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Title to Manufacturing Equipment Vested in the Contractor

The Court of Federal Claims granted a request for a judgment declaring a contractor to be the owner of manufacturing equipment because correspondence between the parties, changes to the definitive contract, and the conduct of the parties indicated title resided with the contractor. The dispute arose from a contract to manufacture projectiles. The parties first entered into a letter agreement that stated the government would acquire title to the equipment provided under the contract. However, the government changed its position on ownership during negotiations for the definitive contract, and the parties agreed the government would not take title to the manufacturing equipment and the contractor would be responsible for maintenance and repair. More than ten years after entering into the definitive contract, the government initiated another procurement for which it sought to provide the manufacturing equipment at issue as "government-furnished property." The contractor objected and sought a declaratory judgment that it was the owner of the equipment. The court found the definitive contract ambiguous with regard to which party owned the equipment. Unlike the letter agreement, the definitive contract lacked any clear term specifying ownership. The court then looked to extrinsic evidence to determine the parties' intent and concluded that provisions removed from the letter contract when it was definitized, the parties' correspondence in negotiating the definitive contract, and the actions of the parties before and after definitization demonstrated the contractor was the owner of the equipment.
 
Parties' Intent

As stated in the letter contract, the government began with the intention of owning the equipment. These ownership provisions, however, were removed from the agreement when the parties definitized the contract. During the negotiations, it was clear from the parties' correspondence that title would vest in the contractor. Moreover, from the time the parties negotiated the definitive agreement until the date the government first asserted ownership --more than ten years later --the parties acted consistently with an intent to vest title in the contractor. The contractor placed its property ownership tags on the equipment and recorded the equipment in its records. The government did not indicate the equipment was improperly tagged or dispute the correctness of the records showing the contractor's ownership. Also, the government's litigation position lacked merit. The government's interpretation of the contract's Government Property clause (FAR 52.245-2) conflicted with the parties' intent. The clause provided that title to equipment "acquired by the [c]ontractor for the [g]overnment "passes to and vests in the government. However, where a contractor simply acquires and uses equipment in its production of some product delivered to the government, the contractor is not "acquiring" the equipment "for the [g]overnment." The government could not consciously avoid the risks and responsibilities of equipment ownership and subsequently claim title. Moreover, the fact the government reimbursed the contractor for its costs to design, purchase, and install the equipment did not vest title to the property in the government because contract payments are unrelated to a determination of title and ownership to property. Also, the record lacked any credible evidence to show the contractor was required to amortize the equipment costs as a condition of ownership. (American Ordnance LLC v. U.S., FedCl, 52 CCF 79,002)
 


 

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )

     
  
 

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