[DoD Seal] OFFICE OF THE SECRETARY OF DEFENSE [DoD
1000 DEFENSE PENTAGON
WASHINGTON, DC 203011000
February 1, 1996
In reply refer to
DFARS Case: 95D305
D. L. 96001
MEMORANDUM FOR DIRECTORS OF DEFENSE AGENCIES
DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT,
DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE
DIRECTOR, PROCUREMENT POLICY, ASA(RD&A)/SARDPP
DEPUTY DIRECTOR (ACQUISITION), DEFENSE LOGISTICS
SUBJECT: Alternatives to Miller Act Bonds
We have amended the Defense Federal Acquisition Regulation Supplement
(DFARS) to revise the interim rule which was issued on August 31, 1995,
as Departmental Letter 95018, providing alternative payment protections
for construction contracts between $25,000 and $100,000, pending
implementation of Section 4104(b)(2) of the Federal Acquisition
Streamlining Act of 1994 in the Federal Acquisition Regulation.
This revised interim DFARS rule is effective immediately and will be
included in a future Defense Acquisition Circular.
Eleanor R. Spector
Director, Defense Procurement
cc: DSMC, Ft. Belvoir
DFARS CASE 95D305, Alternatives to Miller Act Bonds
Revised Interim Rule
PART 228BONDS AND INSURANCE
* * * * *
228.171 Alternative payment protections in construction contracts between
$25,000 and $100,000.
[(a)] For construction contracts greater than $25,000, but not greater
than $100,000, the contracting officer shall select one [two] or more
of the following payment protections[, giving particular consideration
to inclusion of an irrevocable letter of credit as one of the selected
alternatives:] which the contractor may submit to the Government for
the protection of suppliers of labor and material:
 A payment bond.
 An irrevocable letter of credit.
 A tripartite escrow agreement. The prime contractor
establishes an escrow account in a Federally insured financial
institution and enters into a tripartite escrow agreement with
the financial institution, as escrow agent, and all of the
suppliers of labor and material. The escrow agreement shall
establish the terms of payment under the contract and of
resolution of disputes among the parties. The Government makes
payments to the contractorÆs escrow account, and the escrow agent
distributes the payments in accordance with the agreement, or
triggers the disputes resolution procedures if required.
 Certificates of deposit. The contractor deposits certificates
of deposit [from a federally insured financial institution] with
the contracting officer, in an acceptable form, executable by the
contracting officer, and immediately refundable in an amount
equal to the penal amount of the payment bond waived.
 A deposit of the types of security listed in [FAR] 28.204.
[(b) The contractor shall submit to the Government one of the payment
protections selected by the contracting officer.]
228.1712 Amount required.
(a) The requirements at FAR 28.1022(b), for the amount of payment
bonds, also apply to the alternative payment protections described in
228.1711. In addition, the payment protection must provide protection
for the full contract performance period plus one year, and must
authorize the contracting officer to immediately access funds at any
time within the contracting officer's discretion.
(b) The requirements at FAR 28.1022(c), for the penal sum of bonds
for requirements and indefinitequantity contracts, also apply to the
alternative payment protections described in 228.1711.
228.1713 Contract clause.
Use the clause at 252.2287007, Alternative Payment Protections, in
solicitations and contracts for construction, when the estimated or actual
value exceeds $25,000 but does not exceed $100,000. Complete the clause by
specifying the payment protection or protections selected (see
228.1711[(a)]), the penal amount required, and the deadline for
* * * * *
PART 252SOLICITATION PROVISIONS AND CONTRACT
* * * * *
SUBPART 252.2TEXTS OF PROVISIONS AND
* * * * *
252.2287007 Alternative Payment Protections.
As prescribed in 228.1713, use the following clause:
ALTERNATIVE PAYMENT PROTECTIONS [FEB 1996]
(a) The Contractor shall submit one of the following payment
(b) The penal sum of the payment protection shall be in the amount of
(c) The submission of the payment protection is required
(d) The payment protection shall provide protection for the full
contract performance period plus a oneyear period, and shall
authorize the Contracting Officer to immediately access funds at any
time and withhold funds pending resolution by administrative or
judicial proceedings or mutual agreement of the parties, except for
escrow agreements which provide for a disputes resolution
(e) Except for escrow agreements [and payment bonds,] which provide
their own protection procedures, the Contracting Officer is authorized
to access funds under the payment protection when it has been alleged
in writing by a supplier of labor or material that a nonpayment has
occurred[, and to withhold funds pending resolution by administrative
or judicial proceedings or mutual agreement of the parties].
(f) When a tripartite escrow agreement is used, the Contractor shall
utilize only suppliers of labor and material who signed the escrow
(End of clause)