28.104
Annual performance bonds
Annual performance bonds for nonconstruction contracts must cover the total value of all contracts, and additional bonds are required if contract values approach or exceed the bond's penal sum.
Overview
FAR 28.104 addresses the use of annual performance bonds specifically for nonconstruction contracts. An annual performance bond covers multiple contracts within a year, providing a single gross penal sum that applies to the total value of all contracts covered by the bond. This approach streamlines bonding requirements for contractors handling several nonconstruction contracts. However, if the total penal sums of the contracts approach or exceed the penal sum of the annual bond, the contractor must obtain an additional bond to ensure full coverage for any new contracts awarded during the period. This ensures the government is adequately protected against contractor default across all contracts covered by the bond.
Key Rules
- Applicability to Nonconstruction Contracts
- Annual performance bonds are only permitted for nonconstruction contracts and must cover the total value of all such contracts.
- Requirement for Additional Bonds
- If the total penal sums of contracts reach or exceed the bond's penal sum, an additional bond is required to cover further contracts.
Responsibilities
- Contracting Officers: Must ensure annual performance bonds are only used for nonconstruction contracts and monitor aggregate contract values against the bond's penal sum.
- Contractors: Must provide an annual performance bond with a gross penal sum covering all contracts and obtain additional bonds as needed.
- Agencies: Oversee compliance and ensure adequate financial protection is maintained.
Practical Implications
- This section exists to simplify bonding for contractors with multiple nonconstruction contracts, reducing administrative burden while maintaining government protection.
- Contractors must closely track the aggregate value of their contracts to avoid lapses in bond coverage.
- Failure to secure additional bonds when required can result in noncompliance and potential contract risk.