[Federal Register Volume 63, Number 249 (Tuesday, December 29, 1998)]
[Proposed Rules]
[Pages 71711-71712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34366]


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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 28 and 52

[FAR Case 98-014]
RIN 9000-AI21


Federal Acquisition Regulation; Increased Payment Protection

AGENCIES: Department of Defense (DoD), General Services Administration 
(GSA), and National Aeronautics and Space Administration (NASA).

ACTION: Proposed rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council are proposing to amend the Federal 
Acquisition Regulation (FAR) to increase the required penal amount of 
payment bonds on construction contracts over $6,250,000 and to allow 
the contracting officer to increase the amount of any payment bond or 
alternative payment protection to an amount not to exceed the contract 
price, if the contracting officer decides that a greater amount is 
appropriate.

DATES: Comments should be submitted on or before March 1, 1999 to be 
considered in the formulation of a final rule.

ADDRESSES: Interested parties should submit written comments to: 
General Services Administration, FAR Secretariat (MVR), Attn: Laurie 
Duarte 1800 F Street, NW, Room 4035, Washington, DC 20405.
    E-mail comments submitted over Internet should be addressed to: 
[email protected].
    Please cite FAR case 98-014 in all correspondence related to this 
case.

FOR FURTHER INFORMATION CONTACT: The FAR Secretariat, Room 4035, GS 
Building, Washington, DC 20405, (202) 501-4755, for information 
pertaining to status or publication schedules. For clarification of 
content, contact Mr. Jack O'Neill, Procurement Analyst, at (202) 501-
3856. Please cite FAR case 98-014.

SUPPLEMENTARY INFORMATION:

A. Background

    This rule proposes to amend the Federal Acquisition Regulation 
(FAR) to increase the required penal amount of payment bonds from the 
current maximum of $2.5 million for any contract that exceeds $5 
million, to 40 percent of the contract price, if that amount exceeds 
$2.5 million. This occurs when the contract price exceeds $6,250,000. 
The contracting officer may also increase the amount of any payment 
bond or alternative payment protection to an amount not to exceed the 
contract price, if the contracting officer decides that a greater 
amount is appropriate. The contracting officer may consider local 
payment bond practices under state ``Little Miller Acts'' or whether 
the nature, location, or unique quality of the work might increase the 
risks of payment defaults.
    The proposed rule was initiated at the request of the Administrator 
of the Office of Federal Procurement Policy, in order to provide more 
adequate protection for subcontractors and suppliers under Federal 
construction contracts. Over time, the price of construction has 
continued to rise but the $2.5 million statutory payment bond amount 
has remained the same (40 U.S.C. 270a(a)(2)). The proposed rule is 
based on the statutory authority at 40 U.S.C. 270a(c), which permits 
the contracting officer to require additional security.
    This regulatory action was not subject to Office of Management and 
Budget review under Executive Order 12866, dated September 30, 1993, 
and is not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The proposed changes may have a significant economic impact on a 
substantial number of small entities within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because small 
business firms will in some cases be required to provide additional 
payment protection. On the other hand, many small businesses may be the 
beneficiaries of the increased payment protection. An Initial 
Regulatory Flexibility Analysis (IRFA) has been prepared and is 
summarized as follows:

    We estimate that approximately 4,300 small business firms per 
year will be required to provide increased payment protection. A 
majority of these firms use corporate bonds. We do not expect this 
change to affect these firms ability to do business because these 
firms already acquire corporate performance bonds at 100 percent of 
contract value, and the payment and performance bonds are normally 
priced off contract price. Furthermore, if there are any cost 
increases, these increases would be passed through to the 
Government. For that small group of small businesses that utilize 
alternate payment protections, the impact may be more significant. 
The beneficiaries of the increased payment protection should include 
both large and small businesses that are first-and second-tier 
suppliers and subcontractors to Government prime contractors.

    A copy of the IRFA may be obtained from the FAR Secretariat. 
Comments are invited. Comments from small entities concerning the 
affected FAR subpart will be considered in accordance with 5 U.S.C. 
610. Such comments must be submitted separately and should cite 5 
U.S.C. 601, et seq. (FAR Case 98-014), in correspondence.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the proposed 
changes to the FAR do not impose recordkeeping or information 
collection requirements, or collections of information from offerors, 
contractors, or members of the public which require the approval of the 
Office of Management and Budget under 44 U.S.C. 3501, et seq.

List of Subjects in 48 CFR Parts 28 and 52

    Government procurement.

    Dated: December 22, 1998.
Victoria Moss,
Acting Director,
Federal Acquisition Policy Division.

