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FAR Part 28

FAR Part 28. Bonds and Insurance. What is a Bond?. Promise by a third party (the Surety) to fulfill the contractor’s responsibilities or compensate the Government in case of default. In Federal contracting performance and payment bonds are required by the Miller Act

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FAR Part 28

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  1. FAR Part 28 Bonds and Insurance

  2. What is a Bond? • Promise by a third party (the Surety) to fulfill the contractor’s responsibilities or compensate the Government in case of default. • In Federal contracting performance and payment bonds are required by the Miller Act • Construction over 150K must have • Construction between 30K and 150K may have

  3. Common Bond Types • Bid Bond – Surety will compensate Government in event contractor does not accept award. • Performance Bond – Surety will either complete or cause the work to be completed if the contractor defaults • Payment Bond – Surety will pat subcontractors or other valid claims should contractor fail to honor their debts.

  4. Who Pays for Bonds? • The cost of the bond is an allowable contract expense. • The cost of a bond is typically quoted as a percent of the contract value

  5. How are Bonds Secured? • The surety (company or individual that issues bond) must be backed by acceptable security • Cash • Certificates of Deposit • Irrevocable Letter of Credit • Corporate Securities (if listed) • Government Bonds • Real Estate

  6. When are Bonds Issued / Released • Bid Bond issued and accompanies sealed bid for construction. • Performance and Payment bonds issued prior to contract award for construction • Value is a stated % of bid price for bid bond and full contract value for payment/performance.

  7. Types of work that are bonded • Principle work is Construction • Bid Bond • Performance Bond • Payment Bond • Other types of contracts may also require bonds (e.g. Services) • Performance Bond • Annual Performance Bonds • Payment Bond

  8. Surety’s Responsibility • Begins with issuance of Bond • Requires them to fulfill bond requirements including payment or performance • May perform or cause to be performed the contractor’s work if contractor defaults • May compensate the bond holder for expenses incurred in completing the work • Liability absolved by a release of leins from CO at satisfactory complettion.

  9. Insurance • Contractors required to provide evidence of satisfactory insurance including: • Auto insurance for company vehicles and their employees (200/500/20) • General Liability insurance (500K) • Loss or damage to Government property • Worker’s compensation insurance • Aircraft and passenger liability 200/500/200 • Vessel Liability

  10. Insurance Provider • Typically contractor provides “Certificate of Insurance” attesting to the required coverage • Certificate issued by Insurance Company • Some companies self insure • Requires ACO approval

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