Federal Acquisition Regulation; Performance and Payment Bonds

DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 28, 52, and 53

[FAC 90-40; FAR Case 91-027; Item XI]

RIN 9000-AE47

Federal Acquisition Regulation; Performance and Payment Bonds

AGENCIES: Department of Defense (DoD), General Services Administration

(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council (CAAC) and the Defense

Acquisition Regulations Council (DARC) have agreed to a final rule

amending the Federal Acquisition Regulation (FAR) to further

standardize policies governing bonding. Two new standard clauses are

added for use when performance or payment bonds are required, and a new

Standard Form 1418, Performance and Payment Bonds--Other Than

Construction, is added. This regulatory action was not subject to

Office of Management and Budget review under Executive Order 12866,

dated September 30, 1993, and is not a major rule under 5 U.S.C. 804.

EFFECTIVE DATE: September 24, 1996.

FOR FURTHER INFORMATION CONTACT: Mr. Peter O'Such at (202) 501-1759 in

reference to this FAR case. For general information, contact the FAR

Secretariat, Room 4037, GS Building, Washington, DC 20405 (202) 501-

4755. Please cite FAC 90-40, FAR Case 91-027.

SUPPLEMENTARY INFORMATION:

A. Background

FAR 28.101-1, 28.101-2, 28.101-3, 28.102-3, 28.103-2, 28.103-3,

28.103-4, 28.106-1, 28.106-2, 28.106-3, 52.228-1, and 53.228 are

revised, and two new clauses are added, 52.228-15, Performance and

Payment Bonds--Construction, and 52.228-16, Performance and Payment

Bonds Other Than Construction, to further standardize policies

governing bonding. A proposed rule was published in the Federal

Register at 56 FR 31278, July 9, 1991.

B. Regulatory Flexibility Act

The Department of Defense, the General Services Administration, and

the National Aeronautics and Space Administration certify that this

final rule will not have a significant economic impact on a substantial

number of small entities within the meaning of the Regulatory

Flexibility Act, 5 U.S.C. 601, et seq., because the rule merely

updates, clarifies, and standardizes policy pertaining to performance

and payment bonds.

C. Paperwork Reduction Act

The Paperwork Reduction Act (Public Law 96-511) is deemed to apply

because the final rule contains information collection requirements.

Accordingly, a request for approval of an extension of an information

collection requirement concerning Office of Management and Budget (OMB)

Control Number 9000-0119, Performance and Payment Bonds, was submitted

to OMB under 44 U.S.C. 3501, et seq., and approved through May 31,

1999. Public comments were invited through a subsequent Federal

Register notice published at 61 FR 19664, April 12, 1996.

List of Subjects in 48 CFR Parts 28, 52, and 53

Government procurement.

[[Page 39213]]

Dated: July 16, 1996.

Edward C. Loeb,

Director, Federal Acquisition Policy Division.

Therefore, 48 CFR parts 28, 52, 53 are amended as set forth below:

1. The authority citation for 48 CFR parts 28 and 52, and 53

continues to read as follows:

Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42

U.S.C. 2473(c).

PART 28--BONDS AND INSURANCE

2. Section 28.101-1 is amended by revising paragraph (c) to read as

follows:

28.101-1 Policy on use.

* * * * *

(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.

3. Section 28.101-2 is revised to read as follows:

28.101-2 Solicitation provision or contract clause.

(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(c)).

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.

28.101-3 [Removed and reserved]

4. Section 28.101-3 is removed and reserved.

5. Section 28.102-3 is amended by revising paragraph (a) to read as

follows:

28.102-3 Solicitation requirements and contract clause.

(a) The contracting officer shall 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 penal amount of

the performance bonds may be decreased in accordance with 28.102-2(a).

Where the provision at 52.228-1 is not included in the solicitation,

the contracting officer shall set a period of time for return of

executed bonds.

* * * * *

28.103-2 [Amended]

6. Section 28.103-2 is amended by removing paragraph (b) and

redesignating paragraphs (c) and (d) as (b) and (c), respectively.

