FAR 28.103-3—Payment bonds.
Plain-English Summary
FAR 28.103-3 addresses when a payment bond is required and when the Government may ask for more bond protection after a contract price increase. It ties the payment bond requirement to the existence of a performance bond and to the Government’s judgment that a payment bond is in its interest, rather than making payment bonds automatic in every case. The section also covers what happens when the contract price goes up: the Government may require additional bond protection in an amount sufficient to protect suppliers of labor and material. In practice, this provision is about protecting subcontractors, suppliers, and laborers from nonpayment on bonded construction-type work while also giving the Government flexibility to match bond protection to the risk created by the contract and any later price growth. For contracting officers, it is a control point for deciding whether the bond package remains adequate; for contractors, it is a reminder that bond obligations can expand if the contract value increases.
Key Rules
Payment bond tied to performance bond
A payment bond is required only when a performance bond is also required. If no performance bond is required, this section does not create a standalone payment bond requirement.
Government interest controls use
Even when a performance bond is required, the Government must determine that requiring a payment bond is in its interest. The rule gives the Government discretion rather than making payment bonds mandatory in every bonded contract.
Additional protection after price increases
If the contract price increases, the Government may require additional bond protection. The added protection must be enough to protect suppliers of labor and material against the increased risk.
Protection amount must be adequate
Any additional bond protection must be sized to adequately protect labor and material suppliers. The focus is on matching the bond coverage to the revised contract value and the resulting exposure.
Responsibilities
Contracting Officer
Determine whether a performance bond is required and whether a payment bond is in the Government’s interest. If the contract price increases, assess whether additional bond protection is needed and require an amount adequate to protect suppliers of labor and material.
Contractor
Provide the required payment bond when both the performance-bond condition and the Government-interest determination are met. If the contract price increases and the Government requests more bond protection, furnish the additional bond coverage required.
Government/Agency
Evaluate the risk to labor and material suppliers and decide whether payment-bond protection is warranted. When contract price growth increases exposure, ensure the bond protection remains sufficient to protect those suppliers.
Suppliers of labor and material
Rely on the payment bond as a source of protection for payment on covered work, especially where the Government has required bond coverage and later increased it to reflect higher contract value.
Practical Implications
Payment bonds are not automatic; they depend on both a performance bond requirement and a Government-interest determination, so contractors should not assume every bonded contract includes one.
A contract modification that increases price can trigger a request for more bond protection, which may affect timing, financing, and surety capacity.
Contracting officers should reassess bond sufficiency when scope or price changes, especially on construction work where unpaid subcontractor and supplier claims are a concern.
Contractors should monitor cumulative price increases and surety limits early, because obtaining additional bond coverage can take time and may delay award of the modification.
A common pitfall is treating the original bond amount as permanently sufficient even after major price growth; this section allows the Government to close that gap.
Official Regulatory Text
(a) A payment bond is required only when a performance bond is required, and if the use of payment bond is in the Government’s interest. (b) When a contract price is increased, the Government may require additional bond protection in an amount adequate to protect suppliers of labor and material.