February 3, 2006

> **SPECIAL INFORMATIONAL NOTICE TO ALL BOND-APPROVING (CONTRACTING)
> OFFICERS**

# Important Information Regarding the Use of Individual Sureties on Federal Bonds

Subchapter E, Part 28 of the Federal Acquisition Regulation (FAR)
provides guidance as to the acceptability of sureties and other security
for Federal bonds. Acceptable security on Federal bonds include, but are
not limited to, both corporate and individual sureties. FAR § 28.201.
Acceptable corporate sureties must appear on the Department of
Treasury's Circular 570. Treasury's Financial Management Service, Surety
Bond Branch (FMS), publishes Department Circular 570 in the Federal
Register.

Contracting officers determine the acceptability of individual sureties
and ensure that the individual surety's pledged assets are sufficient to
cover the bond obligation in accordance with the guidance outlined in
the FAR § 28.203.

Although FMS is not substantively responsible for approving individual
sureties, we believe it prudent to issue this Special Informational
Notice on a FYI basis to Agency Bond-Approving (Contracting) Officers
who do have that responsibility under the FAR.

Recently, FMS has been made aware of instances where **individual
sureties are listing corporate debenture notes and other questionable
assets on their "Affidavit of Individual Surety"**, Standard Form 28. In
some instances, the individual sureties used a form other than the
Standard Form 28 as their affidavit. **FAR § 28.203(b) specifically
requires the use of the Standard Form 28**. In addition, FAR §
28.203-2(a) states that **"the Government will accept only cash, readily
marketable assets, or irrevocable letters of credit from a federally
insured financial institution from individual sureties to satisfy the
underlying bond obligations."**

FAR § 28.203-2(b) includes **examples of acceptable assets**, such as:

-   cash, or certificates of deposit, or other cash equivalents with a
    federally insured financial institution

-   United State Government securities

-   stocks and bonds actively traded on a national U.S. security
    exchange

-   real property owned fee simple by the surety subject to certain
    conditions (refer to FAR 28.203-2(b)(4))

-   irrevocable letters of credit issued by a federally insured
    financial institution in the name of the contracting agency and
    which identify the agency and solicitation or contract number.

Furthermore, FAR § 28.203-2(c) lists **unacceptable assets**, but
indicates that the list is not all-inclusive. The following are listed
as unacceptable assets:

-   notes or account receivable

-   foreign securities

-   real property located outside the United States, its territories or
    possessions

-   real property used as the principal residence of the surety

-   real property owned concurrently

-   life estates, leasehold estates, or future interest in real property

-   personal property except as listed in FAR 28.203-2(b)

-   stocks and bonds of the individual surety in a controlled,
    affiliated or closely held concern of the offeror/contractor

-   corporate assets

-   speculative assets

-   letters of credit except as provided in FAR 28.203(b)(5)

The FAR also requires that the Government be given a security interest
in any acceptable assets pledged by an individual surety. FAR §
28.203-1(a).

Prior to acceptance of an individual surety, FAR guidelines require
contracting officers to obtain the opinion of their legal counsel as to
the adequacy of the documentation pledging assets. FAR § 28.203(f).

If you have any questions, please feel free to contact this office at
(202) 874-6850.

Sincerely,

**/Signed/ Rose M. Miller**

Rose M. Miller

Manager

Surety Bond Branch