Acceptability of corporate sureties
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.