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Federal
Acquisition Regulation
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Bonds and Insurance
This part prescribes requirements for obtaining financial protection against
losses under sealed bid and negotiated contracts. It covers bid guarantees,
bonds, alternative payment protections, security for bonds, and insurance. The
terms "bid" and "bidders" include "proposal" and "offerors."
As used in this part--
"Attorney-in-fact" means an agent, independent agent, underwriter, or any
other company or individual holding a power of attorney granted by a surety (see
also "power of attorney" at 2.101).
"Bid guarantee" means a form of security assuring that the bidder --
(1) Will not withdraw a bid within the period specified for acceptance; and
(2) Will execute a written contract and furnish required bonds, including
any necessary coinsurance or reinsurance agreements, within the time specified
in the bid, unless a longer time allowed, after receipt of the specified
forms.
"Bond" means a written instrument executed by a bidder or contractor
(the "principal"), and a second party (the "surety" or "sureties") (except as
provided in 28.204), to assure fulfillment of the principal's obligations to a
third party (the "obligee" or "Government"), identified in the bond. If the
principal's obligations are not met, the bond assures payment, to the extent
stipulated, of any loss sustained by the obligee. The types of bonds and related
documents are as follows:
(1) An advance payment bond secures fulfillment of the contractor's
obligations under an advance payment provision.
(2) An annual bid bond is a single bond furnished by a bidder, in lieu of
separate bonds, which secure all bids (on other than construction contracts)
requiring bonds submitted during a specific Government fiscal year.
(3) An annual performance bond is a single bond furnished by a contractor,
in lieu of separate performance bonds, to secure fulfillment of the
contractor's obligations under contracts (other than construction contracts)
requiring bonds entered into during a specific Government fiscal year.
(4) A patent infringement bond secures fulfillment of the contractor's
obligations under a patent provision.
(5) A payment bond assures payments as required by law to all persons
supplying labor or material in the prosecution of the work provided for in the
contract.
(6) A performance bond secures performance and fulfillment of the
contractor's obligations under the contract.
"Consent of surety" means an acknowledgment by a surety that its bond
given in connection with a contract continues to apply to the contract as
modified.
"Penal sum" or "penal amount" means the amount of money
specified in a bond (or a percentage of the bid price in a bid bond) as the
maximum payment for which the surety is obligated or the amount of security
required to be pledged to the Government in lieu of a corporate or individual
surety for the bond.
"Reinsurance" means a transaction which provides that a surety, for a
consideration, agrees to indemnify another surety against loss which the latter
may sustain under a bond which it has issued.
Subpart 28.1 -- Bonds and Other Financial Protections
This subpart prescribes requirements and procedures for the use of bonds,
alternative payment protections, and all types of bid guarantees.
(a) A contracting officer shall not require a bid guarantee unless a
performance bond or a performance and payment bond is also required (see 28.102
and 28.103). Except as provided in paragraph (c) of this subsection, bid
guarantees shall be required whenever a performance bond or a performance and
payment bond is required.
(b) All types of bid guarantees are acceptable for supply or service
contracts (see annual bid bonds and annual performance bonds coverage in
28.001). Only separate bid guarantees are acceptable in connection with
construction contracts. Agencies may specify that only separate bid bonds are
acceptable in connection with construction contracts.
(c) The chief of the contracting office may waive the requirement to obtain a
bid guarantee when a performance bond or a performance and payment bond is
required if it is determined that a bid guarantee is not in the best interest of
the Government for a specific acquisition (e.g., overseas construction,
emergency acquisitions, sole-source contracts). Class waivers may be authorized
by the agency head or designee.
(a) The contracting officer shall insert a provision or clause substantially
the same as the provision at 52.228-1, Bid Guarantee, in solicitations or
contracts that require a bid guarantee or similar guarantee. For example, the
contracting officer may modify this provision --
(1) To set a period of time that is other than 10 days for the return of
executed bonds;
(2) For use in connection with construction solicitations when the agency
has specified that only separate bid bonds are acceptable in accordance with
28.101-1(b);
(3) For use in solicitations for negotiated contracts; or
(4) For use in service contracts containing options for extended
performance.
(b) The contracting officer shall determine the amount of the bid guarantee
for insertion in the provision at 52.228-1 (see 28.102-2(a)). The amount shall
be adequate to protect the Government from loss should the successful bidder
fail to execute further contractual documents and bonds as required. The bid
guarantee amount shall be at least 20 percent of the bid price but shall not
exceed $3 million. When the penal sum is expressed as a percentage, a maximum
dollar limitation may be stated.
(a) In sealed bidding, noncompliance with a solicitation requirement for a
bid guarantee requires rejection of the bid, except in the situations described
in paragraph (c) of this subsection when the noncompliance shall be waived.
(b) In negotiation, noncompliance with a solicitation requirement for a bid
guarantee requires rejection of an initial proposal as unacceptable, if a
determination is made to award the contract based on initial proposals without
discussion, except in the situations described in paragraph (c) of this
subsection when noncompliance shall be waived. (See 15.306(a)(2)) for conditions
regarding making awards based on initial proposals.) If the conditions for
awarding based on initial proposals are not met, deficiencies in bid guarantees
submitted by offerors determined to be in the competitive range shall be
addressed during discussions and the offeror shall be given an opportunity to
correct the deficiency.
