[Federal Register: July 26, 2000 (Volume 65, Number 144)]
[Rules and Regulations]               
[Page 46069-46071]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jy00-47]                         

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DEPARTMENT OF DEFENSE

GENERAL SERVICES ADMINISTRATION

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

48 CFR Parts 28 and 52

[FAC 97-19; FAR Case 1999-302; Item VI]
RIN 9000-AI60

 
Federal Acquisition Regulation; Construction Industry Payment 
Protection Act of 1999

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

ACTION: Final rule.

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SUMMARY: The Civilian Agency Acquisition Council and the Defense 
Acquisition Regulations Council (Councils) have agreed on a final rule 
amending the Federal Acquisition Regulation (FAR) to implement the 
Construction Industry Payment Protection (CIPP) Act of 1999. The CIPP 
Act amends the Miller Act to provide that the amount of a payment bond 
must equal the total amount payable by the terms of the contract, 
unless the contracting officer determines that a payment bond in that 
amount is impractical. The final rule also provides enhanced payment 
protection for Government contracts not subject to the Miller Act.

DATES: Effective Date: July 26, 2000.

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. Ralph De Stefano, Procurement Analyst,

[[Page 46070]]

at (202) 501-1758. Please cite FAC     97-19, FAR case 1999-302.

SUPPLEMENTARY INFORMATION:

A. Background

    This final rule amends FAR 28.102 and the clauses at 52.228-13, 
52.228-15, and 52.228-16 to implement the CIPP Act (Pub. L. 106-49) and 
to enhance payment protection for Government contracts not subject to 
the Miller Act.
    The Miller Act (40 U.S.C. 270a, et seq.) requires contractors 
performing Government construction contracts that exceed $100,000 to 
furnish performance and payment bonds. Previously, the required payment 
bond did not exceed 50 percent of the contract price, and was capped at 
a ceiling of $2.5 million.
    The CIPP Act substitutes a requirement that the payment bond 
generally must equal the contract price. In addition, the CIPP Act 
makes two procedural changes to the Miller Act, adding a requirement 
regarding subcontractor waiver of the right to sue on the payment bond, 
and modernizing the requirements for the delivery of notice by 
subcontractors having right of action on the payment bond.
    DoD, GSA, and NASA published a proposed rule in the Federal 
Register at 64 FR 72828, December 28, 1999. Ten respondents submitted 
comments on the proposed rule. The Councils have considered all of 
these comments in formulation of the final rule.
    The final rule makes minor editorial changes to the clause 
prescriptions at FAR 28.102-3, and includes additional information in 
the clause at FAR 52.228-15, Performance and Payment Bonds--
Construction, providing notice of limitations on subcontractor waiver 
of protection (40 U.S.C. 270b(c)).
    This is not a significant regulatory action and, therefore, was not 
subject to review under Section 6(b) of Executive Order 12866, 
Regulatory Planning and Review, dated September 30, 1993. This rule is 
not a major rule under 5 U.S.C. 804.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601, et seq., applies to 
this final rule. The Councils prepared a Final Regulatory Flexibility 
Analysis (FRFA) consistent with 5 U.S.C. 604. Interested parties may 
obtain a copy of the FRFA from the FAR Secretariat. The FRFA is 
summarized as follows:

    The primary objective of this rule is to enhance payment 
protection for subcontractors that furnish labor or materials on 
Government construction contracts. There were no issues raised by 
the public in response to the Initial Regulatory Flexibility 
Analysis. The rule will require all contractors to which the 
Government awards construction contracts exceeding $25,000 to obtain 
a payment bond equal to the contract price, unless the contracting 
officer determines that to be impractical or unnecessary. The rule 
is expected to benefit subcontractors seeking payment, without 
resulting in substantial price increases for the prime contractor 
obtaining the increased payment protection. We estimate that the 
Executive branch of the Government annually awards 54,000 
construction contracts exceeding $25,000, of which half (27,000 
contracts) are awarded to approximately 7,500 small business firms. 
We estimate that approximately 60,000 small business subcontractors 
could benefit from increased payment protection.

    The FAR Secretariat has submitted a copy of the FRFA to the Chief 
Counsel for Advocacy of the Small Business Administration.

C. Paperwork Reduction Act

    The Paperwork Reduction Act does not apply because the changes to 
the FAR do not impose information collection requirements that 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: July 19, 2000.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.

