Part 228 - BONDS AND INSURANCE       Subpart 228.1 - BONDS AND OTHERFINANCIAL PROTECTIONS                                                         228.102 Performance and payment bonds and alternative payment protections for construction contracts.                                                                           228.102-1 General.                                                                              228.102-70 Defense Environmental Restoration Program construction contracts.                                                                                                           228.105 Other types of bonds.                                                            228.106 Administration.                                                                           228.106-7 Withholding contract payments.                                                                                                                            Subpart 228.3 - INSURANCE                                                         228.304 Risk-pooling arrangements.                                                            228.305 Overseas workers' compensation and war-hazard insurance.                                                            228.307 Insurance under cost-reimbursement contracts.                                                                           228.307-1 Group insurance plans.                                                                                                           228.311 Solicitation provision and contract clause on liability insurance under cost-reimbursement contracts.                                                                           228.311-1 Contract clause.                                                                                                           228.370 Ground and flight risk.                                                                           228.370-1 Definitions.                                                                              228.370-2 General.                                                                              228.370-3 Aircraft not owned by or to be delivered to the Government.                                                                                                           228.371 Additional clauses.    **Parent topic:** Defense Federal Acquisition RegulationSubpart 228.1 - BONDS AND OTHERFINANCIAL PROTECTIONS    228.102 Performance and payment bonds and alternative payment protections for construction contracts.    228.102-1 General.       The requirement for performance and payment bonds is waived for cost-reimbursement contracts. However, for cost-type contracts with fixed-price construction subcontracts over $40,000, require the prime contractor to obtain from each of its construction subcontractors performance and payment protections in favor of the prime contractor as follows:          (1) For fixed-price construction subcontracts over $40,000, but not exceeding $150,000, payment protection sufficient to pay labor and material costs, using any of the alternatives listed at FAR 28.102-1(b)(1).          (2) For fixed-price construction subcontracts over $150,000—          (i) A payment bond sufficient to pay labor and material costs; and          (ii) A performance bond in an equal amount if available at no additional cost.228.102-70 Defense Environmental Restoration Program construction contracts.       For Defense Environmental Restoration Program construction contracts entered into pursuant to 10 U.S.C. 2701—          (a)  Any rights of action under the performance bond shall only accrue to, and be for the exclusive use of, the obligee named in the bond;          (b)  In the event of default, the surety’s liability on the performance bond is limited to the cost of completion of the contract work, less the balance of unexpended funds.  Under no circumstances shall the liability exceed the penal sum of the bond;          (c)  The surety shall not be liable for indemnification or compensation of the obligee for loss or liability arising from personal injury or property damage, even if the injury or damage was caused by a breach of the bonded contract; and          (d)  Once it has taken action to meet its obligations under the bond, the surety is entitled to any indemnification and identical standard of liability to which the contractor was entitled under the contract or applicable laws and regulations.228.105 Other types of bonds.       Fidelity and forgery bonds generally are not required but are authorized for use when—          (1)  Necessary for the protection of the Government or the contractor; or          (2)  The investigative and claims services of a surety company are desired.228.106 Administration.    228.106-7 Withholding contract payments.       (a)  Withholding may be appropriate in other than construction contracts (see FAR 32.112-1(b)).Subpart 228.3 - INSURANCE    228.304 Risk-pooling arrangements.       DoD has established the National Defense Projects Rating Plan, also known as the Special Casualty Insurance Rating Plan, as a risk-pooling arrangement to minimize the cost to the Government of purchasing the liability insurance listed in FAR 28.307-2.  Use the plan in accordance with the procedures at PGI                 228.304              when it provides the necessary coverage more advantageously than commercially available coverage.228.305 Overseas workers' compensation and war-hazard insurance.       (d)  When submitting requests for waiver, follow the procedures at PGI                 228.305             (d).228.307 Insurance under cost-reimbursement contracts.    228.307-1 Group insurance plans.       The Defense Department Group Term Insurance Plan is available for contractor use under cost-reimbursement type contracts when approved as provided in department or agency regulations.  A contractor is eligible if—          (a)  The number of covered employees is 500 or more; and          (b)  The contractor has all cost-reimbursement contracts; or          (c)  At least 90 percent of the payroll for contractor operations to be covered by the Plan is under cost-reimbursement contracts.228.311 Solicitation provision and contract clause on liability insurance under cost-reimbursement contracts.    