(c) Noncompliance with a solicitation requirement for a bid guarantee shall
be waived in the following circumstances unless the contracting officer
determines in writing that acceptance of the bid would be detrimental to the
Government's interest when --
(1) Only one offer is received. In this case, the contracting officer may
require the furnishing of the bid guarantee before award;
(2) The amount of the bid guarantee submitted is less than required, but is
equal to or greater than the difference between the offer price and the next
higher acceptable offer;
(3) The amount of the bid guarantee submitted, although less than that
required by the solicitation for the maximum quantity offered, is sufficient
for a quantity for which the offeror is otherwise eligible for award. Any
award to the offeror shall not exceed the quantity covered by the bid
guarantee;
(4) The bid guarantee is received late, and late receipt is waived under
14.304;
(5) A bid guarantee becomes inadequate as a result of the correction of a
mistake under 14.407 (but only if the bidder will increase the bid guarantee
to the level required for the corrected bid);
(6) A telegraphic offer modification is received without corresponding
modification of the bid guarantee, if the modification expressly refers to the
previous offer and the offer or corrects any deficiency in bid guarantee;
(7) An otherwise acceptable bid bond was submitted with a signed offer, but
the bid bond was not signed by the offer or;
(8) An otherwise acceptable bid bond is erroneously dated or bears no date
at all; or
(9) A bid bond does not list the United States as obligee, but correctly
identifies the offeror, the solicitation number, and the name and location of
the project involved, so long as it is acceptable in all other respects.
(a) The Miller Act (40 U.S.C. 270a-270f) requires performance and payment
bonds for any construction contract exceeding $100,000, except that this
requirement may be waived
(1) By the contracting officer for as much of the work as is to be
performed in a foreign country upon finding that it is impracticable for the
contractor to furnish such bond; or
(2) As otherwise authorized by the Miller Act or other law.
(b)
(1) Pursuant to Section 4104(b)(2) of the Federal Acquisition Streamlining
Act of 1994 (Public Law 103-355), for construction contracts greater than
$25,000, but not greater than $100,000, the contracting officer shall select
two or more of the following payment protections, giving particular
consideration to inclusion of an irrevocable letter of credit as one of the
selected alternatives:
(i) A payment bond.
(ii) An irrevocable letter of credit
(ILC).
(iii) A tripartite escrow
agreement.
The prime contractor
establishes an escrow account in a federally insured financial institution
and enters into a tripartite escrow agreement with the financial
institution, as escrow agent, and all of the suppliers of labor and
material. The escrow agreement shall establish the terms of payment under
the contract and of resolution of disputes among the parties. The Government
makes payments to the contractor's escrow account, and the escrow agent
distributes the payments in accordance with the agreement, or triggers the
disputes resolution procedures if required.
(iv) Certificates of
deposit. The contractor deposits certificates
of deposit from a federally insured financial institution with the
contracting officer, in an acceptable form, executable by the contracting
officer.
(v) A deposit of the types of security listed in 28.204-1 and 28.204-2.
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(2) The contractor shall submit to the Government one of the payment
protections selected by the contracting officer.
(c) The contractor shall furnish all bonds or alternative payment protection,
including any necessary reinsurance agreements, before receiving a notice to
proceed with the work or being allowed to start work.
(a) Definition. As used in this subpart--
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"Original contract price" means the award price of the contract; or, for
requirements, contracts, the price payable for the estimated total quantity;
or, for indefinite-quantity contracts, the price payable for the specified
minimum quantity. Original contract price does not include the price of any
options, except those options exercised at the time of contract award.
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(b) Contracts exceeding the $100,000 (Miller Act).
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(1) Performance bonds. Unless the contracting officer determines
that a lesser amount is adequate for the protection of the Government, the
penal amount of performance bonds must equal--
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(i) 100 percent of the original contract price; and
(ii) If the contract price increases, an additional amount equal to 100
percent of the increase.
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(2) Payment Bonds.
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(i) Unless the contracting officer makes a written determination
supported by specific findings that a payment bond in this amount is
impractical, the amount of the payment bond must equal-
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(A) 100 percent of the original contract price; and
(B) If the contract price increases, and additional amount equal to 100
percent of the increase.
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(ii) The amount of the payment bond must be no less than the amount of
the performance bond.
(c) Contracts exceeding $25,000 but not exceeding $100,000. Unless the
contracting officer determines that a lesser amount is adequate for the
protection of the Government, the penal amount of the payment bond or the amount
of alternative payment protection must equal--
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(1) 100 percent of the original contract price; and
(2) If the contract price increases, an additional amount equal to 100
percent of the increase.
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(d) Securing additional payment protection. If the contract price
increases, the Government must secure any needed additional protection by
directing the contractor to-
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(1) Increase the penal sum of the existing bond;
(2) Obtain an additional bond; or
(3) Furnish additional alternative payment protection.
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(e) Reducing amounts. The contracting officer may reduce the amount of
security to support a bond, subject to the conditions of 28.203-5(c) or
28.204(b).
(a) Insert a clause substantially the same as the clause at 52.228-15,
Performance and Payment Bonds -- Construction, in solicitations and contracts
for construction that contain a requirement for performance and payment bonds if
the resultant contract is expected to exceed $100,000. The contracting officer
may revise paragraphs (b)(1) and/or (b)(2) of the clause to establish a lower
percentage in accordance with 28.102-2(b). If the provision at 52.228-1 is not
included in the solicitation, the contracting officer must set a period of time
for return of executed bonds.
