Code of Federal Regulations: Containing a Codification of Documents of ...

BONDS, INSURANCE, AND INDEMNIFICATION

Part 2-Sureties

10-200 General. Every bond required or used in connection with a contract for supplies, services, or construction shall be supported by good and sufficient surety (corporate or individual) except as provided in 10–202.

10-201 Requirements of Sureties.

10-201.1 Corporate Sureties and Cosureties.

(a) Corporate Sureties. In connection with contracts for s applies, services, or construction to be delivered or performed in the United States, its possessions (other than the Canal Zone), or Puerto Rico:

(i) solicitations shall not require that only corporate sureties may be furnished or that a particular corporate surety be furnished, except as may be otherwise specifically provided (e.g., position schedule bonds may be obtained only from corporate sureties); and

(ii) any corporate surety offered for a bond furnished the Government, or furnished pursuant to a Government contractual requirement, where the contracting officer has authority to approve the sufficiency of the surety, must appear on the Treasury Department List (TD Circular 570) and the amount of the bond must not be in excess of the underwriting limits stated in that list.

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) similar to those imposed by the Panama Canal Company, and to a determination by the contracting officer that the amount of the bond is commensurate with the underwriting capacity of the surety. For contracts to be performed in a foreign country, sureties not appearing on Treasury Department Circular 570 are acceptable if it is determined by the contracting officer that it is impracticable for the contractor to use Treasury listed sureties.

(b) Corporate Cosureties. More than one corporate surety may be accepted as cosurety upon any recognizance, stipulation, bond, or undertaking in connection with contracts for supplies, services, or construction. In no case, however, shall the liability of any such cosurety exceed the maximum penal sum which it is qualified to underwrite on any one obligation. It is not necessary that each corporate surety obligate itself for the full amount of the bond. Each corporate surety may limit its liability in the bond to a specified sum. The sureties must bind themselves jointly and separately for the purpose of allowing a joint action or actions against any or all of them. Where the bond is to be executed by two or more corporate sureties, Standard Form 25 shall be used in the case of a performance bond and Standard Form 25-A in the case of a payment bond. On bonds covering supply or service contracts where the amount of the bond exceeds the underwriting limitation of the corporate surety, the latter may reinsure with a corporation on the acceptable list of corporate sureties having the required reinsurance underwriting capacity. Reinsurance may also protect bonds required to be furnished to the United States by the Miller Act (40 U.S.C. 270a - 270d) covering contracts for the construction, alteration, or repair of any public building or public work of the United States, as well as other types of Federal bonds when the amount of the bond exceeds the underwriting limitation of the corporate surety.

10-201.1

ARMED SERVICES PROCUREMENT REGULATION

10:14

BONDS, INSURANCE, AND INDEMNIFICATION

Such reinsurance shall not be in excess of the underwriting limitation of the reinsuring company.

(c) Termination of Authority To Qualify as Surety. The Treasury Department issues supplements to the Treasury Department Circular 570, notifying all Federal agencies of the termination of the authority of a specified corporate surety company to qualify as a surety on Federal bonds. Procuring activities will be notified of these supplements in accordance with the procedures of their Departments. Upon receipt of notification of termination of a company's authority to qualify as surety on Federal bonds, each contracting officer concerned shall secure new bonds with acceptable sureties in lieu of any outstanding bonds with the named company.

10-201.2 Individual Sureties.

(a) Acceptability. Individual sureties are acceptable for all types of bonds other than position schedule bonds. An individual surety shall be a citizen of the United States, except that if the contract and bond are executed in any foreign country, the Commonwealth of Puerto Rico, the Virgin Islands, the Canal Zone, Guam, or any other territory or possession of the United States, such surety need only be a permanent resident of the place of execution of the contract and bond.

(b) Number. If individual sureties are used, there shall be at least two responsible individuals on each bond.

