Depositing Security Under FAR 28.204: A Step-by-Step Guide
Federal procurement rules require financial protection on construction contracts, but contractors are not restricted solely to traditional corporate surety arrangements. Under FAR 28.204, any person required to furnish a bond to the Government can deposit alternative security rather than securing a corporate or individual surety. For trade subcontractors, framing and drywall specialists, and small prime contractors building bids, understanding the rules for pledging, managing, and recovering alternative security is critical. Below is a step-by-step walkthrough explaining how to use the alternative security provisions of FAR 28.204 on federal projects.
Step One: Reviewing Security Options and Asset Combinations
The first step in exploring alternatives to commercial sureties is determining how your firm will structure its security deposit. Under FAR 28.204, any person required to provide a bond to the Government may furnish any of the security types listed in 28.204-1 through 28.204-3 instead of obtaining a corporate or individual surety.
Contractors are not required to rely on a single asset format. Federal rules allow flexibility in how security obligations are satisfied:
- Contractors may furnish a combination of the security types listed in 28.204-1 through 28.204-3.
- Contractors may furnish a combination of bonds supported by these security types along with additional surety bonds under 28.202 or 28.203.
This allows bidders to blend supported deposits with standard surety backing to reach the necessary coverage thresholds required for public solicitations, as discussed in our Bid Bonds, Performance Bonds and Payment Bonds Guide.
Step Two: Pledging the Deposit and Signing as Principal
Once the alternative assets are selected, the contractor must incorporate the required legal pledge directly into the bond paperwork. FAR 28.204 mandates specific execution mechanics for alternative security:
When depositing any of the eligible types of security, a statement must be incorporated into the bond form pledging the security in lieu of execution by corporate or individual sureties. In addition, the contractor executes the bond paperwork directly in its capacity as principal.
By executing the bond form as principal and including the mandatory pledge statement, the contractor legally binds the deposited assets to the underlying contract obligations without requiring third-party surety signatures.
Step Three: Confirming Government Safekeeping and Obligation Closeout
Depositing valuable business assets with a federal agency requires assurance that those resources are secure throughout construction. FAR 28.204 places affirmative custodial obligations on the receiving agency.
Government agencies must put safeguards in place to prevent the loss of deposited assets. Furthermore, once the contractor's underlying bond obligations end, the agency must return the security or an equivalent amount to the contractor. This rule ensures that pledged assets are protected from administrative loss and returned when contract obligations have ceased.
Step Four: Handling Substitutions During Contract Performance
Project schedules and cash requirements frequently shift over the course of a project. FAR 28.204 provides clear procedural mechanisms allowing contractors to modify their security backing while work is underway.
Throughout the timeframe where a security-backed bond remains in effect, contractors may exchange one approved security type listed in 28.204-1 through 28.204-3 for another. Contractors are also permitted to substitute additional surety bonds under 28.202 or 28.203, either entirely or in combination with existing security. This flexibility gives contractors room to replace deposited assets with commercial surety bonds if circumstances change, a key consideration covered across our estimating guides and articles.
Step Five: Requesting Partial Release and Submitting an Affidavit
Contractors that secure a performance or payment bond with alternative assets do not necessarily have to wait for final contract completion to recover funds. FAR 28.204 establishes a process for partial release during project execution.
If a contractor secures a payment or performance bond using securities under 28.204-1 through 28.204-3, it can submit a written request to the contracting officer for partial release. The contracting officer is permitted to release a share of the pledged security only if all criteria under 28.203-3(c) are satisfied.
To receive this partial release, the contractor must supply an affidavit confirming that the partial return does not discharge any remaining obligations under the bonds. This sworn affidavit ensures the Government retains full legal protection while returning excess security to the contractor as project milestones are met.
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Published October 30, 2026. No affiliate links on this page. Facts come from the sources linked above; check them for updates.