Overview
FAR 28.106 prescribes the administrative requirements for managing bonds, including the mandatory forms, procedures for substituting or increasing security, and the responsibilities of the Contracting Officer regarding information disclosure. It establishes the framework for how the government interacts with sureties and ensures subcontractors have access to payment bond information.
Key Rules
- Mandatory Forms: Specific Standard Forms (SF) must be used for all bond-related activities, such as SF 25 for Performance Bonds, SF 25A for Payment Bonds, and SF 1414/1415 for Consent of Surety.
- Consent of Surety: Contracting Officers must obtain consent from the surety for modifications that add work outside the original scope, or for modifications within scope that change the contract price by more than 25% or $50,000.
- Subcontractor Rights: Upon request, the government is legally required to provide subcontractors and suppliers with the name and address of the surety and, in some cases, certified copies of the payment bond and contract.
- Withholding Payments: Agencies are prohibited from withholding progress payments from a contractor because subcontractors haven't been paid; however, they must withhold the final payment if a surety provides written notice of the contractor's failure to pay its obligations.
- Substitution and Increases: Substituting a bond requires approval from the head of the contracting activity, and additional bond security must be formalized using SF 1415 (original surety) or new bond forms (new surety).
Practical Implications
- Administrative Diligence: Contractors must proactively coordinate with their sureties during the modification process to ensure "Consent of Surety" is obtained for significant price increases, or they risk being in technical violation of the contract's bonding requirements.
- Financial Protection for Subs: Subcontractors can leverage the "Furnishing Information" rule to obtain the necessary details to file a claim against a payment bond if the prime contractor is non-responsive to payment demands.
- Final Payment Logic: The regulation protects the government from liability by requiring a "hold-harmless" agreement from the surety before the Contracting Officer will withhold final payment due to subcontractor disputes.