Background
The Miller Act (implemented by FAR 28.102-1(a) requires performance and payment bonds in any construction contract exceeding $100,000.00.

The definition at FAR 28.102-2(a) states that "original contract price means...for indefinite quantity contracts, the price payable for the specified minimum quantity".

Additionally, FAR 28.102-2(b)(1)(ii) and (b)(2)(i)(B)address increases in the contract price and bond requirements for the increases.


Scenario
If you write a contract delivery order for $56,000 ("seed" project representing the funds the customer has available) that establishes the specified minimum quantity, bonds are not required, but alternate payment protection methods must be selected (FAR 28.102-1(b)).


Questions
1) Do subsequent delivery orders, regardless of dollar amount, effectively increase the "original contract price"?

If so, then once the aggregate of all delivery orders exceeds the $100,000 threshold, performance and payment bonds will be required. Until the threshold is exceeded, presumably we only need to require the contractor to increase the level in their alternate payment protection forms.

2) If subsequent delivery orders have no bearing on the "original contract price", what protection devices do we incorporate for delivery orders over $100,000?

3) Should delivery orders under the contract, especially those over $100,000, be treated as "mini" contracts in relation to the requirement for performance and payment bonds.

By joel hoffman on Friday, November 17, 2000 - 11:30 pm:

Franc, you obviously have tried the "Ask a Professor Construction and A-E Contracts" site, without success. The "professor" seems to have given up answering questions.

I believe the answers to your questions relate to the threshold for the Miller Act, which is intended to provide payment protection for subs, employees and suppliers on Federal construction projects, exceeding $100k. The Miller Act was necessary because Federal Property is not subject to "liens", which are widely applicable to non-federal property.

I'm certain that if you have an aggregate of over $100k in "open" task orders, you need the bond. That should answer questions number two and three. I'm not sure that you need bonds IF you never have an aggregate of $100k in open orders.

Once you obtain a bond, it's easier to maintain the bond than obtaining a new one each time you go over $100k, plus incremental bond costs are usually cheaper than the initial issue bond. Happy Sails! Joel

By Vern Edwards on Tuesday, November 21, 2000 - 05:18 pm:

Franc and Joel:

The FAR coverage of Miller Act bonding for an IDIQ construction contract strikes me as nearly unintelligible. All the same, Franc, here is how I would answer your questions:

Upon contract award, the type and amount of bonding should be based on the minimum quantity of the IDIQ contract, as required by FAR. As orders are issued, the type and amount of bonding should be adjusted to reflect the net value of the uncompleted work under all orders.

I think that Joel is right that treating each order as a separate contract is likely to be more costly to the government. FAR does not require you to treat each order as a separate contract for bonding purposes, so I wouldn't do it that way if it would cost more.

By Franc on Tuesday, November 21, 2000 - 08:19 pm:

Vern:

I can tell you really love the DAR Council!

If you adjust the type and amount of bonding to reflect the net value of uncompleted work, what would happen if you had a $50,000 order at 20%completion and a newly issued order for $70,000? The net value of uncompleted work would be over $100,000.

Does this trigger the "full" bonding requirements of the Wagner Act, even if the amount of uncompleted work under the first delivery order was already "payment protected" under the alternates outlined in 28.102-1(b)?

I agree with you and Joe about the higher bonding costs associated with treating each delivery order separately. At this location, it appears that cost is a secondary issue. Every IDIQ solicitation contains a statement, typed under clause 52.228-15, saying that bonds are required on every delivery order.

Franc

By joel hoffman on Wednesday, November 22, 2000 - 07:03 am:

Franc, are you referring to the "Miller Act" ?

(of 1935 covering bonding requirementss, see more information at the Surety Information Office at: http://www.connectyou.com/sio/millract.htm ")

or the "Wagner Act" ?

