By Lori Ann Lange of Peckar & Abramson, P.C.
Published May 24, 2021
Government construction contracts in excess of $150,000 require contractors to furnish payment and performance bonds. FAR 28.102-1(a). When these bonds are required, bonds supported by corporate sureties must be issued by sureties whose names appear on the Treasury Department Circular 570 list. FAR 28.202(a). However, the Contracting Officer can waive this requirement for contracts performed outside the United States if the Contracting Officer determines that it is impracticable for the contractor to furnish the bonds or to use Treasury listed sureties. FAR 28.202(b). A contractor who fails to furnish acceptable payment and performance bonds can have its contract terminated for default. That is what happened to the contractor in Assist Consultants Inc., ASBCA No. 61525 (April 29, 2021).
In this case, the USACE awarded a contract to Assist Consultants, Inc. (ACI) for construction of the P-960 Triton Operational Facility at the Al Dhafra Air Base, United Arab Emirates. ACI did not submit payment and performance bonds within 15 days of award as required by the contract, and later indicated that it would submit bonds from a surety not on the Treasury Department list of approved sureties. ACI argued that, as an Afghan corporation, it was not practicable for it to obtain bonds from a Treasury Department approved surety. The Contracting Officer advised ACI that he would not accept bonds from a surety not approved by the Treasury Department.
Ultimately the contract was terminated for default because ACI did not furnish the bonds after receiving a cure notice. ACI had requested a no-cost termination for convenience because the USACE advised ACI that the UAE government had an ongoing but unwritten policy of refusing to allow Afghan Nationals access to the base. ACI advised that it would not have bid on the contract had it known of the restriction.
ACI appealed the termination for default and the parties moved for summary judgment. Stating that termination for default is a drastic sanction that should be imposed or sustained only for good grounds and on solid evidence, the ASBCA nevertheless held that the termination for default for the contractor’s failure to furnish the payment and performance bonds was justified. The ASBCA found that the contract required the contractor to furnish the bonds and limited the acceptable corporate sureties to those on the Treasury Department’s list.
The ASBCA rejected ACI’s argument that FAR 28.202 permitted the contractor to use corporate sureties that were not on the Treasury Department’s list. FAR 28.202(b) states that, for contracts performed in a foreign country, sureties not appearing on Treasury Department Circular 570 are acceptable if the Contracting Officer determines that it is impracticable for the contractor to use Treasury listed sureties. The ASBCA rejected ACI’s argument because: (1) FAR 28.202(b) was not included in ACI’s contract; (2) ACI waived its argument by not raising it prior to contract award as the contract required the use of sureties approved by the Treasury Department; (3) the contracting officer never determined that it was impracticable for ACI to obtain Treasury approved bonds; and (4) FAR 28.202 does not create an enforceable right for ACI because FAR 28.202 is not for the benefit of the contractor. The board concluded that the determination of whether to accept bonds from an unapproved surety has to be made prior to award.
Contractors bidding on overseas government construction projects need to review the solicitation to see whether payment and performance bonds are required. If bonds are required, the contractor should determine whether it will be able to obtain the bonds from a surety on the Treasury Department’s Circular 570 list. If it cannot, the contractor will need to request that the Contracting Officer waive the requirement to use an approved surety prior to submitting its bid or proposal.
Lori Ann Lange is Chair, Government Contracting & Infrastructure Practice in the Washington, DC office of the law firm Peckar & Abramson. She specializes in government contract law, bid protests, and corporate compliance counseling. She represents a range of government contractors, including construction contractors, major defense contractors, informational technology contractors, and service contractors. She can be reached at llange@pecklaw.com or 202.293.8815 ext. 7103.