Overview
This section establishes the criteria for corporate sureties to be considered acceptable for federal contracts, primarily requiring their inclusion in the Department of the Treasury's Circular 570. It outlines limits on a surety's liability, procedures for reinsurance, and the steps a Contracting Officer must take if a surety's authorization is terminated.
Key Rules
- Treasury Listing Requirement: For contracts performed in the United States, corporate sureties must be listed in Treasury Department Circular 570 to be considered acceptable.
- Underwriting Limitations: A bond’s penal amount cannot exceed the surety's underwriting limit specified in Circular 570 unless the excess amount is protected by coinsurance or reinsurance from other authorized companies.
- Reinsurance Documentation: When reinsurance is required, contractors must generally submit the agreements (using Standard Forms 273, 274, or 275) with the bonds; however, if specified in the solicitation, they may have up to 45 days after bond execution to provide these documents.
- Foreign Performance Exception: For work performed in foreign countries, a Contracting Officer may accept non-Treasury listed sureties if using listed sureties is determined to be impracticable.
- Authority Termination: If a surety is removed from Circular 570, the Contracting Officer is required to review all outstanding contracts and, if necessary, demand new bonds from an acceptable surety to protect the Government's interests.
Practical Implications
- Contractors must verify that their chosen surety has sufficient "underwriting capacity" for the specific project value or be prepared to coordinate complex reinsurance agreements across multiple Treasury-approved firms.
- The government relies on Circular 570 as a real-time risk management tool; if a surety’s financial health declines and they are delisted, the contractor may be forced to incur the cost and effort of securing a replacement bond immediately.