whether the materials, appliances, and plant which are on the site will be needed.

§ 1-18.803-6 Dealings with surety-takeover agreements.

(a) By reason of the surety's liability for damages resulting from the contractor's default, the surety has certain rights and interests in connection with the completion of the contract work and the application of the undisbursed funds available therefor. An expenditure in excess of the amount reasonably necessary for completion or a diversion of funds to other use may result in reducing the surety's liability. Because of such interests of the surety, proposals by the surety concerning the completion of the work should be given due consideration, and the decision as to the action to be taken shall be made on the basis of the best interest of the Government, including the possible effect of such action upon the Government's rights against the surety.

(b) Where the surety desires to complete the contract work, completion by the surety should normally be permitted unless the contracting officer has reason to believe that the persons, firms, or corporations by whom the surety proposes to have the work done are so incompetent or unqualified that the interests of the Government would be substantially prejudiced by their efforts.

(c) Because of the possibility of conflicting claims to unpaid prior earnings (retained percentages or amounts representing unpaid progress estimates) of the defaulting contractor, the surety may condition its offer of completion upon the execution by the Government of a "takeover" agreement fixing the surety's rights to payment from such funds. In that event, the contracting officer may in his discretion (but not before the effective date of termination) enter into a written agreement with the surety. Further, consideration should be given to having the agreement include both the surety and the defaulting contractor in order to eliminate any disagreement as to the contractor's residual rights, such as claims to unpaid prior

earnings. The agreement shall provide that the surety will undertake to complete the work required by the contract in accordance with all the terms and conditions of the contract, and that the Government will pay the surety in the manner provided by the contract, but not in excess of the surety's costs and expenses, the balance of the contract price unpaid at the time of default; subject, however, to the following conditions:

(1) Any unpaid earnings of the defaulting contractor, including retained percentages and progress estimates for work accomplished prior to termination, shall be subject to claims by the Government against the contractor, except to the extent that the amount thereof may be required to pay to the completing surety its actual costs and expenses incurred in the completion of the work exclusive of its payments and obligations under the payment bond given in connection with the contract.

(2) Such agreement shall not waive or release the Government's right to liquidated damages for delays in completion of the work, except to the extent that such delays may be excused under the provisions of the contract.

(3) If the contract proceeds have been assigned to a financing institution, the surety may not be paid from retained percentage or amounts representing unpaid progress estimates earned by or payable to the contractor unless the assignee shall consent in writing to such payment.

(4) In no event shall the surety be entitled to be paid any amount in excess of its total expenditures necessarily made in completing the work and discharging its liabilities under the payment bond of the defaulting contractor. Furthermore, payments to the surety to reimburse it for discharging its liabilities under the payment bond of the defaulting contractor shall be only on authority of (i) mutual agreement between the Government, the defaulting contractor, and the surety, (ii) determination of the Comptroller General as to payee and amount, or (iii) order of a court of competent jurisdiction.

§ 1-18.803-7 Completion by another contractor.

Where the surety does not complete performance of the contract, the contracting officer normally will complete the performance of work by awarding a new contract based on the same plans and specifications. Although the legal requirements with respect to formal advertising are inapplicable, such contract shall be awarded on the basis of formal advertising, except where there is good reason to negotiate. The contracting officer must use reasonable diligence to obtain the lowest price available for completion.

§ 1-18.803-8 Documentation in contract file.

In all cases where a contractor's right to proceed is terminated for default or where the procedure authorized by § 1-18.803-2 is followed, the contract file shall be well documented to explain fully the reasons for the action taken.

§ 1-18.803-9 Liquidation of liability.

In accordance with the provisions of the contract, the contractor and his surety are liable to the Government for resulting damages except those administrative costs which are necessary for, and directly assignable to, completing the work following such termination and which would not have been required had termination not been necessary. All retained percentages of progress payments previously made to the contractor and any progress payments due for work completed prior to the termination of the right to proceed shall be used for the purpose of liquidating the liability of the contractor and his surety to the Government for such damages. Where the retained and unpaid amounts are insufficient to liquidate such liability, steps shall be taken to recover the additional sum from the contractor and his surety.

[42 FR 56740, Oct. 28, 1977]

§ 1-18.803-10 Withholding for labor violations.

Any amounts necessary to pay laborer and mechanic wages due under the contract shall be withheld until evi

dence of proper payment is given, or such amounts shall be transferred to the Comptroller General (see § 112.404-9).

§ 1-18.804 Use of termination for default clauses.

(a) Fixed-price construction contracts. See § 1-8.700-2(b)(4) regarding the use of a default clause in contracts estimated to exceed $10,000, and § 18.700-2(b)(5) regarding the use of a default clause in contracts estimated not to exceed $10,000.

(b) Cost-reimbursement type construction contracts. See § 1-8.7002(b)(2) regarding the use of a default clause.

§ 1-18.805 Formats of notices of termination for convenience of construction contracts.

§ 1-18.805-1 Telegraphic notices. See formats in § 1-8.801-1.

§ 1-18.805-2 Letter notices. See formats in § 1-8.801-2.

Subpart 1-18.9-[Reserved]

Subpart 1-18.10-Bonds and Insurance

§ 1-18.1000 Scope.

This subpart sets forth requirements for bid guarantees, bonds, and insurance in construction contracts.

§ 1-18.1001 Bid guarantees.

Subpart 1-10.1 shall govern bid guarantees for construction contracts, insofar as applicable. Whenever performance and payment bonds are to be required in connection with construction contracts, the invitation for bids or request for proposals shall require the submission of bid guarantees meeting the requirements of that subpart.

