This analysis covers FAR Subpart 47.5, which outlines the statutory requirements for transporting government supplies via U.S.-flag ocean vessels.
Overview
FAR Subpart 47.5 implements the Cargo Preference Acts of 1904 and 1954, mandating a preference for U.S.-flag vessels for the ocean transportation of government-acquired supplies. Its primary objective is to sustain a merchant marine capable of serving as a naval and military auxiliary during times of war or national emergency. Notably, this subpart applies to civilian agencies; the Department of Defense (DoD) follows the more stringent requirements found in DFARS Subpart 247.5.
Key Rules
- The 50% Requirement: For most government agencies, at least 50% of the gross tonnage of supplies (calculated separately for dry bulk, dry cargo, and tankers) must be transported on privately owned U.S.-flag commercial vessels.
- The 100% Military Rule: For supplies intended for military departments (Army, Navy, Air Force, Marine Corps), 100% must be transported on U.S.-flag vessels if they are available at fair and reasonable rates.
- Availability and Fair Rates: The preference only applies if U.S.-flag vessels are available at "fair and reasonable" rates. Rates published with the Federal Maritime Commission are generally accepted as fair; otherwise, the Maritime Administration (MARAD) makes the determination.
- Broad Cargo Scope: These rules apply to supplies owned by the government, supplies to be delivered to the government, and supplies for foreign assistance programs (unless acquired with local currencies).
- Commercial Item Exceptions: Generally, subcontracts for commercial products and services are exempt. However, this exception does not apply to construction contracts, ocean transportation service contracts, or commercial items shipped in direct support of military contingency operations or exercises.
Responsibilities
- Contracting Officer (CO):
- Must insert FAR clause 52.247-64 in solicitations and contracts involving ocean transportation.
- Must consult with the agency’s transportation activity to develop shipping instructions.
- Responsible for seeking assistance if a contractor claims U.S.-flag vessels are unavailable.
- Ensures that shipping reports are submitted in accordance with agency and MARAD regulations.
- Transportation Activity: Provides technical expertise to the CO regarding delivery terms, shipping instructions, and vessel availability.
- Maritime Administration (MARAD): Provides "fair and reasonable" rate determinations for charter cargoes and monitors agency compliance through required cargo reports (46 CFR 381).
- Contractors/Subcontractors: Must comply with U.S.-flag requirements for all covered shipments and flow down these requirements to subcontractors as specified in the contract clauses.
Practical Implications
- Logistics Planning: Contractors operating internationally must factor in the potential for higher costs and different lead times associated with U.S.-flag vessels compared to foreign-flag carriers.
- Administrative Oversight: There is a significant reporting burden. Contractors must often provide copies of ocean bills of lading to both the CO and MARAD to prove compliance with the percentage requirements.
- Construction Hazards: Overseas construction contractors are frequently caught off-guard by these rules. Even if the prime contract isn't for "transportation," any equipment or materials shipped via ocean for an overseas project (e.g., building an embassy) must strictly adhere to these flag preferences.
- Solicitation Review: Contractors should carefully check for Alternate I or II of clause 52.247-64. Alternate I indicates a 100% U.S.-flag requirement (typically for military-related items), which significantly narrows logistics options.
- Waiver Difficulty: Waivers are extremely rare and generally require high-level authorization (President, Congress, or Secretary of Defense) based on a declared emergency. Contractors should not bid assuming a waiver will be granted for convenience or minor cost savings.