10-101.10 Payment bond means a bond which is executed in connection with a contract and which secures the payment of all persons supplying labor and material in the prosecution of the work provided for in the contract. 10-101.11 Penal sum or amount means the dollar amount shown in a bond and represents the maximum payment for which the surety is obligated. 10-101.12 Performance bond means a bond which is executed in connection with a contract and which secures the performance and fulfillment of all the undertakings, covenants, terms, conditions, and agreements contained in the con tract. 10-102 Bid Guarantees. 10-102.1 Applicability. This paragraph 10-102 applies to both negotiated and formally advertised procurements. The term "bid" includes "proposal." 10–102.2 Limitations. Bid guarantees shall not be required unless the solicitation specifies that the contract must be supported by a performance bond or performance and payment bonds. In connection with supply and services contracts, the bidder may furnish either an individual bid bond (Standard Form 24) or an annual bid bond (Standard Form 34). A bid guarantee will not be requested unless the bid exceeds $2,000 (see 10-102.4(a) (i)). In connection with construction contracts, only the individual bid bond will be accepted. 10-102.3 Amount Required. (a) When a bid guarantee is deemed necessary, the contracting officer shall determine the percentage (or amount) which in his best judgment, when applied to the bid price, will produce a bid guarantee amount adequate to protect the Government from loss should the successful bidder fail to execute such further contractual documents and bonds as may be required. The percentage determined shall be not less than 20 percent of the bid price except that the maximum amount required shall be $3,000,000. (b) The penal sum of a bid bond may be expressed as a specified percentage of the bid price. In this fashion, the bid bond may be written by the surety before the bidder's final determination of his bid price. 10-102.4 Solicitation Provisions. (a) When a bid guarantee is determined to be necessary, the solicitation shall contain (i) a statement requiring that a bid guarantee be submitted with any bid in excess of $2,000 and containing such details as are necessary to enable bidders to determine the proper amount of bid guarantee to be submitted; and (ii) the provision in 7–2003.25. (b) The requirement for the provision in 7-2003.25 is met when Standard Form 22 (Instructions to Bidders (Construction Contracts)) is used in accordance with 16-401.1(v) and 16-401.2(a). (c) The provision required by (a)(ii) above may be appropriately modified in negotiated contracts. 10–102.5 Noncompliance With Bid Guarantee Requirements. When a solicitation requires that bids be supported by a bid guarantee, noncompliance with such requirement will require rejection of the bid (see 2-404.2) except that rejection of the bid is not required in these situations: (i) when only a single bid is received (in such cases the purchasing office may or may not require the furnishing of the bid guarantee before award); (ii) when the amount of the bid guarantee submitted, though less than the amount required by the invitation for bids, is equal to or greater than the difference between the price stated in the bid and the price stated in the next higher acceptable bid; (iii) when the amount of the bid guarantee submitted, though less than the amount required by the invitation for bids in relation to the bid price for the maximum quantity bid upon, is sufficient in relation to the bid price for a quantity for which the bidder is otherwise eligible for award (and in that event any award to him shall be limited to the quantity covered by the bid guarantee); (iv) when the bid guarantee is received late and the late receipt may be waived under the rules established in 2-303 for consideration of late bids; (v) when an otherwise adequate bid guarantee becomes inadequate as a result of the correction of a mistake in bid under 2-406, if the bidder will increase the amount of the bid guarantee in proportion to the authorized bid correction; and (vi) when a telegraphic modification of the bid is received without a cor- 10-103 Performance and Payment Bonds for Construction Contracts. (a) Pursuant to the Miller Act, as amended (40 U.S.C. 270a-270e), in connection with any construction contract exceeding $2,000 in amount except as provided in 10-103.3 below, a performance bond shall be required in a penal amount deemed adequate by the contracting officer for the protection of the Government. Generally, the penal amount of each performance bond shall be 100 percent of the contract price at the time of award. But where the contracting officer finds that to require a 100 percent performance bond would be disadvantageous to the Government, he may prescribe a lesser penal amount, which should normally be not less than 50% of the original contract price, and in all cases no less than the amount of the payment bond. The performance bond shall specifically provide coverage for taxes imposed by the United States which are collected, deducted, or