Part 28 - Bonds and Insurance

28.000 Scope of part.

28.001 Definitions.

Subpart 28.1 - Bonds and Other Financial Protections

28.100 Scope of subpart.

28.101 Bid guarantees.

28.101-1 Policy on use.

28.101-2 Solicitation provision or contract clause.

28.101-3 Authority of an attorney-in-fact for a bid bond.

28.101-4 Noncompliance with bid guarantee requirements.

28.102 Performance and payment bonds and alternative payment protections for construction

contracts.

28.102-1 General.

28.102-2 Amount required.

28.102-3 Contract clauses.

28.103 Performance and payment bonds for other than construction contracts.

28.103-1 General.

28.103-2 Performance bonds.

28.103-3 Payment bonds.

28.103-4 Contract clause.

28.104 Annual performance bonds.

28.105 Other types of bonds.

28.105-1 Advance payment bonds.

28.105-2 Patent infringement bonds.

28.106 Administration.

28.106-1 Bonds and bond-related forms.

28.106-2 Substitution of surety bonds.
28.106-3 Additional bond and security.

28.106-4 Contract clause.

28.106-5 Consent of surety.

28.106-6 Furnishing information.

28.106-7 Withholding contract payments.

28.106-8 Payment to subcontractors or suppliers.

Subpart 28.2 - Sureties and Other Security for Bonds

28.200 Scope of subpart.

28.201 Requirements for security.

28.202 Acceptability of corporate sureties.

28.203 Individual Sureties.

28.203-1 Acceptability of individual sureties.

28.203-2 Substitution of assets.

28.203-3 Release of security interest.

28.203-4 Solicitation provision and contract clause.

28.203-5 Exclusion of individual sureties.

28.204 Alternatives in lieu of corporate or individual sureties.

28.204-1 United States bonds or notes.

28.204-2 Certified or cashier’s checks, bank drafts, money orders, or currency.

28.204-3 Irrevocable letter of credit.

28.204-4 Contract clause.

Subpart 28.3 - Insurance

28.301 Policy.

28.302 Notice of cancellation or change.

28.303 Insurance against loss of or damage to Government property.

28.304 Risk-pooling arrangements.

28.305 Overseas workers’ compensation and war-hazard insurance.

28.306 Insurance under fixed-price contracts.
28.307 Insurance under cost-reimbursement contracts.

28.307-1 Group insurance plans.

28.307-2 Liability.

28.308 Self-insurance.

28.309 Contract clauses for workers’ compensation insurance.

28.310 Contract clause for work on a Government installation.

28.311 Solicitation provision and contract clause on liability insurance under cost-reimbursement

contracts.

28.311-1 Contract clause.

28.311-2 Agency solicitation provisions and contract clauses.

28.312 Contract clause for insurance of leased motor vehicles.

28.313 Contract clauses for insurance of transportation or transportation-related services.

Parent topic: Federal Acquisition Regulation

28.000 Scope of part.

This part prescribes requirements for obtaining financial protection against losses under contracts

that result from the use of the sealed bid or negotiated methods. It covers bid guarantees, bonds,

alternative payment protections, security for bonds, and insurance.

28.001 Definitions.

As used in this partAttorney-in-fact means an agent, independent agent, underwriter, or any other company or

individual holding a power of attorney granted by a surety (see also "power of attorney" at 2.101).

Bid means any response to a solicitation, including a proposal under a negotiated acquisition. See

the definition of "offer" at 2.101.

Bid guarantee means a form of security assuring that the bidder-

(1) Will not withdraw a bid within the period specified for acceptance; and

(2) Will execute a written contract and furnish required bonds, including any necessary coinsurance

or reinsurance agreements, within the time specified in the bid, unless a longer time allowed, after

receipt of the specified forms.

Bidder means any entity that is responding or has responded to a solicitation, including an offeror

under a negotiated acquisition.
Bond means a written instrument executed by a bidder or contractor (the "principal"), and a second

party (the "surety" or "sureties") (except as provided in 28.204), to assure fulfillment of the

principal’s obligations to a third party (the "obligee" or "Government"), identified in the bond. If the

principal’s obligations are not met, the bond assures payment, to the extent stipulated, of any loss

sustained by the obligee. The types of bonds and related documents are as follows:

(1) An advance payment bond secures fulfillment of the contractor’s obligations under an advance

payment provision.

(2) An annual bid bond is a single bond furnished by a bidder, in lieu of separate bonds, which

secure all bids (on other than construction contracts) requiring bonds submitted during a specific

Government fiscal year.

(3) An annual performance bond is a single bond furnished by a contractor, in lieu of separate

performance bonds, to secure fulfillment of the contractor’s obligations under contracts (other than

construction contracts) requiring bonds entered into during a specific Government fiscal year.

(4) A patent infringement bond secures fulfillment of the contractor’s obligations under a patent

provision.

(5) A payment bond assures payments as required by law to all persons supplying labor or material

in the prosecution of the work provided for in the contract.

(6) A performance bond secures performance and fulfillment of the contractor’s obligations under

the contract.

Consent of surety means an acknowledgment by a surety that its bond given in connection with a

contract continues to apply to the contract as modified.

Penal sum or "penal amount" means the amount of money specified in a bond (or a percentage of the

bid price in a bid bond) as the maximum payment for which the surety is obligated or the amount of

security required to be pledged to the Government in lieu of a corporate or individual surety for the

bond.

Reinsurance means a transaction which provides that a surety, for a consideration, agrees to

indemnify another surety against loss which the latter may sustain under a bond which it has issued.

Subpart 28.1 - Bonds and Other Financial Protections

28.100 Scope of subpart.

This subpart prescribes requirements and procedures for the use of bonds, alternative payment

protections, and all types of bid guarantees.

28.101 Bid guarantees.

28.101-1 Policy on use.
(a) A contracting officer shall not require a bid guarantee unless a performance bond or a

performance and payment bond is also required (see 28.102 and 28.103). Except as provided in

paragraph (c) of this subsection, bid guarantees shall be required whenever a performance bond or

a performance and payment bond is required.

(b) All types of bid guarantees are acceptable for supply or service contracts (see annual bid bonds

and annual performance bonds coverage in 28.001). Only separate bid guarantees are acceptable in

connection with construction contracts. Agencies may specify that only separate bid bonds are

acceptable in connection with construction contracts.

(c) The chief of the contracting office may waive the requirement to obtain a bid guarantee when a

performance bond or a performance and payment bond is required if it is determined that a bid

guarantee is not in the best interest of the Government for a specific acquisition (e.g., overseas

construction, emergency acquisitions, sole-source contracts). Class waivers may be authorized by

the agency head or designee.

28.101-2 Solicitation provision or contract clause.

(a) The contracting officer shall insert a provision or clause substantially the same as the provision

at 52.228-1, Bid Guarantee, in solicitations or contracts that require a bid guarantee or similar

guarantee. For example, the contracting officer may modify this provision-

(1) To set a period of time that is other than 10 days for the return of executed bonds;

(2) For use in connection with construction solicitations when the agency has specified that only

separate bid bonds are acceptable in accordance with 28.101-1(b);

(3) For use in solicitations for negotiated contracts; or

(4) For use in service contracts containing options for extended performance.

