FAR 47.304-1—General.
Plain-English Summary
FAR 47.304-1 explains how contracting officers should choose and state freight-on-board (f.o.b.) delivery terms in solicitations and contracts. It covers the general cost-based decision standard, how solicitations must be structured (f.o.b. origin, f.o.b. destination, or both), and the specific factors that make one delivery point more advantageous than another. The section also identifies when f.o.b. origin is generally preferred, including when lower freight rates, transit privileges, diversion rights, special routings, premium transportation control, freight-rate negotiations, or shipment consolidation are important. It further requires f.o.b. origin only when destinations are tentative or unknown, and generally favors f.o.b. origin for certain classified or sensitive shipments that must move through commercial transportation. Conversely, it requires f.o.b. destination only when acceptance must occur at destination and lists common situations where destination terms are normally best for the Government, such as bulk commodities, forest products, perishables, medical supplies, and cases where evaluating origin offers would add too much time or cost. In practice, this section is about matching the delivery term to the Government’s logistics, risk, and administrative needs so the solicitation reflects the most advantageous transportation arrangement.
Key Rules
Base the term on total cost
The contracting officer must determine f.o.b. terms primarily on overall cost, while also considering the criteria in FAR 47.304. This means the decision is not just about price of the goods, but also transportation, handling, administrative burden, and logistics advantages.
State the solicitation basis clearly
Solicitations must tell offerors whether they must quote f.o.b. origin, f.o.b. destination, or both, or whether they may choose the basis for their offer. The solicitation should also reflect the most advantageous delivery point, such as origin, carrier’s equipment, wharf, freight station, or destination.
Consider origin advantages
When deciding between origin and destination, the contracting officer must consider whether f.o.b. origin gives the Government lower freight rates through Government rate tenders and other traffic-management benefits. These include transit privileges, diversion rights, special routings, premium transportation control, freight-rate negotiations, and shipment consolidation.
Use origin when destinations are unknown
If the destination is tentative or unknown, the solicitation must be f.o.b. origin only. This avoids locking in destination-based pricing or delivery obligations before the Government knows where the supplies will ultimately go.
Prefer origin for certain sensitive shipments
When the size or quantity of supplies with confidential or higher security classification requires commercial transportation services, the contracting officer should generally specify f.o.b. origin. The rule reflects the Government’s interest in controlling transportation and handling for sensitive shipments.
Require destination when acceptance occurs there
If acceptance must take place at destination, the solicitation must be f.o.b. destination only. This aligns the delivery term with the point where the Government will inspect and accept the supplies.
Use destination for common high-risk cases
Solicitations should normally be f.o.b. destination only when that is more advantageous to the Government, including bulk supplies shipped outside CONUS, bulk construction products outside CONUS, forest products like lumber, perishables or medical supplies at risk of in-transit deterioration, and cases where evaluating origin offers would add excessive administrative time or cost.
Responsibilities
Contracting Officer
Determine the f.o.b. term based on overall cost and the criteria in FAR 47.304; choose the most advantageous delivery point; specify in the solicitation whether offers must be f.o.b. origin, f.o.b. destination, or both; use f.o.b. origin only when destinations are tentative or unknown; generally use f.o.b. origin for certain classified or sensitive shipments requiring commercial transportation; require f.o.b. destination when acceptance must occur at destination; and select destination terms in the listed situations where they are normally more advantageous.
Offerors/Contractors
Prepare offers on the f.o.b. basis required or permitted by the solicitation. If the solicitation allows a choice, the contractor must clearly state the chosen delivery basis and price the offer accordingly, including transportation assumptions tied to that basis.
Agency/Program Office
Provide the contracting officer with accurate information about destination certainty, acceptance location, shipment sensitivity, handling requirements, and logistics needs so the correct f.o.b. term can be selected. The agency should also identify whether administrative burden, freight-rate advantages, or special transportation needs make one delivery term preferable.
Practical Implications
The f.o.b. term can materially change evaluated cost, risk allocation, and who controls transportation, so it should be decided early rather than treated as a boilerplate clause choice.
A common mistake is using f.o.b. destination by default without checking whether origin pricing would save freight costs or provide better transportation control.
Another pitfall is allowing destination-based pricing when the final destination is not yet known; FAR requires f.o.b. origin only in that situation.
For shipments that are bulky, perishable, or sensitive, destination terms often reduce damage risk, administrative complexity, or total cost, so the logistics profile should drive the decision.
Contracting officers should document the rationale for the chosen f.o.b. term, especially when the decision turns on freight-rate advantages, administrative burden, or special handling needs.
Official Regulatory Text
(a) The contracting officer shall determine f.o.b. terms generally on the basis of overall costs, giving due consideration to the criteria given in 47.304 . (b) Solicitations shall specify whether offerors must submit offers f.o.b. origin, f.o.b. destination, or both; or whether offerors may choose the basis on which they make an offer. The contracting officer shall consider the most advantageous delivery point, such as- (1) F.o.b. origin, carrier’s equipment, wharf, or specified freight station near contractor’s plant; or (2) F.o.b. destination. (c) In determining whether f.o.b. origin or f.o.b. destination is more advantageous to the Government, the contracting officer shall consider the availability of lower freight rates (Government rate tenders) to the Government for f.o.b. origin acquisitions. F.o.b. origin contracts also present other desirable traffic management features, in that they- (1) Permit use of transit privileges (see 47.305-13 ); (2) Permit diversions to new destinations without price adjustment for transportation (see 47.305-11 ); (3) Facilitate use of special routings or types of equipment ( e.g., circuitous routing or oversize shipments) (see 47.305-14 ); (4) Facilitate, if necessary, use of premium cost transportation and permit Government-controlled transportation; (5) Permit negotiations for reduced freight rates (see 47.104-1 (b)); and (6) Permit use of small shipment consolidation stations. (d) When destinations are tentative or unknown, the solicitation shall be f.o.b. origin only (see 47.305-5 ). (e) When the size or quantity of supplies with confidential or higher security classification requires commercial transportation services, the contracting officer shall generally specify f.o.b. origin acquisitions. (f) When acceptance must be at destination, solicitation shall be on an f.o.b. destination only basis. (g) Following are examples of situations when solicitations shall normally be on an f.o.b. destination only basis because it is advantageous to the Government (see 47.305-4 ): (1) Bulk supplies, such as coal, that require other than Government-owned or operated handling, storage, and loading facilities, are destined for shipment outside CONUS. (2) Steel or other bulk construction products are destined for shipment outside CONUS. (3) Supplies consist of forest products such as lumber. (4) Perishable or medical supplies are subject to in-transit deterioration. (5) Evaluation of f.o.b. origin offers is anticipated to result in increased administrative lead time or administrative cost that would outweigh the potential advantages of an f.o.b. origin determination.