Can the government without payment for the amount the damaged property is until the property is repaired or should we continue to pay them and contract the bond company?
Because this is a complicated piece of equipment requiring a design can the government require the contractor to incur the cost of the design?
This Ask-A-Professor Question may include some information that was submitted erroneously. The clause cited, “52.36-9”, is not a FAR clause and search of the web did not authenticate it. It is believed that the intended clause is actually FAR “52.236-9 Protection of Existing Vegetation, Structures, Equipment, Utilities, and Improvements.” It is believed that the submitter may have intended to say “withhold payment” instead of “without payment.” It is also believed that the submitted may have intended to say “contact the bond company” rather than “contract the bond company.” The response to this AAP is based upon the reader’s understanding of the information presented here.
According to FAR 36.509, the Contracting Officer is required to: “insert the clause at 52.236-9, Protection of Existing Vegetation, Structures, Equipment, Utilities, and Improvements, in solicitations and contracts when a fixed-price construction contract or a fixed-price dismantling, demolition, or removal of improvements contract is contemplated and the contract amount is expected to exceed the simplified acquisition threshold.”
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Paragraph (a) in FAR Clause 52.236-9 requires the contractor to: “…preserve and protect all structures, equipment…”
Paragraph (b) states:
(b) The Contractor shall protect from damage all existing improvements and utilities
(1) at or near the work site, and
(2) on adjacent property of a third party, the locations of which are made known to or should be known by the Contractor.
The Contractor shall repair any damage to those facilities, including those that are the property of a third party, resulting from failure to comply with the requirements of this contract or failure to exercise reasonable care in performing the work. If the Contractor fails or refuses to repair the damage promptly, the Contracting Officer may have the necessary work performed and charge the cost to the Contractor.
This clause instructs the contractor to not only preserve and protect all structures and equipment but also to repair any damage to those facilities resulting from failure to comply with the requirements. If the contractor fails or refuses to promptly repair the damage to the structures and equipment the Contracting Officer has the authority to have the necessary work performed and then charge the cost to the contractor.
The contractor is also required to post a performance bond (read below) for any construction contract that exceeds $150,000 as per the Miller Act (read below). The bond assures payment of any loss experienced by the Government as a result of the work being done.
“Bond” means a written instrument executed by a bidder or contractor (the “principal”), and a second party (the “surety” or “sureties”) (except as provided in 28.204), to assure fulfillment of the principal’s obligations to a third party (the “obligee” or “Government”), identified in the bond. If the principal’s obligations are not met, the bond assures payment, to the extent stipulated, of any loss sustained by the obligee. The types of bonds and related documents are as follows:
(1) An advance payment bond secures fulfillment of the contractor’s obligations under an advance payment provision.
(2) An annual bid bond is a single bond furnished by a bidder, in lieu of separate bonds, which secure all bids (on other than construction contracts) requiring bonds submitted during a specific Government fiscal year.
(3) An annual performance bond is a single bond furnished by a contractor, in lieu of separate performance bonds, to secure fulfillment of the contractor’s obligations under contracts (other than construction contracts) requiring bonds entered into during a specific Government fiscal year.
(4) A patent infringement bond secures fulfillment of the contractor’s obligations under a patent provision.
(5) A payment bond assures payments as required by law to all persons supplying labor or material in the prosecution of the work provided for in the contract.
(6) A performance bond secures performance and fulfillment of the contractor’s obligations under the contract.
28.103-2 -- Performance Bonds.
(a) Performance bonds may be required for contracts exceeding the simplified acquisition threshold when necessary to protect the Government's interest. The following situations may warrant a performance bond:
(1) Government property or funds are to be provided to the contractor for use in performing the contract or as partial compensation (as in retention of salvaged material).
(2) A contractor sells assets to or merges with another concern, and the Government, after recognizing the latter concern as the successor in interest, desires assurance that it is financially capable.
(3) Substantial progress payments are made before delivery of end items starts.
(4) Contracts are for dismantling, demolition, or removal of improvements.
(b) The Government may require additional performance bond protection when a contract price is increased.
(c) The contracting officer must determine the contractor's responsibility (see Subpart 9.1) even though a bond has been or can be obtained.
28.102-1 -- General.
(a) The Miller Act (40 U.S.C. 3131 et seq.) requires performance and payment bonds for any construction contract exceeding $150,000, except that this requirement may be waived--
(1) By the contracting officer for as much of the work as is to be performed in a foreign country upon finding that it is impracticable for the contractor to furnish such bond; or
(2) As otherwise authorized by the Miller Act or other law.
28.102-2 -- Amount Required.
(a) Definition. As used in this subpart--
“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 quantity. Original contract price does not include the price of any options, except those options exercised at the time of contract award.
(b) Contracts exceeding the $150,000 (Miller Act)--.
(1) Performance bonds. Unless the contracting officer determines that a lesser amount is adequate for the protection of the Government, the penal amount of performance bonds must equal--
(i) 100 percent of the original contract price; and
(ii) If the contract price increases, an additional amount equal to 100 percent of the increase.
As far as having the contractor incur the cost of the design of the equipment: Information regarding the design and cost of equipment must be stated in the contract. The contract must clearly state if the Government or the contractor is responsible for any and all costs associated with the design. If it is not clear then the Government is generally responsible for the cost.
As long as the contractor is performing satisfactorily on the contract, withholding payment is not warranted. The Government must give the contractor a chance to fix the problem.