FOB (Destination)

What is FOB (Destination)?

FOB (Destination), or "Free On Board Destination," is a shipping term used in government contracts to specify the point at which the seller transfers ownership and responsibility for goods to the buyer (the government). It dictates who pays for and is liable for the goods during transport. Understanding FOB terms is crucial for contractors to accurately price bids and manage contract obligations.

Definition

FOB Destination means the seller is responsible for all costs and risks associated with transporting the goods to the destination specified in the contract. Title to the goods remains with the seller until the goods have been delivered to the destination and are ready for unloading. This term is commonly used in government contracts, including those governed by the FAR (Federal Acquisition Regulation), to clearly define responsibilities. It matters to government contractors because it significantly impacts pricing, insurance requirements, and potential liability for loss or damage during transit. Specifying FOB Destination places the onus of a smooth and complete delivery on the contractor.

Key Points

• Responsibility for Transportation: The seller (contractor) is responsible for arranging and paying for the transportation of the goods to the specified destination.
• Risk of Loss: The seller bears the risk of loss or damage to the goods until they are delivered to the destination and are ready for unloading.
• Title Transfer: Ownership (title) of the goods transfers from the seller to the buyer (government) only upon delivery to the destination.
• Contractor Pricing: Contractors must factor in all transportation costs, insurance, and risk of loss into their pricing when FOB Destination is specified.

Practical Examples

1. Computer Equipment Delivery: A contractor is awarded a contract to deliver computer equipment to a government agency under FOB Destination terms. The contractor is responsible for shipping the computers, insuring them against damage, and ensuring they arrive at the agency's location. If the computers are damaged during shipment, the contractor is responsible for replacing them.
2. Software Licenses: A contractor sells software licenses to the Department of Defense with FOB Destination specified. The contractor is responsible for ensuring the licenses are properly delivered and installed on the designated government systems. The contractor is also responsible for addressing any issues that arise during the installation process.
3. Medical Supplies: A medical supply company wins a contract to supply a VA hospital with specialized equipment under FOB Destination terms. The contractor is responsible for ensuring the equipment arrives in good working order at the hospital. The title and responsibility transfer once the equipment is delivered, installed, and accepted by the VA hospital staff.