28.203-3 Release of security interest
Source: FAR 28.203-3 on acquisition.gov
Security interests on individual surety assets can only be released after all contractual and legal obligations are satisfied, following strict procedures and documentation requirements.
Overview
FAR 28.203-3 outlines the procedures and conditions under which a contracting officer may release the security interest on assets pledged by an individual surety. The regulation ensures that the government’s interests are protected until all contractual and legal obligations are satisfied. The release process requires legal counsel consultation and the use of Optional Form 91 or a similar release document. The timing and conditions for release vary depending on the type of contract and the nature of the bond or guarantee involved.
Key Rules
- Release Timing for Bonds Statute Contracts
- Security interest must be maintained for the later of 1 year after final payment, completion of any warranty period (for performance bonds), or resolution of all claims filed within 1 year after final payment.
- Release Timing for Alternative Payment Protection Contracts
- Security interest must be maintained for the full contract performance period plus 1 year.
- Release Timing for Other Contracts
- Security interest must be maintained for 90 days after final payment or until completion of any warranty period (for performance bonds), whichever is later.
- Release for Bid Guarantees
- Upon written request and evidence that the offer will not result in contract award, the security interest may be released.
- Partial Release Based on Substantial Performance
- Contracting officers may partially release security interest if substantial performance is demonstrated, provided the remaining security covers outstanding obligations. The surety must provide an affidavit agreeing that the release does not relieve its bond obligations.
Responsibilities
- Contracting Officers: Must consult legal counsel, use appropriate forms, and ensure all conditions are met before releasing security interests.
- Contractors: Must ensure all claims and obligations are resolved before requesting release; provide necessary documentation for partial releases.
- Agencies: Oversee compliance and ensure proper documentation and legal review.
Practical Implications
- This section protects the government and subcontractors by ensuring security interests are not released prematurely.
- Contractors and sureties must be diligent in tracking claims, warranty periods, and performance milestones.
- Failure to comply can delay release of assets or expose parties to liability.
(a)After consultation with legal counsel, the contracting officer shall release the security interest on the individual surety's assets using the Optional Form 91, Release of Personal Property from Escrow, or a similar release as soon as possible consistent with the conditions in subparagraphs (a)(1) and (2) of this section. A surety's assets pledged in support of a payment bond may be released to a subcontractor or supplier upon Government receipt of a Federal district court judgment, or a sworn statement by the subcontractor or supplier that the claim is correct along with a notarized authorization of the release by the surety stating that it approves of such release.
(1) Contracts subject to the Bonds statute. See section 1.110 and section 28.102-1, paragraph (a). The security interest shall be maintained for the later of—
(i)1 year following final payment;
(ii)Until completion of any warranty period (applicable only to performance bonds); or
(iii)Pending resolution of all claims filed against the payment bond during the 1 year period following final payment.
(2) Contracts subject to alternative payment protection. See section 28.102-1, paragraph (b)(1). The security interest shall be maintained for the full contract performance period plus 1 year.
(3) Other contracts not subject to the Bonds statute. The security interest shall be maintained for 90 days following final payment or until completion of any warranty period (applicable only to performance bonds), whichever is later.
(b)Upon written request by the individual surety, the contracting officer may release the security interest on the individual surety's assets in support of a bid guarantee based upon evidence that the offer supported by the individual surety will not result in contract award.
(c)Upon written request by the individual surety, the contracting officer may release a portion of the security interest on the individual surety's assets based upon substantial performance of the contractor's obligations under its performance bond. Release of the security interest in support of a payment bond must comply with the subparagraphs (a)(1) through (3) of this section. In making this determination, the contracting officer will give consideration as to whether the unreleased portion of the security is sufficient to cover the remaining contract obligations, including payments to subcontractors and other potential liabilities. The individual surety shall, as a condition of the partial release, furnish an affidavit agreeing that the release of such assets does not relieve the individual surety of its obligations under the bond(s).