FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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CHAPTER 80 - BOND ADMINISTRATION, SECURITY, AND REQUIREMENTS
82 - OBTAINING AND ADMINISTERING BOND SECURITY
82.3 - Options in Lieu of Sureties
82.31 - United States Treasury Bills, Notes, Bonds or Other Obligations
3. Acceptable Securities. Certificates of deposit cannot be accepted by the Forest Service
in lieu of the surety bonds. The negotiability of certificates of deposit in questionable in certain
instances such as:
a. Death of the party doing business with the Forest Service.
b. Bankruptcy of the bank.
c. In some cases not cashable until date of maturity.
82.33 - Irrevocable Letters of Credit. Bond Approving Officers may accept Irrevocable Letters
of Credit from financial institutions set forth in paragraph 2, item a. through d. of the parent text,
to secure bid, payment, and performance bonds of permittees and timber purchasers. Irrevocable
Letters of Credit may be used for bid bond on procurement contracts, but are not approved for
payment and performance bonds.
A letter of credit from such financial institutions should not exceed 7 years and must include the
dollar amount of credit extended (maximum limit). If a timber sale contract covers a period
exceeding 7 years, we can protect our interests by requiring the timber purchaser to provide
written assurance in the letter of credit itself that the term of the irrevocability reflects the term of
the sale period.
All letters of credit from any bank of financial institution must be entitled "Irrevocable Letter of
Credit".
Do not approve an Irrevocable Letter of Credit containing a major variation from the parent text
example (see exhibit 8, Section 84). An irrevocable letter of credit must contain all of the items
listed in paragraph 3, items a. through g. of the parent text. None of these items may be waived.
The necessary applicable bond forms SF-24, SF-25, SF-25a, FS-6500-7, FS-6500-12,
FS-6500-12a, FS-6500-13, and FS-6500-13a are required in addition to the irrevocable letter of
credit in most all situations. The bond form shall be completed with the in-lieu-of-surety
statement as stated in the parent text. The bond forms must be signed by the principal. The bank
or issuing institution should not sign the bond form, only the irrevocable letter of credit. The
bond forms must accompany the irrevocable letter of credit. The period of time (duration)
covered by the bond and the irrevocable letter of credit must agree. The irrevocable letter of
credit used for performance bond purposes must cover the term of the contract or permit plus a
sufficient period of time to close out the contract or permit (reference parent text, item 3.g.).
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With exception of blanket payment bonds and annual bid bonds for timber sales a separate letter
of credit is required for each individual contract.
The Irrevocable Letter of Credit used for timber sales payment bond purposes can be issued for a
lesser time period than the term of the contract. The letter of credit and bond form FS-6500-12,
Payment Bond, should cover at least 1 year. The letter of credit and bond form FS-6500-12a,
Blanket Payment Bond, should cover at least 3 years. When the bank/institution issues a letter of
credit for a specific period of time, it shall be necessary to establish a control to ensure a new
irrevocable letter of credit or extension, or other acceptable surety is obtained to maintain the
bonding requirements when the expiration date occurs. If the letter of credit is not renewed, the
principal must pay cash in advance of cutting. Seasonal adjustments in bonding amounts may be
approved by the Contracting Officer. A new bond form indicating the new penal sum of the bond
and a new letter of credit will be required for changes. To avoid confusion as to when a bond
form is required, the following outlines the requirements by type of guarantee.
Bid Guarantee - Cash Deposits (cash, checks, money orders). Bond forms are not required for
any contract.
Bid Guarantee - Letter of Credit. Bond form is not required for procurement or construction
contracts. Bond form is required for timber sale contracts. (Failure to submit an acceptable letter
of credit with a bid is critical since there is no opportunity to correct the deficiency.)
Letters of credit may be accepted without the bond form if the letter of credit otherwise meets the
requirements outlined above. The absence of the bond form does not make the bid unresponsive.
In the case of a timber sale contract, you may accept the letter of credit and ask the bidder to
submit the form 6500-13.
A sight draft should not be drawn against the letter of credit when the award is made. Retain the
letter of credit until such time as the purchaser makes the required down payment and signs the
contract.
Annual Bid Bond. Bond from required for all contracts except construction contracts.
Payment and Performance Guarantee - Cash Deposits. Bond form required for procurement
contracts. Bond form not required for timber sale contracts.
Payment and Performance Guarantee - Letter of Credit. Bond form required for all timber sale
contracts and permits.
Securities deposited in lieu of surety. Bond form required for all contracts and permits.
Exhibit 1 is a sample letter of credit for timber sale bid guarantee. This sample does not cover all
possibilities but is the minimum which we can accept.
