FAR 45.104—Responsibility and liability for Government property.
Plain-English Summary
FAR 45.104 explains who bears the risk of loss when Government property is furnished to or used by contractors, and how the Government decides whether to seek recovery. It covers the general rule that contractors are usually not liable for loss of Government property under cost-reimbursement, time-and-material, labor-hour, and certain fixed-price contracts awarded on certified cost or pricing data; the contracting officer’s authority to revoke that risk assumption when the property administrator finds the contractor’s property management system noncompliant; the rule that a prime contractor remains responsible to the Government even when it passes Government property to a subcontractor; the process for determining contractor liability and the form of recovery after a loss; and the requirement to deposit restitution into the Treasury as miscellaneous receipts unless another statute says otherwise. In practice, this section sets the baseline for allocating risk, but it also makes clear that poor property controls can shift that risk back to the contractor. It is important because Government property losses can create significant financial exposure, contract administration disputes, and audit findings, and because the recovery method must be handled consistently with fiscal law.
Key Rules
General assumption of risk
For the listed contract types, contractors are generally not held liable for loss of Government property. This means the Government normally bears the risk unless another contract term, statute, or specific finding changes that allocation.
Contracts covered
The no-liability rule applies to cost-reimbursement, time-and-material, labor-hour, and fixed-price contracts awarded on the basis of certified cost or pricing data. The contract type matters because FAR ties the default risk allocation to these categories.
Noncompliance can shift risk
The contracting officer may revoke the Government’s assumption of risk if the property administrator determines the contractor’s property management practices do not comply with contract requirements. In other words, weak or noncompliant property controls can eliminate the contractor’s protection under the general rule.
Prime remains responsible
A prime contractor does not escape responsibility to the Government by giving Government property to a subcontractor. The prime stays accountable under the prime contract even if the physical loss occurs in subcontractor hands.
Liability must be determined case by case
When Government property is lost, the contracting officer, working with the property administrator, must decide whether the contractor is liable and, if so, how much. The decision is based on the amount of damages associated with the loss, not just the fact that a loss occurred.
Recovery method is flexible
The Government may recover through repair, replacement, or other restitution, depending on what is appropriate for the loss. The section does not limit recovery to cash, but it requires the Government to choose a suitable remedy.
Restitution goes to Treasury
Money received as financial restitution must be deposited as miscellaneous receipts in the Treasury unless a statute authorizes a different treatment. This prevents agencies from retaining recovered funds unless Congress has specifically allowed it.
Responsibilities
Contracting Officer
Apply the default risk rule for covered contract types, and work with the property administrator to determine whether contractor liability exists after a loss. If noncompliance is found, decide whether to revoke the Government’s assumption of risk and determine the appropriate recovery method and amount.
Property Administrator
Evaluate the contractor’s property management practices for compliance with contract requirements, identify noncompliance, and advise the contracting officer on liability and recovery decisions. The property administrator’s findings can trigger revocation of the Government’s assumption of risk.
Contractor
Maintain compliant property management practices, safeguard Government property, and remain accountable for losses when the Government’s assumption of risk is revoked or when liability is otherwise established. The contractor must also remain responsible for Government property provided to subcontractors under the prime contract.
Prime Contractor
Preserve responsibility to the Government for Government property furnished to subcontractors and ensure subcontractor handling does not relieve the prime of prime-contract obligations. The prime must manage flowdown, oversight, and accountability for that property.
Agency / Government
Apply the proper recovery mechanism after a loss and ensure any financial restitution is deposited to the Treasury as miscellaneous receipts unless a statute provides otherwise. The agency must also support consistent administration of Government property risk and recovery.
Practical Implications
Contractors should treat property management compliance as a risk-control issue, not just an administrative task; poor records, weak controls, or failure to follow contract procedures can lead to liability even where the contract type normally protects them.
Prime contractors cannot assume subcontracting transfers the Government’s risk; if Government property is passed down, the prime should have strong oversight, clear subcontract terms, and traceable custody controls.
After a loss, the key question is not only whether property is missing, but whether the contractor’s actions or system deficiencies justify shifting liability and what remedy best restores the Government’s position.
Contracting officers should document the basis for any liability decision, including the property administrator’s findings, the damage amount, and why repair, replacement, or other restitution is appropriate.
If money is recovered, agencies must be careful with fiscal law: restitution generally cannot be kept by the agency and must go to miscellaneous receipts unless a specific statute allows retention or alternative disposition.
Official Regulatory Text
(a) Generally, contractors are not held liable for loss of Government property under the following types of contracts: (1) Cost-reimbursement contracts. (2) Time-and-material contracts. (3) Labor-hour contracts. (4) Fixed-price contracts awarded on the basis of submission of certified cost or pricing data. (b) The contracting officer may revoke the Government’s assumption of risk when the property administrator determines that the contractor’s property management practices are noncompliant with contract requirements. (c) A prime contractor that provides Government property to a subcontractor shall not be relieved of any responsibility to the Government that the prime contractor may have under the terms of the prime contract. (d) With respect to loss of Government property, the contracting officer, in consultation with the property administrator, shall determine- (1) The extent, if any, of contractor liability based upon the amount of damages corresponding to the associated property loss; and (2) The appropriate form and method of Government recovery (may include repair, replacement, or other restitution). (e) Any monies received as financial restitution shall be credited to the Treasury of the United States as miscellaneous receipts, unless otherwise authorized by statute ( 31 U.S.C. 3302(b) ).