(d) Justification. The contracting officer, in evaluating bonds and consents of surety underwritten by individual sureties, must first ascertain that all documents, including the Affidavits of Individual Surety required by Instruction No. 4b on the reverse of Standard Form 24, "Bid Bond," and Instruction No. 3b on the reverse of Standard Form 25, "Performance Bond," and Standard Form 25-A, "Payment Bond," have been completely filled out and are properly executed. The contracting officer must next ascertain that each individual surety, underwriting a bond or consent of surety which increases the penal amount of a bond previously furnished, justifies his net worth "in a sum not less than the penalty of the bond" as required by Instruction No. 4 on the reverse of Standard Form 28, "Affidavit of Individual Surety." Since individual sureties are jointly and severally liable in the event of default by the principal, each individual surety must list on Standard Form 28 a net worth at least equal to the total penal amount of the bond or consent of surety. Example: If performance and payment bonds on a construction contract have penal amounts of $ 40,000 and $20,000, respectively, each individual surety must show a net worth of at least $60,000 to have the contracting officer accept his underwriting of such bonds. Normally net worth will be the amount indicated by the individual surety on line g, block 7, of Standard Form 28. However, the contracting officer is expected to consider all relevant information furnished by the individual surety on Standard Form 28 and make an independent determination of the individual surety's net worth based on the contracting officer's own best judgment. Example: Normally the "fair value" of real estate is a more realistic figure than the “assessed value" for taxation purposes. However, there may be situations where the reverse is true, for the purpose of determining net worth, in which case the contracting officer may determine net worth is a figure other than that entered on line g, block 7 of Standard Form 28. The contracting officer also should scrutinize closely the information entered in block 10 10-201.2

ARMED SERVICES PROCUREMENT REGULATION

BONDS, INSURANCE, AND INDEMNIFICATION

Part 2-Sureties

10-201 Requirements of Sureties.

10-201.1 Corporate Sureties and Cosureties.

(a) Corporate Sureties. In connection with contracts for s pplies, services, or construction to be delivered or performed in the United States, its possessions (other than the Canal Zone), or Puerto Rico:

(b) Corporate Cosureties. More than one corporate surety may be accepted as cosurety upon any recognizance, stipulation, bond, or undertaking in connection with contracts for supplies, services, or construction. In no case, however, shall the liability of any such cosurety exceed the maximum penal sum which it is qualified to underwrite on any one obligation. It is not necessary that each corporate surety obligate itself for the full amount of the bond. Each corporate surety may limit its liability in the bond to a specified sum. The sureties must bind themselves jointly and separately for the purpose of allowing a joint action or actions against any or all of them. Where the bond is to be executed by two or more corporate sureties, Standard Form 25 shall be used in the case of a performance bond and Standard Form 25-A in the case of a payment bond. On bonds covering supply or service contracts where the amount of the bond exceeds the underwriting limitation of the corporate surety, the latter may reinsure with a corporation on the acceptable list of corporate sureties having the required reinsurance underwriting capacity. Reinsurance may also protect bonds required to be furnished to the United States by the Miller Act (40 U.S.C. 270a-270d) covering contracts for the construction, alteration, or repair of any public building or public work of the United States, as well as other types of Federal bonds when the amount of the bond exceeds the underwriting limitation of the corporate surety.

10-201.1

ARMED SERVICES PROCUREMENT REGULATION

10:14

BONDS, INSURANCE, AND INDEMNIFICATION

Such reinsurance shall not be in excess of the underwriting limitation of the reinsuring company.

10-201.2 Individual Sureties.

