Vendor wants govt to pay for shipping company's customs fees/duties despite inclusion of 52.212-4 (k). Is this normal?

[NewbieFed]

We purchased an equipment (scientific equipment under NAICS 334516) from a WTO foreign country with a purchase order (PO). The PO has already been awarded, the equipment has been delivered and inspected, and the vendor's invoice has already been paid. The PO also stated that "vendor quotes are referenced for pricing only" (which means vendor's T&C in their quotes does not apply) and the PO (SF1447) has a checked box that incorporates 52.212-4 (k). This subsection (k) states "Taxes. The contract price includes all applicable Federal, State, and local taxes and duties."

However, we recently received a bill for several hundred dollars worth of customs/duties/etc from the 3rd party shipping company. The vendor claims these customs fees/duties are the govt's responsibility under their terms and conditions...but I was under the impression their terms don't apply because of what we wrote in the PO.

 

Why does the federal govt even pay taxes/custom duties/etc at all?

I presume with the inclusion of 52.212-4(k), this means the vendor should have included the cost of duties into their quote to us, and the cost should be paid by them and not by us?

Even if the government chooses to pay the customs & duties - how would this work because the payment would have to be made out to a 3rd party shipping company that isn't a party to the award?

[C Culham]

 

 

4 hours ago, NewbieFed said:

Why does the federal govt even pay taxes/custom duties/etc at all?

See FAR 25.9 and any agency specific FAR supplement or policy.

4 hours ago, NewbieFed said:

I presume with the inclusion of 52.212-4(k), this means the vendor should have included the cost of duties into their quote to us, and the cost should be paid by them and not by us?

It may be your leverage on the matter in consideration of FAR 25.9.   My only thought here is that it sounds like the matter of duties is an afterthought for the government since it has come up with the billing.  I say this as it seems based on your questions that duties were not addressed specifically in your market research and addressed as  matter of fact in the solicitation and or terms an conditions of the order through tailoring.  

4 hours ago, NewbieFed said:

Even if the government chooses to pay the customs & duties - how would this work because the payment would have to be made out to a 3rd party shipping company that isn't a party to the award?

I would suggest that it not be paid to the 3rd party and that the payment would be made to the vendor and the vendor would pay the third party shipping company.  I would offer that again the confusion seems to be the lack of addressing the matter of shipping along with associated duties.   Again by example was the quote based on FOB Origin or FOB Destination?

4 hours ago, NewbieFed said:

The PO also stated that "vendor quotes are referenced for pricing only" (which means vendor's T&C in their quotes does not apply)

Really?  To be blunt if you have to say "which means" seems to also say the wording really does not say that if it has to be interpreted.   It would seem to me that the wording is not very strong in supporting the position you say it represents.  

[joel hoffman]

6 hours ago, NewbieFed said:

Why does the federal govt even pay taxes/custom duties/etc at all?

See FAR 25.9 and any supplements thereto. 
Don’t know the magnitude of the purchase order.

However, the importer of the items would pay the duties if applicable. Is the shipper or the vendor the importer? Regardless, your contract is with the vendor, right? 
 

 

[NewbieFed]

3 hours ago, C Culham said:

See FAR 25.9 and any agency specific FAR supplement or policy.

It may be your leverage on the matter in consideration of FAR 25.9.   My only thought here is that it sounds like the matter of duties is an afterthought for the government since it has come up with the billing.  I say this as it seems based on your questions that duties were not addressed specifically in your market research and addressed as  matter of fact in the solicitation and or terms an conditions of the order through tailoring.  

I would suggest that it not be paid to the 3rd party and that the payment would be made to the vendor and the vendor would pay the third party shipping company.  I would offer that again the confusion seems to be the lack of addressing the matter of shipping along with associated duties.   Again by example was the quote based on FOB Origin or FOB Destination?

Really?  To be blunt if you have to say "which means" seems to also say the wording really does not say that if it has to be interpreted.   It would seem to me that the wording is not very strong in supporting the position you say it represents.  

Duties were normally paid by the vendor in other cases of purchasing equipment from foreign countries. This is the first time (in my short experience) that the vendor has asked us to pay for duties.

