FAR 28.102-1—General.
Plain-English Summary
FAR 28.102-1 explains when federal construction contracts must be protected by performance and payment bonds, and when the Government may use alternative payment protections instead of a traditional payment bond. It covers the general Miller Act rule for construction contracts over $150,000, the limited waiver authority for work performed in foreign countries or as otherwise allowed by statute, and the special bonding/payment-protection framework for construction contracts greater than $35,000 but not greater than $150,000. For that lower dollar range, the contracting officer must choose at least two payment protection methods and must give particular consideration to an irrevocable letter of credit as one of them. The section also identifies the available alternatives: payment bond, irrevocable letter of credit, tripartite escrow agreement, certificates of deposit, and certain deposits of security under FAR 28.204-1 and 28.204-2. Finally, it makes clear that the contractor must provide the required bond or alternative protection, including any needed reinsurance agreements, before the Government issues a notice to proceed or allows work to begin. In practice, this section is about protecting subcontractors, suppliers, and laborers while also giving the Government flexibility in smaller construction contracts and in limited foreign-work situations.
Key Rules
Bonds required over $150,000
Construction contracts exceeding $150,000 generally require both performance and payment bonds under the Miller Act. This is the default rule unless a specific statutory exception or waiver applies.
Foreign work waiver
For work performed in a foreign country, the contracting officer may waive the bond requirement for that portion of the work if obtaining the bond is impracticable. The waiver is limited to the foreign-country work and must be based on a finding of impracticability.
Alternative protections for smaller contracts
For construction contracts greater than $35,000 but not greater than $150,000, the contracting officer must select at least two payment protection methods. The rule specifically directs the contracting officer to give particular consideration to including an irrevocable letter of credit.
Available payment protection options
The selectable protections are a payment bond, an irrevocable letter of credit, a tripartite escrow agreement, certificates of deposit, or a deposit of acceptable security under FAR 28.204-1 and 28.204-2. The contracting officer chooses the combination, and the contractor must provide one of the selected protections.
Escrow agreement requirements
If a tripartite escrow agreement is used, the prime contractor must establish an escrow account in a federally insured financial institution and enter into an agreement with the financial institution and all suppliers of labor and material. The agreement must set payment terms and dispute-resolution procedures.
No start without protection
The contractor must furnish all required bonds or alternative payment protection, including any necessary reinsurance agreements, before receiving the notice to proceed or being allowed to start work. This makes compliance a condition precedent to performance.
Responsibilities
Contracting Officer
Determine whether the contract falls above or below the $150,000 threshold, apply the Miller Act bond requirement when applicable, and document any foreign-country waiver based on impracticability. For contracts between $35,000 and $150,000, select at least two payment protection methods and give particular consideration to an irrevocable letter of credit.
Contractor
Provide the required performance and payment bonds or the selected alternative payment protection before starting work. If the contract requires a tripartite escrow agreement, certificates of deposit, or other security, the contractor must arrange and submit the required instrument in the proper form.
Prime Contractor
When using a tripartite escrow agreement, establish the escrow account, enter into the agreement with the financial institution and all suppliers of labor and material, and ensure the payment and dispute-resolution terms are implemented as required.
Financial Institution / Escrow Agent
For escrow-based protection, act as escrow agent under the tripartite agreement, hold and distribute funds according to the agreement, and trigger dispute-resolution procedures when required. For certificates of deposit or letters of credit, provide instruments that meet the Government’s form and executability requirements.
Government / Agency
Ensure the contract includes the proper bond or payment-protection requirements and withhold authorization to proceed until the contractor has furnished the required protection. The agency also must honor any lawful waiver or alternative arrangement authorized by statute or regulation.
Practical Implications
Contractors should expect bonding or equivalent payment protection to be a pre-award or pre-start compliance item, not something that can be fixed after work begins.
For contracts in the $35,000 to $150,000 range, the contracting officer has discretion over the mix of protections, so offerors should be prepared to provide more than one type of security.
A common pitfall is assuming a payment bond alone is always enough on smaller construction contracts; this section requires at least two selected protections in that dollar band.
Foreign-country work may be exempted from bonding, but only for the portion performed abroad and only if the contracting officer finds bonding impracticable.
If an escrow agreement or letter of credit is used, the form and enforceability matter; an instrument that is technically available but not acceptable to the contracting officer can delay notice to proceed.
Official Regulatory Text
(a) 40 U.S.C. chapter 31 , subchapter III, Bonds (formerly known as the Miller Act), requires performance and payment bonds for any construction contract exceeding $150,000, except that this requirement may be waived- (1) By the contracting officer for as much of the work as is to be performed in a foreign country upon finding that it is impracticable for the contractor to furnish such bond; or (2) As otherwise authorized by the Bonds statute or other law. (b) (1) Pursuant to 40 U.S.C. 3132 , for construction contracts greater than $35,000, but not greater than $150,000, the contracting officer shall select two or more of the following payment protections, giving particular consideration to inclusion of an irrevocable letter of credit as one of the selected alternatives: (i) A payment bond. (ii) An irrevocable letter of credit (ILC). (iii) A tripartite escrow agreement . The prime contractor establishes an escrow account in a federally insured financial institution and enters into a tripartite escrow agreement with the financial institution, as escrow agent, and all of the suppliers of labor and material. The escrow agreement shall establish the terms of payment under the contract and of resolution of disputes among the parties. The Government makes payments to the contractor’s escrow account, and the escrow agent distributes the payments in accordance with the agreement, or triggers the disputes resolution procedures if required. (iv) Certificates of deposit . The contractor deposits certificates of deposit from a federally insured financial institution with the contracting officer, in an acceptable form, executable by the contracting officer. (v) A deposit of the types of security listed in 28.204-1 and 28.204-2 . (2) The contractor shall submit to the Government one of the payment protections selected by the contracting officer. (c) The contractor shall furnish all bonds or alternative payment protection, including any necessary reinsurance agreements, before receiving a notice to proceed with the work or being allowed to start work.