The federal bond threshold gets written about as a cliff: above it you post bonds, below it you do not. That is not what the regulation does. Underneath the bond threshold there is a defined band, and inside that band the contracting officer is not free to require nothing. The officer is put to a choice.
The band has a floor and a ceiling
FAR 28.102-1(b)(1) states it directly:
“for construction contracts greater than $35,000, but not greater than $150,000, the contracting officer shall select 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”
The ceiling is the same figure the FAR uses for the bond requirement itself, which is what makes the band read as an extension of that rule rather than a separate one: at the top of the band, the payment bond becomes mandatory; inside the band, it becomes one option among several.
The statute’s band is a different pair of numbers
As with the threshold, there are two versions. The statutory band is at 40 U.S.C. § 3132(a), which provides alternatives to payment bonds for contracts “more than $25,000 and not more than $100,000.” The FAR states the inflation-adjusted band.
The two are not in conflict and neither is stale. They are the same mechanism at the escalated and unescalated figures. If you are reading the Code you will see the lower pair; if you are reading the acquisition regulation — which is what the buying activity is using — you will see the higher pair.
Two or more, not one
The word that carries the most weight in that sentence is two. The regulation does not permit the officer to pick a single protection and be done; it directs the selection of two or more. In practice that means a contractor working inside the band may be asked to stand up more than one instrument for a job too small to have required a bond at all.
That is often a surprise. A contractor who reads “no payment bond required” and expects a clean, unsecured job can find that the alternative package is more administrative work than the bond would have been, because two instruments have to be arranged instead of one.
The five protections
The list in FAR 28.102-1(b)(1) is closed. The five are:
| Protection | What it is |
|---|---|
| A payment bond | The same instrument the threshold would have required, offered here as one option among five (FAR 28.102-1(b)(1)) |
| An irrevocable letter of credit | A bank undertaking the Government can draw on, and the option the regulation tells the officer to consider particularly (FAR 28.102-1(b)(1)) |
| A tripartite escrow agreement | Funds held by a third party under an agreement among the Government, the contractor, and the escrow agent (FAR 28.102-1(b)(1)) |
| Certificates of deposit | Deposited instruments held as security (FAR 28.102-1(b)(1)) |
| A deposit of the securities at FAR 28.204-1 / 28.204-2 | The Government securities and other assets those sections describe (FAR 28.102-1(b)(1)) |
Why the letter of credit is named first among equals
The regulation does not merely list the irrevocable letter of credit; it tells the contracting officer to give “particular consideration” to including one. That is a drafting choice with a reason behind it. A letter of credit is a bank’s own undertaking, payable on presentation of documents, and it does not require anyone to establish that a contractor defaulted before the money moves. For a small job it is fast and it is certain.
For the contractor, though, the same qualities cut the other way. An irrevocable letter of credit generally ties up bank capacity — it is credit, drawn against the same relationship you would use for working capital or equipment. A payment bond is underwritten on your financial statements and your work program; a letter of credit is issued against your borrowing capacity. On a job small enough to sit inside this band, that is not always the cheaper trade, and it is worth pricing both before you agree to which one you would rather post.
What this means when you are the subcontractor
Everything above is written from the prime contractor’s side. The band matters more to the people below.
On a federal job above the threshold, an unpaid subcontractor or supplier has a defined route: a claim on the payment bond under 40 U.S.C. § 3133, with the notice and timing rules that section sets. Inside the band, that route may not exist, because there may be no payment bond — only two other instruments, chosen by the contracting officer, that the subcontractor is not a party to and may not even know about.
The practical move is unglamorous and effective: before you mobilize on a small federal job, ask the prime which payment protections were selected. If one of them is a payment bond, you know what you have. If neither is, you know that too, and you can price the risk or ask for a different payment schedule while you still have leverage.
Where the band stops
The floor is real. Below the bottom of the band the selection requirement does not attach, and there is no federal mechanism substituting for it. That is the thinnest position a subcontractor occupies on federal work — no payment bond, no mandated alternative, and no mechanics lien, because a lien does not attach to federal property.
It is also the reason the band is worth understanding rather than skimming. The interesting question on a small federal contract is rarely “is a bond required” — the answer is usually no. It is “what is standing in its place, and am I inside it or outside it.”