(National Labor Relations Act of 1935 - see: "http://www.britannica.com/seo/w/wagner-act/" ) Happy Sails! Joel

By joel on Wednesday, November 22, 2000 - 07:23 am:

By the way - the Surety Information Office has a wealth of information available on bonding, free. I was unable to fill my order for some technical reason but they are at the website referenced above. Happy Sails! Joel

By bob antonio on Wednesday, November 22, 2000 - 07:33 am:

Joel:

I am going to add the site to this one. I try to find sites that give information for free.

By Vern Edwards on Wednesday, November 22, 2000 - 09:19 am:

Franc:

In my opinion, each order affects the "original contract price" of an IDIQ contract. As orders are issued and completed the original contract price increases and decreases. That's my conclusion based on logic; but I cannot cite a regulation to that effect.

The nature and amount of the bond guarantees for a contract should reflect the Miller Act requirements and the government's exposure. Thus, there should be enough to satisfy the Miller Act with regard to the work outstanding. Each order increases the government's exposure and thus requires an increase in the bonding, and the completion of each order reduces the government's exposure. However, I don't think the increase needs to cover the sum of the face values of the outstanding orders, just the sum of the values of the uncompleted work. FAR clearly gives the contracting officer discretion in that regard.

I also think that when the sum of the values of the uncompleted work exceeds $100,000 you need to require the bonding for a contract in excess of $100,000. That is not clear from the FAR, but that is what makes sense to me in light of what I can glean from the FAR.

By joel hoffman on Wednesday, November 22, 2000 - 09:36 am:

Franc and Vern, as a bit of advice, I'd count the value of all uncompleted orders, when initiating or adding to a bond. Under the Miller Act, a sub, supplier or laborer can take an action against the bond several months after providing the material, labor or service. The remaining value on the task order may be far less than the claim exposure against the bond for unpaid workers, suppliers and subs or in case of default.

Plus, the bonding company typically calculates the premium on the total amount of the contract - for task orders, I'd include and track the total of each task order covered by the bond. Makes it much cleaner to negotiate and to administer. Bonding company keeps up with the total work covered through periodic inquiries to the Government, plus the SF 1415's and other forms we use.

If you have separate, alternate coverage for initial small tasks, you can separate those tasks from the bonded tasks. I believe that would be workable. Happy Sails! joel

By Vern Edwards on Wednesday, November 22, 2000 - 09:39 am:

Joel:

That's good advice. Thanks.

Vern

By joel hoffman on Wednesday, November 22, 2000 - 09:40 am:

To clarify, I recommend including the total cost of task orders to be covered by the bond (not just the uncompleted amount of the task order). For task orders not covered by bond but by alternate security, keep those separate. I believe that should answer Franc's question about avoiding duplicate protections. Does this make sense? Happy Sails!

By Julee McTaggart on Friday, December 08, 2000 - 07:27 pm:

I think you'll be interested in FAR clause 52.228-15, Performance and Payment Bonds -- Construction. I quote from the definitions paragraph -"ORIGINAL CONTRACT PRICE means the award price of the contract; or, for requirements contracts, the price payable for the estimated total quantity; or for indefinite-quantity contracts, the price payable for the specified minimum quanity. Original contract price does not include the price of any options, except those options exercised at the time of contract award."

Hope this helps.

Julee

By joel hoffman on Saturday, December 09, 2000 - 08:44 am:

Julee, the wording in the clause would logically indicate that the bond isn't required until the contract amount, as measured by task orders, exceeds the Miller Act threshold of $100k. If alternate coverage was provided for initial task orders below the threshold, I wouldn't count those totals in the threshold amount, as there is already some protection provided by the alternative approaches. I'd apply the bond only to the remaining task orders.

If all follow-on task orders are below $100k, I suppose you could treat each as a separate contract, forego bonds, and use alternative protection. That would be cumbersome, though.

I just received some material from the Surety Information Office. This information reminded me that claimants under a payment bond must file a claim no sooner than 90 days after the last material or labor were furnished and no later than 1 year after that date. Therefore, I'd repeat my 22 November 2000 clarification.

Happy Sails! Joel