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. However, there are guidelines established by FTA for construction and facility improvement contracts. These contracts require a minimum bid guarantee amount of 5% of the bid price. This minimum amount is set forth in FTA Circular 4220.1E, paragraph 11.a. Noting that 5% is a minimum amount that FTA will accept, we do not think your bid guarantee of $500,000 for a contract anticipated to be worth $6M is excessive. 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. A 20% bid bond would equate to $1.2M. 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.

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 from contractors are stated in FTA Circular 4220.1E* paragraph 11 "Bonding Requirements." These requirements 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," is somewhat clearer than Clause 13 in Appendix A.1. In the "Discussion" paragraph of Section 8.2.1 it 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. Your question about waiving the bond on an existing contract first depends on whether the contract is for construction or facility improvements. If it were, then you would need to obtain a waiver from your FTA regional office to waive the bond. If it is not a contract for construction or facility improvements, then the decision is yours to make. ____________ * FTA Circular 4220.1E.

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. We would think the vendor would pass the savings on to you. 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. Q.  I am trying to get some info on the cost of performance bonds for major transit projects.  The Dulles folks tell me that their $250 million bond is costing $8.2 million. NYC MTA says it's 1.25 percent of the $500 million construction cost covered, or $6.3 million. That's quite a difference! 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 much more 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 (SIO) 5225 Wisconsin Avenue NW, Suite 600 Washington, DC 20015-2014 (202) 686-7463