(b) The contracting officer shall determine the amount of the bid guarantee for insertion in the

provision at 52.228-1 (see 28.102-2(a)). The amount shall be adequate to protect the Government

from loss should the successful bidder fail to execute further contractual documents and bonds as

required. The bid guarantee amount shall be at least 20 percent of the bid price but shall not exceed

$3 million. When the penal sum is expressed as a percentage, a maximum dollar limitation may be

stated.

28.101-3 Authority of an attorney-in-fact for a bid bond.

(a) Any person signing a bid bond as an attorney-in-fact shall include with the bid bond evidence of

authority to bind the surety.

(b) An original, or a photocopy or facsimile of an original, power of attorney is sufficient evidence of

such authority.

(c) For purposes of this section, electronic, mechanically-applied and printed signatures, seals and

dates on the power of attorney shall be considered original signatures, seals and dates, without

regard to the order in which they were affixed.
(d) The contracting officer shall-

(1) Treat the failure to provide a signed and dated power of attorney at the time of bid opening as a

matter of responsiveness; and

(2) Treat questions regarding the authenticity and enforceability of the power of attorney at the time

of bid opening as a matter of responsibility. These questions are handled after bid opening.

(e)

(1) If the contracting officer contacts the surety to validate the power of attorney, the contracting

officer shall document the file providing, at a minimum, the following information:

(i) Name of person contacted.

(ii) Date and time of contact.

(iii) Response of the surety.

(2) If, upon investigation, the surety declares the power of attorney to have been valid at the time of

bid opening, the contracting officer may require correction of any technical error.

(3) If the surety declares the power of attorney to have been invalid, the contracting officer shall not

allow the bidder to substitute a replacement power of attorney or a replacement surety.

(f) Determinations of non-responsibility based on the unacceptability of a power of attorney are not

subject to the Certificate of Competency process of subpart 19.6 if the surety has disavowed the

validity of the power of attorney.

28.101-4 Noncompliance with bid guarantee requirements.

(a) In sealed bidding, noncompliance with a solicitation requirement for a bid guarantee requires

rejection of the bid, except in the situations described in paragraph (c) of this subsection when the

noncompliance shall be waived.

(b) In negotiation, noncompliance with a solicitation requirement for a bid guarantee requires

rejection of an initial proposal as unacceptable, if a determination is made to award the contract

based on initial proposals without discussion, except in the situations described in paragraph (c) of

this subsection when noncompliance shall be waived. (See 15.306(a)(2) for conditions regarding

making awards based on initial proposals.) If the conditions for awarding based on initial proposals

are not met, deficiencies in bid guarantees submitted by offerors determined to be in the competitive

range shall be addressed during discussions and the offeror shall be given an opportunity to correct

the deficiency.

(c) Noncompliance with a solicitation requirement for a bid guarantee shall be waived in the

following circumstances unless the contracting officer determines in writing that acceptance of the

bid would be detrimental to the Government’s interest when-

(1) Only one offer is received. In this case, the contracting officer may require the furnishing of the

bid guarantee before award;
(2) The amount of the bid guarantee submitted is less than required, but is equal to or greater than

the difference between the offer price and the next higher acceptable offer;

(3) The amount of the bid guarantee submitted, although less than that required by the solicitation

for the maximum quantity offered, is sufficient for a quantity for which the offeror is otherwise

eligible for award. Any award to the offeror shall not exceed the quantity covered by the bid

guarantee;

(4) The bid guarantee is received late, and late receipt is waived under 14.304;

(5) A bid guarantee becomes inadequate as a result of the correction of a mistake under 14.407 (but

only if the bidder will increase the bid guarantee to the level required for the corrected bid);

(6) An otherwise acceptable bid bond was submitted with a signed offer, but the bid bond was not

signed by the offeror;

(7) An otherwise acceptable bid bond is erroneously dated or bears no date at all; or

(8) A bid bond does not list the United States as obligee, but correctly identifies the offeror, the

solicitation number, and the name and location of the project involved, so long as it is acceptable in

all other respects.

28.102 Performance and payment bonds and alternative payment protections

for construction contracts.

28.102-1 General.

(a) 40 U.S.C.chapter 31, subchapter III, Bonds (formerly known as the Miller Act), requires

performance and payment bonds for any construction contract exceeding $150,000, except that this

requirement may be waived-

(1) By the contracting officer for as much of the work as is to be performed in a foreign country upon

finding that it is impracticable for the contractor to furnish such bond; or

(2) As otherwise authorized by the Bonds statute or other law.

(b)

(1) Pursuant to 40 U.S.C. 3132, for construction contracts greater than $35,000, but not greater

than $150,000, the contracting officer shall select two or more of the following payment protections,

giving particular consideration to inclusion of an irrevocable letter of credit as one of the selected

alternatives:

(i) A payment bond.

(ii) An irrevocable letter of credit (ILC).

(iii) A tripartite escrow agreement. The prime contractor establishes an escrow account in a

federally insured financial institution and enters into a tripartite escrow agreement with the

financial institution, as escrow agent, and all of the suppliers of labor and material. The escrow
agreement shall establish the terms of payment under the contract and of resolution of disputes

among the parties. The Government makes payments to the contractor’s escrow account, and the

escrow agent distributes the payments in accordance with the agreement, or triggers the disputes

resolution procedures if required.

(iv) Certificates of deposit. The contractor deposits certificates of deposit from a federally insured

financial institution with the contracting officer, in an acceptable form, executable by the

contracting officer.

(v) A deposit of the types of security listed in 28.204-1 and 28.204-2.

(2) The contractor shall submit to the Government one of the payment protections selected by the

contracting officer.

(c) The contractor shall furnish all bonds or alternative payment protection, including any necessary

reinsurance agreements, before receiving a notice to proceed with the work or being allowed to

start work.

28.102-2 Amount required.

(a) Definition. As used in this subsectionOriginal contract price means the award price of the contract; or, for requirements contracts, the

price payable for the estimated total quantity; or, for indefinite-quantity contracts, the price payable

for the specified minimum quantity. Original contract price does not include the price of any options,

except those options exercised at the time of contract award.

(b) Contracts exceeding $150,000-

(1) Performance bonds. Unless the contracting officer determines that a lesser amount is adequate

for the protection of the Government, the penal amount of performance bonds must equal-

(i) 100 percent of the original contract price; and

(ii) If the contract price increases, an additional amount equal to 100 percent of the increase.

(2) Payment bonds.

(i) Unless the contracting officer makes a written determination supported by specific findings that a

payment bond in this amount is impractical, the amount of the payment bond must equal-

(A) 100 percent of the original contract price; and

(B) If the contract price increases, an additional amount equal to 100 percent of the increase.

(ii) The amount of the payment bond must be no less than the amount of the performance bond.

(c) Contracts exceeding $35,000 but not exceeding $150,000. Unless the contracting officer

determines that a lesser amount is adequate for the protection of the Government, the penal amount

of the payment bond or the amount of alternative payment protection must equal-
(1) 100 percent of the original contract price; and

(2) If the contract price increases, an additional amount equal to 100 percent of the increase.

(d) Securing additional payment protection. If the contract price increases, the Government must

secure any needed additional protection by directing the contractor to-

(1) Increase the penal sum of the existing bond;

(2) Obtain an additional bond; or

(3) Furnish additional alternative payment protection.