228.311-1 Contract clause.       Use the clause at FAR 52.228-7, Insurance—Liability to Third Persons, in solicitations and contracts, other than those for construction and those for architect-engineer services, when a cost-reimbursement contract is contemplated, unless the head of the contracting activity waives the requirement for use of the clause.228.370 Ground and flight                   risk.    228.370-1 Definitions.             As used in this section—                   “Aircraft” means,unless otherwise provided in                         the contract Schedule, any item, other than a rocket or missile, intended                         for flight (e.g., fixed-winged aircraft, blended wing/lifting bodies,                         helicopters, vertical take-off or landing aircraft, lighter-than-air                         airships, and unmanned aerial vehicles), including emerging technologies                         that would commonly be considered aircraft. New production articles become                         aircraft at a stage of manufacture or production when a wing, portion of a                         wing, or engine is attached to a fuselage. Blended wing/lifting bodies                         become aircraft at a stage of manufacture or production when the center                         portion and a lifting surface become attached.                   “Civil aircraft” means an aircraft other than                         a public aircraft or state aircraft.                   “Contractor managerial personnel” means the                         contractor’s directors, officers, managers, superintendents, or equivalent                         representatives who have supervision or direction of—                   (1) All, or substantially all, of the contractor’s                         business;                   (2) All, or substantially all, of the contractor’s                         operation at any one plant or separate location; or                   (3) A separate and complete major industrial                         operation.                   “Covered aircraft” means an aircraft owned by                         or to be delivered to the Government and, when determined by the contracting                         officer and specifically identified as such in the contract Schedule, may                         include contractor-furnished aircraft that are not intended for induction                         into the DoD inventory, including—                   (1) Aircraft furnished by the Government to the                         contractor under a contract while in the contractor’s possession, care,                         custody, or control regardless of their location or state of disassembly or                         reassembly;                   (2) Items removed from a Government-furnished aircraft                         that are—                   (i) Intended for reinstallation on that particular                         aircraft, which retain their status as covered aircraft while awaiting                         installation; and                   (ii) Not intended for reinstallation on that particular                         aircraft, which lose their status as covered aircraft once removal is                         complete;                   (3) New production aircraft when wholly outside of                         buildings on the contractor’s premises or other places described in the                         contract Schedule (e.g., hush houses, run stations, and paint facilities);                         and                   (4) Commercial aircraft, to include commercially                         available off-the-shelf aircraft, become covered aircraft when the                         commercial aircraft arrives at the contractor’s place of performance for                         modification under the terms of the contract.                   “Crew member” means, unless otherwise provided                         in the contract Schedule, personnel required in the flight manual, assigned                         for the purpose of conducting any flight on behalf of the contractor. It                         also includes any operator of an unmanned aerial vehicle.                   “Flight” means any flight approved in writing                         by the Government flight representative, to include taxi test made in the                         performance of the contract, or flight for the purpose of safeguarding the                         aircraft. All aircraft off the contractor's premises shall be considered to                         be in flight when on the ground or water for reasonable periods of time                         following emergency landings, landings made in performance of the contract,                         or landings approved in writing by the contracting officer.                   “Public aircraft” means an aircraft that meets                         the definition in 49 U.S.C. 40102(a)(41) and the qualifications in 49 U.S.C.                         40125. Specifically, a public aircraft means any of the following:                   (1) An aircraft used only for the Government, except as                         provided in paragraphs (5) and (7) of this definition.                   (2) An aircraft owned by the Government and operated by anypersonfor purposes related to crew training,                         equipment development, or demonstration, except as provided in paragraph (7)                         of this definition.                   (3) An aircraft owned and operated by the government of a                         State, the District of Columbia, or a territory or possession of the United States or a political subdivision of one of                         these governments, except as provided in paragraph (7) of this                         definition.                   (4) An aircraft exclusively leased for at least 90                         continuous days by the government of a State, the District of Columbia, or a                         territory or possession of the United States or a political subdivision of one of                         these governments, except as provided in paragraph (7) of this                         definition.                   (5) An aircraft owned or operated by the armed forces or                         chartered to provide transportation or other commercial air service to the armed forces                         under the conditions specified by 49 U.S.C. 40125(c). In the preceding                         sentence, the term “other commercial air service” means anaircraftoperation that—                   (i) Is within theUnited Statesterritorial airspace;                   (ii) The Administrator of the Federal Aviation                         Administration determines is available for compensation or hire to the                         public; and                   (iii) Must comply with all applicablecivil aircraftrules under title 14, Code of                         Federal Regulations.                   (6) An unmanned aircraft that is owned and operated by, or                         exclusively leased for at least 90 continuous days by, an Indian Tribal                         government, as defined in section 102 of the Robert T. Stafford Disaster Relief and Emergency Assistance                         Act (42 U.S.C. 5122), except as provided in paragraph (7)                         of this definition.                   (7) As described in 49 U.S.C. 40125(b), an aircraft described in paragraph (1), (2), (3), or                         (4) of this definition does not qualify as apublic aircraftin situations where theaircraftis used forcommercial purposesor to carry an individual other                         than a crew member or a qualified non-crew member.                   “Public aircraft operation” means operation of                         an aircraft that meets the legal definition of public aircraft established                         in 49 U.S.C. 40102(a)(41) and the legal qualifications for public aircraft                         status outlined in 49 U.S.C. 40125.                   “State aircraft” means an aircraft operated by                         the Government for sovereign, noncommercial purposes such as military,                         customs, and police services. Military aircraft are afforded status as state                         aircraft. In very rare circumstances, DoD-contracted aircraft may be                         designated, in writing, by a responsible Government official pursuant to DoD                         Directive 4500.54E, DoD Foreign Clearance Program, to be operated in state                         aircraft status, and States may choose to treat them as deemed state                         aircraft when they are operating under a Government contract.                   “Workmanship error” means damage to the                         aircraft that is the result of an incorrectly performed skill-based task,                         operation, or action that was originally planned or intended.228.370-2 General.             (a) *Assignment of a Government flight representative.* See PGI                         228.370-2(a) for procedures on assigning a Government flight representative                         (GFR) when using the clauses at 252.228-7001 and                         252.228-7007.          (b) *Preaward survey*. Before awarding                         any contract using the clause at 252.228-7001, Ground and Flight Risk, the                         contracting officer should obtain a preaward survey of the offeror’s                         proposed aircraft flight and ground operations facility. If the offeror                         proposed subcontracting any aircraft work, the preaward survey should                         include a review of the subcontractor’s facility. For acquisitions falling                         under the exceptions at 228.371(b)(1)(iii), (iv), and (vi), the contracting                         officer shall review the documentation the offeror submitted with the                         proposal in response to the DD Form 1423, Contract Data Requirements List,                         to ensure the offeror’s commercial insurance provides the appropriate                         coverage required by the clause at 252.228-7001.          (c)                         *Foreign military sales*. The exception for foreign military sales                         (FMS) contracts at 228.371(b)(1)(iii) only applies to FMS cases where the                         FMS customer has explicitly refused assumption of risk of loss. If the FMS                         customer has accepted the standard Letter of Offer and Acceptance Standard                         Terms and Conditions, as described in DoD 5105.38-M, Security Assistance                         Management Manual, they have assumed risk of loss.          (d) *Commercial derivative aircraft*. The exception                         at 228.371(b)(1)(iv) for commercial derivative aircraft only applies if the                         contractor is a licensed and certified Federal Aviation Administration (FAA)                         repair station for the specific model of aircraft under contract, when work                         is being performed pursuant to the FAA license under 14 CFR part 145. The                         FAA’s repair station search tool is available at https://av-info.faa.gov/repairstation.asp. All                         aircraft flying public aircraft operations operate under airworthiness                         certificates maintained by the military services. The FAA airworthiness                         certificate in the exception in this paragraph (d) underlies the military                         service certificate.          (e) *Insurance*. The clause at 252.228-7001, Ground                         and Flight Risk, is intended to reduce acquisition costs by eliminating the                         costs of commercial insurance premiums. This clause also is intended to                         encourage the contractor to perform safe and effective operations through                         inclusion of a contractor’s share of loss (i.e., a deductible).                         