Overview
This section outlines the mandatory requirements for performance and payment protections on federal construction contracts, implementing the Miller Act for large projects and providing alternative safeguards for smaller ones. Its primary purpose is to protect the Government’s interest in project completion and ensure that subcontractors and suppliers are paid for their labor and materials.
Key Rules
- Thresholds for Protections:
- Contracts over $150,000: Performance and payment bonds are mandatory (Miller Act), typically at 100% of the contract price.
- Contracts between $35,000 and $150,000: The Contracting Officer must select two or more alternative payment protections (such as an Irrevocable Letter of Credit or tripartite escrow agreement), from which the contractor must provide one.
- Bond Amounts: Bonds must generally equal 100% of the "original contract price" (award price plus options exercised at award). If the contract price increases via modification, the bond amounts must be increased accordingly to maintain 100% coverage.
- Timing of Submission: Contractors must furnish all required bonds or alternative protections before receiving a "Notice to Proceed" or beginning work on the project.
- Payment Bond Floor: The amount of a payment bond must never be less than the amount of the performance bond.
- Waiver Authority: Bonds for work in foreign countries may be waived if the Contracting Officer finds it impracticable for the contractor to furnish them.
Practical Implications
- Bonding Capacity: Construction contractors must maintain sufficient bonding capacity with a surety to compete for projects over $150,000, as the inability to secure these bonds prevents the issuance of a Notice to Proceed.
- Administrative Burden for Modifications: Whenever a contract's value is increased through a change order or supplemental agreement, the contractor and the Government must ensure the penal sum of the bonds is updated, which may involve additional premiums and paperwork.
- Subcontractor Protection: Because subcontractors cannot place a lien on government property, the payment bond or alternative protection serves as their primary security for payment, reducing the risk for the lower-tier supply chain.