Federal Surety Bond Tips for Government Construction Contracts
Varying Surety Bond Requirements Take Different Legal Paths to Resolve
Avoid Costly Legal Mistakes.
Given the amount of construction in federal government construction contracts, there are provisions that allow for large contractors and DOD small businesses to secure projects. There are various federal surety bond 
requirements that must be met.
For example, when DOD Contracts are over the simplified acquisition thresholds, contracting officers can require prime contractors to acquire various types of federal surety bonds. The most common are performance bonds and payment bonds.
FAR 28.103-2 Performance Surety Bond.
Under the FAR, the contracting officer often requires Miller Act surety performance bonds in federal government construction contracts exceeding the simplified acquisition threshold to protect the Government’s interest. In either situation, the contracting officer must decide whether or not a construction contractor is responsible under FAR Subpart 9.1 despite the fact that the contractor can or has a federal surety bond.
FAR 28.103-2
(a) Performance bonds may be required for contracts exceeding the simplified acquisition threshold when necessary to protect the Government’s interest. The following situations may warrant a performance bond:
(1) Government property or funds are to be provided to the contractor for use in performing the contract or as partial compensation (as in retention of salvaged material).
(2) A contractor sells assets to or merges with another concern, and the Government, after recognizing the latter concern as the successor in interest, desires assurance that it is financially capable.
(3) Substantial progress payments are made before delivery of end items starts.
(4) Contracts are for dismantling, demolition, or removal of improvements.
(b) The Government may require additional performance bond protection when a contract price is increased.
(c) The contracting officer must determine the contractor’s responsibility (see subpart 9.1) even though a bond has been or can be obtained.
FAR 28.103-3 Payment Surety Bond
In government construction contracts the contracting officer will seek a payment bond when the performance bond is also required or if the payment bond is in the government’s best interest. Companies must be aware that if the contract price is increased, so too does the amount of the government surety bond. Government DOD contract agencies should notify both the prime and surety when the contract price increases. There is an argument to be made on behalf of sureties that their liability cannot automatically increase with contract values increase.
- Payment bonds are primarily for the benefit of subcontractor material men at specific levels.
28.103-3 Payment bonds.
(a) A payment bond is required only when a performance bond is required, and if the use of a payment bond is in the Government’s interest.
(b) When a contract price is increased, the Government may require additional bond protection in an amount adequate to protect suppliers of labor and material.
FAR. 28.103-3
(a) A payment bond is required only when a performance bond is required, and if the use of a payment bond is in the Government’s interest.
(b) When a contract price is increased, the Government may require additional bond protection in an amount adequate to protect suppliers of labor and material.
Each of the above federal surety bond requirements carries various solutions when problems arise. Therefore, both prime construction contractors and subcontractors should make sure they get the proper legal advice as early as possible.
For additional help with government surety bond issues in federal government construction contracts, please call our federal construction attorneys at 1-866-601-5518. FREE INITIAL CONSULTATION.
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