When does the transfer of ownership occur?
Ownership (title) transfers to the government upon formal acceptance. The time of this ownership transfer could be significant if damage or loss were to occur when items were being shipped from the contractor's plant to the government destination.
When does the government assume responsibility for damages?
The government could become responsible for any damage or loss based on the following delivery requirements:
F.O.B. origin. The contractor has delivered conforming supplies to the carrier, and if the government has made formal acceptance at this point, the government will be liable for damage or loss during transport.
F.O.B. destination. The contractor has delivered conforming supplies to the carrier, but the government has not made formal acceptance at this point, so the contractor will be liable for damage or loss during transport.
The preferred approach for the government is to inspect at origin (the contractor's plant) and to accept at destination (the government facility), which places the risk for damage or loss during transport on the contractor.
What types of documents are considered to be evidence of final inspection or acceptance?
Evidence of final inspection or acceptance may consist of one or more of the following documents:
Receiving report. The COR, as the official authorized to accept supplies or services for the government, signs the receiving report. This report is usually considered written evidence of final acceptance. The Department of Defense (DoD) uses DD Form 250, Material Inspection and Receiving Report, for formal acceptance. Other agencies usually have their own unique forms for this purpose, as found in agency FAR supplements.
Copy of an invoice (or voucher). An invoice or voucher, signed by an authorized official, can serve as an acceptance document, if permitted by the contract.
Commercial bill of lading. Under a commercial bill of lading (CBL), the transportation carrier is responsible to the contractor for any damage or loss, and the contractor, in turn, is responsible to the government. Under contract terms, a CBL usually signifies that the government is responsible for reimbursing the contractor the cost of freight charges.
Government bill of lading. Under a government bill of lading (GBL), the transportation carrier is responsible to the government for any damage and loss, and the government pays the transportation charges directly to the commercial carrier.
Certificate of conformance (COC). At the discretion of the CO, in accordance with FAR 46.315, the FAR clause 52.246-15, which includes specific wording for the COC, may be included in the contract when it is preferable to have the option to use a COC instead of source inspection. The decision to use the COC is generally made when the items to be delivered are low dollar amount and not critical in terms of acceptance requirements. Reliance on the COC reduces government inspection costs. When using a COC as evidence of final inspection, the COR should confirm that:
- Acceptance on the basis of a contractor's COC is in the government's interest
- Small losses would be incurred in the event of a defect
- The contractor's past performance reputation makes it likely that deliverables will be acceptable and any defective work will be replaced or corrected without contest.
Even with a COC, the government still retains the right to inspect the deliverables.
Why is the acceptance procedure important?
The acceptance procedure is important because at the time and place of formal acceptance, title for the procured goods passes from the contractor to the government. Acceptance is final, and can be revoked only when:
Latent defects exist in the items accepted
The government determines that fraud has been committed
Gross mistakes amounting to fraud are discovered.
These three problems are discussed further in Chapter 7.