§ 1-10.104-1 Construction contracts.

(a) Pursuant to the Miller Act, as amended (40 U.S.C. 270a-270e), a performance bond shall be required in connection with any construction contract exceeding $2,000 in amount, except that this requirement may be waived (1) by the contracting officer for so much of the work as is to be performed in a foreign country, if he finds that it is impracticable for the contractor to furnish such bond, and (2) as may be otherwise authorized by law.

§ 1-10.104-2 Other than construction contracts.

(a) Except as provided in paragraphs (b) and (d) of this § 1-10.104-2, performance bonds shall not be required in connection with other than construction contracts.

(b) Performance bonds may be required where essential to the best interests of the Government. Determinations to require performance bonds shall be made by the contracting officer on individual procurements. Examples of situations which may warrant requiring a performance bond are:

(1) Where the terms of a proposed contract provide for the contractor to have the use of Government property or funds for the performance of the contract or as partial compensation (as in retention of salvaged material).

(2) Where a Government contractor sells his assets to, or merges his business with, another firm and the Government determines to recognize the latter firm as the successor in interest to the contract, and desires assurance as to its financial capacity.

(3) Where substantial progress payments are made before delivery of end items commences.

(4) Where, in connection with a contract for dismantling, demolition, or removal of improvements, regardless of amount, a performance bond is determined necessary to ensure completion of the work and to protect the Government against damage to adjoining property during its performance.

(c) Where the contracting officer determines to require a performance bond, he shall determine the amount that will adequately protect the Government.

(d) Performance bonds shall not be required unless the invitation for bids requires such a bond, or the requirement of such a bond is in the interest of the Government (as in a contract modification).

(e) When a performance bond is not furnished within the period specified by the terms of the contract, the contract will be subject to termination for default when in the public interest (see §§ 1-10.103-3(a)(2) and 1-8.6023(c)).

(f) Additional performance bond protection shall be required under the circumstances and in the manner set forth in § 1-10.104-1(f).

[29 FR 10247, July 24, 1964, as amended at 33 FR 14287, Sept. 21, 1968]

§ 1-10.104-3 Annual performance bonds.

Annual performance bonds may be used only in connection with contracts other than construction contracts. When such a bond is used and has been completely obligated in an amount equal to the penal sum thereof, an additional bond shall be obtained to cover additional contracts.

§ 1-10.105 Payment bonds.

§ 1-10.105-1 Construction contracts.

(a) Under the Miller Act, as amended (40 U.S.C. 270a-270e), a payment bond shall be required in connection with any construction contract exceeding $25,000 in amount, except that this requirement may be waived (1) by the contracting officer for work to be performed in a foreign country, if he finds that it is impracticable for the contractor to furnish such bond, and (2) as otherwise authorized by law.

(b) The penal amount of the payment bond shall be as follows:

(1) When the contract price is not more than $1,000,000, the penal amount shall be 50 percent of the contract price;

(2) When the contract price is more than $1,000,000 but not more than $5,000,000, the penal amount shall be 40 percent of the contract price; and

(3) When the contract price is more than $5,000,000, the penal amount shall be $2,500,000.

(c) Whenever the successful bidder will be required to furnish a payment

(d) When a payment bond (including any

necessary reinsurance agreements) is not furnished within the period specified by the terms of the contract, the contract may be terminated for default when deemed to be in the public interest (see §§ 1-10.1033(a)(2) and 1-18.803-5).

(e) Whenever a contract is modified in a manner not provided for in any provision thereof, consent of surety shall be obtained (see § 1-10.205).

(f) In any case where a contract is modified, whether or not pursuant to a contractual provision, so as to increase the contract amount to such an extent that the penal sum of the existing bond becomes inadequate to protect the interests of persons furnishing labor and material, in the opinion of the contracting officer, additional payment bond protection shall be secured, either by increasing the penal sum of the existing bond or by obtaining an additional bond from a new surety.

[29 FR 10247, July 24, 1964, as amended at 42 FR 56116, Oct. 21, 1977; 44 FR 34499, Jan. 11, 1979]

EFFECTIVE DATE NOTE: The provisions of paragraph (a) of §1-10.105-1 become effective July 16, 1979. For the convenience of the user, the superseded text appears below.

§1-10.105-1 Construction contracts.