    Therefore, it is proposed that 48 CFR Parts 28 and 52 be amended as 
set forth below:

[[Page 71712]]

    1. The authority citation for 48 CFR Parts 28 and 52 continues to 
read as follows:

    Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42 
U.S.C. 2473(c).

PART 28--BONDS AND INSURANCE

    2. Section 28.102-2 is amended by revising paragraph (b) to read as 
follows:


28.102-2  Amount required.

* * * * *
    (b) Payment bonds or alternative payment protection. (1) The penal 
amount of payment bonds or the amount of alternative payment protection 
shall be--
    (i) 50 percent of the contract price if the contract price is not 
more than $1 million;
    (ii) 40 percent of the contract price if the contract price is more 
than $1 million but not more than $5 million;
    (iii) $2.5 million if the contract price is more than $5 million 
but not more than $6,250,000;
    (iv) 40 percent of the contract price if the contract price is more 
than $6,250,000; or
    (v) An amount greater than the amounts in paragraphs (b)(1)(i) 
through (b)(1)(iv) of this section, not to exceed the contract price, 
if the contracting officer decides that a greater amount is 
appropriate. The contracting officer may consider local payment bond 
practices under state ``Little Miller Acts'' or whether the nature, 
location, or unique quality of the work might increase the risks of 
payment defaults.
    (2) The Government may require additional protection if the 
contract price is increased.
    (i) The penal amount of the total protection as revised shall meet 
the requirement of paragraph (b)(1) of this subsection.
    (ii) The Government shall secure the required additional protection 
by directing the contractor to increase the penal sum of the existing 
bond or to obtain an additional bond, or to furnish additional 
alternative payment protection.
* * * * *
    3. Section 28.102-3 is amended by revising the section heading; in 
paragraph (a) by adding a new sentence after the second sentence; and 
in paragraph (b) by adding a new sentence after the first sentence to 
read as follows:


28.102-3  Contract clauses.

    (a) * * * The contracting officer may insert a dollar amount or 
percentage of contract price in paragraph (b)(2)(E) of this clause in 
accordance with FAR 28.102-2(b)(1)(v). * * *
    (b) * * * The contracting officer may increase the required 
percentage in paragraph (b) of this clause in accordance with 28.102-
2(b)(1)(v). * * *

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.228-14  [Amended]

    4. Section 52.228-14 is amended by revising the date of the clause; 
and in paragraphs (f) and (g) of the clause by removing 
``________,19____'' and adding ``[DATE]____________'' in each instance.
    5. Section 52.228-15 is amended by revising the date of the clause 
and paragraph (b)(2) to read as follows:


52.228-15  Performance and Payment Bonds--Construction.

* * * * *

Performance and Payment Bonds--Construction (Date)

* * * * *
    (b) * * *
    (2) Payment Bonds (Standard Form 25-A): (i) The penal amount of 
payment bonds shall be--
    (A) 50 percent of the contract price if the contract price is 
not more than $1 million;
    (B) 40 percent of the contract price if the contract price is 
more than $1 million but not more than $5 million;
    (C) $2.5 million if the contract price is more than $5 million 
but not more than $6,250,000;
    (D) 40 percent of the contract price if the contract price is 
more than $6,250,000; or
    (E) $________, or ________ percent of the contract price. (If 
this paragraph is filled in, paragraphs (b)(2)(i)(A) through 
(b)(2)(i)(D) of this clause do not apply.)
    (ii) The Government may require additional protection if the 
contract price is increased.
* * * * *
    6. Section 52.228-16 is amended by revising the date of the clause, 
paragraph (d), and Alternate I to read as follows:


52.228-16  Performance and Payment Bonds Other Than Construction.

* * * * *

Performance and Payment Bonds--Other Than Construction (Date)

* * * * *
    (d) The Government may require additional performance and 
payment bond protection when the contract price is increased. The 
Government may secure additional protection by directing the 
Contractor to increase the penal amount of the existing bonds or to 
obtain additional bonds.
* * * * *
    Alternate I (Date). As prescribed in 28.103-4, substitute the 
following paragraphs (b) and (d) for paragraphs (b) and (d) of the 
basic clause:
    (b) The Contractor shall furnish a performance bond (Standard 
Form 1418) for the protection of the Government in an amount equal 
to ________ percent of the contract price.
    (d) The Government may require additional performance bond 
protection when the contract price is increased. The Government may 
secure additional protection by directing the Contractor to increase 
the penal amount of the existing bond or to obtain an additional 
bond.

[FR Doc. 98-34366 Filed 12-28-98; 8:45 am]
BILLING CODE 6820-EP-P]