On October 19th, 2015, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) jointly proposed a Rule which will change the standard federal performance bond and payment bond forms prescribed by the Federal Acquisition Regulation (FAR) for contracts involving surety bonds. The revisions are intended to clarify liability limitations and expand the options for different types of organizations. The requesting agencies state that the proposed changes, “addresses concerns of surety bond producers that may be adversely affected by differing Federal Agency views on the proper type of organization to indicate on these Standard Forms when a business is a limited liability company (LLC), which is an increasingly prevalent form of business in the construction industry. In some cases, companies are being told to leave the “Type of Organization” block blank because there is no good fit;in other cases, they select the closest fit and are challenged on that selection. To address these concerns, this rule proposes to add a box labelled “Other: (Specify)” to the “Type of Organization” block on each of the five forms (SFs 24, 25, 25A, 34, and 35) in order to expand the range of business types to include LLCs and others, as they evolve.

In addition, there have been questions about the appropriate value to report in the “Liability Limit” block on these standard forms (i.e., whether to cite the Surety Company’s T-limit, as established by the Treasury Department, or the penalty limit for a given surety bond (its face value)); this has caused processing delays and even some rejections of bids. To address this concern, this rule proposes to add clarifying instructions to each of the forms (SFs 24, 25, 25A, 34, and 35) that amplify the fact that the typical value put into the “Liability Limit” block is the face value of the bond, unless a co-surety arrangement is proposed. These instructions are inserted into item (4) of the SF 24 and into item (3) of SFs 25, 25A, 34, and 35, along with some editorial corrections to the existing instructions.”

The requesting parties summarize their regulatory flexibility analysis as follows, including some important statistics of federally awarded jobs; ” The proposed rule would apply to all entities, both small and other than small, performing as contractors or subcontractors on U.S. Government contracts that require performance bonds and other financial protections. The Federal Procurement Data System-Next Generation (FPDS-NG) indicates that the U.S. Government awarded 3,495 new construction contracts that required bonds and other financial protections from October 1, 2014 through August 4, 2015. Approximately 78 percent (2,711) of the total awards (3,495) were awarded to small entities (comprised of 1,687 unique small entities). However, the small entities will not be materially affected by this rule, as it simply allows all businesses to choose from a broader array of organization types.

Revision of the current rules regarding federal contract procurement and the pertinent performance bond requirements are essential to ensure the inclusion of all qualified contractors regardless of the contractor’s company structure. This is a good move by the requesting parties!

National contract surety leader, Surety One, Inc. focuses on supporting the performance bonding needs of the commercial, highway, heavy industrial and construction contracting industries. We offer performance bonds to construction and commercial service contractor applicants small and large. Visit www.PerformanceBond.com, call (800) 373-2804, or email Underwriting@SuretyOne.com for a performance bond application package or information about any surety bonding need. Recuérde que le asesoramos en SU idioma, así que comuníquese con nosotros, SU compañía afianzadora preferida para la fianza.

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