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10 minutes ago, joel hoffman said:

The Digest of the GAO Decision puts the opinion in the last paragraph into proper context.

I am done with the back and forth on the 1977 decision.  I am waiting instead for your definitive reference that subcontractor bonding which is an allowable cost when appropriately substantiated and billed to the prime (contractor) and in turn billed by the prime (contractor) to the government  is not reimbursable in the first contract progress payment.

 

Thank you.

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7 minutes ago, joel hoffman said:

And the term "total amount of paid performance and payment bond premiums in the first progress payment"  is in contrast with the then required method limiting the contractor recovering such costs as progress occurred. It doesn't state that "total premiums of prime and sub bonds" can be reimbursed in the first progress payment. In many cases, the prime contractor hasn't even bought out or finalized some of its subcontracts at the time that it invoices for reimbursement of the bond premium. Our contractors commonly sent the first progress payment request with invoice and bond premium receipts in within the first billing period after NTP was issued.

Seriously Joel get off the 1977 decision.   The actual FAR clause in a contract is what counts!   And as such it says nothing about first progress payment.  52.232-5(g) says you can reimburse them and that is it.  

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Just now, C Culham said:

I am done with the back and forth on the 1977 decision.  I am waiting instead for your definitive reference that subcontractor bonding which is an allowable cost when appropriately substantiated and billed to the prime (contractor) and in turn billed by the prime (contractor) to the government  is not reimbursable in the first contract progress payment.

 

Thank you.

You are welcome. I already did but you apparently don't believe that the Digest is part of the decision or you think that subcontractor bonds are required by law.

Definition from Merriam Webster:
 

Quote

 

digest

noun

di·gest | \ ˈdī-ˌjest \

Definition of digest

 (Entry 1 of 2)

1 : a summation or condensation of a body of information: such as

a : a systematic compilation of legal rules, statutes, or decisions

 

 

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4 minutes ago, C Culham said:

Seriously Joel get off the 1977 decision.   The actual FAR clause in a contract is what counts!   And as such it says nothing about first progress payment.  52.232-5(g) says you can reimburse them and that is it.  

Come on now, Carl.  What authorized your interpretation of the "actual FAR clause"? The wording is essentially the same as it was in 1983.

Did the GAO update its Decision? Have you found more updated authorization?

Up to now, you have hung your hat on the 1977 GAO Decision.

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If I were again in a construction setting, in my contracting officer practice I might be willing to reimburse subcontractor bond premiums under FAR 52.232-5(g) if subcontractor bonds were required--

  1. by the prime contract; or 
  2. by the prime contractor's surety as common practice in the industry (in contrast to elective self-protection choices made by the prime contractor).

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On 9/14/2019 at 9:03 AM, C Culham said:

I am not so sure that this statement is correct.  

Following is reference to a GAO decision  that provides a historic view of the wording now used in 52.232-5(g).  In this historic view bonding costs discussed were that of prime and subs.   The GSBCA case also referenced below discusses within its context bond costs for both the prime and subcontractors where it states "bond premiums included in appellant's initial and revised proposals were estimates of bond premiums to be incurred by appellant and its subcontractors".

Noting these decisions and reading the language of 52.232-5 closely I see nothing that would disallow the payment of subcontractor bonding costs if in submitting its request for payment the prime demonstrates that subs have in fact provided bonding and invoiced the prime for same. 

https://www.gao.gov/assets/420/410197.pdf

https://www.gsbca.gsa.gov/appeals/w1668929.txt    

I believe that ya misinterpreted or read something into the 2005 GSBCA case and you ignored the Digest, (summation or condensation) of the 1977 GAO Decision.

While the types of bonds were described in the negotiations for the contract at issue in the GSBCA decision, the actual reimbursement didn't describe what it was for only that it was less than the proposed bond premium for each contract (thus the reference to "premiums").  There were two contracts and two government reductions of cost for alleged defective pricing. They weren't broken out in detail.