The vendor stated they shipped it Delivered-at-Place (DAP) - which I googled to be the same as FOB?

The language "vendor quotes are referenced for pricing only" was suggested by my senior CO as a way to make sure the vendor's T&Cs are not applicable, so I was under the assumption this was commonly used and understood language.

The Purchase Order award didn't mention the quote is incorporated into the document (it doesn't actually mention the vendor quote at all besides that one sentence that says any reference is for pricing), so would the vendor's T&C still apply without any affirmative reference?

[NewbieFed]

1 hour ago, joel hoffman said:

See FAR 25.9 and any supplements thereto. 
Don’t know the magnitude of the purchase order.

However, the importer of the items would pay the duties if applicable. Is the shipper or the vendor the importer? Regardless, your contract is with the vendor, right? 
 

 

Ye, I just find it strange that the government is basically paying taxes and fees to itself.

So the vendor is the manufacturer. The manufacturer has an office and locally incorporated branch in the USA and an office in the foreign country of origin. The vendor used a 3rd party shipping company (Fedex) to ship it. 

They handled all the paperwork and shipped it directly to us/the government. Who is the importer in this case?

Our contractor is with the vendor/manufacturer company.

[C Culham]

11 minutes ago, NewbieFed said:

The vendor stated they shipped it Delivered-at-Place (DAP) - which I googled to be the same as FOB?

If you read your Google research completely I think you will find that DAP puts the responsibility on the buyer to pay the customs duty.   

14 minutes ago, NewbieFed said:

The language "vendor quotes are referenced for pricing only" was suggested by my senior CO as a way to make sure the vendor's T&Cs are not applicable, so I was under the assumption this was commonly used and understood language.

I think internet research will support that it is not commonly used/understood language.

15 minutes ago, NewbieFed said:

The Purchase Order award didn't mention the quote is incorporated into the document (it doesn't actually mention the vendor quote at all besides that one sentence that says any reference is for pricing), so would the vendor's T&C still apply without any affirmative reference?

Maybe, maybe not.   I will say this, did you accept their quote without exception by simply sending them a PO?

 

[NewbieFed]

On 10/26/2021 at 10:12 AM, C Culham said:

If you read your Google research completely I think you will find that DAP puts the responsibility on the buyer to pay the customs duty.   

I think internet research will support that it is not commonly used/understood language.

Maybe, maybe not.   I will say this, did you accept their quote without exception by simply sending them a PO?

 

Yeh, they put DAP in their T&C link in the quote.

Is "quote referenced for pricing only" common language used by contracting professionals?

A specific exception was not raised. If this means the quote is implicitly incorporated, what happens if the quote was implicitly incorporated and the quote terms contradicts the PO's referenced clauses?

[ji20874]

Generally, all shipments of imported supplies purchased under Government contracts are subject to the usual Customs entry and examination requirements.  Unless the agency obtains an exemption, those shipments are also subject to duty.  See FAR 25.902.  The contract price will include all duty that might be payable.

In such a case, the contractor is responsible for making sure duty is paid -- not the agency.  The contractor will make whatever arrangements are needed -- sometimes, supplies are shipped "duty delivery paid" (DDP) -- sometimes, supplies are shipped "delivery duty unpaid" (DDU).  This is all the contractor's business to handle.

If the agency obtains a post-award exemption to duty, the contracting officer will generally reduce the contract price by the amount of duty that would be payable but for the exemption.  See FAR 52.225-8, para. (c)(3).

In the original poster's matter, if the third-party shipper paid the duty, the shipper should seek payment from the contractor, not the agency.

BUT -- Did the contractor's quote clearly state that its prices did not include duties?  Did the agency err in hastily issuing the purchase order without coming to an understanding?

Note:  I now understand that starting in 2010 or so, the term DDU began to go out of style -- the term DAP (Delivered At Place) has replaced it almost universally now.

Edited October 29, 2021 by ji20874
to add note on acronyms

[Neil Roberts]

9 hours ago, NewbieFed said:

However, we recently received a bill for several hundred dollars worth of customs/duties/etc from the 3rd party shipping company. The vendor claims these customs fees/duties are the govt's responsibility under their terms and conditions...but I was under the impression their terms don't apply because of what we wrote in the PO.