(b) Insert the clause at 52.228-13, Alternative Payment Protections, in
solicitations and contracts for construction, when the estimated or actual value
exceeds $25,000 but does not exceed $100,000. Complete the clause by specifying
the payment protections selected (see 28.102-1(b)(1)) and the deadline for
submission. The contracting officer may revise paragraph (b) of the clause to
establish a lower percentage in accordance with 28.102-2(c).
(a) Generally, agencies shall not require performance and payment bonds for
other than construction contracts. However, performance and payment bonds may be
used as permitted in 28.103-2 and 28.103-3.
(b) The contractor shall furnish all bonds before receiving a notice to
proceed with the work.
(c) No bond shall be required after the contract has been awarded if it was
not specifically required in the contract, except as may be determined necessary
for a contract modification.
(a) Performance bonds may be required for contracts exceeding the simplified
acquisition threshold when necessary to protect the Government's interest. The
following situations may warrant a performance bond:
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(1) Government property or funds are to be provided to the contractor for
use in performing the contract or as partial compensation (as in retention of
salvaged material).
(2) A contractor sells assets to or merges with another concern, and the
Government, after recognizing the latter concern as the successor in interest,
desires assurance that it is financially capable.
(3) Substantial progress payments are made before delivery of end items
starts.
(4) Contracts are for dismantling, demolition, or removal of improvements.
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(b) The Government may require additional performance bond protection when a
contract price is increased.
(c) The contracting officer must determine the contractor's responsibility
(see Subpart 9.1) even though a bond has been or can be obtained.
(a) A payment bond is required only when a performance bond is required, and
if the use of payment bond is in the Government's interest.
(b) When a contract price is increased, the Government may require additional
bond protection in an amount adequate to protect suppliers of labor and
material.
The contracting officer shall insert a clause substantially the same as the
clause at 52.228-16, Performance and Payment Bonds--Other than Construction, in
solicitations and contracts that contain a requirement for both payment and
performance bonds. The contracting officer shall determine the amount of each
bond for insertion in the clause. The amount shall be adequate to protect the
interest of the Government. The contracting officer shall also set a period of
time (normally 10 days) for return of executed bonds. Alternate I shall be used
when only performance bonds are required.
(a) Annual performance bonds only apply to nonconstruction contracts. They
shall provide a gross penal sum applicable to the total amount of all covered
contracts.
(b) When the penal sums obligated by contracts are approximately equal to or
exceed the penal sum of the annual performance bond, an additional bond will be
required to cover additional contracts.
The head of the contracting activity may approve using other types of bonds
in connection with acquiring particular supplies or services. These types
include advance payment bonds and patent infringement bonds.
Advance payment bonds may be required only when the contract contains an
advance payment provision and a performance bond is not furnished. The
contracting officer shall determine the amount of the advance payment bond
necessary to protect the Government.
(a) Contracts providing for patent indemnity may require these bonds only if
--
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(1) A performance bond is not furnished; and
(2) The financial responsibility of the contractor is unknown or doubtful.
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(b) The contracting officer shall determine the penal sum.
The following Standard Forms (SF's) and Optional Forms (OF's) shown in 53.301
and 53.302, shall be used, except in foreign countries, when a bid bond,
performance or payment bond, or an individual surety is required. The bond forms
shall be used as indicated in the instruction portion of each form:
(a) SF 24, Bid Bond (see 28.101).
(b) SF 25, Performance Bond (see 28.102-1 and 28.106-3(b)).
(c) SF 25-A, Payment Bond (see 28.102-1 and 28.106-3(b)).
(d) SF 25-B, Continuation Sheet (for SF's 24, 25, and 25-A).
(e) SF 28, Affidavit of Individual Surety (see 28.203).
(f) SF 34, Annual Bid Bond (see 28.001).
(g) SF 35, Annual Performance Bond (see 28.104).
(h) SF 273, Reinsurance Agreement for a Miller Act Performance Bond (see
28.202(a)(4)).
(i) SF 274, Reinsurance Agreement for a Miller Act Payment Bond (see
28.202(a)(4)).
(j) SF 275, Reinsurance Agreement in Favor of the United States (see
28.202(a)(4)).
(k) SF 1414, Consent of Surety (see 28.106-5).
(l) SF 1415, Consent of Surety and Increase of Penalty (see 28.106-3).
(m) SF 1416, Payment Bond for Other Than Construction Contracts (see 28.103-3
and 28.106-3(b)).
(n) SF 1418, Performance Bond for Other Than Construction Contracts (see
28.103-2 and 28.106-3(b)).
(o) OF 90, Release of Lien on Real Property (see 28.203-5).
(p) OF 91, Release of Personal Property from Escrow (see 28.203-5).
(a) A new surety bond covering all or part of the obligations on a bond
previously approved may be substituted for the original bond if approved by the
head of the contracting activity, or as otherwise specified in agency
regulation.
(b) When a new surety bond is approved, the contracting officer shall notify
the principal and surety of the original bond of the effective date of the new
bond.
(a) When additional bond coverage is required and is secured in whole or in
part by the original surety or sureties, agencies shall use Standard Form 1415,
Consent of Surety and Increase of Penalty. Standard Form 1415 is authorized for
local reproduction, and a copy of the form is furnished for this purpose in part
53 of the loose leaf edition of the FAR.
(b) When additional bond coverage is required and is secured in whole or in
part by a new surety or by one of the alternatives described in 28.204 in lieu
of corporate or individual surety, agencies shall use Standard Form 25,
Performance Bond; Standard Form 1418, Performance Bond for Other Than
Construction Contracts; Standard Form 25-A, Payment Bond; or Standard Form 1416,
Payment Bond for Other Than Construction Contracts.