Gotta move on to important things now - walking my dog and finishing up a church playground project.

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The 2005 GSBCA is not persuasive to me.  Footnote 1 on page one says that the case has no value as precedent, because it was decided in the summary process.

I appreciate this discussion.  It is okay for different practitioners to practice differently.  If a contracting officer errs, there are remedy procedures.

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I don't think anyone has mentioned one thing that is possibly relevant to this discussion.  That is the definition of "Bond" in the FAR (at FAR 28.001).  It covers only bonds "executed by a bidder or contractor" and "a second party (the 'surety' or 'sureties') . . .." (Emphasis added.)  Therefore, bonds executed by a subcontractor would not be "bonds" for FAR purposes, and presumably not covered by FAR 52.232-5(g).

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ALAL,

Interesting observation.  So, in your contracting officer practice, would you refuse to reimburse a prime contractor for subcontractor performance and payment bond premiums under FAR 52.232-5(g) based on that argument?

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1 hour ago, ALAL said:

I don't think anyone has mentioned one thing that is possibly relevant to this discussion.  That is the definition of "Bond" in the FAR (at FAR 28.001).  It covers only bonds "executed by a bidder or contractor" and "a second party (the 'surety' or 'sureties') . . .." (Emphasis added.)  Therefore, bonds executed by a subcontractor would not be "bonds" for FAR purposes, and presumably not covered by FAR 52.232-5(g).

Good observation, AL AL.

Well, it is true that the subcontractor performance and/or payment bonds, if required by the contractor and/or its surety,  do not cite the government as the obligee. The Contractor is the obligee or party directly benefitting from the subcontract bond. They are a vehicle for the contractor and its surety to require subcontractors to indemnify said contractor and its surety from losses due to covered subcontractor actions or omissions.

In addition, those private Bonds are not issued on SF25 and SF25-A, which are mandatory for the contractually required performance and payment bonds and which name the government as the obligee..

They are not necessarily unallowable costs to the contractor in FAR Part 31.. They just aren't  the bonds that paragraph 52.232-5(g) covers. The cost for those subcontractor bonds will have to be amortized through normal progress payments as the work progresses.

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4 hours ago, ji20874 said:

If I were again in a construction setting, in my contracting officer practice

I would hope that a CO would also consider whether it is the usual practice/policy of the contractor to require sub bonding. As noted in my posts many construction firms have such a policy.

 

3 hours ago, ji20874 said:

The 2005 GSBCA is not persuasive to me.

 My only purpose was to demonstrate that firms do get sub bonding and that agencies do consider such bonding for reimbursement.  I do understand is not spot on as to a BCA taking a definitive position that the clause allows such reimbursement for sub bonding.  My research shows no definitive decision either way.

@ALAL The discussion is about payment.   Payment to the contractor means payment to that contractor for those costs attributable to subs, happens all the time.

Remember a prime may in fact pass all clauses down to a sub as they are found in the primes contract...inclusive of bonding and payment.

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I would venture a guess that subcontractor bonding is more prevalent in sole source (non-competitive) negotiated contracts, where there is no price competition. Set-asides, too.  We occasionally saw other prime contracts where the prime required bonds of its largest, key subcontractors. Seldom, if ever on IFB and LPTA. I don’t ever recall a situation where all subs had to provide bonds. 

Might be more prevalent in the past six years. 

BTW, in 1977, for other than 8(a) construction contracting, almost all USACE construction contracting was IFB, low bid.  Central America and Overseas construction contracts used competitively negotiated acquisition. But Central America and overseas contracts used other than performance and payment bonds. Bank letters of Guaranty were the mode. 

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12 hours ago, ALAL said:

I don't think anyone has mentioned one thing that is possibly relevant to this discussion.  That is the definition of "Bond" in the FAR (at FAR 28.001).  It covers only bonds "executed by a bidder or contractor" and "a second party (the 'surety' or 'sureties') . . .." (Emphasis added.)  Therefore, bonds executed by a subcontractor would not be "bonds" for FAR purposes, and presumably not covered by FAR 52.232-5(g).

