28.204 Alternatives in lieu of corporate or individual sureties
Source: FAR 28.204 on acquisition.gov
FAR 28.204 allows contractors to use approved financial instruments as alternatives to corporate or individual sureties for government bonds, provided all procedural safeguards and documentation requirements are met.
Overview
FAR 28.204 provides alternatives to using corporate or individual sureties when furnishing bonds required by the Government. Contractors may use other forms of security, specifically those listed in FAR 28.204-1 through 28.204-3, such as U.S. bonds or notes, certified or cashier’s checks, bank drafts, money orders, currency, or irrevocable letters of credit. When these alternatives are used, the bond form must include a statement pledging the security in lieu of sureties, and the contractor must execute the bond as principal. Agencies are responsible for safeguarding the deposited security and returning it once the bond obligation ends. Contractors may request partial release of security under certain conditions and must provide an affidavit affirming continued responsibility under the bond. Multiple or combined forms of security may be used, and substitutions are permitted during the bond period, provided all requirements are met.
Key Rules
- Alternative Security Types
- Contractors may use U.S. bonds/notes, certified/cashier’s checks, bank drafts, money orders, currency, or irrevocable letters of credit instead of sureties.
- Bond Form Requirements
- The bond form must state the security is pledged in lieu of sureties, and the contractor signs as principal.
- Safeguarding and Return of Security
- Agencies must protect deposited security and return it when the bond obligation ends.
- Partial Release of Security
- Contracting officers may release part of the security if conditions in FAR 28.203-3(c) are met, with an affidavit from the contractor.
- Combination and Substitution of Security
- Contractors may use or substitute combinations of approved security types or surety bonds during the bond period.
Responsibilities
- Contracting Officers: Approve alternative securities, process partial releases, ensure proper documentation, and safeguard/return securities.
- Contractors: Select and pledge appropriate security, execute bond forms, request partial releases with affidavits, and maintain obligations under the bond.
- Agencies: Establish safeguards for security and ensure compliance with release and substitution procedures.
Practical Implications
- This section offers flexibility for contractors who may not have access to corporate or individual sureties, broadening participation in government contracts.
- Proper documentation and adherence to procedures are critical to avoid delays or loss of security.
- Common pitfalls include failing to include required statements in bond forms or not following procedures for partial release or substitution of security.
(a) Any person required to furnish a bond to the Government may furnish any of the types of security listed in 28.204-1 through 28.204-3 instead of a corporate or individual surety for the bond. When any of those types of security are deposited, a statement shall be incorporated in the bond form pledging the security in lieu of execution of the bond form by corporate or individual sureties. The contractor shall execute the bond forms as the principal. Agencies shall establish safeguards to protect against loss of the security and shall return the security or its equivalent to the contractor when the bond obligation has ceased.
(b) Upon written request by any contractor securing a performance or payment bond by any of the types of security listed in 28.204-1 through 28.204-3, the contracting officer may release a portion of the security only when the conditions allowing the partial release of security in 28.203-3(c) are met. The contractor shall, as a condition of the partial release, furnish an affidavit agreeing that the release of such security does not relieve the contractor of its obligations under the bond(s).
(c) The contractor may satisfy a requirement for bond security by furnishing a combination of the types of security listed in 28.204-1 through 28.204-3 or a combination of bonds supported by these types of security and additional surety bonds under 28.202 or 28.203. During the period for which a bond supported by security is required, the contractor may substitute one type of security listed in 28.204-1 through 28.204-3 for another, or may substitute, in whole or combination, additional surety bonds under 28.202 or 28.203.