GSA Federal AIA Contract Performance & Payment Surety Bonds

The US General Services Administration (GSA) provides contracting opportunities for contractors to bid on design and contracting of federal projects. Interested contractors must first be registered in the System for Award Management (SAM) system. The system provides access to bid specifications and drawings and prequalification criteria.

Obligee and Bond Conditions:

The Obligee is the US General Services Administration, otherwise known as the GSA requires a form of security interest for construction projects. The security interest may be in the form of a surety bond, irrevocable letter of credit, a certificate of deposit or other cash equivalents, stocks and bonds, or real property. This article will focus on construction bonds.

The performance bond ensures compliance of the contract terms and the payment bond ensures payments to laborers, material suppliers and sub-contractors. Failure to comply or perform in the manor prescribed by the Obligee may result in a claim filed against the financial guarantee. In the instance of a surety bond, when the Obligee files a claim against the surety bond, the contractor (named as the principal on the bond form) will be responsible for repayment of the claimed amount that the surety paid out. This may be a portion of the bond amount or in amount up to the full contract amount.

The surety bond or security interest must be in place from the time of the initial awarded contract and until the completion of the construction project and may require an increase to the surety bond amount if change orders result in an increase to the contracted amount.

Surety Bond Requirements:

In instances where a performance and payment bond is a construction contract requirement for a federal project, a bid bond may first be needed to submit along with the bid proposal. The bid bond is generally 10% of the bid amount and guarantees the bid. If the applicant is awarded the contract, the next step may be to obtain a performance and/or payment surety bond in the time period listed in the bid solicitation.

An AIA performance and/or payment surety bond is required for contracts in excess of $150,000. The performance bond guarantees the principal (the applicant) will perform the work as stated in the contract. The payment bond guarantees the payments due to any laborers, materials suppliers, and subcontractors working the construction project. In some instances, only a performance bond is required based on the scope of the work to be performed.

The bond amount varies by each contract. Contracts over $150,000 will have a bond amount equal to 100% of the contracted amount. The premium that is charged for the bond is based as well on the contract amount.

Depending on the bond amount required, an underwriter may request personal and business financial statements, resumes of experience in the industry, and in some instances will require a cash deposit or irrevocable letter of credit known as collateral which is a financial guarantee in the event the contractor were to default on the bond and cause claim actions. The funds held in collateral will be paid out first to resolve any claim issue. If the claim exceeds the collateral, the surety will pay up to the entire bond amount and legal fees if necessary and the principal is required to reimburse the surety for this occurrence.

How Much Will This Bond Cost?

The premium that you pay for a GSA Federal Construction Project Surety Bond is dependent on credit and the bond amount required. Contact our Surety Bond Specialists for a free quote that fits your specific project.

Did You Know?

Bid proposals are evaluated by the GSA for technical qualifications and then evaluated for pricing proposals.

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