Type: Law Bulletins
Date: 11/07/2018

Federal Construction Contractors: Performance and Payment Bonds Mandatory Despite FAR Clause Omission

Earlier this week, the U.S. Court of Appeals for the Federal Circuit (CAFC) released its decision in K-Con Inc. v. the Secretary of the Army, 2017-2254 (Fed. Cir., 2018), affirming the Armed Services Board of Contract Appeals’ decision that performance and payment bonds in government construction contracts are mandatory even if the FAR clause requiring the bonds was omitted from the contract. In coming to this conclusion, the CAFC applied the "Christian Doctrine" to incorporate FAR 52.228-15 (Performance and Payment Bonds - Construction) into the contract.

What is the Christian Doctrine? It comes from the case G. L. Christian and Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963). In the Christian case, the government failed to include a mandatory termination for convenience clause in the contract. Because the clause was required by the Armed Service Procurement Regulations and expresses a significant or deeply ingrained strand of public procurement policy, the Court held the termination clause must be read into the contract. This ruling, referred to as the "Christian Doctrine," has now been applied to government contracts cases for over fifty years to insert a clause into a government contract by operation of law if that clause is required under applicable federal administrative regulations.

The Christian Doctrine should not be seen as a get-out-of-jail-free card for poor contract drafting, but rather as a leveler to ensure that the public’s interests are served. It can only be applied when the omitted clause is a mandatory clause and the clause is significant or deeply ingrained in public procurement policy. In other words, the clause already applies in standard practice and it is fundamental to how the government acquires goods and services – and in the K-Con case, construction services.

So why is FAR 52.228-15 (Performance and Payment Bonds - Construction) special? The contracting officer is required to include it in federal construction contracts pursuant to FAR 28.102-3. When the contract exceeds $150,000, FAR 52.228-15 requires contractors to have performance and payment bonds at the time of contract award to cover up to the full original contract price. While the FAR language allows the contracting officer discretion in the amount of the bonds, the CAFC found the language does not permit discretion in whether or not the bonds are required.

In determining whether this clause is deeply ingrained in public procurement policy, the CAFC in K-Con looked at a few things. First, the Court examined the history of this clause dating back to the Great Depression, when public policy was to protect those who furnished labor or materials on a construction project and ensure that the government didn’t incur additional costs. Second, the Court recognized that laborers or suppliers can file a mechanic’s lien in commercial construction if they are not paid properly, but they do not have that same option in federal construction. And, as a result, Congress codified mandatory performance and payment bond requirements into the FAR. All of these requirements reinforce public policy to ensure those who work on or supply items for a construction project are paid, and that the government does not pay more than what it originally bargained to pay. Accordingly, the Court found the clause is deeply ingrained in public procurement policy.

In practice, this decision by the Court means federal construction contractors should always be prepared to provide performance and payment bonds at contract award, regardless of whether FAR 52.228-15 is included in the contract.

The K-Con case also includes a second warning for government contractors: if you aren’t sure whether your contract is for a commercial item, it is incumbent on you to seek clarification.

K-Con had argued the contracts at issue were not construction contracts. Instead, K-Con argued these were contracts for commercial items, which do not have a mandatory bonding requirement. The contracts were for commercially available, pre-engineered metal buildings, to be installed by K-Con. The Army purchased them from K-Con through the GSA eBuy System, using SF1449, Solicitation/Contract/Order for Commercial Items - all hallmarks of a commercial item contract. However, the SOW and the CLINs contained descriptions that referred to the construction of buildings, design plans, construction permits and other terms that are all hallmarks of a construction contract. And, the Army instructed K-Con to provide performance and payment bonds in accordance with FAR 28.102-2(b) before the Army could issue its notice to proceed with the contracts. These discrepancies resulted in a patent ambiguity. The CAFC held that because there was a patent ambiguity and K-Con did not get clarification from the Army as to whether the contracts were for construction or commercial items, K-Con was precluded from arguing that the contracts were for commercial items after the fact.

The takeaways from K-Con: (1) FAR 52.228-15, Performance and Payment Bonds-Construction applies to all federal construction contracts, and (2) if language in a solicitation or contract is ambiguous, seek clarification from the contracting agency. If you fail to do so, your interpretation may ultimately be found to be improper, resulting in increased contract costs.

In This Article

You May Also Like