FAR 37.303—Payments.
Plain-English Summary
FAR 37.303 addresses how payment works in demolition and dismantling contracts when salvageable materials are involved. It covers two possible payment structures: the Government may pay the contractor to dismantle or demolish structures, or the contractor may pay the Government for the right to salvage and remove materials recovered from the work. The section also requires the contracting officer to evaluate the usefulness of all salvageable property to the Government, not just its scrap value, and to expressly reserve for Government retention any items that are more valuable to the Government than to the contractor as salvage. For property not reserved, the contracting officer must determine fair market value because title will pass to the contractor, and that value affects the amount the Government pays, whether the contractor pays the Government, and any additional compensation due if the contract is terminated. In practice, this section is about making sure the contract clearly allocates salvage rights and reflects the real economic value of materials so the Government does not lose useful property or misprice the work.
Key Rules
Two payment structures allowed
The contract may either require the Government to pay the contractor for demolition or dismantling work, or require the contractor to pay the Government for the right to salvage and remove recovered materials. The contract must clearly state which approach applies.
Salvage value must be considered
The contracting officer must evaluate all salvageable property for its usefulness to the Government, not just its resale or scrap value. This review is intended to protect items that the Government can use more effectively than the contractor can sell them.
Government-retained property must be designated
If any salvageable property is more useful to the Government than to the contractor as salvage, the contracting officer should expressly identify it in the contract for Government retention. Clear designation avoids disputes over ownership and removal rights.
Fair market value must be determined
For salvageable property not reserved by the Government, the contracting officer must determine fair market value because title will pass to the contractor. That value is needed to calculate payment terms and any offset or compensation tied to the salvage rights.
Termination consequences must be addressed
The fair market value of non-designated salvageable property also matters if the contract is terminated. The value may affect what the contractor is owed or what the contractor owes, depending on the contract structure and termination circumstances.
Responsibilities
Contracting Officer
Decide whether the contract will use a Government-pays or contractor-pays structure for demolition/dismantling and salvage rights. Evaluate all salvageable property for Government usefulness, expressly designate items the Government will retain, and determine fair market value for all other salvageable property.
Government
Receive and retain any salvageable property expressly designated in the contract as more useful to the Government than as contractor salvage. Use the fair market value determinations to support proper pricing and termination settlements.
Contractor
Perform the dismantling or demolition work under the payment structure stated in the contract. If the contract grants salvage rights, pay the Government when required and remove only the materials the contract allows the contractor to take.
Practical Implications
This section is a pricing and property-allocation safeguard: the contract should not treat all demolition debris as having the same value, because some items may be reusable by the Government.
A common pitfall is failing to identify salvageable items early, which can lead to disputes over who owns equipment, fixtures, metals, or reusable components after demolition.
Another risk is underestimating fair market value; if the value is not documented, the Government may overpay the contractor or fail to collect appropriate consideration for salvage rights.
Contract language should be specific about what the contractor may remove, what the Government keeps, and how value was determined, especially when termination rights are involved.
For contracting officers, the key day-to-day task is to document the salvage review and valuation rationale so the payment terms are defensible and enforceable.
Official Regulatory Text
(a) The contract may provide that the- (1) Government pay the contractor for the dismantling or demolition of structures; or (2) Contractor pay the Government for the right to salvage and remove the materials resulting from the dismantling or demolition operation. (b) The contracting officer shall consider the usefulness to the Government of all salvageable property. Any of the property that is more useful to the Government than its value as salvage to the contractor should be expressly designated in the contract for retention by the Government. The contracting officer shall determine the fair market value of any property not so designated, since the contractor will get title to this property, and its value will therefore be important in determining what payment, if any, shall be made to the contractor and whether additional compensation will be made if the contract is terminated.