52.228-2 Additional Bond Security
Source: FAR 52.228-2 on acquisition.gov
Contractors must promptly provide additional or replacement bond security if the Government deems existing security inadequate or at risk, ensuring continuous protection for the Government and suppliers.
Overview
FAR 52.228-2, Additional Bond Security, requires contractors to provide additional security to protect the Government and suppliers if certain conditions arise during contract performance. This clause is inserted into contracts when prescribed by FAR 28.106-4(a) and outlines specific scenarios where the contractor must act to maintain adequate bond or security coverage. The regulation ensures that the Government and those supplying labor or materials are protected against risks associated with unacceptable sureties, inadequate bond amounts, or expiring letters of credit.
Key Rules
- Unacceptable Surety or Financial Institution
- If a surety or financial institution providing bond/security becomes unacceptable to the Government, the contractor must promptly provide additional or replacement security.
- Failure to Furnish Financial Reports
- If a surety fails to provide required financial reports, the contractor must supply additional security as directed.
- Increased Contract Price
- If the contract price increases and the bond amount is deemed inadequate, the contractor must increase the bond or provide additional security.
- Expiring Irrevocable Letter of Credit (ILC)
- If an ILC will expire before the required period, the contractor must provide an acceptable extension, replacement, or substitute at least 30 days before expiration, or the Government may draw on the ILC immediately.
Responsibilities
- Contracting Officers: Monitor the adequacy and acceptability of bonds and sureties, and enforce the requirement for additional security when needed.
- Contractors: Promptly provide additional or replacement security as required by the clause and ensure all bonds and ILCs remain valid and sufficient.
- Agencies: Oversee compliance and protect the Government’s and suppliers’ interests.
Practical Implications
- This clause exists to mitigate financial risk to the Government and suppliers during contract performance.
- Contractors must be proactive in monitoring the status of their sureties, bonds, and ILCs to avoid contract disruptions or financial penalties.
- Common pitfalls include failing to replace unacceptable sureties or missing deadlines for ILC extensions, which can result in the Government drawing on the security instrument.
As prescribed in 28.106-4(a), insert the following clause:
Additional Bond Security (Oct 1997)
The Contractor shall promptly furnish additional security required to protect the Government and persons supplying labor or materials under this contract if-
(a) Any surety upon any bond, or issuing financial institution for other security, furnished with this contract becomes unacceptable to the Government;
(b) Any surety fails to furnish reports on its financial condition as required by the Government;
(c) The contract price is increased so that the penal sum of any bond becomes inadequate in the opinion of the Contracting Officer; or
(d) An irrevocable letter of credit (ILC) used as security will expire before the end of the period of required security. If the Contractor does not furnish an acceptable extension or replacement ILC, or other acceptable substitute, at least 30 days before an ILC’s scheduled expiration, the Contracting officer has the right to immediately draw on the ILC.
(End of clause)