(e) Reducing amounts. The contracting officer may reduce the amount of security to support a bond,

subject to the conditions of 28.203-3(c) or 28.204(b).

28.102-3 Contract clauses.

(a) Insert a clause substantially the same as the clause at 52.228-15, Performance and Payment

Bonds-Construction, in solicitations and contracts for construction that contain a requirement for

performance and payment bonds if the resultant contract is expected to exceed $150,000. The

contracting officer may revise paragraphs (b)(1) and/or (b)(2) of the clause to establish a lower

percentage in accordance with 28.102-2(b). If the provision at 52.228-1 is not included in the

solicitation, the contracting officer must set a period of time for return of executed bonds.

(b) Insert the clause at 52.228-13, Alternative Payment Protections, in solicitations and contracts for

construction, when the estimated or actual value exceeds $35,000 but does not exceed $150,000.

Complete the clause by specifying the payment protections selected (see 28.102-1(b)(1)) and the

deadline for submission. The contracting officer may revise paragraph (b) of the clause to establish a

lower percentage in accordance with 28.102-2(c).

28.103 Performance and payment bonds for other than construction

contracts.

28.103-1 General.

(a) Generally, agencies shall not require performance and payment bonds for other than

construction contracts. However, performance and payment bonds may be used as permitted in

28.103-2 and 28.103-3.

(b) The contractor shall furnish all bonds before receiving a notice to proceed with the work.

(c) No bond shall be required after the contract has been awarded if it was not specifically required

in the contract, except as may be determined necessary for a contract modification.

28.103-2 Performance bonds.
(a) Performance bonds may be required for contracts exceeding the simplified acquisition threshold

when necessary to protect the Government’s interest. The following situations may warrant a

performance bond:

(1) Government property or funds are to be provided to the contractor for use in performing the

contract or as partial compensation (as in retention of salvaged material).

(2) A contractor sells assets to or merges with another concern, and the Government, after

recognizing the latter concern as the successor in interest, desires assurance that it is financially

capable.

(3) Substantial progress payments are made before delivery of end items starts.

(4) Contracts are for dismantling, demolition, or removal of improvements.

(b) The Government may require additional performance bond protection when a contract price is

increased.

(c) The contracting officer must determine the contractor’s responsibility (see subpart 9.1) even

though a bond has been or can be obtained.

28.103-3 Payment bonds.

(a) A payment bond is required only when a performance bond is required, and if the use of payment

bond is in the Government’s interest.

(b) When a contract price is increased, the Government may require additional bond protection in an

amount adequate to protect suppliers of labor and material.

28.103-4 Contract clause.

The contracting officer shall insert a clause substantially the same as the clause at 52.228-16,

Performance and Payment Bonds-Other than Construction, in solicitations and contracts that contain

a requirement for both payment and performance bonds. The contracting officer shall determine the

amount of each bond for insertion in the clause. The amount shall be adequate to protect the

interest of the Government. The contracting officer shall also set a period of time (normally 10 days)

for return of executed bonds. AlternateI shall be used when only performance bonds are required.

28.104 Annual performance bonds.

(a) Annual performance bonds only apply to nonconstruction contracts. They shall provide a gross

penal sum applicable to the total amount of all covered contracts.

(b) When the penal sums obligated by contracts are approximately equal to or exceed the penal sum

of the annual performance bond, an additional bond will be required to cover additional contracts.
28.105 Other types of bonds.

The head of the contracting activity may approve using other types of bonds in connection with

acquiring particular supplies or services. These types include advance payment bonds and patent

infringement bonds.

28.105-1 Advance payment bonds.

Advance payment bonds may be required only when the contract contains an advance payment

provision and a performance bond is not furnished. The contracting officer shall determine the

amount of the advance payment bond necessary to protect the Government.

28.105-2 Patent infringement bonds.

(a) Contracts providing for patent indemnity may require these bonds only if-

(1) A performance bond is not furnished; and

(2) The financial responsibility of the contractor is unknown or doubtful.

(b) The contracting officer shall determine the penal sum.

28.106 Administration.

28.106-1 Bonds and bond-related forms.

The following Standard Forms (SF’s) and Optional Forms (OF’s), shall be used, except in foreign

countries, when a bid bond, performance or payment bond, or an individual surety is required. The

bond forms shall be used as indicated in the instruction portion of each form:

(a) SF 24, Bid Bond (see 28.101).

(b) SF 25, Performance Bond (see 28.102-1 and 28.106-3(b)).

(c) SF 25A, Payment Bond (see 28.102-1 and 28.106-3(b)).

(d) SF 25B, Continuation Sheet (for SF’s 24, 25, and 25A).

(e) SF 28, Affidavit of Individual Surety (see 28.203).

(f) SF 34, Annual Bid Bond (see 28.001).

(g) SF 35, Annual Performance Bond (see 28.104).

(h) SF 273, Reinsurance Agreement for a Bonds Statute Performance Bond (see 28.202(a)(4)).

(i) SF 274, Reinsurance Agreement for a Bonds Statute Payment Bond (see 28.202(a)(4)).
(j) SF 275, Reinsurance Agreement in Favor of the United States (see 28.202(a)(4)).

(k) SF 1414, Consent of Surety (see 28.106-5).

(l) SF 1415, Consent of Surety and Increase of Penalty (see 28.106-3).

(m) SF 1416, Payment Bond for Other Than Construction Contracts (see 28.103-3 and 28.106-3(b)).

(n) SF 1418, Performance Bond for Other Than Construction Contracts (see 28.103-2 and

28.106-3(b)).

(o) OF 91, Release of Personal Property from Escrow (see 28.203-3).

28.106-2 Substitution of surety bonds.

(a) A new surety bond covering all or part of the obligations on a bond previously approved may be

substituted for the original bond if approved by the head of the contracting activity, or as otherwise

specified in agency regulation.

(b) When a new surety bond is approved, the contracting officer shall notify the principal and surety

of the original bond of the effective date of the new bond.

28.106-3 Additional bond and security.

(a) When additional bond coverage is required and is secured in whole or in part by the original

surety or sureties, agencies shall use Standard Form1415, Consent of Surety and Increase of

Penalty. Standard Form1415 is authorized for local reproduction.

(b) When additional bond coverage is required and is secured in whole or in part by a new surety or

by one of the alternatives described in 28.204 in lieu of corporate or individual surety, agencies shall

use Standard Form25, Performance Bond; Standard Form1418, Performance Bond for Other Than

Construction Contracts; Standard Form25A, Payment Bond; or Standard Form1416, Payment Bond

for Other Than Construction Contracts.

28.106-4 Contract clause.

(a) The contracting officer shall insert the clause at 52.228-2, Additional Bond Security, in

solicitations and contracts when bonds are required.

(b) In accordance with secti on 806(a)(3) of Public Law 102-190, as amended by sections 2091 and

8105 of Public Law 103-355 (10 U.S.C. 4601 note prec.), the contracting officer shall insert the

clause at 52.228-12, Prospective Subcontractor Requests for Bonds, in solicitations and contracts

with respect to which a payment bond will be furnished pursuant to 40 U.S.C chapter 31, subchapter

III, Bonds (see 28.102-1), except for contracts for the acquisition of commercial products or

commercial services as defined in subpart 2.1.
28.106-5 Consent of surety.

