FAR Part 28

Question 1

Part 28

Answer 1

Bonds and Insurance

Question 2

FAR Part 28: Bonds and Insurance

Overview of FAR Part 28 - Bonds and Insurance

Purpose: Establishes requirements for bonds and insurance in government contracts (FAR 28.000).

Key Sections:

Answer 2

28.1 Bonds and Other Financial Protections

28.2 Sureties and Other Security for Bonds

28.3 Insurance

Question 3

FAR Part 28: Bonds and Insurance

Overview of FAR Part 28 - Bonds and Insurance

Instructor Dialogue

Answer 3

FAR Part 28 focuses on the requirements for bonds and insurance in government contracts.“

“These provisions help mitigate financial risks and protect the government’s interests.“

“Understanding these requirements is essential for ensuring compliance and managing potential risks.”

Question 4

FAR Part 28: Bonds and Insurance

Subpart 28.1 - Bonds and Other Financial Protections

Purpose: Establishes the use of bonds to protect the government against financial loss (FAR 28.101).

Key Features:

Answer 4

Types of bonds include bid bonds, performance bonds, and payment bonds (FAR 28.101-1).

Bid bonds ensure that bidders will honor their bids (FAR 28.101-2).

Performance bonds guarantee the contractor’s performance (FAR 28.101-3).

Payment bonds ensure that subcontractors and suppliers are paid (FAR 28.101-4).

Question 5

FAR Part 28: Bonds and Insurance

Subpart 28.1 - Bonds and Other Financial Protections

Instructor Dialogue

Answer 5

Subpart 28.1 establishes the use of bonds to protect the government against financial loss.“

“Types of bonds include bid bonds, performance bonds, and payment bonds.“

“Bid bonds ensure that bidders will honor their bids.“

“Performance bonds guarantee the contractor’s performance.“

“Payment bonds ensure that subcontractors and suppliers are paid.”

Question 6

FAR Part 28: Bonds and Insurance

Subpart 28.2 - Sureties and Other Security for Bonds

Purpose: Provides guidelines for the use of sureties and other security forms (FAR 28.200).

Key Features:

Answer 6

Acceptable sureties include corporate sureties and individual sureties (FAR 28.202-1).

Corporate sureties must be listed in the Department of the Treasury’s Listing of Approved Sureties (FAR 28.202-2).

Individual sureties must pledge assets to cover the bond amount (FAR 28.203-1).

Alternatives to sureties include letters of credit and escrow accounts (FAR 28.204).

Question 7

FAR Part 28: Bonds and Insurance

Subpart 28.2 - Sureties and Other Security for Bonds

Instructor Dialogue

Answer 7

Subpart 28.2 provides guidelines for the use of sureties and other security forms.“

“Acceptable sureties include corporate sureties and individual sureties.“

“Corporate sureties must be listed in the Department of the Treasury’s Listing of Approved Sureties.“

“Individual sureties must pledge assets to cover the bond amount.“

“Alternatives to sureties include letters of credit and escrow accounts

Question 8

FAR Part 28: Bonds and Insurance

Subpart 28.3 - Insurance

Purpose: Outlines the requirements for insurance in government contracts (FAR 28.301).

Key Features:

Answer 8

Contractors must obtain and maintain insurance as required by the contract (FAR 28.301-1).

Types of required insurance may include worker’s compensation, liability, and property insurance (FAR 28.301-2).

Contractors must provide evidence of insurance coverage (FAR 28.301-3).

Question 9

FAR Part 28: Bonds and Insurance

Subpart 28.3 - Insurance

Instructor Dialogue:

Answer 9

Subpart 28.3 outlines the requirements for insurance in government contracts.“

“Contractors must obtain and maintain insurance as required by the contract.“

“Types of required insurance may include worker’s compensation, liability, and property insurance.“

“Contractors must provide evidence of insurance coverage.”

Question 10

Forms of financial protection against losses under contracts include:

Answer 10

Bid guarantees * Bonds

Alternative payment protections

Sureties (security for bonds)

Insurance

These apply to contracts that result from either sealed bidding or negotiation.

Question 11

Bond

Answer 11

A written instrument executed by a first party and a second party (except as provided in 28.204), to assure fulfillment of the first party’s obligations to a third
party identified in the bond

Assures payment, to the extent stipulated, of any loss sustained by the third party if the bidder or contractors obligations are not met

The first party: the principal - the bidder or contractor

The second party: the surety — usually an insurance company

The third party: the obligee - the government

Question 12

Types of Bonds

Payment bond

Answer 12

Ensures payments as required by law
to al persons supplying labor or material in the prosecution of the work provided for ni the contract

A payment bond is only required when a performance bond is also required.