(a) The contracting officer shall insert the clause at 52.228-2, Additional
Bond Security, in solicitations and contracts when bonds are required.
(b) In accordance with Section 806(a)(3) of Pub. L. 102-190, as amended by
Sections 2091 and 8105 of Pub. L. 103-355, the contracting officer shall insert
the clause at 52.228-12, Prospective Subcontractor Requests for Bonds, in
solicitations and contracts with respect to which a payment bond will be
furnished pursuant to the Miller Act (see 28.102-1), except for contracts for
the acquisition of commercial items as defined in Subpart 2.1.
(a) When any contract is modified, the contracting officer shall obtain the
consent of surety if --
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(1) An additional bond is obtained from other than the original surety;
(2) No additional bond is required and --
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(i) The modification is for new work beyond the scope of the original
contract; or
(ii) The modification does not change the contract scope but changes the
contract price (upward or downward) by more than 25 percent or $50,000; or
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(3) Consent of surety is required for a novation agreement (see Subpart
42.12).
(b) When a contract for which performance or payment is secured by any of the
types of security listed in 28.204 is modified as described in paragraph (a) of
this subsection, no consent of surety is required.
(c) Agencies shall use Standard Form 1414, Consent of Surety, for all types
of contracts.
(a) The surety on the bond, upon its written request, may be furnished
information on the progress of the work, payments, and the estimated percentage
of completion, concerning the contract for which the bond was furnished.
(b) When a payment bond has been provided, the contracting officer shall,
upon request, furnish the name and address of the surety or sureties to any
subcontractor or supplier who has furnished or been requested to furnish labor
or material for the contract. In addition, general information concerning the
work progress, payments, and the estimated percentage of completion may be
furnished to persons who have provided labor or materials and have not been
paid.
(c) When a payment bond has been provided for a contract, the head of the
agency or designee shall furnish a certified copy of the bond and the contract
for which it was given to any person who makes a request therefore and who
furnishes an affidavit that the requester has supplied labor or materials for
such work and payment therefor has not been made or that the requester is being
sued on such bond. The person who makes the request shall be required to pay
such costs of preparation as determined by the head of the agency or designee to
be reasonable and appropriate (see 40 U.S.C. 270(c)).
(d) Section 806(a)(2) of Pub. L. 102-190, as amended by Sections 2091 and
8105 of Pub.L.103-355, requires that the Federal Government provide information
to subcontractors on payment bonds under contracts for other than commercial
items as defined in Subpart 2.1. Upon the written or oral request of a
subcontractor/supplier, or prospective subcontractor/supplier, under a contract
with respect to which a payment bond has been furnished pursuant to the Miller
Act, the contracting officer shall promptly provide to the requester, either
orally or in writing, as appropriate, any of the following:
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(1) Name and address of the surety or sureties on the payment bond.
(2) Penal amount of the payment bond.
(3) Copy of the payment bond. The contracting officer may impose reasonable
fees to cover the cost of copying and providing a copy of the payment bond.
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(a) During contract performance, agencies shall not withhold payments due
contractors or assignees because subcontractors or suppliers have not been paid.
(b) If, after completion of the contract work, the Government receives
written notice from the surety regarding the contractor's failure to meet its
obligation to its subcontractors or suppliers, the contracting officer shall
withhold final payment. However, the surety must agree to hold the Government
harmless from any liability resulting from withholding the final payment. The
contracting officer will authorize final payment upon agreement between the
contractor and surety or upon a judicial determination of the rights of the
parties.
(c) For any withholding incident to the labor standards provisions of the
contract, see Part 22.
The contracting officer will only authorize payment to subcontractors or
suppliers from an ILC (or any other cash equivalent security) upon a judicial
determination of the rights of the parties, a signed notarized statement by the
contractor that the payment is due and owed, or a signed agreement between the
parties as to amount due and owed.
This subpart prescribes procedures for the use of sureties to protect the
Government from financial losses.
(a) Agencies shall obtain adequate security for bonds (including coinsurance
and reinsurance agreements) required or used with a contract for supplies or
services (including construction). Acceptable forms of security include --
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(1) Corporate or individual sureties or
(2) Any of the types of security authorized in lieu of sureties by 28.204.
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(b) Solicitations shall not preclude offerors from using the types of surety
or other security permitted by this subpart, unless prohibited by law or
regulation.
(a)
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(1) Corporate sureties offered for bonds furnished with contracts performed
in the United States, its possessions, or Puerto Rico must appear on the list
contained in the Department of Treasury Circular 570, "Companies Holding
Certificates of Authority as Acceptable Sureties on Federal Bonds and
Acceptable Reinsuring Companies."
(2) The penal amount of the bond should not exceed the surety's
underwriting limit stated in the Department of the Treasury circular. If the
penal amount exceeds the underwriting limit, the bond will be acceptable only
if --
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(i) The amount which exceeds the specified limit is coinsured or
reinsured and
(ii) The amount of coinsurance or reinsurance does not exceed the
underwriting limit of each coinsurer or reinsurer.
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(3) Coinsurance or reinsurance agreements shall conform to the Department
of the Treasury regulations in 31 CFR 223.10 and 223.11. When reinsurance is
contemplated, the contracting office generally shall require reinsurance
agreements to be executed and submitted with the bonds before making a final
determination on the bonds.
