Alternatives in lieu of corporate or individual sureties
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.