FAR 52.246-23—Limitation of Liability.
Plain-English Summary
FAR 52.246-23, Limitation of Liability, allocates risk for government property damage caused by defective or deficient supplies after the Government has accepted those supplies. The clause generally protects the contractor from liability for loss of or damage to Government property other than the delivered supplies themselves, but only when the damage occurs after acceptance and results from defects or deficiencies in the supplies. It also creates two important exceptions: the limitation does not apply if the defect, deficiency, or Government acceptance resulted from willful misconduct or lack of good faith by the contractor’s managerial personnel, and the contractor remains liable up to the amount of any applicable insurance or self-insurance reserve covering this type of loss. In practice, this clause matters because it defines when the Government can recover for post-acceptance property damage, how far that recovery can go, and when contractor management conduct can remove the liability shield entirely. It also requires careful attention to the contractor’s insurance program and any self-insurance reserves, since those amounts can become the ceiling on liability even where the general limitation would otherwise apply. The clause is a risk-allocation provision, not a warranty clause, and it works alongside any other remedies expressly provided elsewhere in the contract.
Key Rules
General liability limitation
The contractor is not liable for loss of or damage to Government property, other than the delivered supplies, if the damage occurs after Government acceptance and results from defects or deficiencies in the supplies. This is the default rule unless an exception applies.
Acceptance is the trigger
The protection applies only after the Government has accepted the supplies. Damage occurring before acceptance is outside this clause’s limitation and may be handled under other contract remedies or clauses.
Willful misconduct exception
The limitation does not apply if the defect, deficiency, or the Government’s acceptance resulted from willful misconduct or lack of good faith by the contractor’s managerial personnel. In that case, the contractor may face full liability under applicable remedies.
Managerial personnel defined narrowly
“Contractor’s managerial personnel” includes directors, officers, and managers, superintendents, or equivalent representatives who supervise all or substantially all of the business, a major plant or location, or a separate and complete major industrial operation tied to the contract. The definition is important because only misconduct by these individuals defeats the limitation.
Insurance and reserve cap
If the contractor has insurance or a self-insurance reserve covering this type of loss, the contractor is liable to the Government up to the amount of that insurance or reserve for post-acceptance damage caused by defects or deficiencies. The clause does not require unlimited payment where coverage exists; it ties liability to the available coverage or reserve.
Other contract remedies still apply
The clause does not override remedies expressly provided elsewhere in the contract. If another clause or contract term gives the Government a separate remedy, that remedy remains available in addition to or instead of this limitation.
Responsibilities
Contractor
Deliver supplies that are free from defects or deficiencies to the extent required by the contract, and understand that post-acceptance liability for Government property damage is generally limited unless managerial misconduct, bad faith, or applicable insurance/reserve coverage creates exposure. The contractor should also maintain and document any insurance or self-insurance reserve that may affect liability.
Contractor’s managerial personnel
Exercise good faith and avoid willful misconduct in connection with the defect, deficiency, or Government acceptance of the supplies. Their conduct can determine whether the liability limitation remains in place or is removed entirely.
Government
Accept supplies only after appropriate inspection and evaluation, and identify any post-acceptance property damage that is attributable to defects or deficiencies in the delivered supplies. The Government must also consider whether the contractor has insurance or reserves that establish the extent of recoverable liability.
Contracting Officer
Insert the clause when prescribed, administer the contract in light of the acceptance-based liability rule, and evaluate whether claimed losses fall within the clause, including whether exceptions for managerial misconduct or insurance/reserve coverage apply. The contracting officer should also coordinate with legal and technical personnel when liability disputes arise.
Practical Implications
This clause is most important after acceptance: once the Government accepts the supplies, the contractor’s exposure for resulting property damage is usually limited, so acceptance decisions matter a great deal.
The Government must connect the damage to a defect or deficiency in the supplies; if that causal link is weak, recovery under this clause may fail.
Contractors should track insurance policies and self-insurance reserves carefully, because those amounts can become the measure of liability even when the general limitation would otherwise protect them.
The managerial-personnel exception is a common dispute point. Evidence about who knew what, who approved what, and whether conduct was willful or in bad faith can determine whether the limitation disappears.
This clause does not eliminate other contract remedies, so parties should review the entire contract for warranties, inspection clauses, indemnities, or special remedies that may expand or narrow liability.
Official Regulatory Text
As prescribed in 46.805 , insert the following clause: Limitation of Liability (Feb 1997) (a) Except as provided in paragraphs (b) and (c) of this clause, and except for remedies expressly provided elsewhere in this contract, the Contractor shall not be liable for loss of or damage to property of the Government (excluding the supplies delivered under this contract) that- (1) Occurs after Government acceptance of the supplies delivered under this contract; and (2) Results from any defects or deficiencies in the supplies. (b) The limitation of liability under paragraph (a) of this clause shall not apply when a defect or deficiency in, or the Government’s acceptance of, the supplies results from willful misconduct or lack of good faith on the part of any of the Contractor’s managerial personnel. The term "Contractor’s managerial personnel," as used in this clause, means the Contractor’s directors, officers, and any of the Contractor’s managers, superintendents, or equivalent representatives who have supervision or direction of- (1) All or substantially all of the Contractor’s business; (2) All or substantially all of the Contractor’s operations at any one plant, laboratory, or separate location at which the contract is being performed; or (3) A separate and complete major industrial operation connected with the performance of this contract. (c) If the Contractor carries insurance, or has established a reserve for self-insurance, covering liability for loss or damage suffered by the Government through purchase or use of the supplies required to be delivered under this contract, the Contractor shall be liable to the Government, to the extent of such insurance or reserve, for loss of or damage to property of the Government occurring after Government acceptance of, and resulting from any defects or deficiencies in, the supplies delivered under this contract. (End of clause)