(a) When any contract is modified, the contracting officer shall obtain the consent of surety if-

(1) An additional bond is obtained from other than the original surety;

(2) No additional bond is required and-

(i) The modification is for new work beyond the scope of the original contract; or

(ii) The modification does not change the contract scope but changes the contract price (upward or

downward) by more than 25 percent or $50,000; or

(3) Consent of surety is required for a novation agreement (see subpart 42.12).

(b) When a contract for which performance or payment is secured by any of the types of security

listed in 28.204 is modified as described in paragraph (a) of this subsection, no consent of surety is

required.

(c) Agencies shall use Standard Form 1414, Consent of Surety, for all types of contracts.

28.106-6 Furnishing information.

(a) The surety on the bond, upon its written request, may be furnished information on the progress

of the work, payments, and the estimated percentage of completion, concerning the contract for

which the bond was furnished.

(b) When a payment bond has been provided, the contracting officer shall, upon request, furnish the

name and address of the surety or sureties to any subcontractor or supplier who has furnished or

been requested to furnish labor or material for the contract. In addition, general information

concerning the work progress, payments, and the estimated percentage of completion may be

furnished to persons who have provided labor or materials and have not been paid.

(c) When a payment bond has been provided for a contract, the head of the agency or designee shall

furnish a certified copy of the bond and the contract for which it was given to any person who makes

a request therefor and who furnishes an affidavit that the requestor has supplied labor or materials

for such work and payment therefor has not been made or that the requestor is being sued on such

bond. The person who makes the request shall be required to pay such costs of preparation as

determined by the head of the agency or designee to be reasonable and appropriate (see 40

U.S.C.3133).

(d) Section 806(a)(2) of Public Law 102-190, as amended by sections 2091 and 8105 of Public Law

103-355 (10 U.S.C. 4601 note prec.), requires that the Federal Government provide information to

subcontractors on payment bonds under contracts for other than commercial products or

commercial services as defined in subpart 2.1. Upon the written or oral request of a

subcontractor/supplier, or prospective subcontractor/supplier, under a contract with respect to

which a payment bond has been furnished pursuant to the Bonds statute, the contracting officer

shall promptly provide to the requester, either orally or in writing, as appropriate, any of the

following:

(1) Name and address of the surety or sureties on the payment bond.
(2) Penal amount of the payment bond.

(3) Copy of the payment bond. The contracting officer may impose reasonable fees to cover the cost

of copying and providing a copy of the payment bond.

28.106-7 Withholding contract payments.

(a) During contract performance, agencies shall not withhold payments due contractors or assignees

because subcontractors or suppliers have not been paid.

(b) If, after completion of the contract work, the Government receives written notice from the surety

regarding the contractor’s failure to meet its obligation to its subcontractors or suppliers, the

contracting officer shall withhold final payment. However, the surety must agree to hold the

Government harmless from any liability resulting from withholding the final payment. The

contracting officer will authorize final payment upon agreement between the contractor and surety

or upon a judicial determination of the rights of the parties.

(c) For any withholding incident to the labor standards provisions of the contract, see part 22.

28.106-8 Payment to subcontractors or suppliers.

The contracting officer will only authorize payment to subcontractors or suppliers from an ILC (or

any other cash equivalent security) upon a judicial determination of the rights of the parties, a

signed notarized statement by the contractor that the payment is due and owed, or a signed

agreement between the parties as to amount due and owed.

Subpart 28.2 - Sureties and Other Security for Bonds

28.200 Scope of subpart.

This subpart prescribes procedures for the use of sureties and other security to protect the

Government from financial losses.

28.201 Requirements for security.

(a) Agencies shall obtain adequate security for bonds (including coinsurance and reinsurance

agreements) required or used with a contract for supplies or services (including construction).

Acceptable forms of security include-

(1) Corporate or individual sureties; or

(2) Any of the types of security authorized in lieu of sureties by 28.204.

(b) Solicitations shall not preclude offerors from using the types of surety or other security permitted

by this subpart, unless prohibited by law or regulation.
28.202 Acceptability of corporate sureties.

(a)

(1) Corporate sureties offered for bonds furnished with contracts performed in the United States or

its outlying areas must appear on the list contained in the Department of the Treasury's Listing of

Approved Sureties (Treasury Department Circular 570), “Companies Holding Certificates of

Authority as Acceptable Sureties on Federal Bonds and as Acceptable Reinsuring Companies.”

(2) The penal amount of the bond should not exceed the surety's underwriting limit stated in the

Treasury Department Circular 570. If the penal amount exceeds the underwriting limit, the bond will

be acceptable only if-

(i) The amount which exceeds the specified limit is coinsured or reinsured; and

(ii) The amount of coinsurance or reinsurance does not exceed the underwriting limit of each

coinsurer or reinsurer.

(3) Coinsurance or reinsurance agreements shall conform to the Department of the Treasury

(Treasury) regulations in 31 CFR 223.10 and 223.11. When reinsurance is contemplated, the

contracting office generally shall require reinsurance agreements to be executed and submitted with

the bonds before making a final determination on the bonds.

(4) When specified in the solicitation, the contracting officer may accept a bond from the direct

writing company in satisfaction of the total bond requirement of the contract. This is permissible

until necessary reinsurance agreements are executed, even though the total bond requirement may

exceed the insurer's underwriting limitation. The contractor shall execute and submit necessary

reinsurance agreements to the contracting officer within the time specified on the bid form, which

may not exceed 45 calendar days after the execution of the bond. The contractor shall use

Standard Form (SF) 273, Reinsurance Agreement for a Bonds Statute Performance Bond, and

SF 274, Reinsurance Agreement for a Bonds Statute Payment Bond, when reinsurance is furnished

with the required performance or payment bonds. SF 275, Reinsurance Agreement in Favor of the

United States, is used when reinsurance is furnished with bonds for other purposes.

(b) 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.

(c) Treasury issues supplements to Treasury Department Circular 570, notifying all Federal agencies

of new approved corporate surety companies and the termination of the authority of any specific

corporate surety to qualify as a surety on Federal bonds. Upon receipt of notification of termination

of a company’s authority to qualify as a surety on Federal bonds, the contracting officer shall review

the outstanding contracts and take action necessary to protect the Government, including, where

appropriate, securing new bonds with acceptable sureties in lieu of outstanding bonds with the

named company.

(d) Treasury Department Circular 570 may be obtained from the U.S. Department of the Treasury,

Bureau of the Fiscal Service, Surety Bond Branch, 3201 Pennsy Drive, Building E, Landover, MD

20785 or at https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570.htm.
28.203 Individual Sureties.

28.203-1 Acceptability of individual sureties.

(a)An individual surety is acceptable for all types of bonds except position schedule bonds. Assets

pledged by an individual surety shall meet the eligibility requirements of Treasury's Bureau of the

Fiscal Service. Per 31 U.S.C. 9310, individual sureties must pledge eligible obligations, which

Treasury refers to as acceptable collateral or eligible collateral. A list of acceptable assets, entitled

“Acceptable Collateral for 31 CFR part 225,” may be accessed by going to

https://www.treasurydirect.gov/instit/statreg/collateral/collateral.htm and clicking on “Acceptable

Collateral for 31 CFR part 225”.

