28.202 Acceptability of corporate sureties
Source: FAR 28.202 on acquisition.gov
Corporate sureties for U.S. federal contracts must be Treasury-listed and within underwriting limits, with strict requirements for reinsurance and prompt action if a surety's authority is terminated.
Overview
FAR 28.202 establishes the requirements for the acceptability of corporate sureties on bonds for federal contracts. It mandates that, for contracts performed in the U.S. or its outlying areas, corporate sureties must be listed in the Department of the Treasury's Circular 570. The penal amount of the bond cannot exceed the surety's underwriting limit unless the excess is coinsured or reinsured according to Treasury regulations. The section also details the use of specific Standard Forms for reinsurance agreements and outlines procedures for contracts performed in foreign countries, where non-listed sureties may be accepted if using a Treasury-listed surety is impracticable. Contracting officers must monitor updates to Circular 570 and take protective action if a surety's authority is terminated. The regulation also provides information on obtaining Circular 570.
Key Rules
- Approved Sureties Requirement
- Corporate sureties for U.S. contracts must be listed in Treasury Department Circular 570.
- Underwriting Limits
- Bonds must not exceed the surety's underwriting limit unless properly coinsured or reinsured.
- Reinsurance Agreements
- Reinsurance must comply with 31 CFR 223.10 and 223.11, and specific Standard Forms must be used.
- Foreign Contracts Exception
- Non-listed sureties may be accepted for foreign contracts if using a listed surety is impracticable.
- Monitoring Surety Status
- Contracting officers must act if a surety's authority is terminated, including securing new bonds if necessary.
Responsibilities
- Contracting Officers: Ensure sureties are approved, monitor underwriting limits, require and review reinsurance agreements, and respond to changes in surety status.
- Contractors: Use approved sureties, comply with underwriting limits, submit required reinsurance agreements and forms, and respond to requests for new bonds if a surety is terminated.
- Agencies: Stay updated on Treasury Circular 570 and ensure compliance across contracts.
Practical Implications
- This section ensures the financial reliability of sureties backing federal contracts, protecting the government from risk. Contractors must carefully select sureties and manage bond documentation, while contracting officers must remain vigilant about surety status and compliance. Common pitfalls include exceeding underwriting limits without proper reinsurance or failing to act when a surety loses its authority.
(a)
(1) Corporate sureties offered for bonds furnished with contracts performed in the United States or its outlying areas must appear on the list contained in the Department of the Treasury's Listing of Approved Sureties (Treasury Department Circular 570), “Companies Holding Certificates of Authority as Acceptable Sureties on Federal Bonds and as Acceptable Reinsuring Companies.”
(2) The penal amount of the bond should not exceed the surety's underwriting limit stated in the Treasury Department Circular 570. If the penal amount exceeds the underwriting limit, the bond will be acceptable only if-
(i) The amount which exceeds the specified limit is coinsured or reinsured; and
(ii) The amount of coinsurance or reinsurance does not exceed the underwriting limit of each coinsurer or reinsurer.
(3) Coinsurance or reinsurance agreements shall conform to the Department of the Treasury (Treasury) regulations in 31 CFR 223.10 and 223.11. When reinsurance is contemplated, the contracting office generally shall require reinsurance agreements to be executed and submitted with the bonds before making a final determination on the bonds.
(4) When specified in the solicitation, the contracting officer may accept a bond from the direct writing company in satisfaction of the total bond requirement of the contract. This is permissible until necessary reinsurance agreements are executed, even though the total bond requirement may exceed the insurer's underwriting limitation. The contractor shall execute and submit necessary reinsurance agreements to the contracting officer within the time specified on the bid form, which may not exceed 45 calendar days after the execution of the bond. The contractor shall use https://www.gsa.gov/forms-library/reinsurance-agreement-bonds-statute-performance-bond" target="_blank">Standard Form (SF) 273, Reinsurance Agreement for a Bonds Statute Performance Bond, and https://www.gsa.gov/forms-library/reinsurance-agreement-bonds-statute-payment-bond" target="_blank">SF 274, Reinsurance Agreement for a Bonds Statute Payment Bond, when reinsurance is furnished with the required performance or payment bonds. https://www.gsa.gov/forms-library/reinsurance-agreement-favor-united-states" target="_blank">SF 275, Reinsurance Agreement in Favor of the United States, is used when reinsurance is furnished with bonds for other purposes.
(b) For contracts performed in a foreign country, sureties not appearing on Treasury Department Circular 570 are acceptable if the contracting officer determines that it is impracticable for the contractor to use Treasury listed sureties.
(c) Treasury issues supplements to Treasury Department Circular 570, notifying all Federal agencies of new approved corporate surety companies and the termination of the authority of any specific corporate surety to qualify as a surety on Federal bonds. Upon receipt of notification of termination of a company’s authority to qualify as a surety on Federal bonds, the contracting officer shall review the outstanding contracts and take action necessary to protect the Government, including, where appropriate, securing new bonds with acceptable sureties in lieu of outstanding bonds with the named company.
(d) Treasury Department Circular 570 may be obtained from the U.S. Department of the Treasury, Bureau of the Fiscal Service, Surety Bond Branch, 3201 Pennsy Drive, Building E, Landover, MD 20785 or at https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570.htm" target="_blank">https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570.htm.