FAR 47.504—Exceptions.
Plain-English Summary
FAR 47.504 explains when the ocean transportation policy and procedures in this subpart do not apply. It covers several specific exceptions: shipments aboard vessels required or authorized by law or treaty, ocean transportation between foreign countries paid for with certain foreign-currency foreign assistance funds, shipments of classified supplies when security rules prohibit non-Government vessels, and certain subcontracts for commercial products, commercial components, and commercial services. It also spells out important carve-outs from the commercial-subcontract exception, including grants-in-aid shipments such as agricultural and food aid, shipments covered by 46 U.S.C. App. 1241-1 such as Export-Import Bank-related shipments, subcontracts under government ocean transportation service contracts or construction contracts, and shipments of commercial products that are merely resold or distributed without added value or that support contingency operations, exercises, or U.S. forces deployed for UN or NATO humanitarian or peacekeeping operations. In practice, this section tells contracting officers and contractors when the normal domestic preference and related ocean-shipping rules in this subpart do not control, and when they still do despite the commercial nature of the procurement. The practical significance is that misidentifying an exception can lead to improper shipping arrangements, noncompliance with statutory cargo preference requirements, or unnecessary cost and schedule impacts.
Key Rules
Law or treaty shipments exempt
The subpart does not apply to shipments aboard vessels when a law or treaty requires or authorizes that transportation. This means the governing legal instrument, not the normal subpart procedures, controls the shipment.
Certain foreign-aid ocean transport exempt
Ocean transportation between foreign countries is excluded when the supplies were purchased with foreign currencies made available, or derived from funds made available, under the Foreign Assistance Act of 1961. These shipments are handled under the foreign-assistance funding framework rather than this subpart.
Classified cargo may be excluded
Shipments of classified supplies are exempt when the classification rules prohibit use of non-Government vessels. Security requirements override the normal transportation policy in those cases.
Commercial subcontracts generally excluded
Subcontracts for commercial products, commercial components, or commercial services are generally outside this subpart, consistent with the commercial-item framework in FAR Part 12. This exception recognizes that commercial supply chains often operate differently from government-directed shipping rules.
Important carve-outs remain
The commercial-subcontract exception does not apply to grants-in-aid shipments, shipments covered by 46 U.S.C. App. 1241-1, subcontracts under government ocean transportation service contracts or construction contracts, or certain commercial-product shipments that are resold/distributed without added value or shipped in direct support of contingency, exercise, or specified UN/NATO operations.
No-added-value resale shipments excluded
If a contractor is merely reselling or distributing items to the Government without adding value, the commercial-product exception does not apply. FOB destination subcontracting is a common indicator that the contractor may not be adding value.
Operational support shipments excluded
Commercial products shipped in direct support of U.S. military contingency operations, exercises, or forces deployed for UN or NATO humanitarian or peacekeeping operations are not covered by the commercial-subcontract exception. These mission-driven shipments remain subject to the applicable transportation rules.
Responsibilities
Contracting Officer
Determine whether a shipment falls within one of the listed exceptions before applying the subpart. The contracting officer must also recognize when a purported commercial-item subcontract still falls within a carve-out and therefore remains subject to the transportation policy.
Contractor
Identify the nature of the shipment, the funding source, the classification status, and whether the procurement is truly commercial and adds value. The contractor must not assume the commercial exception applies if the shipment is a resale/distribution item, a grant-in-aid shipment, or mission support cargo.
Subcontractor
Follow the shipping requirements passed down by the prime and verify whether the subcontract is for commercial products, components, or services, or whether a listed carve-out applies. The subcontractor should flag any shipment that may be covered by special cargo preference or security rules.
Agency/Program Office
Provide accurate information on funding, mission purpose, classification, and treaty or statutory authorities that affect transportation decisions. The agency must ensure shipping arrangements align with the applicable legal exception, if any.
Practical Implications
Do not assume all commercial subcontracts are exempt; the carve-outs are broad enough to capture many common government shipments.
Check the funding source and shipment purpose early, especially for foreign assistance, food aid, and export-finance-related cargo.
Security classification can override normal vessel-selection rules, so classified shipments need separate review.
A resale or distribution arrangement with no added value often means the contractor is not within the commercial exception, particularly for FOB destination arrangements.
Mission-related shipments supporting contingency operations, exercises, or UN/NATO deployments require special attention because they are specifically excluded from the commercial-subcontract exception.
Official Regulatory Text
The policy and procedures in this subpart do not apply to the following: (a) Shipments aboard vessels as required or authorized by law or treaty. (b) Ocean transportation between foreign countries of supplies purchased with foreign currencies made available, or derived from funds that are made available, under the Foreign Assistance Act of1961 ( 22 U.S.C. 2353 ). (c) Shipments of classified supplies when the classification prohibits the use of non-Government vessels. (d) Subcontracts for the acquisition of commercial products, including commercial components, or commercial services (see 12.504 (a)(1) and (a)(11)). This exception does not apply to- (1) Grants-in-aid shipments, such as agricultural and food-aid shipments; (2) Shipments covered under 46 U.S.C. App.1241-1, such as those generated by Export-Import Bank loans or guarantees; (3) Subcontracts under- (i) Government contracts or agreements for ocean transportation services; or (ii) Construction contracts; or (4) Shipments of commercial products that are- (i) Items the contractor is reselling or distributing to the Government without adding value (see FAR 12.501 (b)). Generally, the contractor does not add value to the items when it subcontracts items for f.o.b. destination shipment; or (ii) Shipped in direct support of U.S. military- (A) Contingency operations; (B) Exercises; or (C) Forces deployed in connection with United Nations or North Atlantic Treaty Organization humanitarian or peacekeeping operations.