I can understand how being a newbie you would like to use this as a learning experience, but maybe you should consider getting your learning from the law department? This appears to be a matter of contract law as to who is liable.

[joel hoffman]

I think that there is consensus here that the shipper needs to bill the importer - the governments vendor.

Lesson learned: It also appears here that the government did not follow the procedures in 25.902 to exempt itself from the duties and fees. 

I agree that NewbieFed should check with legal counsel as to whether, under the specific circumstances here, the government owes the vendor an additional amount for duties and fees, if FEDEX paid it and bills the vender and the vendor pays it. 

 

[ji20874]

1 hour ago, joel hoffman said:

Lesson learned: It also appears here that the government did not follow the procedures in 25.902 to exempt itself from the duties and fees. 

I'm not sure this is a lesson learned -- the general rule is that the contractor pays the duties, even for supplies to be delivered under federal government contracts -- therefore, the cost of duties is included in the contract price.  See FAR 25.902:  "[A]ll shipments of imported supplies purchased under Government contracts are subject to the usual Customs entry and examination requirements . . . those shipments are also subject to duty."  However, there are a few exemptions, as explained in FAR 25.903 -- the list really is short.  But even when there is an available exemption, it is not mandatory for an agency to claim the exemption -- FAR 25.901 tells us that an agency "...must use these exemptions when the anticipated savings to appropriated funds will outweigh the administrative costs associated with processing required documentation" (emphasis added).

I think the real problem is that the original poster may have issued a purchase order that required the seller to pay the duties but based on a quotation from the seller that did not make that promise (and a price that did not include duties).  The original poster is wondering if his or her text in the agency's purchase order trumps any text that might have been included in the seller's quotation.

23 hours ago, NewbieFed said:

I just find it strange that the government is basically paying taxes and fees to itself.

It isn't strange -- it is an established fact.  And really, it makes sense.  The rules for duties (FAR Subpart 25.9) are different than the rules for taxes (FAR Part 29).  Conflating these is error.

[joel hoffman]

36 minutes ago, ji20874 said:

I'm not sure this is a lesson learned -- the general rule is that the contractor pays the duties, even for supplies to be delivered under federal government contracts -- therefore, the cost of duties is included in the contract price.  See FAR 25.902:  "[A]ll shipments of imported supplies purchased under Government contracts are subject to the usual Customs entry and examination requirements . . . those shipments are also subject to duty."  However, there are a few exemptions, as explained in FAR 25.903 -- the list really is short.  But even when there is an available exemption, it is not mandatory for an agency to claim the exemption -- FAR 25.901 tells us that an agency "...must use these exemptions when the anticipated savings to appropriated funds will outweigh the administrative costs associated with processing required documentation" (emphasis added).

I think the real problem is that the original poster may have issued a purchase order that required the seller to pay the duties but based on a quotation from the seller that did not make that promise (and a price that did not include duties).  The original poster is wondering if his or her text in the agency's purchase order trumps any text that might have been included in the seller's quotation.

It isn't strange -- it is an established fact.  And really, it makes sense.  The rules for duties (FAR Subpart 25.9) are different than the rules for taxes (FAR Part 29).  Conflating these is error.

ji, I don’t disagree with you. My point was, IF the government wants to claim an exemption, then it needs to follow the procedures AND notify vendors in the form of solicitation* of the exemption. You are correct that, generally the government isn’t exempt from import duties and fees and the coverage in 25.9 are lessons learned.

Another lesson learned is to read and understand language in a vendors quote, determine if it it is consistent with the terms of the solicitation/RFQ/PO and if not- resolve the conflict. Do not necessarily assume that the terms of the form of solicitation trump a clearly conflicting quotation. 

*I don’t know what the wording in the Purchase Order that NewbieFed quoted means. 

[joel hoffman]

It just occurred to me that maybe both the government and the vendor believed that the purchase is exempt from duties and fees (because of the language in the purchase order?) but FEDEX was charged for it. The vendor may have told FEDEX to bill the government if they wanted to be reimbursed.

