Bonds

Q. In an RFP, for 5-year revenue contracting for advertising on busses, with expected revenue over the 5-year period of $6 million or more, is requesting a bid bond of $500,000 excessive?

A. FTA has not established bid guarantee requirements for revenue contracts such as the one you are now advertising. The Federal Acquisition Regulation Subpart 28.101-2(b) provides guidance to Federal Contracting Officers in establishing the amount of bid bonds. It states "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% of the bid price but not exceed $3 million." Although the FAR is not applicable to your contract, the criteria in the FAR for bid bonds would also suggest that your bid bond amount is not excessive. Additionally, using the principle that the bond should be adequate to protect your agency from loss, which you estimate could be $500,000, also suggests that your bid bond amount is not unreasonable. (Revised: September 2010)



Q. Can an agency waive the 50% bond requirement after awarding a bus rehabilitation contract on the basis that a bond is not needed due to the vendor's good standing with the agency? This contract was awarded to a responsible vendor who has an excellent past performance history with the agency and who is financially sound. According to the Best Practices Procurement Manual, bonding requirements are required by statute for construction contracts and "may also be imposed" for non-construction contracts. How does one interpret "may also be imposed"?

A. The FTA requirements regarding bonds pertain only to construction contracts and facility improvement contracts. They do not pertain to contracts for equipment, rolling stock, maintenance, or other non-construction services. Grantees may choose to require bonds from contractors performing other non-construction contracts, but this is at the sole discretion of the grantee.

The Best Practices Procurement Manual, Section 8.2.1 - "Performance Bonds," states that bonds "must be included in construction contracts above $100,000 in value", and that "you may also wish to include bonds in other situations". The choice in a non-construction contracting situation is entirely yours. FTA has no bonding requirements for non-construction/facility improvement activities. (Revised: September 2010)

Q. In a non-construction two phase project that requires a 50% performance bond, and contract amounts are as follows: phase I - $1 million and phase II - $2.3 million. Phase I awarded first, and upon successful completion by the vendor, phase II awarded to that same vendor. Can the 50% bond requirement be changed to 25% since the vendor satisfactorily performed phase I? We understand that bonds are not a federal requirement when it's a non-construction project. Please advise.

A. Since this is not a construction contract the FTA does not require bonds. Any bonding decision would be up to your agency. Your decision to reduce the performance bond for Phase II work in light of the contractor's satisfactory performance in Phase I and your confidence in the soundness of this contractor's financial condition would be a business decision that you have the authority to make. Since the performance bond has been purchased or will be purchased by the vendor, and the vendor's price to you includes some amount for the cost of a 50% bond, you should receive a price credit if you reduce the bond and thus the vendor's bonding costs. You will have to evaluate the savings to you against the reduction in protection and make a business decision that is in your agency's best interest. (Revised: September 2010)

Q.  I am trying to get some info on the cost of performance bonds for major transit projects.  Can you advise what other New Starts projects are paying for bonds?

A.  We contacted the Surety Information Office (SIO) in Washington, DC, and asked them their opinion on the cost of the bond you referred to. They believe a bond price of ½ percent to 1 percent of the $250 million project cost would be typical of a performance bond price. They advise that the grantee talk to the surety to find out what is causing this high a bond price. The SIO address and Internet link is:

Surety Information Office
5225 Wisconsin Avenue NW, Suite 600
Washington, DC 20015-2014
(202) 686-7463
(Revised: September 2010)

 

Q. Is it required that the dollar amount of these bonds include sales tax that is added to each progress payment paid to the contractor? Or is it acceptable for a contractor to submit the bonds without the sales tax amount? A lower dollar amount of the bonds may result in a lower bond premium amount the contractor is required to pay to the surety, and thus a lower cost to the public agency.

A. The FTA bonding requirements are based upon the value of the contract. If the value of the contract includes sales tax then the sales tax amount would automatically be included in the bond amount.  If the contract value excludes sales tax, then the bond amount would also exclude sales tax.  If you want to propose a lesser amount for the bond than the value of the contract (e.g., one that excludes sales tax), you may submit your request to the FTA Regional office. (Posted: October, 2010)


Q.
 We are being included in a multi-year contract for sidewalk and other concrete work by another of our non-FTA funded departments. Though the estimated value of our contract portion may exceed $100,000 over the whole contract term our individual jobs (i.e., concrete slab for a bus shelter) probably will not exceed $5,000 and more likely be below $3,000 amount per job.  Are the construction bonding requirements (bid, performance and payment) applicable?  There is concern that we will receive no bids or much higher bids for our portion of the bid and we just don't feel that this is true construction for which the bonding requirements are applicable. 

 A. The FTA Circular 4220.1F, Chapter IV 2.h requires bonds on construction contracts that exceed the simplified acquisition threshold (currently $100,000).  In your case you are bidding out a multi-year contract on a "unit price" basis and then issuing tasks over time for individual sidewalk jobs that individually will cost no more than several thousand dollars.  This contracting method will not require bonding since each individual job order is far below the threshold of $100,000 (even though the contract value over time may exceed $100,000 for all of the individual job orders issued). (Posted: December, 2010)


Q. I was recently told that FTA changed the graduated requirement for payment bonds to requiring a payment bond whose penal sum is 100% of the contract amount. Please confirm if this is true.

A. The FTA Procurement Circular 4220.1F, which is available online: http://www.fta.dot.gov/documents/C_4220_1F.pdf, discusses FTA payment bonding requirements on Pages IV-26/27. FTA does not require 100% payment bonds. The requirements vary based on the dollar amount of the contract. (Posted: December, 2011)


Q.
Why are small disadvantaged minority construction companies that are in trouble because of the society’s money problems, and because they cannot compete for government contracts because of credit issues, and we are expected to put up surety bonds, and performance bonds?

Background Information: we are a minority company that has been around for better than eleven years. We are disadvantaged, and usually provided 50 jobs or so for our community, but we have not been able to do so in the past year.

A. In answer to your questions about federal bonding policies, we can tell you that the Federal Transit Administration (FTA) is encouraging its grantees to be judicious in requiring any kind of performance bond from contractors, both large and small. If the grantee is satisfied that the government's interests are being protected, FTA is generally amenable to accepting the grantee's determination that a bond is not necessary. We would also refer you to the regional SBA office in Louisville, Kentucky at the address below. They offer bonding assistance to small businesses:

Kentucky District Office
600 Dr. Martin Luther King Jr. Place Room 188
Louisville, KY 40202
Phone: 502-582-5971
(Posted: December, 2011)