Exhibit 2 is a sample letter of credit used in lieu of performance bonds when required for plans
of operation on mining claims.
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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Letters of credit must be accompanied by form FS-6500-7, Reclamation Performance Bond, with
applicable wording described in Section 82.33 of the parent text.
Exhibit 3 is a sample letter of credit for blanket payment bond coverage. The letter of credit must
show the aggregate amount authorized.
Exhibit 4 is a sample of the Blanket Payment Bond, form FS-6500-12a, that accompanies the
letter of credit in exhibit 3. The timber sale contracts shall be listed on the reverse side of the
form in the appropriate block. Timber sale contracts may be added or deleted to the list but the
allocation to those sales must not exceed the penal sum or aggregate amount on the letter of
credit.
Exhibit 5, Timber sale bid bond, form FS-6500-13, accompanies the letter of credit in exhibit 1.
Exhibit 6, Performance bond, form SF-25, accompanies any letter of credit for performance other
than mining or exploration permits.
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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Exhibit 1
LETTER OF CREDIT
Printed Letterhead
Address
Date
Irrevocable Letterof-Credit No.
Forest Service, USDA
(local address)
Gentlemen:
(Name of Bank) has established an irrevocable letter of credit in your favor, at the request of and
for the account of (Name of bidder), to the extent of (written amount), ($Numerical amount), to
secure the bid on (Name of timber sale).
Said funds are available by presentation of your sight draft which (a) clearly specify this letter of
credit number, and (b) are drawn in favor of secured contract described above.
Drafts drawn in conformity with the conditions of this credit will be honored by us if presented
at our bank on or before
(Date)
.
Very truly yours,
NAME OF BANK
by (Signature)
(Typed name)
(Title)
(Corporate Seal
or
Notary Statement) 1/
1/ Not mandatory. However, they are required on the applicable bond form.
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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NOTES
1. This sample letter of credit relates to bid bond only. However, letters of credit covering
performance and payment bonds on timber sale contracts should follow the same format with
changes to reflect types of bond, expiration date and to show contract number.
2. The Letter of Credit must be on the bank's letterhead and signed by an authorized official of
the bank. A pre-printed bank form is acceptable if it contains all information contained in the
sample.
3. The bank must be a member of the Federal Reserve system or insured by the Federal Deposit
Insurance Corporation. If the letterhead does not have this identification printed on it, type in a
notation at the bottom of the Letter of Credit.
4. The expiration date for the Letter of Credit will usually be for 60 days or less. It must cover
the period from bid opening to execution of contract. If the sale contains a road construction
purchaser election option, and the purchaser elects to have the Government build the roads, the
expiration date must be for a longer period of time, not to exceed 1 year.
5. Letters of Credit may not contain restrictive qualifications. The issuing bank should check
with a local Forest Service official before making any substantive modifications to this sample.
6. If it becomes necessary to draw down on the Letter of Credit, the Forest Service will prepare a
Sight Draft, Form 6500-130, or forms furnished by the guaranteeing bank, and present it to the
bank.
7. Must be secured by a bond form, SF-24 or FS-6500-13. This bond form must contain the
corporate seal or notary statement.
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Exhibit 2
SAMPLE LETTER-OF-CREDIT
(Name of Issuing Bank)
(City and State)
Date:
Irrevocable Letter-ofCredit Number
USDA, Forest Service (Beneficiary)
(local address)
Gentlemen:
The (name of issuing and payment bank) has established an Irrevocable Letter-of-Credit in your
favor at the request of and for the account of (name of principal) to the extent of (written
amount), ($numerical amount to secure the performance of the conditions of the (claim name)
Plan of Operations signed and approved on (date of plan approval).
Said funds are available by presentation of your sight draft(s) which: (a) clearly specify the
number of this credit; (b) are drawn in favor of secured Plan of Operations cited above.
Drafts drawn in conformity with the conditions of this credit will be honored by us if presented
at our bank on or before (Date) 1/.
Sincerely,
Bank Name and Authorizing Signature
Corporate Seal
or
Notary Statement
1/ Letter of credit used for performance bond purposes must cover the term of the operating plan
as approved (see FSM 2817.21), plus a sufficient period of time to close out the operating plan or
permit.
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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Exhibit 3
Letter of Credit - Blanket Payment Bonds
(Printed Letterhead)
(Name of issuing bank or financial institution)
(City, state, and zip code)
Date
Irrevocable Letter-ofCredit Number
USDA, Forest Service
(local address)
Gentlemen:
(Name of issuing and paying bank) has established an Irrevocable Letter-of-Credit in your favor,
at the request of and for the account of (Name of principal) in the aggregate amount not to
exceed 1/ (written amount) ($numerical amount) to secure payment on the contract(s) described
on the attached form FS-6500-12a Blanket Payment Bond (for Timber Sale Contracts).
