[DoD Seal] OFFICE OF THE SECRETARY OF DEFENSE [DoD 50 YearSeal]

1000 DEFENSE PENTAGON

WASHINGTON, DC 20301­1000

February 1, 1996

ACQUISITION AND

TECHNOLOGY

DP(DAR)

In reply refer to

DFARS Case: 95­D305

D. L. 96­001

MEMORANDUM FOR DIRECTORS OF DEFENSE AGENCIES

DEPUTY FOR ACQUISITION AND BUSINESS MANAGEMENT,

ASN(RD&A)/ABM

DEPUTY ASSISTANT SECRETARY OF THE AIR FORCE

(CONTRACTING), SAF/AQC

DIRECTOR, PROCUREMENT POLICY, ASA(RD&A)/SARD­PP

DEPUTY DIRECTOR (ACQUISITION), DEFENSE LOGISTICS

AGENCY

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.

/S/

Eleanor R. Spector

Director, Defense Procurement

Attachment

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.

228.171­1 General.

[(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:

[1] A payment bond.

[2] An irrevocable letter of credit.

[3] 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.

[4] 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.

[5] 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

submission.

* * * * *

PART 252­­SOLICITATION PROVISIONS AND CONTRACT CLAUSES

* * * * *

SUBPART 252.2­­TEXTS OF PROVISIONS AND CLAUSES

* * * * *

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

protections: _________________________________________

_________________________________________

_________________________________________

_________________________________________

_________________________________________

(b) The penal sum of the payment protection shall be in the amount of

$________.

(c) The submission of the payment protection is required

by___________________.

(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 procedure.

(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

agreement.

(End of clause)