Subpart 2-Sureties

10.201 General Requirements of Sureties. 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.

10.201-1 Corporate Sureties and Cosureties.

(a) In connection with contracts for supplies, 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. The Assistant Administrator for Procurement, NASA Headquarters will obtain and distribute up-to-date copies of this 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 agreements are not acceptable in connection with construction contracts.

(c) Termination of Authority To Qualify as Surety. The Treasury Department issues supplements to the Treasury Department Circular 570,

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notifying all Federal agencies of the termination of the authority of a specified corporate surety company to qualify as a surety on Federal bonds. These supplements shall be obtained and distributed by the Assistant Administrator for Procurement, NASA Headquarters. 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. Individual sureties shall be citizens 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 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.

(c) Extent of Liability. The liability of each individual surety shall extend to the entire penal amount of the 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 25A, "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 consenting to an increase in 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 $4,000 and $2,000, respectively, each individual surety must show a net worth of a least $6,000 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 on Standard Form 28 as the amount of outstanding bond obligation of an individual surety may have a substantial

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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 10.102-2 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 fiscal officer concerned 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 February 24, 1919, as amended (6 U.S.C. 15) and Treasury Department Circular No. 154 (February 6, 1935), any person required to furnish a bond has the option, in lieu of furnishing surety or sureties thereon, of depositing United States bonds or notes in an amount equal at their par value to the penal sum of the bond, together with an agreement authorizing the collection or sale of such United States bonds or notes in the event of default on the penal bond. The contracting officer

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may turn these securities over to the fiscal officer as provided in 10.202, 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 that purpose by the Secretary of the Treasury, under procedures prescribed by 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.

10.202-2 Certified or Cashier's Checks, Bank Drafts, Money Orders, or Currency. Any person required to furnish a bond has the option, in lieu of furnishing surety or sureties thereon, of furnishing a certified or cashier's check, a bank draft, a Post Office money order, or currency, in an amount equal to the penal sum of the bond, which the contracting officer will immediately deposit with the appropriate activity named in 10.202. Certified or cashier's checks, bank drafts, or Post Office money orders shall be drawn to the order of the National Aeronautics and Space Administration.

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Subpart 3-Insurance-General

10.300 Scope of Subpart. This Subpart sets forth the general principles and policy applicable to insurance under NASA contracts.

10.301 General. Insurance will be required where (i) it is mandatory by law, (ii) it is considered desirable to utilize the facilities and services of the insurance industry, or (iii), in special instances, it is considered necessary or desirable in connection with the performance of a contract.

The Assistant Administrator for Procurement may authorize or require the purchase of insurance where commingling of property, circumstances of ownership, or degree of responsibility imposed by the contract makes the purchase of insurance reasonably necessary for the protection of the several interests concerned.

10.301-1 Definition. The term "insurance" includes, but is not limited to, the following forms of coverage, whether provided under an insurance policy issued by privately operated insurance companies or underwriters, or under a State-operated insurance fund, or under an approved self-insurance plan.

(i) Workmen's Compensation and Employers' Liability;

(ii) General Liability;

(iii) Automobile Liability;

(iv) Aircraft Liability;

(v) Physical Damage (Property);

(vi) Employees' Group Insurance (Life, Hospitalization, Accident and Health, Surgical, etc.); and

(vii) Extrahazardous Accident.

10.302 Notice of Cancellation or Change. Where insurance is required by the contract, or required or approved under a contract by the Assistant Administrator for Procurement or his designee, the policies evidencing such insurance shall contain an endorsement to the effect that cancellation of, or any material change in, the policies which adversely affect the interests of the Government in such insurance shall not be effective unless a 30-day written notice of cancellation or change is given to the Assistant Administrator for Procurement.

10.303 Responsibility for Loss of or Damage to Government Property. NASA's policy with respect to Government assumption of risk for loss of or damage to Government property in the possession of contractors is set forth in 13.212. This policy is implemented by the Government property clauses set forth in Part 13, Subpart 7, and the facilities contract clauses set forth in Part 7, Subpart 7. Except for contracts using the clause set forth in 13.710 where contractor responsibility for risk of loss or damage would not result in the inclusion of contingency charges in the contract, it is NASA's policy to assume the risk of loss or damage. This policy is based on the principle that it is less costly for the Government to act as a self-insurer than to permit the contractor to take out property damage insurance. However, when, due to the commingling of the Government's and the contractor's property, or for other reasons, relief of the contractor from liability will not result in a reduction of the contract price or contract cost to the Government, this policy may be waived, and the contractor held fully responsible. Such a waiver constitutes a deviation to be processed in accordance with 1.109-3.

10.304 Insurance Against Loss of or Damage to Government Property. When insurance is required or approved to cover loss of or damage to Government property, such insurance may be provided either by specific

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