    Therefore, DoD, GSA, and NASA amend 48 CFR parts 28 and 52 as set 
forth below:
    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


28.101-2  [Amended]

    2. Amend section 28.101-2 in the first sentence of paragraph (b) by 
removing ``(see 28.102-2(c))'' and adding in its place ``(see 28.102-
2(a))''.

    3. Revise section 28.102-2 to read as follows:


28.102-2  Amount required.

    (a) Definition. As used in this subsection--
    Original 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 $100,000 (Miller Act).
    (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 $25,000 but not exceeding $100,000. 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 28.203-5(c) 
or 28.204(b).

    4. In section 28.102-3, revise the section heading and paragraph 
(a); and add a sentence to the end of paragraph (b) to read as follows:


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

[[Page 46071]]

payment bonds if the resultant contract is expected to exceed $100,000. 
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) * * * The contracting officer may revise paragraph (b) of the 
clause to establish a lower percentage in accordance with 28.102-2(c).

PART 52--SOLICITATION PROVISIONS AND CONTRACT CLAUSES


52.228-13  [Amended]

    5. Amend section 52.228-13 by revising the date of the clause to 
read ``(July 2000)''; and in paragraph (b) of the clause by removing 
``50'' and adding ``100'' in its place.

    6. Revise section 52.228-15 to read as follows:


52.228-15  Performance and Payment Bonds--Construction.

    As prescribed in 28.102-3(a), insert a clause substantially as 
follows:

Performance and Payment Bonds-- Construction (July 2000)

    (a) Definitions. As used in this clause--
    Original 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) Amount of required bonds. Unless the resulting contract 
price is $100,000 or less, the successful offeror shall furnish 
performance and payment bonds to the Contracting Officer as follows:
    (1) Performance bonds (Standard Form 25). The penal amount of 
performance bonds at the time of contract award shall be 100 percent 
of the original contract price.
    (2) Payment Bonds (Standard Form 25-A). The penal amount of 
payment bonds at the time of contract award shall be 100 percent of 
the original contract price.
    (3) Additional bond protection. (i) The Government may require 
additional performance and payment bond protection if the contract 
price is increased. The increase in protection generally will equal 
100 percent of the increase in contract price.
    (ii) The Government may secure the additional protection by 
directing the Contractor to increase the penal amount of the 
existing bond or to obtain an additional bond.
    (c) Furnishing executed bonds. The Contractor shall furnish all 
executed bonds, including any necessary reinsurance agreements, to 
the Contracting Officer, within the time period specified in the Bid 
Guarantee provision of the solicitation, or otherwise specified by 
the Contracting Officer, but in any event, before starting work.
    (d) Surety or other security for bonds. The bonds shall be in 
the form of firm commitment, supported by corporate sureties whose 
names appear on the list contained in Treasury Department Circular 
570, individual sureties, or by other acceptable security such as 
postal money order, certified check, cashier's check, irrevocable 
letter of credit, or, in accordance with Treasury Department 
regulations, certain bonds or notes of the United States. Treasury 
Circular 570 is published in the Federal Register or may be obtained 
from the U.S. Department of Treasury, Financial Management Service, 
Surety Bond Branch, 401 14th Street, NW, 2nd Floor, West Wing, 
Washington, DC 20227.
    (e) Notice of subcontractor waiver of protection (40 U.S.C. 
270b(c). Any waiver of the right to sue on the payment bond is void 
unless it is in writing, signed by the person whose right is waived, 
and executed after such person has first furnished labor or material 
for use in the performance of the contract.

    (End of clause)


    7. In section 52.228-16, revise the date of the clause and 
paragraph (a); in paragraph (b) add ``original'' before the word 
``contract'', twice; and revise 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 (July 2000)

    (a) Definitions. As used in this clause--
    Original contract price means the award price of the contract 
or, for requirements contracts, the price payable for the estimated 
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.
* * * * *
    (d) The Government may require additional performance and 
payment bond protection if the contract price is increased. The 
Government may secure the additional protection by directing the 
Contractor to increase the penal amount of the existing bonds or to 
obtain additional bonds.
* * * * *
    (End of clause)

    Alternate I (July 2000). 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 to the Government in an amount equal 
to ____ percent of the original contract price.
    (d) The Government may require additional performance bond 
protection if the contract price is increased. The Government may 
secure the additional protection by directing the Contractor to 
increase the penal amount of the existing bond or to obtain an 
additional bond.
[FR Doc. 00-18673 Filed
7-25-00; 8:45 am]
BILLING CODE 6820-EP-P