This analysis covers FAR Subpart 28.1, which establishes the policies and procedures for using bid guarantees, performance and payment bonds, and alternative financial protections in federal contracting.
Overview
Subpart 28.1 implements statutory requirements (notably the "Bonds statute," formerly the Miller Act) to protect the Government against financial loss and ensure that subcontractors and suppliers are paid. It distinguishes between the mandatory bonding requirements for construction contracts and the discretionary use of bonds for service and supply contracts.
Key Rules
- Bid Guarantees: Generally required only when performance and payment bonds are also required. The guarantee amount is typically 20% of the bid price, capped at $3 million.
- Construction Thresholds:
- Contracts >$150,000: Performance and payment bonds are mandatory (100% of contract price).
- Contracts $35,000 – $150,000: The Contracting Officer must select two or more alternative payment protections (e.g., Irrevocable Letter of Credit, Tripartite Escrow, or Payment Bond).
- Non-Construction Contracts: Bonds are generally not required unless the Government’s interest is at risk (e.g., use of high-value Government property, substantial progress payments, or dismantling/demolition work).
- Responsiveness vs. Responsibility: In sealed bidding, failing to provide a valid bid bond is a matter of responsiveness (the bid is rejected), while questions about the authenticity of a Power of Attorney are matters of responsibility (handled after bid opening).
- Consent of Surety: Required for contract modifications if the price increases by more than 25% or $50,000, or if the work is outside the original scope.
Responsibilities
- Contracting Officer (CO):
- Determines the required bond amounts and inserts appropriate clauses.
- Waives bid guarantees when in the best interest of the Government (with proper authority).
- Validates the authority of an attorney-in-fact for bid bonds.
- Furnishes bond information to subcontractors and suppliers upon request.
- Withholds final payment if notified by a surety of a contractor's failure to pay subcontractors.
- Contractor (Principal):
- Must furnish all required bonds or protections before receiving a "Notice to Proceed."
- Ensures that anyone signing as an attorney-in-fact provides evidence of authority.
- Surety:
- Binds themselves to the Government for the contractor's performance and payment obligations.
- May request progress information and payment status from the CO.
Practical Implications
- Bidding Risks: Contractors must be meticulous with bid bonds. A missing signature or an invalid Power of Attorney can result in immediate disqualification without the chance to fix the error (except in very narrow circumstances).
- Subcontractor Protection: This subpart provides a vital safety net for subcontractors on federal construction projects. Since subcontractors cannot place a lien on government property, the payment bond is their primary recourse for non-payment.
- Cash Flow Management: For construction projects between $35k and $150k, contractors should negotiate for an Irrevocable Letter of Credit (ILC) or escrow if they lack the bonding capacity for a full payment bond, as the FAR encourages COs to consider these alternatives.
- Modifications and Growth: If a project significantly expands in scope or cost, contractors must proactively engage their surety. Failing to secure a "Consent of Surety" for a major modification can delay the modification or jeopardize the bond's validity.