[ji20874]

40 minutes ago, joel hoffman said:

Another lesson learned is to read and understand language in a vendors quote, determine if it it is consistent with the terms of the solicitation/RFQ/PO and if not- resolve the conflict. Do not necessarily assume that the terms of the form of solicitation trump a clearly conflicting quotation. 

Roger that!

[Vern Edwards]

On 10/25/2021 at 10:56 PM, NewbieFed said:

We purchased an equipment (scientific equipment under NAICS 334516) from a WTO foreign country with a purchase order (PO). The PO has already been awarded, the equipment has been delivered and inspected, and the vendor's invoice has already been paid. The PO also stated that "vendor quotes are referenced for pricing only" (which means vendor's T&C in their quotes does not apply) and the PO (SF1447) has a checked box that incorporates 52.212-4 (k). This subsection (k) states "Taxes. The contract price includes all applicable Federal, State, and local taxes and duties."

However, we recently received a bill for several hundred dollars worth of customs/duties/etc from the 3rd party shipping company. The vendor claims these customs fees/duties are the govt's responsibility under their terms and conditions...but I was under the impression their terms don't apply because of what we wrote in the PO.

Why should NewbieFed give the shipping company the time of day, much less pay them? Does the government have a contract with the shipper? What does the purchase order, which became the contract when the seller started to perform, say about "fees/duties"? Why shouldn't NewbieFed stick to that? Who cares about the quote? A quote is not an offer. It's just information. Doesn't FAR say that?

I'm confused by the responses here.

[formerfed]

The one thing overlooked here is the action is a purchase order.  Contractual agreement begins with supplier performance/acceptance of the government offer in the order.  So the vendor is stuck.  [edited out erroneous statement]

3 hours ago, joel hoffman said:

It just occurred to me that maybe both the government and the vendor believed that the purchase is exempt from duties and fees (because of the language in the purchase order?) but FEDEX was charged for it. The vendor may have told FEDEX to bill the government if they wanted to be reimbursed.

FedEx routinely pays duties to get shipments released from Customs.  Otherwise packages can sit for weeks.  The supplier agreement with FedEx should include supplier paying those extra charges.   If this drags on, FedEx is an injured party because they paid the duties.

 

Edit:  didn’t see Vern’s response above

 

 

 

 

[Vern Edwards]

18 minutes ago, formerfed said:

 It seems to be a mutual error on both sides so amend the order to pay for the duties.

@formerfedWhy does it seem to be a mutual error mistake? Because NewbieFed doesn't understand?

Who made what mistake? According to NewbieFed, the order said that the price included duties. Did the seller miss that because it didn't read the order before it started to perform? Was that the mistake?

Someone, please, straighten me out.

[formerfed]

@Vern Edwards I didn’t read the prior dialogue correctly. I thought the vendor submitted a quote assuming the government pays duties.  From Newbie’s question about why does the government even pay duties at all, I assumed Newbie didn’t think duties applied either.  My mistake.  I’m deleting my comment to avoid further confusion.

[joel hoffman]

With respect to the initial and follow up posts by NewbieFed. The vendor submitted a quote that apparently didn’t include import duties/fees. Was the stated basis of pricing “Delivered at Place”,  in contrast to “Delivered, Duty Paid”? Did the quote specifically state/identify the basis of pricing as a term or condition? NewbieFed said only that: “The vendor stated they shipped it Delivered-at-Place (DAP)”. When did the vendor make this statement? It looks like it may be an after the fact statement. 

The government issued a purchase order for the quoted price with a statement that "vendor quotes are referenced for pricing only".

If the quote stated the basis of pricing, the purchase order “pricing” (amount) was apparently based upon DAP. The purchase order states that it references the quoted  “pricing”.

If the quote didn’t state that the basis of pricing was DAP, from the information here I assume that the government wouldn’t have known that it was DAP.

The purchase order also states, at 52.212-4 (k) Taxes:  “The contract price includes all applicable Federal, State, and local taxes and duties.

The vendor accepted the purchase order by its performance.

As it turns out, it wasn’t a duty free purchase. Duty/fees were “applicable”.

Depending upon the actual circumstances, I’d advise that NewbieFed check with their legal department.

Obviously, the government wouldn’t make any payment to FedEx.

It appears that the matter only involves “a few hundred dollars” for either party.