FOB Destination

FOB Destination (Free on Board Destination) is a standard government contract delivery term under which the contractor bears all transportation costs and retains risk of loss or damage to goods until the shipment is delivered and accepted at the government's specified destination point.

What is FOB Destination?

Under FAR 47.303-1, FOB Destination means the contractor is responsible for arranging and paying for transportation to the delivery point designated in the contract, and risk of loss or damage remains with the contractor until the carrier makes delivery and the government accepts the goods. This contrasts with FOB Origin (FOB Shipping Point), where the government pays transportation costs and assumes risk of loss once the contractor delivers the goods to a carrier. FOB Destination is the default and more contractor-favorable term from the government's perspective because it makes the contractor responsible for ensuring goods arrive safely and intact, the government only pays when it accepts satisfactory delivery at the destination. From the contractor's perspective, FOB Destination means transportation costs must be included in the contract price, and the contractor retains liability for any loss, damage, or shortage in transit. Contractors should ensure they have adequate cargo insurance and reliable shipping arrangements when performing under FOB Destination terms.

Why FOB Destination matters for government contractors

Understanding FOB terms affects both pricing and insurance decisions. A contractor that prices a contract as if delivery is FOB Origin but the contract specifies FOB Destination will underestimate its cost responsibility. Similarly, a contractor that fails to insure shipments under FOB Destination terms bears the full financial loss if goods are damaged in transit.

Example

A medical supply contractor delivers $200,000 in surgical supplies to a VA medical center under a contract specifying FOB Destination. During transit, the delivery truck is involved in an accident and $15,000 worth of supplies is damaged. Because the contract is FOB Destination, the contractor, not the VA, bears the loss. The contractor files a claim with its cargo insurance carrier to recover the loss and delivers replacement supplies to meet the contract requirement.

Frequently Asked Questions

What is the difference between FOB Destination and FOB Origin?

Under FOB Destination, the seller pays transportation and bears risk of loss until delivery. Under FOB Origin (FOB Shipping Point), the buyer pays transportation and assumes risk of loss once the seller delivers to the carrier. Government contracts specify which applies in the delivery clause.

Does FOB Destination include the cost of unloading?

FOB Destination typically means delivery to the destination's loading dock or receiving area. Whether unloading and inside delivery are included depends on the specific contract terms. FAR provides variations such as "FOB Destination, Within Consignee's Premises" that extend contractor responsibility further into the delivery process.

Can contractors request FOB Origin terms if FOB Destination is specified?

Contractors can propose alternative delivery terms during negotiations, but if the solicitation specifies FOB Destination and the government does not change it, the contractor must comply. Deviating from specified delivery terms in the final proposal without government agreement would be a material exception affecting responsiveness.

How does FOB Destination affect government property accountability?

Title to government property transfers when the government accepts delivery. Under FOB Destination, acceptance typically occurs at the destination point, so the contractor retains title until delivery and acceptance are complete. The government's property accountability begins upon acceptance, not when the item leaves the contractor's facility.