Question 13

Types of Bonds

Annual performance bond

Answer 13

A single bond, ni lieu of separate performance bonds, to secure fulfillment of the contractor’s obligations under contracts other than for construction requiring bonds
entered into during a specific fiscal year

Question 14

Types of Bonds

Annual bid bond

Answer 14

A single bond, in lieu of separate
bonds, which secures all bids on other than construction contracts requiring bonds submitted during a specific fiscal year

Question 15

Types of Bonds

Advance payment bond

Answer 15

Secures fulfillment of the contractor’s obligations under an advance payment provision

Question 16

Types of Bonds

Patent infringement bond

Answer 16

Secures fulfillment of the contractor’s obligations under a patent provision

Question 17

Bid Guarantees

Penal sum
Penal amount

Answer 17

The amount of money specified in a bond (or a percentage of the bid price in a bid bond) as the maximum payment for which the surety is obligated

The amount of security required to be pledged to the government in liuw of a corporate or individual surety for the bond

Question 18

Bid Guarantees

Bid guarantee

Answer 18

Abform of security assuring that the bidder will not withdraw a bid within the period specified for acceptance and will execute a written contract and furnish required bonds within the allotted time following award

Bonds and bid guarantees typically pertain to construction contracts.

A contracting officer shall not require a bid guarantee unless a performance bond or a performance and payment bond is also required.

Question 19

The Bonds Statute

Previously known as the Heard Act (1894) and the Miller Act (1935)

Answer 19

Requires prime contractors on some government construction contracts to post bonds guaranteeing:

Performance of their contractual duties, and

Payment of their suppliers and subcontractors

Applies to any construction contract valued in excess of $150,000, unless waived

Question 20

Bonds for Construction Contracts

Answer 20

Bonds statute requires performance and payment bonds for any U.S. construction
contract exceeding $150,000

The contractor shall furnish all
bonds or alternative payment protection before receiving a notice to proceed with the work or being allowed to start work

Penal amount of performance bonds must equal 100% of the original contract price

Amount of payment bonds must equal 100% of the original contract price

If the contract price increases, the bond amount must increase
by 100% of the increase

Question 21

Other Than Construction Contracts

Generally, performance and payment bonds are not required.

Circumstances that may require such bonds for other than construction contracts include:

Answer 21

Government property or funds are to be provided to the contractor for use in performing the contract or as partial compensation

A contractor sells assets to or merges with another concern, and the government, after recognizing the latter concern as the successor in interest, desires assurance that ti is financially capable

Substantial progress payments are made before delivery of end items starts

Contracts are for dismantling, demolition, or removal of improvements

Question 22

Sureties

Answer 22

Individual surety
* One person, versus a business entity, is liable for the entire penal amount of the bond

Corporate surety
* Licensed under various insurance laws, and, under its charter, has legal power to act as surety for others

Co-surety
* Two or more sureties are jointly liable for the penal sum of the bond

Question 23

Corporate Sureties

Answer 23

Must appear on the “Companies Holding Certificates of Authority as Acceptable Sureties on
Federal Bonds and Acceptable
Reinsuring Companies” list

The penal amount of the bond
should not exceed the surety’s underwriting limit

Question 25

Individual Sureties

Answer 25

Acceptable for all types of bonds except position schedule bonds

The contracting officer shall
determine the acceptability of
individuals proposed as sureties

The individual must have
pledged assets sufficient to cover the bond obligation

Question 26

Insurance

Answer 26

A contract which provides that for a stipulated consideration, one party undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event

Question 27

FAR PART 28. BONDS AND INSURANCE

Answer 27

This part prescribes requirements for obtaining financial protection against losses under contracts that result from the use of the sealed bid or negotiated methods.

It covers bid guarantees, bonds, alternative payment protections, security for bonds, and insurance.

Question 28

BID GUARANTEE:

Answer 28

A form of security ensuring that the bidder will not withdraw a bid within the period specified for acceptance and will execute a written contract and furnish required bonds, within the allotted time following award.

Question 29

BOND:

Answer 29

A written instrument executed by a bidder or contractor (the principal) and a second party (the surety)(except as provided in FAR 28.204) to ensure fulfillment of the principal’s obligations to a third party (the obligee or government) identified in the bond. If the principal’s obligations are not met, the bond assures payment, to the extent stipulated, of any loss sustained by the obligee.