(4) When specified in the solicitation, the contracting officer may accept
a bond from the direct writing company in satisfaction of the total bond
requirement of the contract. This is permissible until necessary reinsurance
agreements are executed, even though the total bond requirement may exceed the
insurer's underwriting limitation. The contractor shall execute and submit
necessary reinsurance agreements to the contracting officer within the time
specified on the bid form, which may not exceed 45 calendar days after the
execution of the bond. The contractor shall use Standard Form 273, Reinsurance
Agreement for a Miller Act Performance Bond, and Standard Form 274,
Reinsurance Agreement for a Miller Act Payment Bond, when reinsurance is
furnished with Miller Act bonds. Standard Form 275, Reinsurance Agreement in
Favor of the United States, is used when reinsurance is furnished with bonds
for other purposes.
(b) For contracts performed in a foreign country, sureties not appearing on
Treasury Department Circular 570 are acceptable if the contracting officer
determines that it is impracticable for the contractor to use Treasury listed
sureties.
(c) The Department of the Treasury issues supplements to Circular 570,
notifying all Federal agencies of
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(1) new approved corporate surety companies and
(2) the termination of the authority of any specific corporate surety to
qualify as a surety on Federal bonds. Upon receipt of notification of
termination of a company's authority to qualify as a surety on Federal bonds,
the contracting officer shall review the outstanding contracts and take action
necessary to protect the Government, including, where appropriate, securing
new bonds with acceptable sureties in lieu of outstanding bonds with the named
company.
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(d) The Department of the Treasury Circular 570 may be obtained from the --
U.S. Department of the Treasury
Financial Management Service
Surety Bond Branch
401 14th St., SW, 2nd Floor -- West Wing
Washington, DC 20227.
(a) An individual surety is acceptable for all types of bonds except position
schedule bonds. The contracting officer shall determine the acceptability of
individuals proposed as sureties, and shall ensure that the surety's pledged
assets are sufficient to cover the bond obligation. (See 28.203-7 for
information on excluded individual sureties.)
(b) An individual surety must execute the bond, and the unencumbered value of
the assets (exclusive of all outstanding pledges for other bond obligations)
pledged by the individual surety, must equal or exceed the penal amount of each
bond. The individual surety shall execute the Standard Form 28 and provide a
security interest in accordance with 28.203-1. One individual surety is adequate
support for a bond, provided the unencumbered value of the assets pledged by
that individual surety equal or exceed the amount of the bond. An offeror may
submit up to three individual sureties for each bond, in which case the pledged
assets, when combined, must equal or exceed the penal amount of the bond. Each
individual surety must accept both joint and several liability to the extent of
the penal amount of the bond.
(c) If the contracting officer determines that no individual surety in
support of a bid guarantee is acceptable, the offeror utilizing the individual
surety shall be rejected as nonresponsible, except as provided in 28.101-4. A
finding of nonresponsibility based on unacceptability of an individual surety,
need not be referred to the Small Business Administration for a competency
review. (See 19.602-1(a)(2)(i) and 61 Comp. Gen. 456 (1982).)
(d) A contractor submitting an unacceptable individual surety in satisfaction
of a performance or payment bond requirement may be permitted a reasonable time,
as determined by the contracting officer, to substitute an acceptable surety for
a surety previously determined to be unacceptable.
(e) When evaluating individual sureties, contracting officers may obtain
assistance from the office identified in 28.202(d).
(f) Contracting officers shall obtain the opinion of legal counsel as to the
adequacy of the documents pledging the assets prior to accepting the bid
guarantee and payment and performance bonds.
(g) Evidence of possible criminal or fraudulent activities by an individual
surety shall be referred to the appropriate agency official in accordance with
agency procedures.
(a) An individual surety may be accepted only if a security interest in
assets acceptable under 28.203-2 is provided to the Government by the individual
surety. The security interest shall be furnished with the bond.
(b) The value at which the contracting officer accepts the assets pledged
must be equal to or greater than the aggregate penal amounts of the bonds
required by the solicitation and may be provided by one or a combination of the
following methods:
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(1) An escrow account with a federally insured financial institution in the
name of the contracting agency. (See 28.203-2(b)(2) with respect to Government
securities in book entry form.) Acceptable securities for deposit in escrow
are discussed in 28.203-2. While the offeror is responsible for establishing
the escrow account, the terms and conditions must be acceptable to the
contracting officer. At a minimum, the escrow account shall provide for the
following:
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(i) The account must provide the contracting officer the sole and
unrestricted right to draw upon all or any part of the funds deposited in
the account. A written demand for withdrawal shall be sent to the financial
institution, after obtaining the concurrence of legal counsel, by the
contracting officer with a copy to the offeror/contractor and to the surety.
Within the time period specified in the demand, the financial institution
would pay the Government the amount demanded up to the amount on deposit. If
any dispute should arise between the Government and the offeror/contractor,
the surety, or the subcontractors or suppliers with respect to the offer or
contract, the financial institution would be required, unless precluded by
order of a court of competent jurisdiction, to disburse monies to the
Government as directed by the contracting officer.
(ii) The financial institution would be authorized to release to the
individual surety all or part of the balance of the escrow account,
including any accrued interest, upon receipt of written authorization from
the contracting officer.
(iii) The Government would not be responsible for any costs attributable
to the establishment, maintenance, administration, or any other aspect of
the account.
(iv) The financial institution would not be liable or responsible for the
interpretation of any provisions or terms and conditions of the solicitation
or contract.
(v) The financial institution would provide periodic account statements
to the contracting officer.
(vi) The terms of the escrow account could not be amended without the
consent of the contracting officer.
