B-200353.OM, OCT 14, 1980

B-200353.OM: Oct 14, 1980

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IT APPEARS THAT THE FACT THAT A TERMINATION OR COMPLETION INVENTORY WILL BE MADE DOES NOT OBVIATE THE NECESSITY FOR PERIODIC INVENTORIES. TYPE AND FREQUENCY OF PHYSICAL INVENTORIES NORMALLY WILL NOT VARY BETWEEN CONTRACTS BEING PERFORMED BY THE CONTRACTOR.

B-200353.OM, OCT 14, 1980

SUBJECT: RESPONSE TO YOUR SEPTEMBER 9, 1980 REQUEST FOR AN OPINION ON DEFENSE ACQUISITION REGULATION (DAR) APPENDIX B, PARAGRAPH B-501 (B-200353).

TEAM LEADER, NRO - PRISCILLA H. WILLIAMS, LCD - RICHARD A. HELMER:

APPENDIX B OF THE DAR CONCERNS "GOVERNMENT PROPERTY IN POSSESSION OF CONTRACTORS." PART 5 OF APPENDIX B ESTABLISHES MINIMUM REQUIREMENTS FOR THE PHYSICAL INVENTORY OF GOVERNMENT PROPERTY IN THE CONTRACTOR'S POSSESSION OR CONTROL (SEE PARAGRAPH B-500). IN YOUR REQUEST, YOU SET OUT THE FOLLOWING LANGUAGE FROM PARAGRAPH B-501, "PERIODIC INVENTORIES":

"THE CONTRACTOR SHALL PERIODICALLY PHYSICALLY INVENTORY ALL GOVERNMENT PROPERTY *** IN HIS POSSESSION OR CONTROL AND SHALL CAUSE HIS SUBCONTRACTORS TO DO LIKEWISE. THE TYPE AND FREQUENCY OF PHYSICAL INVENTORY AND THE PROCEDURES THEREFOR SHALL BE ESTABLISHED BY THE CONTRACTOR AND APPROVED BY THE PROPERTY ADMINISTRATOR. ***"

YOU ASK (1) WHETHER THE PARAGRAPH ACTUALLY REQUIRES PERIODIC PHYSICAL INVENTORIES, AND (2) WHAT THE TERM "PERIODIC" MEANS AS USED IN THE PARAGRAPH, I.E., ANNUAL, SEMI-ANNUAL, ETC.

REGARDING YOUR FIRST QUESTION, BY PROVIDING THAT "THE CONTRACTOR SHALL PERIODICALLY PHYSICALLY INSPECT" PARAGRAPH B-501 CLEARLY REQUIRES PERIODIC PHYSICAL INVENTORIES.

WE POINT OUT HERE THAT APPENDIX B DISTINGUISHES BETWEEN PERIODIC PHYSICAL INVENTORIES AND THE PHYSICAL INVENTORIES REQUIRED AT A CONTRACT'S TERMINATION OR COMPLETION FOR PURPOSES OF THE DISPOSAL OF ALL APPLICABLE GOVERNMENT PROPERTY (PARAGRAPH B-502). THUS, IT APPEARS THAT THE FACT THAT A TERMINATION OR COMPLETION INVENTORY WILL BE MADE DOES NOT OBVIATE THE NECESSITY FOR PERIODIC INVENTORIES.

WITH RESPECT TO THE FREQUENCY OF THE PERIODIC PHYSICAL INVENTORIES REQUIRED BY PARAGRAPH B-501, THE PARAGRAPH ALSO PROVIDES:

"*** IN ESTABLISHING TYPE AND FREQUENCY OF PHYSICAL INVENTORY CONSIDERATION SHOULD BE GIVEN TO CONTRACTOR'S ESTABLISHED PRACTICES, TYPE, AND USAGE OF THE GOVERNMENT PROPERTY IN THE POSSESSION OR CONTROL OF THE CONTRACTOR, AMOUNT OF GOVERNMENT PROPERTY INVOLVED AND THEIR MONETARY VALUE, AND THE RELIABILITY OF CONTRACTOR'S PROPERTY CONTROL SYSTEM. TYPE AND FREQUENCY OF PHYSICAL INVENTORIES NORMALLY WILL NOT VARY BETWEEN CONTRACTS BEING PERFORMED BY THE CONTRACTOR; HOWEVER, IT MAY VARY WITH THE TYPES OF PROPERTY BEING CONTROLLED. ***"

THUS, THE REQUIREMENT DOES NOT PRESCRIBE SPECIFIC FREQUENCIES FOR THE PERIODIC INVENTORIES, BUT ONLY CONTEMPLATES INVENTORIES IN FREQUENCIES APPROPRIATE TO THE CIRCUMSTANCES. IN SOME SITUATIONS, FOR EXAMPLE, SEMI- ANNUAL INVENTORIES WOULD BE SUGGESTED, WHILE IN OTHERS SOME OTHER PERIOD CONSISTENT WITH RECOGNIZED BUSINESS PRACTICES COULD BE EXPECTED.