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Post-Acceptance Limitation of Liability for High-Value Items: Unfinished Business from the Commission on Government Procurement

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Master's thesis

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Every contract has risks. It is the type and degree of risks that vary from contract to contract. These risks are allocated through express or implied contract terms. Courts and boards also allocate risk if the parties fail to do so or a dispute arises over allocation. Rather than pay increased end item prices to cover the cost of potential post- acceptance risk of loss, the Federal Acquisition Regulations FAR relieve the contractor of liability for loss of or damage to government property that occurs after acceptance resulting from defects or deficiencies in the supplies or services. In other words, the government self-insures against such post-acceptance loss or damage. For high-value items, this self-insurance coverage includes loss of or damage to the end item itself. The FAR also calls for a corresponding decrease in the price of end items that are based on catalog or market prices, reflecting the contractors reduced liability in providing commercial items. It has been 28 years since this self-insurance policy was first promulgated in federal government contracts. This thesis examines the assumptions underlying that policy with respect to high-value items in light of recent changes in the government procurement environment. First, in Part I, I dissect the limitation of liability clause itself to fully understand its origin and applicability. In Part II, I consider the impact of recent developments affecting post-acceptance liability. In Part III, I discuss post-acceptance liability of assembler contractors and component part manufacturers providing insight into common law principles of risk allocation in the commercial marketplace. In Part IV, I examine some of the factors that affect a contracting officers decision to limit the liability of a contractor or subcontractor. I conclude with recommended changes intended to improve the process of procuring high-value items and allocation of post-acceptance risk of loss.

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  • Administration and Management

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