(d) Justification. The contracting officer, in evaluating bonds and consents of surety underwritten by individual sureties, must first ascertain that all documents, including the Affidavits of Individual Surety required by Instruction No. 4b on the reverse of Standard Form 24, "Bid Bond," and Instruction No. 3b on the reverse of Standard Form 25, "Performance Bond," and Standard Form 25-A, "Payment Bond," have been completely filled out and are properly executed. The contracting officer must next ascertain that each individual surety, underwriting a bond or consent of surety which increases the penal amount of a bond previously furnished, justifies his net worth "in a sum not less than the penalty of the bond" as required by Instruction No. 4 on the reverse of Standard Form 28, "Affidavit of Individual Surety." Since individual sureties are jointly and severally liable in the event of default by the principal, each individual surety must list on Standard Form 28 a net worth at least equal to the total penal amount of the bond or consent of surety. Example: If performance and payment bonds on a construction contract have penal amounts of $ 40,000 and $20,000, respectively, each individual surety must show a net worth of at least $60,000 to have the contracting officer accept his underwriting of such bonds. Normally net worth will be the amount indicated by the individual surety on line g, block 7, of Standard Form 28 However, the contracting officer is expected to consider all relevant information furnished by the individual surety on Standard Form 28 and make an independent determination of the individual surety's net worth based on the contracting officer's own best judgment. Example: Normally the "fair value" of real estate is a more realistic figure than the "assessed value" for taxation purposes. However, there may be situations where the reverse is true, for the purpose of determining net worth, in which case the contracting officer may determine net worth is a figure other than that entered on line g, block 7 of Standard Form 28. The contracting officer also should scrutinize closely the information entered in block 10 10-201.2

ARMED SERVICES PROCUREMENT REGULATION

10:15

BONDS, INSURANCE, AND INDEMNIFICATION

on Standard Form 28 as the amount of outstanding bond obligation of an individual surety may have a substantial bearing on the financial position of such individual surety. The contracting officer may determine that the total amount entered in block 10 should be deducted from the net worth figure entered on line g, block 7, to arrive at a more realistic net worth or he may determine to deduct nothing, or only a portion of the amount entered in block 10 if upon inquiry he discovers that the contracts on which the bonds were written are completed in part and suppliers and materialmen paid in part. Affidavits should be scrutinized closely by a contracting officer in any case where an individual surety is underwriting a bond for a principal for whom that surety has underwritten other outstanding bonds. If the contracting officer cannot make a determination of net worth on the basis of information furnished on Standard Form 28, he should require the individual surety to furnish additional information. As a general rule, the contracting officer should not require extrinsic evidence of an individual surety's net worth (other than Standard Form 28) unless Standard Form 28 is not filled out completely or properly, or unless the contracting officer has reason to believe that the individual surety's statements on Standard Form 28 do not reflect his true net worth.

(e) Stockholders as Sureties. On any bond of which a corporation is the principal obligor, a stockholder of that corporation is acceptable as cosurety on the bond; provided, that his net worth exclusive of his stock holdings or other interests, such as loans, in the corporation is equal to the amount for which he justified and provided further, that such fact is expressly stated in his affidavit of justification.

10-201.3 Partnerships as Sureties. A partnership or other unincorporated association, as such, shall not be accepted as surety. The individual members of the partnership or association may, if they meet the requirements of paragraph 10-201.2 above, qualify as sureties. Individual members of a partnership or association shall not be acceptable as sureties on bonds under which the partnership or association, or any copartner or member thereof, is the principal obligor.

10-201.4 Substitution or Replacement of Surety. In case of financial embarrassment, failure, or other disqualifying cause on the part of a surety, substitution of a new surety is required. In other cases, substitute sureties may be accepted, when consistent with the Government's interest (see 10–110).

10-202 Options in Lieu of Sureties. Any one or more of the types of security listed below may be deposited by the contractor in lieu of furnishing corporate or individual sureties on bonds. Any such security accepted by the contracting officer shall be promptly turned over to the disbursing officer concerned for other than Air Force contracts, and to the accounting and finance officer concerned for Air Force contracts, except that when United States bonds or notes are involved, they shall be deposited as provided in 10-202.1. Any such security or its equivalent shall be returned to the contractor when the obligation of the bond has by its terms ceased.

10-202.1 United States Bonds or Notes. In accordance with the provisions of the Act of 24 February 1919, as amended (6 U.S.C. 15) and Treasury Department Circular No. 154 (Revised, 31 October 1969), any person required to furnish a bond has the option, in lieu of furnishing surety or sureties thereon, of

10-202.1

ARMED SERVICES PROCUREMENT REGULATION

« Previous Continue »

Books