FAR 52.228-16—Performance and Payment Bonds-Other Than Construction.
Plain-English Summary
FAR 52.228-16 addresses performance and payment bonds for non-construction contracts, including when the clause is used, how the required bond amounts are calculated, when the contractor must submit the bonds, and what happens if the contract price increases after award. It defines “original contract price” for fixed-price, requirements, and indefinite-quantity contracts, and it explains that options are generally excluded unless exercised at award. The clause requires the contractor to furnish a performance bond and, in the basic clause, a payment bond, both in specified percentages of the original contract price, using the prescribed Standard Forms 1418 and 1416. It also covers acceptable bond/security forms, including corporate sureties listed in Treasury Circular 570, individual sureties, and certain alternative securities. In practice, this clause protects the Government against contractor default and protects subcontractors and suppliers against nonpayment, while giving the Government a mechanism to demand additional bond protection if the contract value grows. Alternate I modifies the basic clause by removing the payment bond requirement and limiting the Government’s ability to require additional protection to performance bond protection only.
Key Rules
Defines original contract price
The bond percentages are based on the “original contract price,” which is the award price for a fixed-price contract, the estimated quantity price for a requirements contract, or the minimum quantity price for an indefinite-quantity contract. Options are excluded unless exercised at the time of award.
Performance bond is required
The contractor must furnish a performance bond on Standard Form 1418 in the percentage stated in the contract. This bond protects the Government if the contractor fails to perform.
Payment bond may be required
Under the basic clause, the contractor must also furnish a payment bond on Standard Form 1416 in the percentage stated in the contract. This bond protects persons supplying labor or material by ensuring payment obligations are backed by security.
Bonds must be timely submitted
Executed bonds, including any required reinsurance agreements, must be delivered to the contracting officer within the specified number of days and in all cases before work begins. The contractor cannot start performance until the bond requirement is satisfied.
Additional bond protection may be required
If the contract price increases, the Government may require the contractor to increase the penal amount of the existing bonds or obtain additional bonds. This keeps bond protection aligned with the increased contract exposure.
Acceptable bond security is limited
Bonds must be supported by acceptable security, such as corporate sureties listed in Treasury Circular 570, individual sureties, or other approved forms of security like certain cash-equivalent instruments or eligible U.S. obligations. The surety or security must meet the clause and Treasury requirements.
Alternate I removes payment bond
Alternate I is used when only a performance bond is required. It deletes the payment bond requirement and limits the Government’s right to require additional protection to additional performance bond protection only.
Responsibilities
Contracting Officer
Insert the clause when prescribed, fill in the required bond percentages and submission deadline, verify that the contractor provides properly executed bonds before work starts, and determine whether additional bond protection is needed if the contract price increases.
Contractor
Obtain and furnish the required performance bond and, if applicable, payment bond in the required amount and form, submit all executed bonds and any reinsurance agreements on time, and increase or supplement bond protection if directed when the contract price rises.
Surety or Security Provider
Provide valid bond backing or acceptable security that complies with the clause and Treasury requirements, including being listed or otherwise acceptable where required.
Government
Protect its interests by requiring the appropriate bond coverage, withholding authorization to start work until bonds are received, and directing additional bond protection when contract value increases.
Practical Implications
This clause is a risk-allocation tool: the Government uses it to reduce the risk of contractor default, and subcontractors/suppliers may rely on the payment bond for protection against nonpayment.
The most common mistake is letting work begin before bonds are fully executed and accepted; the clause requires bonds before start of work, so schedule and award administration must account for bond lead time.
Another frequent issue is miscalculating the bond base by including options that were not exercised at award or by using the wrong quantity basis for requirements or IDIQ contracts.
If the contract price changes, the contracting officer should review whether the existing bond coverage is still adequate and document any direction to increase the penal amount or obtain additional bonds.
For Alternate I contracts, do not assume a payment bond is required; the alternate intentionally removes that requirement, so the solicitation and award documents must match the intended bond structure.
Official Regulatory Text
As prescribed in 28.103-4 , insert a clause substantially as follows: Performance and Payment Bonds-Other Than Construction (Nov 2006) (a) Definitions . As used in this clause- "Original contract price" means the award price of the contract or, for requirements contracts, the price payable for the estimated quantity; or, for indefinite-quantity contracts, the price payable for the specified minimum quantity. Original contract price does not include the price of any options, except those options exercised at the time of contract award. (b) The Contractor shall furnish a performance bond ( Standard Form 1418 ) for the protection of the Government in an amount equal to _______ percent of the original contract price and a payment bond Standard Form 1416 ) in an amount equal to ______ percent of the original contract price. (c) The Contractor shall furnish all executed bonds, including any necessary reinsurance agreements, to the Contracting Officer, within ________ days, but in any event, before starting work. (d) The Government may require additional performance and payment bond protection if the contract price is increased. The Government may secure the additional protection by directing the Contractor to increase the penal amount of the existing bonds or to obtain additional bonds. (e) The bonds shall be in the form of firm commitment, supported by corporate sureties whose names appear on the list contained in Treasury Department Circular 570, individual sureties, or by other acceptable security such as postal money order, certified check, cashier's check, irrevocable letter of credit, or, in accordance with Treasury Department regulations, certain bonds or notes of the United States. Treasury Circular 570 is published in the Federal Register , or may be obtained from the: U.S. Department of the Treasury, Financial Management Service, Surety Bond Branch, 3700 East West Highway, Room 6 F01 Hyattsville, MD 20782. Or via the internet at http://www.fms.treas.gov/c570/ . (End of clause) Alternate I (July2000). As prescribed in 28.103-4 , substitute the following paragraphs (b) and (d) for paragraphs (b) and (d) of the basic clause: (b) The Contractor shall furnish a performance bond ( Standard Form 1418 ) for the protection of the Government in an amount equal to ______ percent of the original contract price. (d) The Government may require additional performance bond protection if the contract price is increased. The Government may secure the additional protection by directing the Contractor to increase the penal amount of the existing bond or to obtain an additional bond.