Overview
This section outlines the application and limitations of annual performance bonds, which serve as a single aggregate security measure covering multiple nonconstruction contracts.
Key Rules
- Applicability: These bonds are strictly limited to nonconstruction contracts and cannot be used for construction projects.
- Gross Penal Sum: The bond must establish a total aggregate dollar limit (gross penal sum) that applies to all contracts covered under the bond.
- Capacity Limits: If the total value of the contracts covered by the bond meets or exceeds the bond’s gross penal sum, the contractor must obtain an additional bond to cover any further contracts.
Practical Implications
- Administrative Efficiency: This allows contractors with high-volume, nonconstruction government work to reduce paperwork by securing one umbrella bond rather than individual bonds for every contract.
- Monitoring Requirements: Contractors must actively track their aggregate contract obligations against their bond limit to ensure they remain eligible for new awards without coverage gaps.