(b)

(1)An individual surety shall execute the bond (e.g., bid bond (SF 24), performance bond (SF 25),

payment bond (SF 25A)).

(2)The net adjusted value of unencumbered assets is their market value minus the margin. The

margin tables are available at www.treasurydirect.gov. The net adjusted value of unencumbered

assets pledged by the individual surety must equal or exceed the penal amount (i.e., face value) of

each bond.

(3)The individual surety shall execute the SF 28, Affidavit of Individual Surety, and provide a

security interest. One individual surety is adequate support for a bond, provided the net adjusted

value of unencumbered assets pledged by that individual surety equals or exceeds the amount of the

bond.

(4)An offeror or contractor may submit up to three individual sureties for each bond, in which case

the net adjusted value of the pledged unencumbered assets, when combined, must equal or exceed

the penal amount of the bond. Each individual surety is jointly and severally liable to the extent of

the penal amount of the bond.

(c)Using the information from the SF 28 submitted by the offeror or contractor, the contracting

officer shall notify the Treasury's collateral operations support team by email at

BMT@fiscal.treasury.gov or by phone at 888-568-7343, of the individual surety, the assets to be

pledged, and the amount necessary to cover the individual surety bond, i.e., the required amount to

be collateralized. Treasury will advise the contracting officer whether the assets are eligible to be

pledged, consistent with 28.203-1(a), and of the valuation of the assets offered to be pledged,

consistent with the valuation standards in 28.203-1(b)(2). If after 3 business days the contracting

officer has not received a response from Treasury, the contracting officer may seek assistance from

the Director, Bank Policy and Oversight, at 202-504-3502. The contracting officer shall determine

whether the individual surety bond is acceptable as to the amount necessary to cover the individual

surety bond based on the asset eligibility and valuation assessment from Treasury. The contracting

officer shall notify both the offeror or contractor and the individual surety of this determination.

(d)If the contracting officer determines the individual surety is acceptable, the contracting officer

shall request the Treasury's collateral operations support team set up the necessary individual

surety pledged asset collateral account.

(e)If the contracting officer determines that no individual surety in support of a bid guarantee is
acceptable, the offeror utilizing the individual surety shall be rejected as nonresponsible, except as

provided in 28.101-4. A finding of nonresponsibility based on unacceptability of an individual surety,

need not be referred to the Small Business Administration for a Certificate of Competency. (See

19.602-1(a) and 61 Comp. Gen. 456 (1982).)

(f)If a contractor submits an unacceptable individual surety, or one that Treasury could not assess

the asset eligibility and valuation within a reasonable time, then the contracting officer may permit

the contractor to substitute an acceptable surety within a reasonable time.

(g)Evidence of possible criminal or fraudulent activities by an individual surety shall be referred to

the appropriate agency official in accordance with agency procedures.

28.203-2 Substitution of assets.

An individual surety may request the Government to accept a substitute asset for that currently

pledged by submitting a written request, including a revised SF 28, to the responsible contracting

officer. Following the requirements set forth in 28.203-1, the contracting officer may agree to the

substitution of assets upon determining that the substitute assets to be pledged are adequate to

protect the outstanding bond or guarantee obligations.

28.203-3 Release of security interest.

(a)After consultation with legal counsel, the contracting officer shall release the security interest on

the individual surety's assets using the Optional Form 91, Release of Personal Property from Escrow,

or a similar release as soon as possible consistent with the conditions in subparagraphs (a)(1) and

(2) of this section. A surety's assets pledged in support of a payment bond may be released to a

subcontractor or supplier upon Government receipt of a Federal district court judgment, or a sworn

statement by the subcontractor or supplier that the claim is correct along with a notarized

authorization of the release by the surety stating that it approves of such release.

(1) Contracts subject to the Bonds statute. See section 1.110 and section 28.102-1, paragraph (a).

The security interest shall be maintained for the later of—

(i)1 year following final payment;

(ii)Until completion of any warranty period (applicable only to performance bonds); or

(iii)Pending resolution of all claims filed against the payment bond during the 1 year period

following final payment.

(2) Contracts subject to alternative payment protection. See section 28.102-1, paragraph (b)(1). The

security interest shall be maintained for the full contract performance period plus 1 year.

(3) Other contracts not subject to the Bonds statute. The security interest shall be maintained for 90

days following final payment or until completion of any warranty period (applicable only to

performance bonds), whichever is later.

(b)Upon written request by the individual surety, the contracting officer may release the security

interest on the individual surety's assets in support of a bid guarantee based upon evidence that the

offer supported by the individual surety will not result in contract award.
(c)Upon written request by the individual surety, the contracting officer may release a portion of the

security interest on the individual surety's assets based upon substantial performance of the

contractor's obligations under its performance bond. Release of the security interest in support of a

payment bond must comply with the subparagraphs (a)(1) through (3) of this section. In making this

determination, the contracting officer will give consideration as to whether the unreleased portion of

the security is sufficient to cover the remaining contract obligations, including payments to

subcontractors and other potential liabilities. The individual surety shall, as a condition of the partial

release, furnish an affidavit agreeing that the release of such assets does not relieve the individual

surety of its obligations under the bond(s).

28.203-4 Solicitation provision and contract clause.

(a)Insert the provision at 52.228-17, Individual Surety—Pledge of Assets (Bid Guarantee), in

solicitations that require the submission of a bid guarantee.

(b)Insert the clause at 52.228-11, Individual Surety—Pledge of Assets, in solicitations and contracts

that require the submission of performance or payment bonds.

28.203-5 Exclusion of individual sureties.

(a)An individual may be excluded from acting as a surety on bonds submitted by offerors on

procurement by the executive branch of the Federal Government, by the acquiring agency's head or

designee utilizing the procedures in subpart 9.4. The exclusion shall be for the purpose of

protecting the Government.

(b)An individual may be excluded for any of the following causes:

(1)Failure to fulfill the obligations under any bond.

(2)Failure to disclose all bond obligations.

(3)Misrepresentation of the value of available assets or outstanding liabilities.

(4)Any false or misleading statement, signature or representation on a bond or affidavit of individual

suretyship.

(5)Any other cause affecting responsibility as a surety of such serious and compelling nature as may

be determined to warrant exclusion.

(c)An individual surety excluded pursuant to this section shall be entered as an exclusion in the

System for Award Management (see 9.404).

(d)Contracting officers shall not accept the bonds of individual sureties whose names appear in an

active exclusion record in the System for Award Management (see 9.404) unless the acquiring

agency's head or a designee states in writing the compelling reasons justifying acceptance.

(e)An exclusion of an individual surety under this section will also preclude such party from acting as

a contractor in accordance with subpart 9.4.
28.204 Alternatives in lieu of corporate or individual sureties.

(a) Any person required to furnish a bond to the Government may furnish any of the types of security

listed in 28.204-1 through 28.204-3 instead of a corporate or individual surety for the bond. When

any of those types of security are deposited, a statement shall be incorporated in the bond form

pledging the security in lieu of execution of the bond form by corporate or individual sureties. The

contractor shall execute the bond forms as the principal. Agencies shall establish safeguards to

protect against loss of the security and shall return the security or its equivalent to the contractor

when the bond obligation has ceased.