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(2) A lien on real property, subject to the restrictions in 28.203-2 and
28.203-3.
(a) The Government will accept only cash, readily marketable assets, or
irrevocable letters of credit from a federally insured financial institution
from individual sureties to satisfy the underlying bond obligations.
(b) Acceptable assets include --
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(1) Cash, or certificates of deposit, or other cash equivalents with a
federally insured financial institution;
(2) United States Government securities at market value. (An escrow account
is not required if an individual surety offers Government securities held in
book entry form at a depository institution. In lieu thereof, the individual
shall provide evidence that the depository institution has
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(i) placed a notation against the individual's book entry account
indicating that the security has been pledged in favor of the respective
agency;
(ii) agreed to notify the agency prior to maturity of the security; and
(iii) agreed to hold the proceeds of the security subject to the pledge
in favor of the agency until a substitution of securities is made or the
security interest is formally released by the agency.);
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(3) Stocks and bonds actively traded on a national U.S. security exchange
with certificates issued in the name of the individual surety. National
security exchanges are --
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(i) the New York Stock Exchange;
(ii) the American Stock Exchange;
(iii) the Boston Stock Exchange;
(iv) the Cincinnati Stock Exchange;
(v) the Midwest Stock Exchange;
(vi) the Philadelphia Stock Exchange;
(vii) the Pacific Stock Exchange; and
(viii) the Spokane Stock Exchange.
These assets will be accepted at 90 percent of their 52-week low, as
reflected at the time of submission of the bond. Stock options and stocks on
the over-the-counter (OTC) market or NASDQ Exchanges will not be accepted.
Assistance in evaluating the acceptability of securities may be obtained
from the --
Securities and Exchange Commission
Division of Enforcement
450 Fifth Street NW
Washington, DC 20549.
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(4) Real property owned in fee simple by the surety without any form of
concurrent ownership, except as provided in subdivision (c)(3)(iii) of this
subsection, and located within the 50 United States, its territories, or
possessions. These assets will be accepted at 100 percent of the most current
tax assessment value (exclusive of encumbrances) or 75 percent of the
properties' unencumbered market value provided a current appraisal is
furnished (see 28.203-3).
(5) Irrevocable letters of credit (ILC) issued by a federally insured
financial institution in the name of the contracting agency and which identify
the agency and solicitation or contract number for which the ILC is provided.
(c) Unacceptable assets include but are not limited to --
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(1) Notes or accounts receivable;
(2) Foreign securities;
(3) Real property as follows:
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(i) Real property located outside the United States, its territories, or
possessions.
(ii) Real property which is a principal residence of the surety.
(iii) Real property owned concurrently regardless of the form of
co-tenancy (including joint tenancy, tenancy by the entirety, and tenancy in
common) except where all co-tenants agree to act jointly.
(iv) Life estates, leasehold estates, or future interests in real
property.
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(4) Personal property other than that listed in paragraph (b) of this
subsection (e.g., jewelry, furs, antiques);
(5) Stocks and bonds of the individual surety in a controlled, affiliated,
or closely held concern of the offeror/contractor;
(6) Corporate assets (e.g., plant and equipment);
(7) Speculative assets (e.g., mineral rights);
(8) Letters of credit, except as provided in 28.203-2(b)(5).
(a) Whenever a bond with a security interest in real property is submitted,
the individual surety shall provide --
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(1) Evidence of title in the form of a certificate of title prepared by a
title insurance company approved by the United States Department of Justice.
This list entitled List of Approved Attorneys, Abstracters, and Title
Companies is available from the --
Title Unit, Land Acquisition Section
Land and Natural Resource Division
Department of Justice
Washington, DC 20530
This title evidence must show fee simple title vested in the surety along with
any concurrent owners; whether any real estate taxes are due and payable; and
any recorded encumbrances against the property, including the lien filed in
favor of the Government under paragraph (d) of this subsection;
(2) Evidence of the amount due under any encumbrance shown in the evidence
of title;
(3) A copy of the current real estate tax assessment of the property or a
current appraisal dated no earlier than 6 months prior to the date of the
bond, prepared by a professional appraiser who certifies that the appraisal
has been conducted in accordance with the generally accepted appraisal
standards as reflected in the Uniform Standards of Professional Appraisal
Practice as promulgated by the --
Appraisal Foundation
1029 Vermont Avenue, NW
Washington, DC 20005.
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(b) Failure to provide evidence that the lien has been properly recorded will
render the offeror nonresponsible.
(c) The individual surety is liable for the payment of all administrative
costs of the Government, including legal fees, associated with the liquidation
of pledged real estate.
(d) The following format, or any document substantially the same, shall be
used by the surety and recorded in the local recorder's office when a surety
pledges real estate on Standard Form 28, Affidavit of Individual Surety.
Lien on Real Estate
I/we agree that this instrument constitutes a lien in the amount of $
_________ on the property described in this lien. The rights of the United
States Government shall take precedence over any subsequent lien or encumbrance
until the lien is formally released by a duly authorized representative of the
United States. I/we hereby grant the United States the power of sale of subject
property, including the right to satisfy its reasonable administrative costs,
including legal fees associated with any sale of subject property, in the event
of contractor default if I/we otherwise fail to satisfy the underlying ( ) bid
guarantee, ( ) performance bond, ( ) or payment bond obligations as an
individual surety on solicitation/contract number ________________. The lien is
upon the real estate now owned by me/us described as follows:
(legal description, street address and other identifying description)
in witness hereof, I/we have hereunto affixed my/our hand(s) and seal(s) this
___ Day of _____19 __.
Witness:
_____________________ ___________ (Seal) ___________ (Seal)
I, __________________, a Notary Public in and for the (City) _____________,
(State) _______, do hereby certify that _______________, a party or parties to a
certain Agreement bearing the date ____ day of ________ 19 __, and hereunto
annexed, personally appeared before me, the said ______________ being personally
well known to me as the person(s) who executed said lien, and acknowledged the
same to be his/her/their act and deed.
