FAR 28.204-1—United States bonds or notes.
Plain-English Summary
FAR 28.204-1 explains an alternative to traditional surety bonding: a person required to furnish a bond to the Government may deposit eligible United States bonds or notes instead of obtaining a surety or sureties. The section covers the type of security allowed, the requirement that the securities be deposited at par value in an amount equal to the bond’s penal sum, and the need for a duly executed power of attorney and agreement authorizing collection or sale of the securities if the principal defaults. It also addresses what the contracting officer may do with the deposited securities—either transfer them to a finance or other authorized agency official or deposit them with the Treasurer of the United States, a Federal Reserve Bank or branch with the necessary facilities, or another Treasury-designated depository. The section further points to the governing authorities in 31 U.S.C. 9303 and Treasury Department Circular No. 154 (31 CFR Part 225), and it includes a special rule for securities received in the District of Columbia, which must be deposited with the Treasurer of the United States. In practice, this provision gives contractors and other bond principals a government-backed collateral option, while imposing strict handling and custody requirements on the contracting officer and agency.
Key Rules
U.S. securities may replace surety
A person required to furnish a bond may choose to deposit certain United States bonds or notes instead of providing a surety or sureties. This is an optional substitute, not a separate bonding requirement.
Deposit must equal penal sum
The securities must be deposited in an amount equal, at par value, to the penal sum of the bond. The rule focuses on par value, not market value, when determining whether the deposit is sufficient.
Power of attorney required
The deposited bonds or notes must be accompanied by a duly executed power of attorney and agreement authorizing collection or sale if the principal defaults. This document gives the Government the ability to realize on the securities when needed.
Contracting officer handling options
The contracting officer may either turn the securities over to a finance or other authorized agency official or deposit them with an approved Treasury-related depository. The handling method must follow agency procedures and Treasury Circular No. 154.
Approved depositories are limited
If the contracting officer deposits the securities, the deposit must be made with the Treasurer of the United States, a Federal Reserve Bank or qualifying branch, or another depository designated by the Secretary of the Treasury. The section limits custody to these authorized locations.
District of Columbia exception
All bonds and notes received in the District of Columbia must be deposited with the Treasurer of the United States. This is a mandatory exception to the general deposit options.
Responsibilities
Person required to furnish a bond
May elect to satisfy the bonding requirement by depositing eligible United States bonds or notes instead of obtaining a surety. Must ensure the securities are in the correct amount at par value and provide the required power of attorney and agreement.
Contracting Officer
Must accept and process the securities in accordance with FAR, agency procedures, and Treasury Department Circular No. 154. Must either transfer the securities to an authorized agency official or deposit them with an approved depository, and must send all securities received in the District of Columbia to the Treasurer of the United States.
Finance or other authorized agency official
May receive the securities from the contracting officer for custody or further processing, consistent with agency procedures.
Treasurer of the United States / Federal Reserve Bank / Treasury-designated depository
May serve as the authorized custodian of deposited securities when the contracting officer chooses the deposit option, and must hold them under the applicable Treasury procedures.
Agency
Must have procedures in place for handling, depositing, and safeguarding the securities in accordance with Treasury Department Circular No. 154 and applicable agency rules.
Practical Implications
This section gives bond principals a collateral-based alternative to surety bonds, which can be useful when surety coverage is difficult or expensive to obtain.
The biggest compliance risk is misvaluing the securities: the amount is based on par value, so market fluctuations do not change the required deposit amount.
A missing or defective power of attorney/agreement can make the deposit unusable for default recovery, so the paperwork must be complete and properly executed.
Contracting officers must be careful about custody and routing; only the specified depositories are authorized, and District of Columbia receipts have a mandatory deposit destination.
Agencies should have clear internal procedures for receiving, recording, transferring, and safeguarding securities to avoid loss, delay, or noncompliance with Treasury requirements.
Official Regulatory Text
Any person required to furnish a bond to the Government has the option, instead of furnishing a surety or sureties on the bond, of depositing certain United States bonds or notes in an amount equal at their par value to the penal sum of the bond (the Act of February 24,1919 ( 31 U.S.C. 9303 ) and Treasury Department Circular No.154 ( 31 CFR Part 225 )). In addition, a duly executed power of attorney and agreement authorizing the collection or sale of such United States bonds or notes in the event of default of the principal on the bond shall accompany the deposited bonds or notes. The contracting officer may- (a) Turn securities over to the finance or other authorized agency official; or (b) Deposit them with the Treasurer of the United States, a Federal Reserve Bank (or branch with requisite facilities), or other depository designated for that purpose by the Secretary of the Treasury, under procedures prescribed by the agency concerned and Treasury Department CircularNo.154 (exception: The contracting officer shall deposit all bonds and notes received in the District of Columbia with the Treasurer of the United States).