31.205-4 Bonding costs
Source: FAR 31.205-4 on acquisition.gov
Bonding costs are allowable if required by the contract or, if for general business purposes, are reasonable and consistent with sound business practice.
Overview
FAR 31.205-4 addresses the allowability of bonding costs in government contracts. Bonding costs are expenses incurred to provide assurance against financial loss due to contractor actions or defaults, and can include bid, performance, payment, advance payment, infringement, and fidelity bonds. The regulation distinguishes between bonding required by the government as a contract condition and bonding undertaken by the contractor for general business purposes. Costs for bonds required by the contract are allowable, while costs for bonds required by the contractor are allowable only if they align with sound business practices and the rates and premiums are reasonable.
Key Rules
- Allowability of Bonding Costs
- Bonding costs required by the contract are allowable as contract costs.
- Business Practice Standard
- Bonding costs incurred by the contractor for general business purposes are allowable only if they are consistent with sound business practice and reasonable in amount.
Responsibilities
- Contracting Officers: Must ensure bonding costs claimed are required by the contract or meet the business practice and reasonableness standards.
- Contractors: Must document and justify bonding costs, ensuring they are either contractually required or align with sound business practices and reasonable rates.
- Agencies: Should review bonding costs for compliance during audits or cost reviews.
Practical Implications
- This section ensures that only necessary and reasonable bonding costs are charged to the government, preventing excessive or unjustified expenses.
- Contractors should maintain clear records of bonding requirements and costs to support allowability claims.
- Common pitfalls include claiming non-required or excessive bonding costs, or failing to justify business-practice-related bonds.
(a) Bonding costs arise when the Government requires assurance against financial loss to itself or others by reason of the act or default of the contractor. They arise also in instances where the contractor requires similar assurance. Included are such bonds as bid, performance, payment, advance payment, infringement, and fidelity bonds.
(b) Costs of bonding required pursuant to the terms of the contract are allowable.
(c) Costs of bonding required by the contractor in the general conduct of its business are allowable to the extent that such bonding is in accordance with sound business practice and the rates and premiums are reasonable under the circumstances.