withheld from wages paid by the contractor in carrying out the contract with respect to which such bond is furnished. (b) Additional performance bond protection shall be required in connection with any modification effecting an increase in price under any contract for which a bond is required pursuant to (a) above if: (i) the modification is for new or additional work which is beyond the scope of the existing contract; or (ii) the modification is pursuant to an existing provision of the contract and is expected to increase the contract price by $50,000 or 25 percent of the basic contract price, whichever is less. The penal amount of the bond protection should generally be increased so that the total performance bond protection is 100 percent of the contract price as revised by (i) the modification requiring such additional protection, and (ii) the aggregate of any previous modifications; provided, that lesser penal amounts may be authorized by the contracting officer as indicated in (a) above. The increased penal amount may be secured either by increasing the bond protection provided by the existing surety or sureties (the format set forth in 10-111.1 may be used when an additional bond is obtained from the original surety), or by obtaining an additional performance bond from a new surety; but see 10-111.2 with respect to requiring consent of surety. (c) In making allowance for bond premium in equitable adjustments or other price modifications affecting contracts, the allowance shall not be more than that calculated at the rate paid for the bonds furnished under the original contract. 10-103.2 Payment Bonds. (a) Pursuant to the Miller Act, as amended (40 U.S.C. 270a-270e), in connection with any construction contract exceeding $2,000 in amount, except as provided in 10-103.3 below, a payment bond shall be required in a penal amount as follows: (i) when the contract price is not more than $1,000,000, the penal sum shall be 50 percent of the contract price; (ii) when the contract price is more than $1,000,000 but not more than $5,000,000, the penal sum shall be 40 percent of the contract price; and (iii) when the contract price is more than $5,000,000, the penal sum shall be $2,500,000. (b) Additional payment bond protection shall be required in connection with any modification effecting an increase in price under any contract for which a bond is required pursuant to (a) above if: (i) the modification is for new or additional work which is beyond the scope of the existing contract; or (ii) the modification is pursuant to an existing provision of the contract and is expected to increase the contract price by $50,000 or 25 percent of the basic contract price, whichever is less. The penal amount of the additional bond protection should generally be such that the total payment bond protection is 50 percent of the contract price as revised by (i) the modification requiring such additional protection, and (ii) the aggregate of any previous modifications; provided, that when the contract price as so revised is more than $1,000,000 but not more than $5,000,000, the total payment bond protection shall be in a penal amount of 40 percent of the revised contract price; provided further, that when the contract price as so revised is more than $5,000,000, the total payment bond protection shall be in the penal amount of $2,500,000. The additional protection may be secured either by increasing the bond protection provided by the existing surety or sureties or by obtaining an additional payment bond from a new surety; but see 10-111.2 with respect to requiring consent of surety. (c) In making allowance for bond premium in equitable adjustments or other price modifications affecting any contract, the allowance shall not be more than that calculated at the rate paid for the bonds furnished under the original con tract. 10-103.3 Waiver of Performance and Payment Bonds. (a) The requirement of a performance and payment bond has been waived for all cost-reimbursement type construction contracts. In unusual circumstances, either or both bonds may be required of a prime contractor, subject to approval by the Chief of the Purchasing Office. Contracting officers shall, however, require a cost-reimbursement type prime contractor to obtain performance and payment bonds for any fixed-price construction subcontract exceeding $2,000 in accordance with 10–104.1(b). (b) A contracting officer may waive the requirement for performance and payment bonds for so much of the work under a contract as is to be performed in a foreign country, provided he finds that it is impracticable for the contractor to furnish such bonds. 10–103.4 Furnishing Information to Subcontractors and Suppliers. (a) It is Department of Defense policy to furnish subcontractors or suppliers only general information with respect to the status of work and of payments made to prime contractors. Accordingly, subcontractors and suppliers may be furnished general information on such matters as the progress of the work, the accomplishment of payments as of certain dates, and the estimated percentage of completion. (b) When a payment bond has been required, a subcontractor or supplier, after satisfying the contracting officer that he is a bona fide subcontractor or supplier and stating that he has not been paid for work performed or supplies delivered, may be furnished the name and address of the surety furnishing the required bonds on the contract in question. 