(a) Pursuant to the Miller Act, as amended (40 U.S.C. 270a-270e), a payment bond shall be required in connection with any construction contract exceeding $2,000 in amount, except that this requirement may be waived (1) by the contracting officer for so much of the work as is to be performed in a foreign country, if he finds that it is impracticable for the contractor to furnish such bond, and (2) as may be otherwise authorized by law.

§ 1-10.105-2 Other than construction con

tracts.

(a) Payment bonds generally shall not be required in connection with other than construction contracts and may be required only where the head of the procuring activity determines that such requirements is in the best interest of the Government. If a performance bond is required in connection with a contract, a payment bond can generally be obtained without the payment of an additional premium.

(b) Subject to paragraph (a) of this § 1-10.105-2, a payment bond shall not be required unless the invitation for bids requires such a bond.

(c) Whenever a payment bond is required, the penal sum thereof shall be in an amount deemed adequate by the contracting officer.

§ 1-10.105-3 Furnishing information to subcontractors and suppliers.

Where a payment bond has been provided, the contracting officer may furnish the name and address of the surety or sureties thereon to persons who have furnished, or have been requested to furnish, labor and/or material for use in the prosecution of the work required by the contract in question. In addition, the contracting officer may furnish to persons who satisfy him that they have provided labor and/or material, and have not received payment, additional general information on such matters as the progress of the work, payments, and the estimated percentage of completion.

§ 1-10.106 Advance payment bonds.

An advance payment bond may be required only in connection with a contract containing an advance payments provision, and then only if a performance bond has not been furnished. Whenever an advance payment bond is required, the contracting officer shall determine the amount necessary adequately to protect the Government.

§ 1-10.107 Patent infringement bonds.

Patent infringement bonds may be required only in connection with contracts containing provisions for patent indemnity, and then only if a perform

insuring Companies." If the penal amount of a bond exceeds a surety's underwriting limit specified in the Department of the Treasury Circular, the bond will be acceptable only if the excess over the specified limit is coinsured or reinsured and the amount of such coinsurance or reinsurance does not exceed the underwriting limit of each coinsurer or reinsurer. Coinsurance or reinsurance agreements shall conform to the Department of the Treasury Regulations as set forth in 31 CFR 223.10 and 223.11. Where reinsurance is contemplated, the procuring activity generally will require reinsurance agreements to be executed and submitted with the bonds before making a final determination on the bonds. When specified on the bid form (Standard Form 21 Bid Form (Construction Contract)), the procuring activity may accept a bond from the direct writing company in satisfaction of the total bond requirement of the contract, even though it may exceed the insurer's underwriting limitation, until necessary reinsurance agreements have been executed. However, necessary reinsurance agreements must be executed and submitted to the procuring activity within the time specified on the bid form (not to exceed 45 calendar days after the execution of the bond). Standard Form 273, Reinsurance Agreement for a Miller Act Performance Bond, and Standard Form 274, Reinsurance Agreement for a Miller Act Payment Bond, shall be used when reinsurance is furnished in connection with Miller Act bonds. Standard Form 275, Reinsurance Agreement in Favor of the United States, shall be used when reinsurance is furnished in connection with bonds for other purposes.

(b) In connection with contracts to be performed in the Canal Zone, corporate Panamanian surety companies which are acceptable on bonds required by the Panama Canal Company may be accepted in addition to the corporate sureties appearing on the Treasury List. The acceptability of Panamanian sureties shall be subject to the conditions and restrictions (including any requirement for security deposits) imposed by the Panama Canal Company.

(c) For contracts to be performed outside the United States, Puerto Rico, the Virgin Islands, and the Canal Zone, sureties not appearing on Treasury Department Circular 570 may be accepted if determined by the contracting officer to be in the best interest of the Government.

(d) The Department of the Treasury Circular 570 may be obtained from the US. Treasury Department, Bureau of Government Financial Operation, Audit Staff, Washington, D.C. 20226.

[29 FR 10247, July 24, 1964, as amended at 42 FR 56116, Oct. 21, 1977)

§1-10.203 Individual sureties.

(a) It is the responsibility of the contracting officer to determine the acceptability of individuals proposed as sureties on bonds. At least two individual sureties must execute the bond and the net worth of each individual must be not less than the penal amount of the bond. The number and amounts of other bonds upon which a proposed individual surety is bound, and the status of the contracts in connection with which such bonds were furnished, must be considered in determining the acceptability of the individual surety. (See also the instructions on the reverse of Standard Form 28, Affidavit of Individual Surety, FPR 1-16.901-28.)

