Overview
This section contains clauses related to bonds (bid, performance, and payment) and insurance requirements (workers' compensation, third-party liability, and cargo) necessary to protect the Government's interest during contract performance. It prescribes the specific forms of financial security acceptable to the Government and the mandatory insurance coverages required for domestic, overseas, and high-risk work.
Key Rules
- Bid Guarantees (52.228-1): Failure to provide a bid guarantee in the correct form and amount by the bid opening time is grounds for immediate rejection of the bid. Successful bidders must execute all documents and furnish bonds within 10 days of receiving forms.
- Defense Base Act (DBA) Insurance (52.228-3 & 52.228-4): Contractors performing work overseas must provide workers' compensation insurance for employees under the DBA/Longshore and Harbor Workers' Compensation Act. This includes strict reporting requirements (e.g., Form LS-202) for injuries or deaths.
- Work on Government Installations (52.228-5): Contractors must maintain minimum insurance levels as specified in the contract and provide written notification to the Contracting Officer (CO) that coverage is active before starting work.
- Liability to Third Persons (52.228-7): In cost-reimbursement contracts, the Government may reimburse the contractor for certain third-party liabilities (bodily injury or property damage) not covered by insurance, provided they do not result from willful misconduct or lack of good faith by senior management.
- Alternative Security (52.228-11 & 52.228-14): Contractors may use individual sureties (pledging specific assets) or Irrevocable Letters of Credit (ILC) from investment-grade financial institutions as alternatives to traditional corporate surety bonds.
- Payment Protections (52.228-13): For certain contracts, a payment protection (often 100% of the contract price) must be submitted within a specified timeframe to ensure subcontractors and suppliers are paid.
Practical Implications
- Administrative Diligence: Contractors must strictly monitor expiration dates for insurance policies and Letters of Credit; failure to provide a renewal notice (typically 30–60 days in advance) allows the Government to draw on the security immediately.
- Cost and Cash Flow: Compliance requires early coordination with sureties and insurance brokers to ensure bonding capacity is available and that DBA premiums are factored into overseas bid pricing.
- Flow-down Requirements: Prime contractors bear the responsibility of ensuring all subcontractors maintain required insurance levels and, in construction contexts, must provide copies of payment bonds to prospective subcontractors upon request.