Performance bonds
Performance bonds may be required for non-construction contracts above the simplified acquisition threshold to protect the Government’s interests in higher-risk situations, but do not replace the need for contractor responsibility determinations.
Overview
FAR 28.103-2 outlines when performance bonds may be required for contracts exceeding the simplified acquisition threshold, specifically for non-construction contracts. Performance bonds serve as a financial guarantee to protect the Government’s interests in situations where there is increased risk, such as when Government property or funds are provided to the contractor, when contractors undergo mergers or asset sales, when substantial progress payments are made before delivery, or for contracts involving dismantling, demolition, or removal of improvements. The regulation also allows for additional bond protection if the contract price increases. Importantly, obtaining a performance bond does not replace the contracting officer’s responsibility to determine the contractor’s overall responsibility and capability to perform the contract.
Key Rules
- When to Require Performance Bonds
- Performance bonds may be required for contracts above the simplified acquisition threshold in specific risk scenarios, including provision of Government property, contractor mergers, substantial progress payments, or contracts for dismantling/demolition.
- Additional Bond Protection
- If the contract price increases, the Government may require additional performance bond coverage.
- Responsibility Determination
- Contracting officers must still assess contractor responsibility per FAR subpart 9.1, regardless of bond status.
Responsibilities
- Contracting Officers: Assess contract risk, determine when performance bonds are necessary, require additional bond protection if the contract price increases, and always evaluate contractor responsibility.
- Contractors: Obtain and maintain required performance bonds as specified in the contract, and be prepared for additional bond requirements if the contract price increases.
- Agencies: Oversee compliance with bond requirements and ensure contracting officers follow proper procedures.
Practical Implications
- This section exists to mitigate financial risk to the Government in higher-risk, non-construction contracts.
- Contractors should be aware that performance bonds may be required in specific scenarios and that these requirements can change if the contract value increases.
- A common pitfall is assuming that a bond alone is sufficient for contract award; contractor responsibility must still be independently verified.