Flag on the play. Misapplication of a definition.

The definition of "bond" at FAR 28.001 does not apply to the word "bond" as used in FAR 52.232-5. FAR 28.001 begins with "as used in this part--".   

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Don,  you would essentially render Part 28 meaningless by your stretch that the bonds in a clause prescribed in Part 32 don’t apply to a definition in Part 28. 

Part 28 prescribes the bonding requirements for construction contracts. They can also be used for other than construction.

Part 28 implements what has been known as the Miller Act. That Act serves a significant public purpose to protect labor and to protect those providing materials for Federal construction projects, especially on government property, which isn’t subject to liens. .

In fact most if not all states have adopted what are referred to as “Little Miller Acts”.

https://www.google.com/amp/nationalsurety.com/state-little-miller-acts-what-they-mean-for-contractors/amp/

The Payments clause at 52.232-5  is for FP construction contracts.

It specifically refers to the Performance Bonds and Payment Bonds that were defined, described and required in Part 28 to implement the Miller Act. In fact, the 1977 GAO Decision that we have been discussing and debating in this thread, specifically refers to the Miller Act.

Thus, the clause and Part 28 are harmonious. 

Gimme a break already. 

Edited by joel hoffman

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Deleted as duplicate of above post. 

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Don, it is a whole lot less of a stretch to say that the subcontractor bonds which some prime contractors and sometimes sureties require are NOT the performance and payment bonds referred to in 52.232-5(g), as they are NOT required by the Miller Act or any other public law,  the US is NOT the Obligee, the US can not call or enforce the bonds and the purpose of which is to reduce the cost liability and risk of costs to the surety and to the prime contractor. The taxpayer is, however, footing the bill for those subcontractor bonds.

The prime bond holder must indemnify the bonding company for any losses or unrecovered expenses under the bonds required under the Miller Act. So they are passing certain risks and responsibility to their subs. 

I don’t think that is a stretch at all. 

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FAR 1.108(a): 

Quote

(a) Words and terms. Definitions in part  2 apply to the entire regulation unless specifically defined in another part, subpart, section, provision, or clause. Words or terms defined in a specific part, subpart, section, provision, or clause have that meaning when used in that part, subpart, section, provision, or clause. Undefined words retain their common dictionary meaning.

The definition of "bond" at FAR 28.001 does not apply to FAR 52.232-5. That is a matter of fact.

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Sorry you disagree. I take it then that the Councils should have written a separate payment clause for upfront payments of bonds -AH but payments are under 32.

Since the GAO recommended amending the payments clauses to address upfront reimbursement for Miller Act Bond premiums (for bonds that are required by that law), how do you think that should be done to harmonize Part 28 with the payments clause that is prescribed in Part 32? 

Keep in mind that the justification for upfront payments in lieu of recovering the spread cost as part of progress was based upon the fact that the prime contractor’s bonds are required by law (the then titled Miller Act)

Oh well. 

Lets dot all our i’s and cross al of our t’s because much of the FAR is inapplicable. 

Edited by joel hoffman
Asked a question

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2 hours ago, joel hoffman said:

the purpose of which is to reduce the cost liability and risk of costs to the surety and to the prime contractor.

And once again your conclusions are skewed to support your position without reference.  Seriously Joel what the heck are coinsurance and reinsurance agreements for but to reduce the cost liability and risk of costs to an insurance company and the prime contractor.   And yes you are right subcontractor bonds do the same thing.  Bonds assure performance and payment, insurance insures against loss.   All walk like a duck, quack like a duck and should be paid for in the same manner.   Get it!

