Persistent NASBP Campaign Prompts FAR Council to Propose Revisions to Federal Bond Forms

The culmination of a concerted campaign to cause much needed revisions to federal bond forms has come to fruition. In the Tuesday, October 20, 2015 issue of the Federal Register (Vol. 80, No. 202), the Federal Acquisition Regulation (FAR) Council, composed of the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration, proposed a rule to revise the standard bond forms utilized by the federal government. Specifically, revisions are being proposed for Standard Forms 24, 25, 25A, 34, and 35 to clarify two features of these forms: (1) the liability limitations field; and (2) the options for organizational types. The FAR Council proposed these revisions at the repeated, written behest of NASBP, which occurred in a series of communications over an approximately three-year period.

Member producers contacted and made NASBP aware of issues arising from confusion by producers and by contracting officers over what information should be placed in the blank bond form field labelled “Liability Limit” (which is adjacent to the fields identifying the corporate surety) and what is the appropriate choice, if any, to select in the “Type of Organization” block when the principal is a limited liability company, a type of organization which is legally distinct and not listed as a choice. Posts on the NASBP SuretyConnect site discussing member differing opinions on what was the proper information to be placed in the Liability Limit field prompted the publication of a CEO Column, titled “The ‘liability limit’ field in GSA Standard Form 24,” on the subject in the May/June 2011 issue of the NASBP Pipeline. Further, a number of bonding agencies indicated in various communications that they had had bonds delayed or rejected as a result of their specific form choices and had received inconsistent direction from contracting officials, including legal counsel for contracting agencies. NASBP observed that the federal bond forms were regularly reviewed, as required, but that the federal government seemed unconcerned or unaware that these form areas needed clarification or revision to eliminate confusion and to ensure a consistent understanding of the information sought in the form by the different federal agencies.

To bring awareness and to emphasize the importance of action, NASBP contacted, in a letter dated August 21, 2012, the Form Policy and Management Team at the General Services Administration (GSA). GSA holds the responsibility of being the custodian of the federal government’s library of standard form documents and is one of the three agencies comprising the FAR Council. The NASBP letter noted:

The August 12 letter was followed by a NASBP November 16, 2012 letter to the Regulatory Secretariat at the GSA providing comments on an Information Collection notice pertaining to federal standard bond forms. In this second letter, NASBP reasserted its request for revisions to the federal bond forms to increase the options under the type of organization block, so that a bond principal or its bond producer could designate the type of organization as an LLC or an “other.” This same letter also posited a second request.

The FAR Council noted NASBP’s requests in a notice of a request for an extension of an information collection requirement in the Federal Register, Vol. 78, No. 84, published on May 1, 2013 and indicated that “the suggested standard form revisions will be researched, and, as determined appropriate, revised as separate actions.” NASBP subsequently initiated communications with the GSA procurement analyst with oversight on the standard bond forms. As it was not clear what, if any, future actions the FAR Council planned to take, NASBP sought a letter of inquiry from a member of the Committee on Oversight and Government Reform in the U.S. House of Representatives. U.S. Representative Michelle Lujan Grisham understood the importance of the matter to the bond producer community and kindly agreed to issue a letter of inquiry, dated June 3, 2014, to the GSA Administrator asking that the GSA assess the problems raised by NASBP. The outreach by Representative Grisham prompted more communication from GSA, including a request of specific instances of confusion. NASBP was able to provide such instances reported to it from its members, and the GSA procurement analyst related that the GSA would request the opening of a FAR case by the FAR Council to address the concerns raised. The FAR Council agreed to the case, FAR Case 2015-025, prompting the publication of proposed rules to revise the current federal standard bond forms in keeping with NASBP’s requests.

The proposed rule contained in the Federal Register, Vol. 80, No. 202, published on October 20, 2015, outlines two specific changes: (1) “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” and (2) “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.”

Written comments on the proposed rule are due to the Regulatory Secretariat by December 21, 2015 in order to be considered in the formation of the final rule. NASBP will submit written comments in support of the proposed rule and urges its membership to write letters in support of the revisions. Letters should be directed to the following: General Services Administration, Regulatory Secretariat (MVCB), ATTN: Ms. Flowers, 1800 F Street N.W., 2nd Floor, Washington, D.C. 20405-0001.