Given under my hand and seal this ____ day of _____
19 __.
_____________________________
Notary Public, State
My Commission expires:
An individual surety may request the Government to accept a substitute asset
for that currently pledged by submitting a written request to the responsible
contracting officer. The contracting officer may agree to the substitution of
assets upon determining, after consultation with legal counsel, that the
substitute assets to be pledged are adequate to protect the outstanding bond or
guarantee obligations. If acceptable, the substitute assets shall be pledged as
provided for in Subpart 28.2.
(a) After consultation with legal counsel, the contracting officer shall
release the security interest on the individual surety's assets using the
Optional Form 90, Release of Lien on Real Property, or Optional Form 91, Release
of Personal Property from Escrow, or a similar release as soon as possible
consistent with the conditions in subparagraphs (a)(1) and (2) of this
subsection. A surety's assets pledged in support of a payment bond may be
released to a subcontractor or supplier upon Government receipt of a Federal
district court judgment, or a sworn statement by the subcontractor or supplier
that the claim is correct along with a notarized authorization of the release by
the surety stating that it approves of such release.
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(1) Contracts subject to the Miller Act. The security interest shall
be maintained for the later of --
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(i) 1 year following final payment,
(ii) Until completion of any warranty period (applicable only to
performance bonds), or
(iii) Pending resolution of all claims filed against the payment bond
during the 1-year period following final payment.
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(2) Contracts subject to alternative payment protection (28.102-1(b)(1)).
The security interest shall be maintained for the full contract performance
period plus one year.
(3) Other contracts not subject to the Miller Act. The security
interest shall be maintained for 90 days following final payment or until
completion of any warranty period (applicable only to performance bonds),
whichever is later.
(b) Upon written request, the contracting officer may release the security
interest on the individual surety's assets in support of a bid guarantee based
upon evidence that the offer supported by the individual surety will not result
in contract award.
(c) Upon written request by the individual surety, the contracting officer
may release a portion of the security interest on the individual surety's assets
based upon substantial performance of the contractor's obligations under its
performance bond. Release of the security interest in support of a payment bond
must comply with the subparagraphs (a)(1) through (3) of this subsection. In
making this determination, the contracting officer will give consideration as to
whether the unreleased portion of the lien is sufficient to cover the remaining
contract obligations, including payments to subcontractors and other potential
liabilities. The individual surety shall, as a condition of the partial release,
furnish an affidavit agreeing that the release of such assets does not relieve
the individual surety of its obligations under the bond(s).
Insert the clause at 52.228-11 in solicitations and contracts which require
the submission of bid guarantees, performance, or payment bonds.
(a) An individual may be excluded from acting as a surety on bonds submitted
by offerors on procurement by the executive branch of the Federal Government, by
the acquiring agency's head or designee utilizing the procedures in Subpart 9.4.
The exclusion shall be for the purpose of protecting the Government.
(b) An individual may be excluded for any of the following causes:
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(1) Failure to fulfill the obligations under any bond.
(2) Failure to disclose all bond obligations.
(3) Misrepresentation of the value of available assets or outstanding
liabilities.
(4) Any false or misleading statement, signature or representation on a
bond or affidavit of individual suretyship.
(5) Any other cause affecting responsibility as a surety of such serious
and compelling nature as may be determined to warrant exclusion.
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(c) An individual surety excluded pursuant to this subsection shall be
included on the List of Parties Excluded from Federal Procurement and
Nonprocurement Programs. (See 9.404.)
(d) Contracting officers shall not accept the bonds of individual sureties
whose names appear on the List of Parties Excluded from Federal Procurement and
Nonprocurement Programs (see 9.404) unless the acquiring agency's head or a
designee states in writing the compelling reasons justifying acceptance.
(e) An exclusion of an individual surety under this subsection will also
preclude such party from acting as a contractor in accordance with Subpart 9.4.
(a) Any person required to furnish a bond to the Government may furnish any
of the types of security listed in 28.204-1 through 28.204-3 instead of a
corporate or individual surety for the bond. When any of those types of security
are deposited, a statement shall be incorporated in the bond form pledging the
security in lieu of execution of the bond form by corporate or individual
sureties. The contractor shall execute the bond forms as the principal. Agencies
shall establish safeguards to protect against loss of the security and shall
return the security or its equivalent to the contractor when the bond obligation
has ceased.
(b) Upon written request by any contractor securing a performance or payment
bond by any of the types of security listed in 28.204-1 through 28.204-3, the
contracting officer may release a portion of the security only when the
conditions allowing the partial release of lien in 28.203-5(c) are met. The
contractor shall, as a condition of the partial release, furnish an affidavit
agreeing that the release of such security does not relieve the contractor of
its obligations under the bond(s).
(c) The contractor may satisfy a requirement for bond security by furnishing
a combination of the types of security listed in 28.204-1 through 28.204-3 or a
combination of bonds supported by these types of security and additional surety
bonds under 28.202 or 28.203. During the period for which a bond supported by
security is required, the contractor may substitute one type of security listed
in 28.204-1 through 28.204-3 for another, or may substitute, in whole or
combination, additional surety bonds under 28.202 or 28.203.
