Payment and Performance Bonds Are Incorporated into Federal Construction Project Contracts, Even If Not Expressly Stated

The U.S. Court of Appeals for the Federal Circuit recently held, in K-Con v. Secretary of the Army, that the standard bond requirements in federal construction contracts were incorporated into K-Con’s contract by operation of law.

K-Con contracted with the U.S. Army to manufacture pre-engineered metal buildings at Camp Edwards, Massachusetts. K-Con submitted a Request for Equitable Adjustment for increases in costs and labor because of the Army’s two-year delay before proceeding with the contract. The Solicitation/Contract/Order included did not contain an express requirement that K-Con provide performance or payment bonds, nor did the solicitations include the standard FAR clause 52.228-15 requiring payment and performance bonds in governmental contracts.

The Court cited the Christian Doctrine, which allows a Court to insert a clause into a government contract by operation of law, if that clause is required under applicable federal administrative regulations. The Court then concluded that bonding requirements are mandatory in government construction contracts to provide security for those who furnish labor and materials in the performance of governmental contracts. The Court found that payment and performance bonds are “deeply ingrained in public procurement policy.”

The Court concluded that payment and performance bond requirements were properly incorporated by operation of law, despite the fact that clear terms of the statute and regulations require physical incorporation. K-Con was thus barred from arguing that the governmental construction payment and performance bond requirements were not incorporated into its contract with the Army.

Contractors performing work on federal (and likely state) governmental projects should know that, even if there is not an express contractual provision requiring payment and performance bonds contained in the construction contract, the Courts will nevertheless read a payment and performance bond requirement into the contract by operation of law.