FAR 47.104-2—Fixed-price contracts.
Plain-English Summary
FAR 47.104-2 explains how transportation-rate statutes apply to fixed-price contracts, with separate treatment for f.o.b. destination and f.o.b. origin shipments. It states that the special rates in 49 U.S.C. 10721 and 13712 do not apply to shipments under fixed-price f.o.b. destination contracts because the price is delivered-price and transportation is already built into the contract price. It also explains that, for f.o.b. origin contracts, a contracting officer may sometimes require the contractor to prepay freight charges to a specific destination when that is advantageous to the Government. In that situation, the contractor must use a commercial bill of lading and be reimbursed only for the direct and actual transportation cost as a separate invoice item. The section further points to the clause at 52.247-1, Commercial Bill of Lading Notations, which helps ensure the Government receives the benefit of the statutory transportation rates when this arrangement is used. Practically, this section governs how freight costs are handled, billed, and documented so the Government pays the right amount and can capture any available statutory transportation savings.
Key Rules
F.O.B. destination excludes statutory rates
For fixed-price f.o.b. destination contracts, the transportation-rate provisions in 49 U.S.C. 10721 and 13712 do not apply. The contractor’s delivered price already includes transportation, so the Government does not separately claim those statutory rates for the shipment.
F.O.B. origin may require prepayment
When the contract is f.o.b. origin and it benefits the Government, the contracting officer may require the contractor to prepay freight charges to a specified destination. This is an occasional, discretionary arrangement, not the default rule.
Reimbursement limited to actual cost
If the contractor prepays freight under this arrangement, reimbursement must be for the direct and actual transportation cost only. The freight charge must be shown as a separate invoice item rather than embedded in the product price.
Commercial bill of lading required
The contractor must use a commercial bill of lading when prepaying freight in this context. This documentation supports proper billing and helps preserve the Government’s ability to obtain the applicable statutory transportation rate benefit.
52.247-1 supports rate benefit
The clause at 52.247-1, Commercial Bill of Lading Notations, is used to ensure the Government receives the benefit of the 49 U.S.C. 10721 and 13712 rates in this type of arrangement. Proper notation and documentation are essential to make the statutory benefit available.
Responsibilities
Contracting Officer
Determine whether a prepay-freight arrangement is advantageous to the Government under an f.o.b. origin contract, and require it only when appropriate. Ensure the contract uses the proper clause and that billing/documentation requirements are clear.
Contractor
For f.o.b. destination fixed-price shipments, price transportation as part of the delivered price and do not seek separate statutory-rate treatment. For f.o.b. origin prepay arrangements, use a commercial bill of lading, prepay the freight, and bill only the direct and actual transportation cost as a separate invoice item.
Government payment office / invoice reviewer
Review invoices to confirm freight is separately stated when required and that reimbursement is limited to direct and actual transportation costs. Verify supporting documentation, including the commercial bill of lading and any required notations, before payment.
Agency / Transportation management personnel
Support the contracting officer in identifying when statutory transportation rates can be captured and in ensuring the correct transportation documentation is used. Help prevent billing errors and preserve any available rate benefits.
Practical Implications
For f.o.b. destination fixed-price buys, contractors should not expect a separate transportation-rate adjustment; freight is part of the delivered price.
For f.o.b. origin contracts, the contracting officer may use a prepay-freight approach only when it saves money or otherwise benefits the Government.
A common pitfall is billing freight as a markup or bundled amount instead of the direct and actual cost; this can delay payment or create an overpayment issue.
Another frequent problem is missing or incorrect bill-of-lading documentation, which can prevent the Government from obtaining the intended statutory rate benefit.
Contractors and contracting officers should coordinate early on shipping terms, invoice format, and required clause usage so transportation costs are handled correctly from the start.
Official Regulatory Text
(a) F.o.b. destination. 49 U.S.C. 10721 and 13712 rates do not apply to shipments under fixed-price f.o.b. destination contracts (delivered price). (b) F.o.b. origin. If it is advantageous to the Government, the contracting officer may occasionally require the contractor to prepay the freight charges to a specific destination. In such cases, the contractor shall use a commercial bill of lading and be reimbursed for the direct and actual transportation cost as a separate item in the invoice. The clause at 52.247-1 , Commercial Bill of Lading Notations, will ensure that the Government in this type of arrangement obtains the benefit of 49 U.S.C. 10721 and 13712 rates.