Any person required to furnish a bond to the Government has the option,
instead of furnishing a surety or sureties on the bond, of depositing certain
United States bonds or notes in an amount equal at their par value to the penal
sum of the bond (the Act of February 24, 1919 (31 U.S.C. 9303) and Treasury
Department Circular No. 154 dated July 1, 1978 (31 CFR Part 225)). In addition,
a duly executed power of attorney and agreement authorizing the collection or
sale of such United States bonds or notes in the event of default of the
principal on the bond shall accompany the deposited bonds or notes. The
contracting officer may --
(a) Turn securities over to the finance or other authorized agency official;
or
(b) Deposit them with the Treasurer of the United States, a Federal Reserve
Bank (or branch with requisite facilities), or other depository designated for
that purpose by the Secretary of the Treasury, under procedures prescribed by
the agency concerned and Treasury Department Circular No. 154 (exception: The
contracting officer shall deposit all bonds and notes received in the District
of Columbia with the Treasurer of the United States).
Any person required to furnish a bond has an option to furnish a certified or
cashier's check, bank draft, Post Office money order, or currency, in an amount
equal to the penal sum of the bond, instead of furnishing surety or sureties on
the bonds. Those furnishing checks, drafts, or money orders shall draw them to
the order of the appropriate Federal agency.
(a) Any person required to furnish a bond has the option to furnish a bond
secured by an ILC in an amount equal to the penal sum required to be secured
(see 28.204). A separate ILC is required for each bond.
(b) The ILC shall be irrevocable, require presentation of no document other
than a written demand and the ILC (and letter of confirmation, if any), expire
only as provided in paragraph (f) of this subsection, and be issued/confirmed by
an acceptable federally insured financial institution as provided in paragraph
(g) of this subsection.
(c) To draw on the ILC, the contracting officer shall use the sight draft set
forth in the clause at 52.228-14, and present it with the ILC (including letter
of confirmation, if any) to the issuing financial institution or the confirming
financial institution (if any).
(d) If the contractor does not furnish an acceptable replacement ILC, or
other acceptable substitute, at least 30 days before an ILC's scheduled
expiration, the contracting officer shall immediately draw on the ILC.
(e) If, after the period of performance of a contract where ILCs are used to
support payment bonds, there are outstanding claims against the payment bond,
the contracting officer shall draw on the ILC prior to the expiration date of
the ILC to cover these claims.
(f) The period for which financial security is required shall be as follows:
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(1) If used as a bid guarantee, the ILC should expire no earlier than 60
days after the close of the bid acceptance period.
(2) If used as an alternative to corporate or individual sureties as
security for a performance or payment bond, the offeror/contractor may submit
an ILC with an initial expiration date estimated to cover the entire period
for which financial security is required or an ILC with an initial expiration
date that is a minimum period of one year from the date of issuance. The ILC
shall provide that, unless the issuer provides the beneficiary written notice
of non-renewal at least 60 days in advance of the current expiration date, the
ILC is automatically extended without amendment for one year from the
expiration date, or any future expiration date, until the period of required
coverage is completed and the contracting officer provides the financial
institution with a written statement waiving the right to payment. The period
of required coverage shall be:
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(i) For contracts subject to the Miller Act, the later of --
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(A) One year following the expected date of final payment;
(B) For performance bonds only, until completion of any warranty
period; or
(C) For payment bonds only, until resolution of all claims filed
against the payment bond during the one-year period following final
payment.
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(ii) For contracts not subject to the Miller Act, the later of --
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(A) 90 days following final payment; or
(B) For performance bonds only, until completion of any warranty period.
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(g) Only federally insured financial institutions rated investment grade or
higher shall issue or confirm the ILC. Unless the financial institution issuing
the ILC had letter of credit business of at least $25 million in the past year,
ILCs over $5 million must be confirmed by another acceptable financial
institution that had letter of credit business of at least $25 million in the
past year.
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(1) The offeror/contractor shall provide the contracting officer a credit
rating from a recognized commercial rating service as specified in Office of
Federal Procurement Policy Pamphlet No. 7 (see 28.204-3(h)) that indicates the
financial institution has the required rating(s) as of the date of issuance of
the ILC.
(2) If the contracting officer learns that a financial institution's rating
has dropped below the required level, the contracting officer shall give the
contractor 30 days to substitute an acceptable ILC or shall draw on the ILC
using the sight draft in paragraph (g) of the clause at 52.228-14.
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(h)
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(1) Additional information on credit rating services and investment grade
ratings is contained within Office of Federal Procurement Policy Pamphlet No.
7, Use of Irrevocable Letters of Credit. This pamphlet may be obtained by
calling the Office of Management and Budget's publications office at (202)
395-7332.
(2) A copy of the Uniform Customs and Practice (UCP) for Documentary
Credits, 1993 Revision, International Chamber of Commerce Publication No. 500,
is available from:
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ICC Publishing, Inc.
156 Fifth Avenue
New York NY 10010
Telephone: (212) 206-1150
Telefax: (212) 633-6025
E-mail: iccpub@interport.net
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Insert the clause at 52.228-14, Irrevocable Letter of Credit, in
solicitations and contracts for services, supplies, or construction, when a bid
guarantee, or performance bonds, or performance and payment bonds are required.
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Performance and Payment
Bonds and Alternative Payment Protections for Construction Contracts. 