FAR 28.104—Annual performance bonds.
Plain-English Summary
FAR 28.104 addresses annual performance bonds for nonconstruction contracts and explains how they work when a contractor has multiple covered contracts over a period of time. The section establishes that these bonds are limited to nonconstruction work, must carry a gross penal sum that applies to the total amount of all covered contracts, and may need to be supplemented if the amount already obligated under covered contracts approaches or reaches the bond’s penal sum. In practice, this provision is meant to give the Government a continuing performance security mechanism without requiring a separate bond for every individual contract, while still ensuring the bond amount remains sufficient as additional contracts are awarded. It matters because contracting officers must monitor the aggregate value of covered contracts against the bond limit, and contractors must understand that one annual bond does not create unlimited coverage. The section is short, but it has an important administrative purpose: it ties bond sufficiency to the running total of covered obligations and prevents undersecured performance risk.
Key Rules
Nonconstruction only
Annual performance bonds under this section apply only to nonconstruction contracts. They are not the performance-bond mechanism for construction work, which is governed by different bonding rules.
Gross penal sum required
The bond must state a gross penal sum that applies to the total amount of all covered contracts. This means the bond amount is measured against the aggregate exposure created by the contracts covered by the annual bond.
Aggregate coverage matters
The relevant comparison is between the penal sum of the annual bond and the total amount of all covered contracts. The bond must be sufficient for the combined value of those contracts, not just any single contract.
Additional bond when limit is reached
If the penal sums obligated by covered contracts are approximately equal to or exceed the annual bond’s penal sum, an additional bond is required to cover further contracts. The Government cannot continue relying on the same bond once its coverage is effectively exhausted.
Coverage must stay current
Because the bond is annual and tied to cumulative obligations, agencies must track contract awards and obligations over time. The bond’s adequacy is not a one-time determination; it must remain sufficient as new covered contracts are added.
Responsibilities
Contracting Officer
Determine whether the contract is a nonconstruction contract covered by annual performance bond requirements, monitor the total amount of covered contracts against the bond’s penal sum, and require an additional bond when the existing bond is approximately exhausted or exceeded.
Contractor
Provide an annual performance bond with a gross penal sum sufficient to cover the total amount of all covered contracts, and obtain additional bonding when the existing bond no longer provides adequate coverage for new awards.
Surety/Guarantor
Issue and maintain the bond in the required penal sum and remain aware that the bond secures the aggregate of covered contracts, not just a single contract.
Agency
Administer the bonding program so that covered contract obligations are tracked across awards and the Government’s performance security remains adequate over the life of the annual bond.
Practical Implications
Contracting officers need a running tally of all covered contracts tied to the annual bond; otherwise, they may unknowingly award work after the bond is effectively maxed out.
Contractors should not assume an annual bond is a blanket, unlimited guarantee. Once the aggregate covered amount approaches the penal sum, they may need to secure more bonding quickly to avoid delays in award.
A common pitfall is treating each contract in isolation instead of looking at the total amount of all covered contracts under the annual bond.
This section can affect award timing because an additional bond may be required before new contracts can be covered, especially when prior obligations have nearly consumed the bond limit.
The practical risk is undersecured performance: if the bond amount is too low for the total covered workload, the Government may lack adequate protection if the contractor fails to perform.
Official Regulatory Text
(a) Annual performance bonds only apply to nonconstruction contracts. They shall provide a gross penal sum applicable to the total amount of all covered contracts. (b) When the penal sums obligated by contracts are approximately equal to or exceed the penal sum of the annual performance bond, an additional bond will be required to cover additional contracts.