10-103.5 Requirements and Indefinite Quantity Contracts. In requirements type contracts, for purposes of determination of the penal sum of bonds, the contract price will be deemed to be the price payable for the estimated quantity. In indefinite quantity contracts, the contract price will be deemed to be the price payable for the specified minimum quantity. When such estimated or minimum quantities are exceeded, 10–103.1(b) and 10–103.2(b) will be applied. 10-104 Performance and Payment Bonds for Contracts Other Than Construction Contracts. 10-104.1 General. (a) Under Section 270e of the Miller Act (40 U.S.C. 270e) the provisions of the Act have been waived for any supply contracts covered by Sections a-d of the Act (40 U.S.C. 270a-d). Bonds required pursuant to 10-104 are bonds required pursuant to 10 U.S.C. 2381 or other general contracting authority of the Department of Defense, and not pursuant to the Miller Act. (b) Generally, performance and payment bonds shall not be required in connection with contracts other than construction contracts, other than as provided in 10-104.2 and 10-104.3, except that for any fixed-price construction subcontract exceeding $2,000, a prime contractor who has not been required to furnish a payment bond shall be required to obtain a payment bond from his subcontractor, in favor of the prime contractor, in an amount sufficient to assure payment of suppliers of labor and materials. In such a case, a performance bond in an equal amount should also be obtained if available at no additional cost. (c) Standard Form 25 (Performance Bond), Standard Form 35 (Annual Performance Bond) and DD Form 1673 (Payment Bond for Other Than Construc tion Contracts) are authorized for use for other than construction contracts. Payment bonds for other than construction contracts shall not be executed on Standard Form 25-A. (d) Subcontract bonds shall not be executed on Standard Forms 25 and 25-A or on DD Form 1673. The forms set forth in 16-805(viii) and (ix) are authorized and may be adapted to fit specific cases. (e) Performance and payment bonds shall not be required unless the solicitation requires such bonds, or the requirement of such bonds is in the interest of the Government, and not prejudicial to other bidders or offerors. When the solicitation requires such bonds, they shall not be waived except in the case of an otherwise acceptable bidder or offeror where such waiver will be favorable to the Government and the contract price will be reduced. (f) When the requirement for performance and payment bonds is made by the terms of a contract, but the bonds are not furnished by the contractor within the time specified, the contracting officer shall notify the contractor that the contract will be terminated for default if the bonds are not furnished within the time specified in the contract clause providing for such termination (e.g., 8-707, clause, par. (a)(ii)). (g) When a bid guarantee is not required and a performance or payment bond is required as a condition precedent to the formation of the contract, but is not furnished within the time specified, the contracting officer shall if the making of the award can be delayed without prejudice to other bidders notify the bidder that if the bond is not furnished within 10 days (or such other period as the contracting officer may specify) after receipt of the notice, his bid will not be considered for award. (h) When a contractor supports a contract with an annual performance bond, in a cumulative penal sum, the contracting officer shall notify the office to which the contractor has furnished such bond so that the amount of coverage required may be recorded against the penal sum of the bond. (i) Requirements for additional bond or consent of surety in connection with contract modifications are prescribed in 10-111. 10-104.2 Performance Bonds. (a) Performance bonds shall not be used as a substitute for determinations of contractor responsibility as required by Section I, Part 9. Subject to this general policy, performance bonds may be required in individual procurements when, consistent with the following criteria, the contracting officer determines the need therefor. Justification for any such requirement must be fully documented. (i) When the terms of the contract provide for the contractor to have the use of Government material, property or funds and further provide for the handling thereof by the contractor in a specified manner, a performance bond shall be required if needed to protect the Government's interests therein. (ii) When the circumstances applicable to a particular procurement are such that for financial reasons a performance bond is necessary to protect the interests of the Government, a performance bond shall be required. (See for example, 26–402(c) (iii).) |