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Don--That is not always true.  See FAR 52.202-1, Definitions, specifically item (c).  "When a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101 in effect at the time the solicitation was issued, unless- * * * (c) The part, subpart, or section of the FAR where the provision or clause is prescribed provides a different meaning . . .."

The problem between FAR Part 28 definitions and the payment clause for construction is that the payment clause is prescribed in Part 32, not Part 28.  If the clause prescription was in Part 28, then the Part 28 definition would apply pursuant to the Definitions clause.  As it is, it is (at best) less than clear.  But since it is a clause about payments under construction contracts, and bonds primarily relate to construction contracts, the definition of "bond" that applies to construction contracts seems to me to be the logical definition to apply.

I'm not even sure this issue (about the applicability of 52.232-5(g)) is what the OP was asking about.

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8 minutes ago, ALAL said:

But since it is a clause about payments under construction contracts, and bonds primarily relate to construction contracts, the definition of "bond" that applies to construction contracts seems to me to be the logical definition to apply.

ALAL,

So, in your contracting officer practice, would you refuse to reimburse a prime contractor for subcontractor performance and payment bond premiums based on the thought that subcontractor bonds are not bonds under FAR 52.232-5(g)?

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I'm not a contracting officer, and have never been confronted with this question. So, I have not taken a firm position on whether subcontractor bonds are included in the meaning of "bond premiums" in 52.232-5(g).  I tend to think they are not included there, but I'm not really sure.

I also don't have an opinion about whether subcontractor bonds would be an allowable cost under a cost reimbursement contract.  I assume so, but I haven't looked into it, and don't intend to.

I just wanted to point out that there was a lot of discussion about bonds, but nobody even mentioned the FAR definition (I think it's the only FAR definition) of "bond," which does not cover subcontractor bonds.

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Thanks.  You made an insightful observation -- but I'm not wholly convinced that the definition of bond in FAR Part 28 excludes subcontractor bonds -- I think the word contractor in the definition is illustrative, not prescriptive.  Many times in the FAR (many, many times), the term contractor also reaches to subcontractor depending on the context -- for example, FAR 31.001 gives a definition of Compensation for personal services -- that definition speaks of "services rendered by employees to the contractor" -- but surely, when the cost principles of FAR Part 31 are applied subcontracts, the word contractor reaches to mean subcontractor? 

An important skill for a contracting officer is to call it, one way or the other -- like an umpire behind the plate.  Some people never develop that skill.  When a contracting officer makes a bad call (or even when the contracting officer makes a good call but someone doesn't like it), the process always allows for a remedy.  I have great respect for contracting officers who make the call on principled and well-thought-out reasons, even if I think I might have decided differently.  As you continue to read here, I hope you will start thinking along the lines of "What would I do in this case?" 

 

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10 hours ago, C Culham said:

And once again your conclusions are skewed to support your position without reference.  Seriously Joel what the heck are coinsurance and reinsurance agreements for but to reduce the cost liability and risk of costs to an insurance company and the prime contractor.   And yes you are right subcontractor bonds do the same thing.  Bonds assure performance and payment, insurance insures against loss.   All walk like a duck, quack like a duck and should be paid for in the same manner.   Get it!

Of course, the definition of reinsurance in Part 28 doesn’t apply to 52.232-5(g), if the Miller Act bonds don’t  apply to -5(g). 

Edited: However, reinsurance and coinsurance are methods sureties use when they don’t have the capacity to fully bond large construction contracts. I’ve seen contracts where two bonding companies bonded the job. 

Edited- added: I’ve  seen where additional bonding had to be picked up by a second bonding company during the life of the project. Those are examples of what -5(g) is referring to. Look at the continuation sheets for SF 25 and SF25A for example.

Edited- added: And coinsurance and reinsurance don’t increase the cost of the contract. 

Sheesh. 

 

Edited by joel hoffman

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5 hours ago, ALAL said:

I'm not even sure this issue (about the applicability of 52.232-5(g)) is what the OP was asking about.

It isn’t what he was asking about. 

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