(b) Upon written request by any contractor securing a performance or payment bond by any of the

types of security listed in 28.204-1 through 28.204-3, the contracting officer may release a portion of

the security only when the conditions allowing the partial release of security in 28.203-3(c) are met.

The contractor shall, as a condition of the partial release, furnish an affidavit agreeing that the

release of such security does not relieve the contractor of its obligations under the bond(s).

(c) The contractor may satisfy a requirement for bond security by furnishing a combination of the

types of security listed in 28.204-1 through 28.204-3 or a combination of bonds supported by these

types of security and additional surety bonds under 28.202 or 28.203. During the period for which a

bond supported by security is required, the contractor may substitute one type of security listed in

28.204-1 through 28.204-3 for another, or may substitute, in whole or combination, additional surety

bonds under 28.202 or 28.203.

28.204-1 United States bonds or notes.

Any person required to furnish a bond to the Government has the option, instead of furnishing a

surety or sureties on the bond, of depositing certain United States bonds or notes in an amount

equal at their par value to the penal sum of the bond (the Act of February 24,1919 (31 U.S.C.9303)

and Treasury Department Circular No.154 (31 CFR Part 225)). In addition, a duly executed power of

attorney and agreement authorizing the collection or sale of such United States bonds or notes in

the event of default of the principal on the bond shall accompany the deposited bonds or notes. The

contracting officer may-

(a) Turn securities over to the finance or other authorized agency official; or

(b) Deposit them with the Treasurer of the United States, a Federal Reserve Bank (or branch with

requisite facilities), or other depository designated for that purpose by the Secretary of the Treasury,

under procedures prescribed by the agency concerned and Treasury Department CircularNo.154

(exception: The contracting officer shall deposit all bonds and notes received in the District of

Columbia with the Treasurer of the United States).

28.204-2 Certified or cashier’s checks, bank drafts, money orders, or currency.

Any person required to furnish a bond has an option to furnish a certified or cashier’s check, bank

draft, Post Office money order, or currency, in an amount equal to the penal sum of the bond,

instead of furnishing surety or sureties on the bonds. Those furnishing checks, drafts, or money

orders shall draw them to the order of the appropriate Federal agency.
28.204-3 Irrevocable letter of credit.

(a) Any person required to furnish a bond has the option to furnish a bond secured by an irrevocable

letter of credit (ILC) in an amount equal to the penal sum required to be secured (see 28.204). A

separate ILC is required for each bond.

(b) The ILC shall be irrevocable, require presentation of no document other than a written demand

and the ILC (and letter of confirmation, if any), expire only as provided in paragraph (f) of this

subsection, and be issued/confirmed by an acceptable federally insured financial institution as

provided in paragraph (g) of this subsection.

(c) To draw on the ILC, the contracting officer shall use the sight draft set forth in the clause at

52.228-14, and present it with the ILC (including letter of confirmation, if any) to the issuing

financial institution or the confirming financial institution (if any).

(d) If the contractor does not furnish an acceptable replacement ILC, or other acceptable substitute,

at least 30 days before an ILC’s scheduled expiration, the contracting officer shall immediately draw

on the ILC.

(e) If, after the period of performance of a contract where ILCs are used to support payment bonds,

there are outstanding claims against the payment bond, the contracting officer shall draw on the ILC

prior to the expiration date of the ILC to cover these claims.

(f) The period for which financial security is required shall be as follows:

(1) If used as a bid guarantee, the ILC should expire no earlier than 60 days after the close of the bid

acceptance period.

(2) If used as an alternative to corporate or individual sureties as security for a performance or

payment bond, the offeror/contractor may submit an ILC with an initial expiration date estimated to

cover the entire period for which financial security is required or an ILC with an initial expiration

date that is a minimum period of oneyear from the date of issuance. The ILC shall provide that,

unless the issuer provides the beneficiary written notice of non-renewal at least 60 days in advance

of the current expiration date, the ILC is automatically extended without amendment for oneyear

from the expiration date, or any future expiration date, until the period of required coverage is

completed and the contracting officer provides the financial institution with a written statement

waiving the right to payment. The period of required coverage shall be:

(i) For contracts subject to the Bonds statute, the later of-

(A) Oneyear following the expected date of final payment;

(B) For performance bonds only, until completion of any warranty period; or

(C) For payment bonds only, until resolution of all claims filed against the payment bond during the

one-year period following final payment.

(ii) For contracts not subject to the Bonds statute, the later of-

(A) 90 days following final payment; or

(B) For performance bonds only, until completion of any warranty period.
(g) Only federally insured financial institutions rated investment grade shall issue or confirm the

ILC. Unless the financial institution issuing the ILC had letter of credit business of at least $25

million in the past year, ILCs over $5 million must be confirmed by another acceptable financial

institution that had letter of credit business of at least $25 million in the past year.

(1) The offeror/contractor is required by paragraph (d) of the clause at 52.228-14. Irrevocable Letter

of Credit, to provide the contracting officer a credit rating from a recognized commercial rating

service that indicates the financial institution has the required rating(s) as of the date of issuance of

the ILC.

(2) To support the credit rating of the financial institution(s) issuing or confirming the ILC, the

contracting officer shall verify the following information:

(i) Federal insurance: Each financial institution is federally insured. Verification of federal insurance

is available through the Federal Deposit Insurance Corporation (FDIC) institution directory at the

website http://www2.fdic.gov/idasp/index.asp.

(ii) Current credit rating. The current credit rating for each financial institution is investment grade

and that the credit rating is from a Nationally Recognized Statistical Rating Organization (NRSRO).

NRSROs can be located at the website http://www.sec.gov/answers/nrsro.htm maintained by the

SEC.

(3) The rating services listed in the website http://www.sec.gov/answers/nrsro.htm use different

rating scales (e.g., AAA, AA, A, BBB, BB, B, CCC, CC, C, and D; or Aaa, Aa, A, Baa, Ba, B, Caa, Ca,

and C) to provide evaluations of institutional credit risk; however, all such systems specify the range

of investment grade ratings (e.g., BBB-AAA or Baa-Aaa in the examples in this section) and permit

evaluation of the relative risk associated with a specific institution. If the contracting officer learns

that a financial institution's rating has dropped below investment grade level, the contracting officer

shall give the contractor 30 days to substitute an acceptable ILC or shall draw on the ILC using the

sight draft in paragraph (g) of the clause at 52.228-14.

(h) A copy of the Uniform Customs and Practice (UCP) for Documentary Credits, 2007 Edition,

International Chamber of Commerce Publication No. 600, is available from:

ICC Books USA, 1212 Avenue of the Americas, 21 st Floor, New York, NY 10036;

Phone: 212-703-5078; Fax: 212-391-6568; E-mail: iccbooks@uscib.org; Via the Internet

at:http://www.uscib.org/ucp-600-ud-4465/.

28.204-4 Contract clause.

Insert the clause at 52.228-14, Irrevocable Letter of Credit, in solicitations and contracts for

services, supplies, or construction, when a bid guarantee, or performance bonds, or performance

and payment bonds are required.

Subpart 28.3 - Insurance
28.301 Policy.