Question 30

BOND TYPES:

Answer 30

• Advance payment bond-secures fulfillment of the contractor’s obligations under an advance payment provision;

*Annual bid bond—a single bond, in lieu of separate bonds, which secures all bids on other than construction contracts requiring bonds submitted during a specific fiscal year;

• Annual performance bond-a single bond, in lieu of separate performance bonds, to secure fulfillment of the contractor’s obligations under contracts other than for construction requiring bonds entered into during a specific fiscal year;

*Patent infringement bond-secures fulfillment of the contractor’s obligations under a patent provision;

• Payment bond-ensures payments as required by law to all persons supplying labor or material in the prosecution of the work provided for in the contract; and

*Performance bond-secures performance and fulfillment of the contractor’s obligations under the contract.

Question 31

INSURANCE:

Answer 31

A contract that provides that for a stipulated consideration, one party undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event.

Question 32

A contracting officer shall not require a bid guarantee

Answer 32

unless a performance bond or a performance and payment bond is also required. In sealed bidding, noncompliance with a solicitation requirement for a bid guarantee requires rejection of the bid except for those situations described in FAR 28.101-4(c).

Question 33

The Bonds statute (formerly Miller Act) requires performance and payment bonds

Answer 33

for any construction contract valued in excess of the amount referred to in
(FAR 28.102-3(a). Generally, such bonds are not required for other than construction contracts; however, in some situations, performance bonds may be appropriate.

Question 34

Performance bonds secure performance and fulfillment of the contractor’s obligations under the contract.

They may be required

Answer 34

for contracts exceeding the simplified acquisition threshold when necessary to protect the government’s interest. Situations that may warrant a performance bond are delineated in

Unless the contracting officer determines that a lesser amount is adequate for the protection of the government, the penal amount of performance bonds must equal 100 percent of the original contract price;
and if the contract price increases, an additional amount equal to 100 percent of the increase.

Question 35

Payment bonds ensure payment as required by law to all persons supplying

Answer 35

labor or materials in the prosecution of the work provided for in the contract.

They are required only when a performance bond is required and it is determined to be in the government’s best interest to use them. Penal amounts are determined by the contracting officer.

Question 36

Any person required to furnish a bond to the government may furnish any of the following types of securities instead of a corporate or individual surety for the bond:

Answer 36

U.S. bonds or notes; certified or cashier’s checks, bank drafts, money orders, or currency; or an irrevocable letter of credit (ILC).

The contractor must furnish all bonds or alternative payment protection, including any necessary reinsurance agreements, before receiving a notice to proceed with the work or being allowed to start work.

Question 37

Surety means an

Answer 37

individual or corporation legally liable for the debt, default, or failure of a principal to satisfy a contractual obligation.

There are three types: individual, corporate, and co-surety (one of two or more sureties that are jointly liable for the penal sum of the bond).

Question 38

Individual sureties are required

Answer 38

to support bond obligations with stable U.S.-backed securities, as specified in 31 CFR part 225. The Department of the Treasury, Bureau of the Fiscal Service must review those assets to ensure they meet established eligibility

Question 39

Agencies are required to obtain adequate security for
bonds required or used with a contract. Acceptable forms of security include

Answer 39

corporate or individual sureties or any of the types of security authorized in lieu of sureties (i.e., United States bonds or notes, certified or cashier’s checks, bank drafts, Post Office money orders, or currency, or an irrevocable letter of credit).

Question 40

The government requires any contractor subject to CAS 416 to obtain insurance, by

Answer 40

purchase or self-coverage, except when the government agrees to indemnify the contractor under specified circumstances or the contract specifically relieves the contractor of liability for loss or damage to government property.

Question 41

Contractors, whether or not subject to CAS 416, are required by law and the FAR to provide certain types of insurance

Answer 41

(e.g., workers’ compensation). Insurance is also required when commingling of property, type of operation, circumstances of ownership, or condition of the contract make it necessary for the protection of the government.

Question 42

Although the government is not ordinarily concerned with the contractor’s insurance coverage if the contract is a fixed-price contract, in special

Answer 42

circumstances agencies may specify insurance requirements under fixed-price contracts. Examples of such circumstances include the following: the contractor is, or as a separate operation, engaged principally in government work; government property is involved; work is to be performed on a government installation; or the government elects to assume risks for which the contractor ordinarily obtains commercial insurance.