§ 1-18.1002 Performance bonds in connection with construction contracts. Furnishing of performance bonds for construction contracts is governed by § 1-10.104-1. Where required, such bonds shall be furnished prior to issu

Sec.

1-19.702 Supplemental provisions. 1-19.702-1 Scope and duration of contract. 1-19.702-2 Transportation service require

ments.

1-19.702-3 Determination of weights. 1-19.702-4 Liability of contractor. 1-19.702-5 Insurance requirements. 1-19.702-6 Annotation and distribution of shipping documents.

1-19.702-7 Additional contractor responsibilities.

1-19.702-8 Government responsibilities. 1-19.702-9 Inspection of shipping and receiving facilities.

1-19.702-10 Rates and charges.

AUTHORITY: Sec. 205(c), 63 Stat. 390; 40 U.S.C. 486(c).

SOURCE: 29 FR 12918, Sept. 15, 1964; 29 FR 13194, Sept. 23, 1964, unless otherwise noted.

§ 1-19.000 Scope of part.

This part prescribes policies and procedures (a) for the application of proper transportation and traffic management considerations in the procurement of personal property and (b) for the procurement of transportation and related services, to the end that both property and services are procured on the basis most advantageous to the Government, in terms of economy, efficiency, and service. This part does not apply where the procurement of transportation and related services is effected solely by means of bill of lading type commitments.

Generally, the preferred method of transporting personal property for the Government is through use of the facilities of commercial carriers. However, Government vehicles may be used when they are available and are not being fully utilized and when their use will result in substantial economies. They may be used for such purposes as (a) local transfer of property between Government installations, (b) pickup and delivery services which are not performed by the commercial carriers in connection with the line-haul transportation, (c) transportation of property to meet emergencies, and (d) accomplishment of program objectives which cannot be attained through use of commercial carriers.

§ 1-19.105 Specifying modes of transportation.

Preferential treatment, normally, shall not be accorded to any mode of transportation or to any particular carrier, either in the award of a contract for the procurement of personal property or in the procurement of transportation services. However,

where, for valid reasons, use of particular types of carriers is necessary to meet program requirements, the invitation shall provide that only bids involving the specified types of carriers will be considered. Examples of the need for particular types of carriers would be (a) where only certain modes

of transportation could meet the required delivery date for property needed in an emergency; or (b) where the consignee's installation and related facilities preclude, or are not conducive to, service by a particular mode of transportation.

§ 1-19.106 Small business assistance.

Consistent with the policies of the Government with respect to small business, as set forth in Subpart 1-1.7, executive agencies shall place with small business concerns a fair proportion of the total purchases and contracts for transportation and related services, such as packing and crating, loading and unloading, and local drayage.

§ 1-19.107 Insurance against transportation hazards.

(a) Ordinarily, it is the policy of the Government not to insure its own risks (see § 1-10.301). Normally, the Government does not procure insurance, is a noninsurer of its property while in possession of commercial carriers and, except for the legal liability of the carrier, assumes the risk of loss. However, insurance will be required when it is mandatory by law. In special instances, the Government may, if deemed necessary and desirable and in the best interest of the Government, (1) procure insurance on its property where there is no statutory prohibition, or (2) require the carrier under the contract to assume full responsibility for loss or damage to the Government property in its possession, and to provide insurance to cover the carrier's assumed responsibility.

(b) When special considerations dictate the need for insurance, and it is proposed that the Government directly procure insurance coverage for its benefit, the contracting officer shall ascertain that there is no statutory prohibition and that funds are available therefor, and shall document the need and authorization therefor.

(c) "Valuables" shall be shipped as provided in the Government Losses in Shipment Act (50 Stat. 479 as amended; 5 U.S.C. 134). (See 31 CFR 260 for definition of the term "Valuables" and for applicable procedure.)

(d) When a commercial carrier is required to assume full responsibility for loss or damage to Government property in its possession, and the carrier is required to provide appropriate insurance to cover its assumed responsibility, the cost of such insurance to the carrier shall be included in and properly considered as a part of the transportation cost.

§ 1-19.108 Ocean transportation. [41 FR 52457, Nov. 30, 1976]

§ 1-19.108-1 Use of privately owned U.S. flag commercial vessels.

The policy of the United States regarding the use of privately owned U.S. flag commercial vessels is stated in the Cargo Preference Act of 1954 (Pub. L. 664, August 26, 1954, 68 Stat. 832, 46 U.S.C. 1241(b)). The Act amended the Merchant Marine Act of 1936 (49 Stat. 1985) to require, among other things, that when the United States procures, contracts for, or otherwise obtains for its own account or for the account of a foreign nation without provision for reimbursement any equipment, materials, or commodities, within or outside the United States, or advances funds or credits or guarantees the convertibility of foreign currencies in connection with the furnishing of such equipment, materials, or commodities, the appropriate agency or department shall ensure that at least 50 percent of the gross tonnage of such equipment, materials, or commodities, which may be transported on ocean vessels, shall be transported on privately owned U.S. flag commercial vessels to the extent such vessels are available at fair and reasonable rates for U.S. flag commercial vessels. The requirement does not apply to cargoes carried in the vessels of the Panama Canal Company. The provision of the statute may be temporarily waived when the Congress, the President, or the Secretary of Defense declares an emergency. The Maritime Administration has issued regulations (46 CFR 381) which implement the Merchant Marine Act of 1970. The regulations require agencies to submit reports regarding shipments on U.S. and foreign flag commercial vessels.

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