FAR 46.803—Policy.
Plain-English Summary
FAR 46.803 states the Government’s basic policy on who bears the risk of loss or damage when accepted supplies or services later cause harm to Government property because of defects or deficiencies. It explains the Government’s general approach as a self-insurer after acceptance, the special rule for the contract end item, and the separate treatment for high-value items. It also identifies when the Government will not grant this contractual relief, including when contractor liability can be preserved without increasing price, when liability is otherwise preserved by another authorized clause, when the loss stems from willful misconduct or lack of good faith by managerial personnel, and when contractor insurance or self-insurance already covers the loss. In practice, this section tells contracting officers when they may shift or limit post-acceptance risk and tells contractors when they may still be exposed to liability despite the general policy of Government relief. It is a risk-allocation rule that affects contract drafting, pricing, claims handling, and the interpretation of limitation-of-liability provisions.
Key Rules
Government as self-insurer
After acceptance, the Government generally absorbs the risk of loss or damage to Government property caused by defects or deficiencies in the supplies or services. This policy applies only to losses that occur after acceptance and only when the loss results from a defect or deficiency.
End item liability remains
The Government generally does not relieve the contractor of liability for loss of or damage to the contract end item itself. The main exception is for high-value items, which are treated under a separate rule.
High-value item relief
For contracts requiring delivery of high-value items, the Government will relieve the contractor of contractual liability for loss of or damage to those items. Even so, the Government keeps its rights to require correction, repair, or replacement if the defect is found before the loss, or to seek equitable relief if the defect is found after the loss.
No relief if liability can be preserved
The Government will not grant the contractual relief described in this section when contractor liability can be preserved without increasing the contract price. This means the Government should not give up liability protection unnecessarily.
Express clause controls
The relief in this section does not apply to the extent another contract clause authorized by the FAR expressly preserves contractor liability. The specific limitation-of-liability clause in the contract also controls the scope of relief.
Misconduct and bad faith exception
Relief does not apply when the defect, deficiency, or Government acceptance results from willful misconduct or lack of good faith by the contractor’s managerial personnel. This preserves liability for serious contractor wrongdoing.
Insurance offsets relief
Relief does not apply to the extent contractor insurance or self-insurance reserves already cover the Government’s loss. The Government does not need to duplicate coverage that the contractor already has in place.
Responsibilities
Contracting Officer
Apply the policy when drafting and administering contracts, decide whether relief is appropriate, and ensure the contract’s limitation-of-liability and other authorized clauses are used consistently with this section. The contracting officer must also consider whether liability can be preserved without increasing price and whether any existing insurance coverage offsets the need for relief.
Contractor
Understand when post-acceptance liability may be shifted away from the contractor and when it remains in place, especially for end items, high-value items, and losses tied to misconduct or bad faith. The contractor must also disclose or account for insurance or self-insurance coverage that may affect the scope of relief.
Government
Act as a self-insurer for qualifying post-acceptance losses caused by defects or deficiencies, while preserving rights to correction, repair, replacement, or equitable relief where the rule allows. The Government must also avoid granting relief when liability can be preserved without added cost or when other clauses or coverage already address the risk.
Contractor’s managerial personnel
Avoid willful misconduct and act in good faith, because their conduct can defeat the contractor’s ability to obtain relief under this section. Their actions can determine whether the Government remains protected against loss or damage claims.
Practical Implications
This section is mainly about post-acceptance risk allocation, so contractors should not assume acceptance ends all exposure. If a defect later causes damage to Government property, liability may still exist unless a specific relief rule applies.
High-value items get special treatment, but the Government still keeps remedies for correction, repair, replacement, or equitable relief depending on when the defect is discovered. Contractors should track when defects are found and document notice carefully.
Insurance matters. If the contractor already has insurance or self-insurance reserves covering the loss, the Government may not provide additional relief to that extent, so coverage terms should be reviewed during negotiation and administration.
The misconduct exception is broad enough to matter operationally: actions by managerial personnel can preserve Government claims even where the general policy would otherwise favor relief. Contractors should maintain strong quality control and ethics oversight.
Contracting officers should be careful not to grant unnecessary liability relief, especially where liability can be preserved without increasing price. The clause structure in the contract should be checked against this policy to avoid inconsistent risk allocation.
Official Regulatory Text
(a) General. The Government will generally act as a self-insurer by relieving contractors, as specified in this subpart, of liability for loss of or damage to property of the Government that (1) occurs after acceptance of supplies delivered or services performed under a contract and (2) results from defects or deficiencies in the supplies or services. However, the Government will not relieve the contractor of liability for loss of or damage to the contract end item itself, except for high-value items. (b) High-value items. In contracts requiring delivery of high-value items, the Government will relieve contractors of contractual liability for loss of or damage to those items. However, this relief shall not limit the Government’s rights arising under the contract to- (1) Have any defective item or its components corrected, repaired, or replaced when the defect or deficiency is discovered before the loss of or damage to a high-value item occurs; or (2) Obtain equitable relief when the defect or deficiency is discovered after such loss or damage occurs. (c) Exception. The Government will not provide contractual relief under paragraphs (a) and (b) of this section when contractor liability can be preserved without increasing the contract price. (d) Limitations. Subject to the specific terms of the limitation of liability clause included in the contract, the relief provided under paragraphs (a) and (b) of this section does not apply- (1) To the extent that contractor liability is expressly provided under a contract clause authorized by this regulation; (2) When a defect or deficiency in, or Government’s acceptance of, the supplies or services results from willful misconduct or lack of good faith on the part of the contractor’s managerial personnel; or (3) To the extent that any contractor insurance, or self-insurance reserve, covers liability for loss or damage suffered by the Government through purchase or use of the supplies delivered or services performed under the contract.