28.103-3 [Amended]

7. Section 28.103-3 is amended by removing paragraphs (b) and (c)

and redesignating paragraph (d) as (b).

8. Section 28.103-4 is added to read as follows:

28.103-4 Contract clause.

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.

9. Section 28.106-1 is amended by revising paragraphs (c) and (m);

redesignating paragraphs (n) and (o) as (o) and (p) and adding a new

paragraph (n) to read as follows:

28.106-1 Bonds and bond related forms.

* * * * *

(c) SF 25-A, Payment Bond (see 28.102-1 and 28.106-3(b)).

* * * * *

(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)).

* * * * *

10. Section 28.106-2 is amended by revising paragraph (a) to read

as follows:

28.106-2 Substitution of surety bonds.

(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.

* * * * *

11. Section 28.106-3 is amended by revising paragraph (b) to read

as follows:

28.106-3 Additional bond or security.

* * * * *

(b) When additional coverage is furnished in whole or in part by a

new 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.

* * * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES

12. Section 52.228-1 is revised to read as follows:

52.228-1 Bid Guarantee.

As prescribed in 28.101-2, insert a provision or clause

substantially as follows:

Bid Guarantee (SEP 1996)-

(a) Failure to furnish a bid guarantee in the proper form and

amount, by the time set for opening of bids, may be cause for

rejection of the bid.

(b) The bidder shall furnish a bid guarantee in the form of a

firm commitment, e.g., bid bond supported by good and sufficient

surety or sureties acceptable to the Government, postal money order,

certified check, cashier's check, irrevocable letter of credit, or,

under Treasury Department regulations, certain bonds or notes of the

United States. The Contracting Officer will return bid guarantees,

other than bid bonds, (1) to unsuccessful bidders as soon as

practicable after the opening of bids, and (2) to the successful

bidder upon execution of contractual documents and bonds (including

any necessary coinsurance or reinsurance agreements), as required by

the bid as accepted.-

(c) The amount of the bid guarantee shall be ________ percent of

the bid price or $________, whichever is less.-

(d) If the successful bidder, upon acceptance of its bid by the

Government within the period specified for acceptance, fails to

execute all contractual documents or furnish executed bond(s) within

10 days after

[[Page 39214]]

receipt of the forms by the bidder, the Contracting Officer may

terminate the contract for default.-

(e) In the event the contract is terminated for default, the

bidder is liable for any cost of acquiring the work that exceeds the

amount of its bid, and the bid guarantee is available to offset the

difference.

(End of provision)-

13.-15. Sections 52.228-15 and 52.228-16 are added to read as

follows:

52.228-15 Performance and Payment Bonds--Construction.-

As prescribed in 28.102-3(a), insert a clause substantially as

follows:

Performance and Payment Bonds--Construction (SEP 1996)-

(a) Definitions. As used in this clause--

Contract price means the award price of the contract or, for

requirements contracts, the price payable for the estimated

quantity; or for indefinite-delivery type contracts, the price

payable for the specified minimum quantity.

(b) Unless the resulting contract price is $100,000 or less, the

successful offeror shall be required to furnish performance and

payment bonds to the Contracting Officer as follows:

(1) Performance Bonds (Standard Form 25): (i) The penal amount

of performance bonds shall be 100 percent of the original contract

price.

(ii) The Government may require additional performance bond

protection when the contract price is increased. The increase in

protection shall generally equal 100 percent of the increase in

contract price.

(iii) The Government may secure additional protection by

directing the Contractor to increase the penal amount of the

existing bond or to obtain an additional bond.

(2) Payment Bonds (Standard Form 25-A):

(i) The penal amount of payment bonds shall equal--

(A) 50 percent of the contract price if the contract price is

not more than $1 million;

(B) 40 percent of the contract price if the contract price is

more than $1 million but not more than $5 million; or

(C) $2.5 million if the contract price is more than $5 million.

