FAR 28.103-2—Performance bonds.
Plain-English Summary
FAR 28.103-2 explains when a contracting officer may require a performance bond and what that bond is meant to protect. It covers the general rule that performance bonds may be required for contracts above the simplified acquisition threshold when needed to protect the Government’s interest, and it identifies specific situations that may justify the requirement: when Government property or funds are furnished to the contractor, when a contractor sells assets or merges and the Government recognizes a successor in interest, when substantial progress payments are made before delivery begins, and when the work involves dismantling, demolition, or removal of improvements. The section also addresses the Government’s ability to require additional performance bond protection if the contract price increases. Finally, it makes clear that bonding does not replace the responsibility determination required under FAR subpart 9.1; the contracting officer must still decide whether the contractor is responsible. In practice, this section gives contracting officers a risk-management tool for higher-risk contracts and reminds contractors that bonding may be required even when they are otherwise eligible to compete.
Key Rules
Bonding for higher-risk contracts
Performance bonds may be required for contracts exceeding the simplified acquisition threshold when the Government needs added protection. The decision is discretionary and should be tied to the risk of nonperformance or loss to the Government.
Government property or funds
A performance bond may be warranted when the Government provides property or funds to the contractor for use in performance or as partial compensation, such as retention of salvaged material. This helps protect the Government if the contractor fails to complete the work or account for the Government’s contribution.
Successor-in-interest situations
If a contractor sells assets or merges with another concern and the Government recognizes the new entity as the successor in interest, the contracting officer may require a performance bond to ensure the successor is financially capable of performing.
Large progress payments
Substantial progress payments made before delivery of end items begins may justify a performance bond. The bond helps offset the risk that the Government has paid significant amounts before receiving completed work.
Demolition and removal work
Contracts for dismantling, demolition, or removal of improvements may warrant a performance bond because these projects can create special performance and site-restoration risks. The Government may need assurance that the contractor will complete the work safely and as required.
Additional protection after price increases
If the contract price increases, the Government may require additional performance bond protection. The amount of protection should be adjusted to reflect the increased exposure.
Responsibility still required
A bond does not eliminate the need for a responsibility determination under FAR subpart 9.1. The contracting officer must independently determine that the contractor is responsible, even if bonding is available or already in place.
Responsibilities
Contracting Officer
Decide whether a performance bond is necessary to protect the Government’s interest on contracts above the simplified acquisition threshold. Evaluate the listed risk situations, determine whether additional bond protection is needed after a price increase, and make a separate responsibility determination under FAR subpart 9.1.
Contractor
Provide the required performance bond when the contracting officer makes it a condition of award or continued performance. Maintain the ability to perform the contract and understand that bonding does not substitute for being found responsible.
Government
Assess contract risk and decide when bonding is needed to protect public funds, Government-furnished property, or other interests. If the contract price increases, consider whether the existing bond remains adequate and whether additional protection is necessary.
Practical Implications
This section is mainly about risk control: the Government uses performance bonds when the chance or cost of nonperformance is higher than normal.
Contractors should expect bonding scrutiny on jobs involving Government-furnished property, demolition, large upfront payments, or corporate changes like mergers and asset sales.
A common mistake is assuming that having a bond guarantees award; the contracting officer still must find the contractor responsible under FAR subpart 9.1.
Another practical issue is bond adequacy after contract modifications that increase price or exposure; the original bond may no longer be enough.
For contracting officers, the key is to document why the bond is needed and to treat bonding as one part of the overall responsibility and risk assessment, not a substitute for it.
Official Regulatory Text
(a) Performance bonds may be required for contracts exceeding the simplified acquisition threshold when necessary to protect the Government’s interest. The following situations may warrant a performance bond: (1) Government property or funds are to be provided to the contractor for use in performing the contract or as partial compensation (as in retention of salvaged material). (2) A contractor sells assets to or merges with another concern, and the Government, after recognizing the latter concern as the successor in interest, desires assurance that it is financially capable. (3) Substantial progress payments are made before delivery of end items starts. (4) Contracts are for dismantling, demolition, or removal of improvements. (b) The Government may require additional performance bond protection when a contract price is increased. (c) The contracting officer must determine the contractor’s responsibility (see subpart 9.1 ) even though a bond has been or can be obtained.