Title transfer and who carries the risk in transit

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1. The starting position

Delivery is not part of what a partner government buys unless it asks for it. The manual states the policy in one sentence: "It is DoD policy that the purchaser is responsible for transportation and delivery of its purchased materiel" (SAMM C7.1.1).

A purchaser has two ways to discharge that responsibility. One is to use United States distribution capabilities on a reimbursable basis, through the Defense Transportation System. The other is to appoint a freight forwarder to manage movement from the point of origin onward (SAMM C7.1.1). Those two routes are set out in delivery term codes and freight forwarders.

2. Where title passes, and what the phrase means

The default is early and it is a long way from the buyer. "Title to Foreign Military Sales (FMS) materiel is delivered and passed from the USG to the purchaser at the initial point of shipment unless otherwise specified in the Letter of Offer and Acceptance (LOA)" (SAMM C7.3).

The manual then defines the trigger. The initial point of shipment "occurs when a defense article is released from U.S. custody for delivery to the purchaser" (SAMM C7.3). Release is a decision of the implementing agency, and it can be timed deliberately: release of a line item or a subsystem may be deferred so that title passes at the same moment as it passes for the end item.

Two ordinary situations follow from that rule. Where an item is bought from a commercial manufacturer, it is typically released at the manufacturer's loading facility. Where it comes from Department of Defense stocks, it is typically released at the depot (SAMM C7.3).

3. Title and possession are not the same event

A purchaser can own something it has not yet touched. The manual states plainly that title transfer may occur before transfer of possession (SAMM C7.3).

The gap between the two is filled by a named individual. Where title passes first, "U.S. Government security responsibility does not cease until the recipient's Designated Government Representative (DGR) assumes control of the consignment" (SAMM C7.3).

Before that handover a United States representative inspects the consignment for kind, count and condition of the packaging, marking and pallets, and keeps the documentation (SAMM C7.3). That inspection is the last formal record of condition made by the seller, which is why it matters more than its length in the manual suggests.

4. The exceptions

Four situations move the point of transfer or the party holding title.

• Vendor shipments. Where materiel is procured from a vendor and shipped directly, title passes at the manufacturer's loading facility. The manual states that the terms of a Department administered contract for it are to be free on board origin (SAMM C7.3.1).
• Excess defense articles. Title transfers at the point of origin, with a stated exception for items held in Germany (SAMM C7.3.3). What that means for a recipient is covered in who pays for an excess defense articles transfer.
• Parcel post. "Title to defense articles transported via parcel post passes to the purchaser on the date of shipment", at the postal facility at a depot or at the nearest post office (SAMM C7.3.4).
• Aircraft flown out. When aircraft are ferried, the United States government may accept title from the contractor and hold it until arrival at the point of delivery, under an indemnification and assumption of risk clause in the case document (SAMM C7.3.6).

There is also a general power to hold title longer. Designating a transfer point other than the point of origin has to be written into the case document, and the request goes to the Defense Security Cooperation Agency for approval before the case is developed. The manual is candid about how rare it is: "Title retention by the USG is not a standard practice, but may provide an option to allow materiel to transit through nations with restrictive Customs requirements" (SAMM C7.3.5).

5. What passes with the title

Risk does. "The Department of Defense is not responsible for any loss or damage that occurs in transit or after passage of title" (SAMM C7.10.1).

The manual leaves the response to the purchaser. Its answer for a purchaser that does not want to self insure is commercial insurance, and it encourages commercial cover for high value items. Where a freight forwarder is engaged, the manual places the arranging of that insurance in the forwarder's contract with the purchaser (SAMM C7.10.1).

An implementing agency may obtain insurance in exceptional situations, and the cost is then billed as a separate line item on the case (SAMM C7.10.1). That is the exception, not the arrangement to plan around.

6. Storage before anything moves

A shipment that is ready but not collected starts costing money. Where a notice of availability is required, storage and insurance costs begin as soon as that notice is sent to the address held in the address directory (SAMM C7.3.1).

There is a stated grace period. Storage or staging charges may accrue when a response to the notice, or a failure to respond, holds the items for more than 30 calendar days, and those charges go to the case (SAMM C7.11.1).

The practical consequence runs the other way from most commercial arrangements. Ownership, risk and cost all sit with the buyer from an early point, in a country the buyer may have no presence in. That is why the transportation decisions on a case are settled during case development rather than after delivery.

It also explains why the notice of availability matters to a supplier. The notice is the moment the clock starts, and the party that has to act on it is usually neither the manufacturer nor the government.

Key terms

Initial point of shipment	The moment an article is released from United States custody for delivery. SAMM C7.3.
DGR	Designated Government Representative, whose assumption of control ends United States security responsibility.
NOA	Notice of availability, DD Form 1348-5, telling a purchaser an item is ready for shipment. SAMM C7.11.1.
MAPAD	Military Assistance Program Address Directory, which holds the address a notice is sent to.
FOB origin	Free on board origin, the contract term under which title and risk pass at the shipping point.

Every statement above links to the document behind it. The full source list for this piece is on the sources page.

This page describes public United States government programs for general information. It is not legal, regulatory or procurement advice, and it does not address the facts of any particular case.

How Sentfore supports this

Title passes early, and risk goes with it, often thousands of miles from the buyer. Sentfore works at that end of the movement, providing secure transport, protective security and site support for defense programs in difficult environments. Its principals have worked on overseas defense and security programs. Requirements can be sent through the contact page.