United States: The foreign entrepreneur cannot avoid the bond requirement
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Government construction contracts over $ 150,000 require contractors to provide payment and performance guarantees. FAR 28.102-1 (a). When these guarantees are required, the guarantees backed by company guarantees must be issued by sureties whose names appear in Public Treasury Circular 570 listing. FAR 28.202 (a). However, the contracting agent may waive this requirement for contracts performed outside the United States if it determines that it is impossible for the contractor to provide the bonds or use collateral listed by the Treasury. FAR 28.202 (b). A contractor who fails to provide acceptable payment and performance guarantees may have their contract terminated for default. This is what happened to the entrepreneur in Assist Consultants Inc., ASBCA n ° 61525 (April 29, 2021).
In this case, USACE awarded a contract to Assist Consultants, Inc. (ACI) for the construction of the P-960 Triton operational facility at Al Dhafra Air Base, United Arab Emirates. ACI did not submit a payment and performance bond within 15 days of award as required by the contract, and later indicated that it would submit bonds with a bond not listed on the contract. List of approved Treasury Department bonds. ACI argued that as an Afghan company, it was not possible for it to obtain obligations from a surety approved by the Treasury Department. The contracting officer informed ACI that he would not accept a bond for a bond not approved by the Treasury Department.
Ultimately, the contract was terminated for default because ACI failed to provide the sureties after receiving a reassessment notice. ACI had requested a free termination for convenience because USACE informed ACI that the UAE government had an ongoing but unwritten policy of refusing to allow Afghan nationals access to the base. ACI indicated that it would not have bid on the contract if it had been aware of the restriction.
ACI appealed the default termination and the parties requested summary judgment. Declaring that termination for default is a drastic sanction which should only be imposed or maintained for valid reasons and on solid evidence, the ASBCA nonetheless considered that termination for failure by the entrepreneur to provide guarantees of payment and execution was justified. The ASBCA found that the contract required the contractor to provide the bonds and limited the acceptable corporate bonds to those listed by the Treasury Department.
The ASBCA rejected ACI’s argument that FAR 28.202 allowed the contractor to use corporate bonds that were not on the Treasury Department’s list. FAR 28.202 (b) states that, for contracts performed in a foreign country, sureties not listed in Treasury Department Circular 570 are acceptable if the contracting agent determines that it is impossible for the contractor to use guarantees listed by the Treasury. The ASBCA rejected ACI’s argument because: (1) FAR 28.202 (b) was not included in the ACI contract; (2) ACI waived its argument by not raising it prior to contract award because the contract required the use of Treasury Department approved bonds; (3) the contracting officer never determined that it was impossible for ACI to obtain bonds approved by the Treasury; and (4) FAR 28.202 does not create an enforceable right for ACI because FAR 28.202 is not in the best interests of the contractor. The Board concluded that the decision whether or not to accept surety bonds from an unapproved surety must be made prior to granting.
Contractors bidding on overseas government construction projects should review the tender to see if payment and performance guarantees are required. If bonds are required, the contractor should determine whether they will be able to obtain bonds from a bond listed in Treasury Department Circular 570. If this is not the case, the contractor shall request the contracting agent to waive the obligation to use an approved bond before submitting its bid or proposal.
Originally posted May 24, 2021
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