contractor.
Contractors should review the contract carefully to confirm whether the Government has expressly assumed risk before relying on any assumption of coverage.
Contracting officers should document the risk allocation clearly and not rely on default or termination clauses as a substitute for an express assumption of risk.
Even when the Government bears the loss, the contracting officer may still need to intervene if the loss threatens timely or satisfactory performance.
Official Regulatory Text
(a) Under the Progress Payments clause, and except for normal spoilage, the contractor bears the risk of loss for Government property under the clause, even though title is vested in the Government, unless the Government has expressly assumed this risk. The clauses prescribed in this regulation related to progress payments, default, and terminations do not constitute a Government assumption of this risk. (b) If a loss occurs in connection with property for which the contractor bears the risk, the contractor is obligated to repay to the Government the amount of unliquidated progress payments based on costs allocable 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 (c)(5) of the Progress Payments clause.