Overview
FAR 46.505 establishes the specific milestones at which legal ownership (title) and financial responsibility for damage or loss (risk of loss) shift from a contractor to the Federal Government.
Key Rules
- Title Transfer: Ownership generally passes to the Government upon formal acceptance, regardless of physical possession, unless the contract states otherwise.
- Risk of Loss (F.O.B. Origin): Risk shifts to the Government as soon as the supplies are delivered to the carrier.
- Risk of Loss (F.O.B. Destination): Risk shifts to the Government only after delivery to the specified destination or formal acceptance, whichever happens later.
- Nonconforming Supplies: If goods are defective or fail to meet requirements, the contractor retains the risk of loss until the defects are cured or the Government chooses to accept the supplies.
- Government Negligence: The contractor is not held liable for loss or damage caused by Government employees or agents acting within the scope of their employment.
- Standardized Clause: These policies are formally implemented in contracts through FAR clause 52.246-16, Responsibility for Supplies.
Practical Implications
- Contractors must determine their insurance needs based on the F.O.B. terms; under F.O.B. destination, the contractor is financially responsible for any damage occurring during transit.
- The government's right to reject nonconforming goods serves as a "stay" on the transfer of risk, meaning contractors remain liable for the goods even if they are physically sitting at a government facility until they are officially accepted or repaired.