Overview
This section prescribes the requirements for individual sureties (as opposed to corporate sureties) to provide bonds on government contracts, specifically detailing asset eligibility, the valuation process through the Treasury, and the procedures for the release or substitution of pledged assets.
Key Rules
- Asset Eligibility: Individual sureties must pledge specific eligible collateral (as defined by the Bureau of the Fiscal Service per 31 U.S.C. 9310) and are acceptable for all bond types except position schedule bonds.
- Valuation Requirements: Pledged assets must have a "net adjusted value" (market value minus a margin) that equals or exceeds the penal amount of the bond; up to three individual sureties may be combined to meet this value.
- Verification Process: Contracting officers must verify asset eligibility and valuation by contacting the Treasury’s collateral operations support team; if Treasury does not respond within three business days, the CO may seek assistance from the Director of Bank Policy and Oversight.
- Responsibility Determinations: If an individual surety for a bid guarantee is rejected, the offeror is found nonresponsible; notably, this specific finding does not require referral to the Small Business Administration (SBA) for a Certificate of Competency.
- Release Timelines: Assets are generally held for one year following final payment (for Bonds statute contracts) or until the resolution of all claims and warranty periods.
- Exclusion: Individual sureties can be excluded/debarred for fraud or failure to fulfill obligations, and an exclusion as a surety also precludes that individual from acting as a government contractor.
Practical Implications
- Administrative Burden: Using individual sureties requires significant coordination between the Contracting Officer, the Treasury Department, and the surety to establish collateral accounts and verify asset margins.
- Risk to Offerors: Because a rejection of an individual surety does not trigger SBA referral protections, contractors must ensure their sureties strictly meet Treasury eligibility standards to avoid an immediate nonresponsibility determination.
- Liquidity Constraints: Sureties must be prepared for their assets to be encumbered for at least one year beyond the completion of the contract, limiting their financial flexibility.