(ii) If the original contract price is $5 million or less, the

Government may require additional protection if the contract price

is increased. The penal amount of the total protection shall meet

the requirement of subparagraph (b)(2)(i) of this clause.

(iii) The Government may secure additional protection by

directing the Contractor to increase the penal sum of the existing

bond or to obtain an additional bond.

(c) The Contractor shall furnish all executed bonds, including

any necessary reinsurance agreements, to the Contracting Officer,

within the time period specified in the Bid Guarantee provision of

the solicitation, or otherwise specified by the Contracting Officer,

but in any event, before starting work.

(d) The bonds shall be in the form of firm commitment, supported

by corporate sureties whose names appear on the list contained in

Treasury Department Circular 570, individual sureties, or by other

acceptable security such as postal money order, certified check,

cashier's check, irrevocable letter of credit, or, in accordance

with Treasury Department regulations, certain bonds or notes of the

United States. Treasury Circular 570 is published in the Federal

Register, or may be obtained from the U.S. Department of Treasury,

Financial Management Service, Surety Bond Branch, 401 14th Street,

NW., 2nd Floor, West Wing, Washington, DC 20227.

(End of clause)

52.228-16 Performance and Payment Bonds--Other Than Construction.

As prescribed in 28.103-4, insert a clause substantially as

follows:

Performance and Payment Bonds--Other than construction (SEP 1996)

(a) Definitions. As used in this clause--

Contract price means the total amount of the contract for the

term of the contract (excluding options, if any) or, for

requirements contracts, the price payable for the estimated

quantity; or for indefinite-delivery type contracts, the price

payable for the specified minimum quantity.

(b) The Contractor shall furnish a performance bond (Standard

Form 1418) for the protection of the Government in an amount equal

to ________ percent of the contract price and a payment bond

(Standard Form 1416) in an amount equal to ________ percent of the

contract price.

(c) The Contractor shall furnish all executed bonds, including

any necessary reinsurance agreements, to the Contracting Officer,

within ________ days, but in any event, before starting work.

(d) The Government may require additional performance bond

protection when the contract price is increased. The Government may

secure additional protection by directing the Contractor to increase

the penal amount of the existing bond or to obtain an additional

bond.

(e) The bonds shall be in the form of firm commitment, supported

by corporate sureties whose names appear on the list contained in

Treasury Department Circular 570, individual sureties, or by other

acceptable security such as postal money order, certified check,

cashier's check, irrevocable letter of credit, or, in accordance

with Treasury Department regulations, certain bonds or notes of the

United States. Treasury Circular 570 is published in the Federal

Register, or may be obtained from the U.S. Department of Treasury,

Financial Management Service, Surety Bond Branch, 401 14th Street,

NW., 2nd Floor, West Wing, Washington, DC 20227.

(End of clause)

Alternate I (SEP 1996). As prescribed in 28.103-4, substitute

the following paragraph (b) for paragraph (b) of the basic clause:

(b) The Contractor shall furnish a performance bond (Standard

Form 1418) for the protection of the Government in an amount equal

to ________ percent of the contract price.

PART 53--FORMS

16. Section 53.228 is amended by revising paragraph (c); by

redesignating paragraphs (n) and (o) as (o) and (p) and adding a new

paragraph (n); in the newly designated paragraph (o) by removing the

reference ``28.106-1(n)'' and inserting ``28.106-1(o)''; and in the

newly designated paragraph (p) by removing the reference ``28.106-

1(o)'' and inserting ``28.106-1(p)'' in its place. The revised text

reads as follows:

53.228 Bonds and insurance.

* * * * *

(c) SF 25-A (REV. 1/90), Payment Bond. (See 28.106-1(c).)

* * * * *

(n) SF 1418 (10/93 Ed.), Performance Bond for Other Than

Construction Contracts. (See 28.106-1(n).)

* * * * *

53.301-1418 [Added]

17. Standard Form 1418 is added to read as follows:

53.301-1418 Performance Bond for Other Than Construction

Contracts.

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[FR Doc. 96-18508 Filed 7-25-96; 8:45 am]

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