Additionally, the clause requires compliance with the combined                         regulation/instruction entitled “Contractor’s Flight and Ground Operations”                         (Air Force Instruction 10-220, Army Regulation 95-20, Naval Air Systems                         Command (NAVAIR) Instruction 3710.1 (Series), Coast Guard Instruction                         M13020.3 (Series), and Defense Contract Management Agency Instruction 8210-1                         (Series)), which provides procedures to mitigate the risk of loss to the                         Government. For this reason, paragraph (e)(4)(ii) of the clause at                         252.228-7001 specifies that insurance premium costs are unallowable. In                         addition, paragraph (d)(4) of the clause provides that the Government’s                         assumption of risk does not apply where the loss or damage is covered by                         available insurance.          (f) *Damage to Government                         aircraft*.          (1) Whenever damage to Government aircraft                         is reported, each incident should be evaluated on its own merits. When the                         cost of repair exceeds the contractor’s share of loss provisions, the                         contracting officer shall make a liability determination in accordance with                         paragraph (g) of this section.          (2) Contracting officers                         should consult with the requiring activity and the assigned contract                         administration office on replacement, repair, or beyond economic repair                         decisions.          (3) See PGI 228.370-2(f) for an example of                         accident or mishap damage versus workmanship-error damage.          (g) *Contracting officer determination of                         liability.*          (1) When making a liability determination,                         the contracting officer should seek input from the GFR and legal counsel, as                         needed.          (2) The Government’s assumption of risk                         shall not extend to damage, loss, or destruction of covered aircraft                         that—          (i) Is the result of willful misconduct or                         lack of good faith on the part of the contractor’s managerial personnel,                         including the contractor’s oversight of subcontractors;          (ii) Is sustained during flight if either the flight or the crew members have                         not been approved in advance and in writing by the GFR, who has been                         authorized in accordance with the combined regulation/instruction entitled                         “Contractor’s Flight and Ground Operations”;          (iii) Occurs                         in the course of transportation by rail, or by conveyance on public streets,                         highways, or waterways, unless the transportation is limited to the                         vicinity of the contractor’s premises, and incidental to work performed                         under the contract as described in the Schedule;          (iv) Is covered by insurance;          (v) Occurs after the                         contracting officer has, in writing, revoked the Government’s assumption of                         risk; or          (vi) Is sustained due to workmanship                         errors.          (h) *Notice of revocation of the Government’s                         assumption of risk*. The liability provisions of the clause at FAR                         52.245-1, Government Property, do not apply to the aircraft impacted by a                         notice of revocation.          (1) *Preliminary notice of                         revocation*.          (i) When finding that contractor                         managerial personnel have failed to comply with the combined                         regulation/instruction, as required by paragraph (b) of the clause at                         252.228-7001, including finding the covered aircraft are exposed to                         unreasonable conditions, the contracting officer shall issue a preliminary                         notice of revocation of the Government’s assumption of risk to the                         contractor and shall require the contractor to comply with contract                         requirements. Factors for the contracting officer to consider in determining                         exposure to unreasonable conditions include, but are not limited to, the                         following:          (A) Lack of adequate hangar fire suppression or                         firefighting vehicles;          (B) Failure to provide adequate                         procedures to the GFR; or          (C) Systemic failure to comply                         with approved procedures.          (ii) The preliminary                         notice of revocation will state the timeframe for the contractor to correct                         the noncompliance or conditions.          (2) *Notice of                         revocation*. If the contractor fails to correct the cited noncompliance                         or conditions within the specified timeframe, the contracting officer shall                         issue to the contractor a notice of revocation of the Government’s                         assumption of risk for any covered aircraft.          (i)                         Thereafter the contractor assumes the entire risk for damage, loss, or                         destruction of the previously covered aircraft.          (ii) Any                         costs incurred by the contractor, including the costs of the contractor’s                         self-insurance, insurance premiums paid to insure the contractor’s                         assumption of risk, deductibles associated with such purchased insurance,                         etc., to mitigate its risk are unallowable costs.          (iii)                         The notice of revocation does not relieve the contractor of its obligation                         to comply with all other provisions of the clause at 252.228-7001, including                         the combined regulation/instruction entitled “Contractor’s Flight and Ground                         Operations.”          (iv) Within 3 days of receipt of the                         contractor’s notice of correction, the contracting officer shall notify the                         contractor whether the Government will resume risk of loss. The contracting                         officer shall determine that the noncompliance or cited conditions have been                         corrected prior to resuming assumption of risk.          (v) Any                         disputes regarding the contracting officer’s notice of revocation shall be                         subject to FAR clause 52.233-1, Disputes.          (i)                         *Procedures in the event of damage, loss, or destruction of covered                         aircraft.*          (1) In the event of damage, loss, or                         destruction of covered aircraft, except in cases covered by paragraph (j)(2)                         of this section, the contracting officer shall evaluate the contractor’s                         statement of—          (i) The damaged, lost, or destroyed                         aircraft;          (ii) The time and origin of the damage, loss, or                         destruction;          (iii) All known interests in commingled                         property of which aircraft are a part; and          (iv) The                         insurance, if any, covering the interest in commingled                         property.          (2) If a new production aircraft is damaged,                         lost, or destroyed before it has become a covered aircraft, the Government                         bears no responsibility for risk of loss.          (3) If a                         new production aircraft is damaged, lost, or destroyed after it has become a                         covered aircraft, the contracting officer shall provide written direction to                         the contractor to take action in accordance with the contracting officer’s                         written direction that the aircraft shall be—          (i)                         Replaced;          (ii) Repaired to the condition immediately prior                         to the damage; or          (iii) Considered beyond economic repair.                         The contracting officer shall decide whether further actions are required                         under the contract.          (4) If a covered aircraft that has                         been furnished by the Government to the contractor is damaged, lost, or                         destroyed while covered, the contracting officer shall provide written                         direction to the contractor that the aircraft shall be—          (i) Repaired; or          (ii) Considered beyond economic repair.                         The contracting officer shall decide further actions required under the                         contract.          (5) The contracting officer shall make an                         equitable adjustment for expenditures made in performing the obligations                         under paragraph (h) of the clause at 252.228-7001.          (j)*Contracting officer determination of the contractor’s share of                         loss*.          (1) The contractor’s share of loss or damage to                         covered aircraft, except for loss or damage caused by negligence of                         Government personnel, is the least of—          (i)                         $200,000;          (ii) 20 percent of the price or estimated                         acquisition cost of affected aircraft; or          (iii) 20 percent                         of the price or estimated cost of the contract, task order, or delivery                         order.          (2) If the Government requires covered aircraft to                         be replaced or repaired by the contractor, any resulting equitable                         adjustment shall not include reimbursement of the contractor’s share of                         loss.          (3) In the event the Government does not decide to                         replace or repair the covered aircraft, the clause at 252.228-7001 requires                         the contractor to credit the contract price or pay the Government, as                         directed by the contracting officer, the least of—          (i)                         $200,000;          (ii) 20 percent of the price or estimated                         acquisition cost of affected aircraft; or          (iii) 20 percent                         of the price or estimated cost of the contract, task order, or delivery                         order.          (4) The costs incurred by the contractor for its                         share of the loss and for insuring against that loss are unallowable costs,                         including but not limited to—          (i) The contractor’s share                         of loss under the Government’s self-insurance;          (ii) The                         costs of the contractor’s self-insurance;          (iii) The                         deductible for any contractor-purchased insurance;          (iv)                         Insurance premiums paid for contractor-purchased insurance;                         and          (v) Costs associated with determining, litigating, and                         defending against the contractor’s liability.          (k)                         *Reimbursement from a third party*. If the contracting officer finds or                         has reason to believe that the contractor has been reimbursed or otherwise                         compensated by a third party for damage, loss, or destruction of covered                         aircraft and has also been compensated by the Government, then the                         contracting officer shall demand an equitable reimbursement. If the                         contracting officer requests that the contractor provide reasonable                         assistance in obtaining recovery, such effort shall be an allowable expense                         of the contractor.228.370-3 Aircraft not owned by or to                   be delivered to the Government.             (a) When a contract                         involves aircraft not owned by or to be delivered to the                         Government, the contracting officer may use the clause                         at 252.228-7001 only if the contracting officer                         determines that it is in the best interest of the                         Government.                   (b) Potential factors for                         the contracting officer to consider when deciding which                         course of action is in the best interest of the                         Government include, but are not limited to, whether—                   (1) The cost of hull                         insurance exceeds the replacement cost of the                         aircraft;                   (2) Insurance is not                         available (e.g., high-risk experimental flights and                         operations of aircraft in a war zone); or                   (3) Ground or flight                         activities that involve contractor-owned and                         contractor-operated aircraft may pose risk to Government                         aircraft (e.g., due to close proximity in flight).228.371 Additional clauses.             (a) Use the clause at 252.228-7000 , Reimbursement                         for War-Hazard Losses, when—                   (1) The clause at FAR 52.228-4,                         Worker's Compensation and War-Hazard Insurance Overseas,                         is used; and                   (2) The head of the contracting                         activity decides not to allow the contractor to buy                         insurance for war-hazard losses.                   (b) Use the clause at 252.228-7001 , Ground and                         Flight Risk, in solicitations and contracts–                   (1) For the acquisition,                         development, production, modification, maintenance,                         repair, flight, or overhaul of aircraft owned by or to                         be delivered to the Government, except those                         solicitations and contracts                   (i) That are strictly for activities                         incidental to the normal operations of the aircraft                         (e.g., refueling operations, minor non-structural                         actions not requiring towing such as replacing aircraft                         tires due to wear and tear);                   (ii) That are awarded for purchase                         under FAR part                         12 procedures;                   (iii) For which a non-DoD customer                         (including an FMS customer per 225.7305) has decided to                         allow the use of commercial insurance or other                         self-insurance; has not agreed to assume the risk for                         loss or destruction of, or damages to, the aircraft;                         or                   (iv) For commercial derivative                         aircraft with an FAA certificate of airworthiness                         maintained to FAA standards. when the work will be                         performed at a licensed FAA repair station. Performance                         under the exception in this paragraph (b)(1)(iv) must be                         at a licensed and certified FAA repair station rated for                         the type of aircraft and work to be maintained. This                         exception does not apply to contracts requiring flights                         with contractor crewmembers;                   (v) Under which the aircraft are to                         be dismantled and removed from the inventory; or                   (vi) Under which the aircraft are                         classified as Group 1 or 2 unmanned aircraft systems per                         DoD Instruction (DoDI) 6055.07, Mishap Notification,                         Investigation, Reporting, and Record Keeping, and the                         purchase price of the air vehicle, including installed                         Government-furnished equipment, is below the cost                         threshold for a Class C mishap per DoDI 6055.07; or                   (2) Involving aircraft not owned by                         or to be delivered to the Government, only if the                         contracting officer determines that it is in the best                         interest of the Government. See 228.370-3.                   (c) The clause at 252.228-7003 , Capture and                         Detention, may be used when contractor employees are                         subject to capture and detention and may not be covered                         by the War Hazards Compensation Act (42 U.S.C. 1701 et                         seq.).                   (d) Use the clause at 252.228-7005 , Mishap                         Reporting and Investigation Involving Aircraft,                         Missiles, and Space Launch Vehicles, in solicitations                         and contracts that involve the manufacture,                         modification, overhaul, or repair of aircraft, missiles,                         and space launch vehicles.                   (e) Use the clause at 252.228-7006 , Compliance                         with Spanish Laws and Insurance, in solicitations and                         contracts for services or construction to be performed                         in Spain, unless the Contractor is a Spanish                         concern.                   (f) Use the clause at 252.228-7007,                         Public Aircraft and State Aircraft                         Operations-Liability, in solicitations and contracts                         that do not include the clause at 252.228-7001 but                         involve public aircraft operations or state aircraft                         operations.