Contractors shall carry insurance under the following circumstances:

(a)

(1) The Government requires any contractor subject to Cost Accounting Standard (CAS) 416 (48 CFR

9004.416) to obtain insurance, by purchase or self-coverage, for the perils to which the contractor is

exposed, except when-

(i) The Government, by providing in the contract in accordance with law, agrees to indemnify the

contractor under specified circumstances; or

(ii) The contract specifically relieves the contractor of liability for loss of or damage to Government

property.

(2) The Government reserves the right to disapprove the purchase of any insurance coverage not in

the Government’s interest.

(3) Allowability of the insurance program’s cost shall be determined in accordance with the criteria

in 31.205-19.

(b) Contractors, whether or not their contracts are subject to CAS 416, are required by law and this

regulation to provide insurance for certain types of perils (e.g., workers’ compensation). Insurance is

mandatory also when commingling of property, type of operation, circumstances of ownership, or

condition of the contract make it necessary for the protection of the Government. The minimum

amounts of insurance required by this regulation (see 28.307-2) may be reduced when a contract is

to be performed outside the United States and its outlying areas. When more than one agency is

involved, the agency responsible for review and approval of a contractor’s insurance program shall

coordinate with other interested agencies before acting on significant insurance matters.

(c) Contractors awarded nonpersonal services contracts for health care services are required to

maintain medical liability insurance and indemnify the Government for liability producing acts or

omissions by the contractor, its employees and agents (see 37.400).

28.302 Notice of cancellation or change.

When the Government requires the contractor to provide insurance coverage, the policies shall

contain an endorsement that any cancellation or material change in the coverage adversely affecting

the Government’s interest shall not be effective unless the insurer or the contractor gives written

notice of cancellation or change as required by the contracting officer. When the coverage is

provided by self-insurance, the contractor shall not change or decrease the coverage without the

administrative contracting officer’s prior approval (see 28.308(c)).

28.303 Insurance against loss of or damage to Government property.

When the Government requires or approves insurance to cover loss of or damage to Government

property (see 45.104, Responsibility and liability for Government property), it may be provided by
specific insurance policies or by inclusion of the risks in the contractor’s existing policies. The

policies shall disclose the Government’s interest in the property.

28.304 Risk-pooling arrangements.

Agencies may establish risk-pooling arrangements. These arrangements are designed to use the

services of the insurance industry for safety engineering and the handling of claims at minimum cost

to the Government. The agency responsible shall appoint a single manager or point of contact for

each arrangement.

28.305 Overseas workers’ compensation and war-hazard insurance.

(a) "Public-work contract," as used in this subpart, means any contract for a fixed improvement or

for any other project, fixed or not, for the public use of the United States or its allies, involving

construction, alteration, removal, or repair, including projects or operations under service contracts

and projects in connection with the national defense or with war activities, dredging, harbor

improvements, dams, roadways, and housing, as well as preparatory and ancillary work in

connection therewith at the site or on the project.

(b) The Defense Base Act (42 U.S.C.1651, etseq.) extends the Longshoremen’s and Harbor Workers’

Compensation Act (33 U.S.C.901) to various classes of employees working outside the United States,

including those engaged in performing-

(1) Public-work contracts; or

(2) Contracts approved or financed under the Foreign Assistance Act of1961 (Pub.L.87-195) other

than-

(i) Contracts approved or financed by the Development Loan Fund (unless the Secretary of Labor,

acting upon the recommendation of a department or agency, determines that such contracts should

be covered); or

(ii) Contracts exclusively for materials or supplies.

(c) When the Defense Base Act applies (see 42 U.S.C.1651, etseq.) to these employees, the benefits

of the Longshoremen’s and Harbor Workers’ Compensation Act are extended through operation of

the War Hazards Compensation Act (42 U.S.C.1701, etseq.) to protect the employees against the risk

of war hazards (injury, death, capture, or detention). When, by means of an insurance policy or a

self-insurance program, the contractor provides the workers’ compensation coverage required by

the Defense Base Act, the contractor’s employees automatically receive war-hazard risk protection.

(d) When the agency head recommends a waiver to the Secretary of Labor, the Secretary may waive

the applicability of the Defense Base Act to any contract, subcontract, work location, or classification

of employees.

(e) If the Defense Base Act is waived for some or all of the contractor’s employees, the benefits of

the War Hazards Compensation Act are automatically waived with respect to those employees for

whom the Defense Base Act is waived. For those employees, the contractor shall provide workers’

compensation coverage against the risk of work injury or death and assume liability toward the

employees and their beneficiaries for war-hazard injury, death, capture, or detention. The contract
shall provide either that the costs of this liability or the reasonable costs of insurance against this

liability shall be allowed as a cost under the contract.

28.306 Insurance under fixed-price contracts.

(a) General. Although the Government is not ordinarily concerned with the contractor’s insurance

coverage if the contract is a fixed-price contract, in special circumstances agencies may specify

insurance requirements under fixed-price contracts. Examples of such circumstances include the

following:

(1) The contractor is, or has a separate operation, engaged principally in Government work.

(2) Government property is involved.

(3) The work is to be performed on a Government installation.

(4) The Government elects to assume risks for which the contractor ordinarily obtains commercial

insurance.

(b) Work on a Government installation.

(1) When the clause at 52.228-5, Insurance-Work on a Government Installation, is required to be

included in a fixed-price contract by 28.310, the coverage specified in 28.307 is the minimum

insurance required and shall be included in the contract Schedule or elsewhere in the contract. The

contracting officer may require additional coverage and higher limits.

(2) When the clause at 52.228-5, Insurance-Work on a Government Installation, is not required by

28.310 but is included because the contracting officer considers it to be in the Government’s interest

to do so, any of the types of insurance specified in 28.307 may be omitted or the limits may be

lowered, if appropriate.

28.307 Insurance under cost-reimbursement contracts.

Cost-reimbursement contracts (and subcontracts, if the terms of the prime contract are extended to

the subcontract) ordinarily require the types of insurance listed in 28.307-2, with the minimum

amounts of liability indicated. (See 28.308 for self-insurance.)

28.307-1 Group insurance plans.

(a) Prior approval requirement. Under cost-reimbursement contracts, before buying insurance under

a group insurance plan, the contractor must submit the plan for approval, in accordance with agency

regulations. Any change in benefits provided under an approved plan that can reasonably be

expected to increase significantly the cost to the Government requires similar approval.

(b) Premium refunds or credits. The plan shall provide for the Government to share in any premium

refunds or credits paid or otherwise allowed to the contractor. In determining the extent of the

Government’s share in any premium refunds or credits, any special reserves and other refunds to
which the contractor may be entitled in the future shall be taken into account.

28.307-2 Liability.

(a) Workers’ compensation and employer’s liability. Contractors are required to comply with

applicable Federal and State workers’ compensation and occupational disease statutes. If

occupational diseases are not compensable under those statutes, they shall be covered under the

employer’s liability section of the insurance policy, except when contract operations are so

commingled with a contractor’s commercial operations that it would not be practical to require this

coverage. Employer’s liability coverage of at least $100,000 shall be required, except in States with

exclusive or monopolistic funds that do not permit workers’ compensation to be written by private

carriers. (See 28.305(c) for treatment of contracts subject to the Defense Base Act.)

(b) General liability.

(1) The contracting officer shall require bodily injury liability insurance coverage written on the

comprehensive form of policy of at least $500,000 per occurrence.