(b) Each individual surety must execute an Affidavit of Individual Surety, Standard Form 28. The information thus provided is helpful in determining the net worth of proposed individual sureties.

(c) In order to ascertain the continuing acceptability of individual sureties, the official executing the Certificate of Sufficiency on the reverse of Standard Form 28 may be required to execute further certificates, as contemplated by Instruction 5 on that form, with such frequency as the agency may deem necessary and appropriate. Further certificates indicating additional assets, or a new surety, may be required to assure protection of the Government's interest.

[29 FR 10247, July 24, 1964, as amended at 31 FR 15093, Dec. 1, 1966]

§ 1-10.204 Options in lieu of sureties.

Any one or more of the types of security listed in this § 1-10.204 may be deposited by the contractor in lieu of furnishing corporate or individual sureties on bonds. Where any such type of security is deposited, a statement shall be incorporated in the bond form pledging such security, and the bond form shall be executed by the contractor as principal. Agencies shall establish such safeguards as may be necessary to protect against loss of the security and shall return such security or its equivalent when, by its terms, the obligation of the bond has ceased.

§ 1-10.204-1 United States bonds or notes.

In accordance with the provisions of the Act of February 24, 1919, as amended (6 U.S.C. 15) and Treasury Department Circular No. 154 dated February 6, 1935 (31 CFR Part 225), any person required to furnish a bond to the Government has the option, in lieu of furnishing a surety or sureties thereon, of depositing certain United States bonds or notes in an amount equal at their par value to the penal sum of the bond, together with a duly executed power of attorney and agreement authorizing the collection or sale of such United States bonds or notes in the event of default of the principal on the bond. The contracting officer may turn these securities over to the finance or other officer as provided in agency procedures, or deposit them with the Treasurer of the United States, a Federal Reserve Bank, branch Federal Reserve Bank having the requisite facilities, or other depository duly designated for the purpose by the Secretary of the Treasury, under procedures prescribed by the agency concerned and Treasury Department Circular No. 154. However, the contracting officer shall deposit with the Treasurer of the United States all such bonds and notes received by him in the District of Columbia.

§ 1-10.204-2 Certified or cashier's checks, bank drafts, money orders, currency, or irrevocable letters of credit. Any person required to furnish a bond has the option, in lieu of furnishing surety or sureties thereon, of depositing a certified or cashier's check, a bank draft, a Post Office money order, currency, or an irrevocable letter of credit, in an amount equal to the penal sum of the bond. Certified or cashier's checks, bank drafts, or Post Office money orders shall be drawn to the order of the appropriate Federal agency.

§ 1-10.205 Consent of surety.

In connection with any amendment, modification, or supplemental agreement with respect to which the waiver of notice to the surety contained in the bond form is inapplicable and which would otherwise effect the release of a surety, or in any other situation as prescribed by each agency, the contracting officer shall obtain the written consent thereto of the surety or sureties on the existing bond or bonds (notwithstanding the fact that there may be an additional bond supported by a new surety); provided, that no such consent need be obtained if there is an increased or additional bond supported by the same surety or sureties.

tory authority for the payment of insurance premiums, appropriated moneys of the United States generally are not regarded as available for that purpose. There are, however, exceptions to these two statements. Insurance will be required where it is mandatory by law, and may be required in the absence of any statutory prohibition when in the best interest of the Government. Examples of situations which may warrant obtaining insurance are (a) where it is considered desirable to utilize the facilities and services of the insurance industry (e.g., safety protection and claim services), (b) where, in special instances, it is deemed necessary or desirable in connection with the performance of a contract (e.g., transportation of particularly valuable items), or (c) where commingling of property or the conditions of the contract make the carrying of insurance reasonably necessary for the protection of the several interests concerned.

§ 1-10.302 Notice of cancellation or change.

Where insurance is required by contract provision or in writing by the approving authority, the policies evidencing such insurance shall contain an endorsement to the effect that cancellation or material change in the policies, adversely affecting the interest of the Government in such insurance, shall not be effective unless the written notice as required by the approving authority is given.

§ 1-10.303 Responsibility for loss of or damage to Government property.

Where Government property may be in the possession of or under the control of the contractor, or in the custody of a transportation company, the contract shall set forth the responsibility of the contractor for loss of or damage to such Government property. § 1-10.304 Insurance against loss of or damage to Government property.

In instances where insurance is required or approved to cover loss of or damage to Government property, such insurance may be provided either by specific insurance policies, or by inclusion of such risks in the contractor's