When acquiring commercial products, the federal government must give preference to customary commercial practices. To implement this preference, the Federal Acquisition Regulation (FAR) instructs the government to only use contract clauses that are consistent with customary commercial practices. One such clause is the clause at FAR 52.212-4, Contract Terms and Conditions – Commercial Products and Commercial Services, which includes a list of many terms and conditions incorporated in the contract by reference. This clause allocates the risk of loss and cost of shipping commercial items between the government and the contractor depending on whether the contractor must deliver the commercial items free on board (FOB) at the origin or destination. The standard clause at FAR 52.212-4(j) states:

Unless the contract specifically provides otherwise, risk of loss or damage to the supplies provided under this contract shall remain with the Contractor until, and shall pass to the Government upon:

(1) Delivery of the supplies to a carrier, if transportation is f.o.b. origin; or

(2) Delivery of the supplies to the Government at the destination specified in the contract, if transportation is f.o.b. destination.

Thus, unless stated otherwise, in commercial products contracts with FAR 52.212-4, the contractor is responsible for the risk of loss until it delivers the products to a carrier on FOB origin contracts. Meanwhile, in FOB destination contracts, the contractor is responsible for the risk of loss until delivery is made to the government location identified in the contract, at which point the title of the products is transferred to the government. Notably, the contractor may request that the contracting officer (CO) modify the risk of loss terms of the clause at FAR 52.212-4(j), consistent with customary commercial practices. In the absence of such a modification, however, the risk of loss terms of the clause at FAR 52.212-4 typically dictate whether the government or its contractor must bear the costs of lost or damaged supplies.

In Armed Services Board of Contract Appeals (ASBCA) No. 63282, when issuing a decision on the government’s motion of summary judgment, the Board partially relied on the risk of loss terms of the clause at FAR 52.212-4 to allocate the risk of loss of aviation fuel confiscated by the Taliban during the U.S. withdrawal from Afghanistan in 2021. In the August 12, 2024 decision, the contracts underlying the disputes were FOB destination, indefinite-delivery, indefinite quantity (IDIQ) contracts for supplying and delivering aviation turbine fuel to Afghan National Defense and Security Forces (ANDSF) sites in Afghanistan. The contractor was required to deliver the aviation turbine fuel via the “direct to tail” fueling method, which required it to use its trucks to fuel designated aircraft directly. Also relevant to the risk of loss terms, the contract included what is also known as a War Risks Clause, which warned the contractor that performance may require work in dangerous or austere conditions.

During the final phase of the U.S. forces’ withdrawal from Afghanistan, the contractor submitted several serious incident reports in August 2021, notifying the government of the Taliban takeover of various sites and the resultant loss of fuel and assets. When the Taliban took over Afghanistan on August 15, 2021, it confiscated all of the contractor’s fuel, transportation, storage and delivery equipment, and other assets. The government subsequently terminated the contract for convenience, effective September 7, 2021. Following the submission of the contractor’s termination settlement proposal (TSP) requesting payment of ~$14.2 M, the CO determined that the contractor was entitled to ~$2.2M for unpaid and disputed invoices and costs for preparing the TSP. However, the CO denied entitlement for the fuel stored on base, lost equipment, and undelivered fuel at the terminals. In his final decision, the CO reasoned that the contractor was not entitled to be paid for the loss of this fuel and equipment as they belonged to the contractor at the time of their loss and had not been delivered to the government.

In the appeal that followed, the contractor claimed that the government was liable for the loss of fuel and equipment because it breached the IDIQ contract by failing to pay for fuel delivered to aircraft after the Taliban takeover, providing inadequate security and facility access, breaching the covenant of good faith and fair dealing, and constructively changing the contract. Notably, the contractor attempted to categorize the fuel stored at the ANDSF facilities and regional terminals as having been delivered to the government, even though delivery had yet to be made for this fuel under the contract terms. Additionally, in its cross-motion for partial summary judgment, the contractor also claimed that it was entitled to compensation as part of its termination for convenience settlement costs for loss of contractually required fuel reserves and equipment.

The ASBCA began the pertinent part of its analysis by noting that the payment provisions of the clause at FAR 52.212-4 require the government to make payment for items that were accepted and delivered to the contract-specified destination, the AAF or SMW aircraft. The Board also pointed to the risk of loss terms of FAR 52.212-4(j) stated above to support the determination that the risk of loss of fuel remained with the contractor until the fuel was pumped into the aircraft. The contractor’s argument that the risk of loss terms only applied to losses relating to “performance” under the contract, such as losses occurring during transportation, storage, or handling of the fuel from acts such as pilfering along the way to the relevant facilities was rejected for not being supported by the contract’s plain language. The pertinent section of the statement of work (SOW) on which the contractor’s “performance” argument relied also placed the risk of loss of fuel on the contractor until delivery into the AAF or SMW aircraft. Additionally, the sections immediately following this SOW section made it clear that the government would not pay for loss or damage to equipment or fuel and even required the contractor to obtain adequate insurance to cover the risk of loss. Finally, the SOW warned the contractor that it might be required to perform the contract in dangerous or austere conditions and that the contractor was accepting the risk of loss associated with performance in such conditions. Thus, when read as a whole, the SOW and other parts of the contract placed the risk of loss of fuel squarely on the contractor until the contractor delivered the fuel to the aircraft.

The Board also rejected various other arguments advanced by the contractor to hold the government liable for breach of contract. For instance, the government was found to have no contractual duty to provide access to relevant facilities. The government also did not breach the implied duty of good faith and fair dealing. The contractor was also unsuccessful in its constructive change claim. Thus, the government motion for summary judgment on these issues was granted. Notably, however, the contractor’s motion for partial summary judgment for termination for convenience costs was denied as the Board found the record insufficiently developed on the issue of whether the contractor was entitled to payment for the contractually defined minimum fuel reserves and bowser quantities that were necessary to ensure an uninterrupted fuel supply to meet the fuel deliveries. Specifically, the record was unclear regarding the contractor’s options for mitigating the loss of the contractual minimum reserves. The record was similarly incomplete regarding whether the contractor obtained the contractually required insurance to offset some of the claimed termination costs. Thus, the Board’s decision did not resolve the contractor’s entire appeal, leaving open an avenue for recovery of termination costs related to the contractually defined minimum fuel reserves, especially the fuel reserves stored at government sites – provided the contractor can prove the fact of loss with certainty and the amount of its loss with sufficient certainty such that the determination of the amount of damages is more than mere speculation.

In contracts for commercial products that include the clause at FAR 52.212-4, Contract Terms and Conditions – Commercial Products and Commercial Services, the allocation of risk of loss at various stages of delivery depends upon whether the contract is FOB origin or destination. However, in certain situations, it may not be apparent whether the risk of loss lies with the government or the contractor. Such circumstances may particularly arise when delivering commercial items in dangerous and austere conditions. In these cases, contractors must review the contract as a whole to determine the allocation of risk of loss, including the impact of any relevant risk-shifting clauses, such as the clause specifically allocating the liability to perform the contract in dangerous or austere conditions on the contractor. Contractors should be aware that the risk of loss terms of the clause at FAR 52.212-4 may be tailored per the on-the-ground realities of performing the contract as long as the modified terms are consistent with customary commercial practices. Such modifications can be accomplished by amending the solicitation or the contract. Proactively modifying the risk of loss terms for their commercial products contracts can be an effective strategy for contractors to manage their risk in accordance with any evolving circumstances impacting delivery.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.