(2) Property damage liability insurance shall be required only in special circumstances as

determined by the agency.

(c) Automobile liability. The contracting officer shall require automobile liability insurance written

on the comprehensive form of policy. The policy shall provide for bodily injury and property damage

liability covering the operation of all automobiles used in connection with performing the contract.

Policies covering automobiles operated in the United States shall provide coverage of at least

$200,000 per person and $500,000 per occurrence for bodily injury and $20,000 per occurrence for

property damage. The amount of liability coverage on other policies shall be commensurate with any

legal requirements of the locality and sufficient to meet normal and customary claims.

(d) Aircraft public and passenger liability. When aircraft are used in connection with performing the

contract, the contracting officer shall require aircraft public and passenger liability insurance.

Coverage shall be at least $200,000 per person and $500,000 per occurrence for bodily injury, other

than passenger liability, and $200,000 per occurrence for property damage. Coverage for passenger

liability bodily injury shall be at least $200,000 multiplied by the number of seats or passengers,

whichever is greater.

(e) Vessel liability. When contract performance involves use of vessels, the contracting officer shall

require, as determined by the agency, vessel collision liability and protection and indemnity liability

insurance.

28.308 Self-insurance.

(a) When it is anticipated that 50 percent or more of the self-insurance costs to be incurred at a

segment of a contractor’s business will be allocable to negotiated Government contracts, and the

self-insurance costs at the segment for the contractor’s fiscal year are expected to be $200,000 or

more, the contractor shall submit, in writing, information on its proposed self-insurance program to

the administrative contracting officer and obtain that official’s approval of the program. The

submission shall be by segment or segments of the contractor’s business to which the program
applies and shall include-

(1) A complete description of the program, including any resolution of the board of directors

authorizing and adopting coverage, including types of risks, limits of coverage, assignments of safety

and loss control, and legal service responsibilities;

(2) If available, the corporate insurance manual and organization chart detailing fiscal

responsibilities for insurance;

(3) The terms regarding insurance coverage for any Government property;

(4) The contractor’s latest financial statements;

(5) Any self-insurance feasibility studies or insurance market surveys reporting comparative

alternatives;

(6) Loss history, premiums history, and industry ratios;

(7) A formula for establishing reserves, including percentage variations between losses paid and

losses reserved;

(8) Claims administration policy, practices, and procedures;

(9) The method of calculating the projected average loss; and

(10) A disclosure of all captive insurance company and reinsurance agreements, including methods

of computing cost.

(b) Programs of self-insurance covering a contractor’s insurable risks, including the deductible

portion of purchased insurance, may be approved when examination of a program indicates that its

application is in the Government’s interest. Agencies shall not approve a program of self-insurance

for workers’ compensation in a jurisdiction where workers’ compensation does not completely cover

the employer’s liability to employees, unless the contractor-

(1) Maintains an approved program of self-insurance for any employer’s liability not so covered; or

(2) Shows that the combined cost to the Government of self-insurance for workers’ compensation

and commercial insurance for employer’s liability will not exceed the cost of covering both kinds of

risk by commercial insurance.

(c) Once the administrative contracting officer has approved a program, the contractor must submit

to that official for approval any major proposed changes to the program. Any program approval may

be withdrawn if a contracting officer finds that either-

(1) Any part of a program does not comply with the requirements of this subpart and/or the criteria

at 31.205-19; or

(2) Conditions or situations existing at the time of approval that were a basis for original approval of

the program have changed to the extent that a program change is necessary.

(d) To qualify for a self-insurance program, a contractor must demonstrate ability to sustain the

potential losses involved. In making the determination, the contracting officer shall consider the

following factors:
(1) The soundness of the contractor’s financial condition, including available lines of credit.

(2) The geographic dispersion of assets, so that the potential of a single loss depleting all the assets

is unlikely.

(3) The history of previous losses, including frequency of occurrence and the financial impact of each

loss.

(4) The type and magnitude of risk, such as minor coverage for the deductible portion of purchased

insurance or major coverage for hazardous risks.

(5) The contractor’s compliance with Federal and State laws and regulations.

(e) Agencies shall not approve a program of self-insurance for catastrophic risks (e.g., see 50.104-3,

Special procedures for unusually hazardous or nuclear risks). Should performance of Government

contracts create the risk of catastrophic losses, the Government may, to the extent authorized by

law, agree to indemnify the contractor or recognize an appropriate share of premiums for purchased

insurance, or both.

(f) Self-insurance programs to protect a contractor against the costs of correcting its own defects in

materials or workmanship shall not be approved. For these purposes, normal rework estimates and

warranty costs will not be considered self-insurance.

28.309 Contract clauses for workers’ compensation insurance.

(a) The contracting officer shall insert the clause at 52.228-3, Workers’ Compensation Insurance

(Defense Base Act), in solicitations and contracts when the Defense Base Act applies (see 28.305)

and-

(1) The contract will be a public-work contract performed outside the United States; or

(2) The contract will be approved or financed under the Foreign Assistance Act of1961

(Pub.L.87-195) and is not excluded by 28.305(b)(2).

(b) The contracting officer shall insert the clause at 52.228-4, Worker’s Compensation and WarHazard Insurance Overseas, in solicitations and contracts when the contract will be a public-work

contract performed outside the United States and the Secretary of Labor waives the applicability of

the Defense Base Act (see 28.305(d)).

28.310 Contract clause for work on a Government installation.

(a) Insert the clause at 52.228-5, Insurance-Work on a Government Installation, in solicitations and

contracts if a fixed-price contract is contemplated, the contract amount is expected to exceed the

simplified acquisition threshold, and the contract will require work on a Government installation,

unless-

(1) Only a small amount of work is required on the Government installation (e.g.,a few brief visits

permonth); or

(2) All work on the Government installation will be performed outside the United States and its
outlying areas.

(b) The contracting officer may insert the clause at 52.228-5 in solicitations and contracts described

in paragraphs (a)(1) and (2) of this section if it is in the Government’s interest to do so.

28.311 Solicitation provision and contract clause on liability insurance under

cost-reimbursement contracts.

28.311-1 Contract clause.

In accordance with agency acquisition regulations, the contracting officer shall insert the clause at

52.228-7, Insurance-Liability to Third Persons, in solicitations and contracts, other than those for

construction contracts and those for architect-engineer services, when a cost-reimbursement

contract is contemplated.

28.311-2 Agency solicitation provisions and contract clauses.

Agencies may prescribe their own solicitation provisions and contract clauses to implement the basic

policies contained in this subpart 28.3.

28.312 Contract clause for insurance of leased motor vehicles.

The contracting officer shall insert the clause at 52.228-8, Liability and Insurance-Leased Motor

Vehicles, in solicitations and contracts for the leasing of motor vehicles (see subpart 8.11).

28.313 Contract clauses for insurance of transportation or transportationrelated services.

(a) The contracting officer shall insert the clause at 52.228-9, Cargo Insurance, in solicitations and

contracts for transportation or for transportation-related services, except when freight is shipped

under rates subject to released or declared value.

(b) The contracting officer shall insert a clause substantially the same as that at 52.228-10,

Vehicular and General Public Liability Insurance, in solicitations and contracts for transportation or

for transportation-related services when the contracting officer determines that vehicular liability or

general public liability insurance required by law is not sufficient.