Contract(s) may be added or deleted to the list upon written application from the purchaser and
written approval from the Forest Service.
Said funds are available by presentation of your sight drafts drawn in favor of the USDA, Forest
Service which: (a) clearly specify the number of this credit; (b) are drawn in favor of secured
contract number(s) cited on the form FS-6500-12a attached.
Drafts drawn in conformity with the conditions of this credit will be honored by us if presented
at our (bank or financial institution) on or before
(Date) 2/ .
Sincerely,
Name of Bank or financial institution)
(Authorized signature and title)
1/ Must equal or exceed the penal sum which the letter of credit is pledged to secure.
2/ The terminal date for this type of letter of credit will be December 31 of the 3rd, 5th or 10th
year after the beginning date unless otherwise approved by the Regional Forester.
Exhibits 4 thru 6 may be viewed in hard copy.
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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83.4 - Reclamation Bonds. A reclamation bond is nothing more than a performance bond. The
following gudelines are to be followed when permittees/operators are operating on more than
one Ranger District or on more than one National Forest and desire to establish a Forest-wide or
Region-wide blanket bond. When blanket bonds are not involved, be guided by the parent text.
Region-wide or Forest-wide performance/reclamation bonds shall be accepted for reclamation
work. Operators desiring a reclamation bond to cover their activities on a Forest, or throughout
the Northern Region, should be advised of the blanket bonding procedure. The Forest shall
establish a recordkeeping system for blanket bonds on its Forest. Forests and Districts which are
contacted by firms who wish to do mineral or exploration work on National Forest System land
should determine whether the proposed work involves more than one Forest. If more than one
Forest in the Region is to be involved, bonding activities must be coordinated with Regional
Office Administration. Requests for Regional blanket bonds shall be sent to the Director,
Administration. The amount of the Regional/Forest bond shall be determined jointly with the
operator based upon the planned exploration activities.
Upon approval of an operator's Region/Forest blanket reclamation bond, the following direction
applies:
1. Units shall be notified that a Region/Forest blanket bond is available for the operator.
2. Each project for which the permit, lease, or plan approval is contingent upon a
reclamation bond must be bonded by a specific portion of the Region/Forest bond prior to
initiation of the project.
3. Bond amount for each project must be calculated based on the surface disturbing
activities described in the proposed operating plan (see FSM 2817.2) and analysis of reclamation
costs (see parent text exhibit 16, Section 84). This analysis should be documented and made part
of approved operating plans. These calculations should be reviewed annually and the bond
amount adjusted to reflect any changes.
4. Request for bond allocations and allocation changes must be sent, under file designation
6500, to the Forest Supervisor for Forest-wide bonds and to the Director, Administration for
Region-wide bonds.
These requests must contain the following:
a. Name and address of permittee/operator.
b. Name and location (legal, county/state) of project (permit No. or date).
c. Dates of allocation request and proposed initiation of work.
d. Amount of allocation request/change (if change, indicate reason, such as reclamation
cost recalculation due to plan revision or annual updating, satisfactory reclamation upon
completion of project, etc.).
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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e. Surety name and address (bond No. or date executed).
5. Upon approval of the request by the Supervisor's Office for Foerst-wide bonds or by the
Director, Administration for Region-wide bonds, an approved allocation statement shall be sent
the originating unit.
6. When the allocation is no longer required, the units shall notify the Region/Forest so the
amount can be reallocated.
7. The Reclamation Evaluation Worksheet (exhibit 16, section 84 of the parent text)
indicates that the bond estimate is to include removal of exploration-related debris. An estimate
of the cost of removal of that debris shall be included in the Reclamation Evaluation Worksheet
and is made a condition of the operating permit. When an operator fails to remove the debris,
demand redemption of the entire bond from the surety. Send a copy of the demand to the surety
and to the permittee or operator. The purpose of this procedure is to encourage the operator to
clean up the site. Therefore, if he offers to clean up the site, he should be permitted to do so
provided the deadline does not extend into subsequent field seasons. If live explosives are left on
the site, Forest Service personnel shall post the area and notify the State licensing authority.
Forest Service personnel should not attempt to move or detonate the explosives.
8. Instructions to process requests for allocation and release of blanket surety bonds are as
follows:
a. R-1 Form 6500-6, Request for Allocation of Blanket Surety Bond, is to be used to
request allocation of blanket surety bonds. See exhibit 1.
(1) Prepare original and four copies.
(2) Complete Items 1 through 8.
(3) Item 9 - Fill in name of surety, if known.
(4) Be very specific on Items 10 and 11 in identification of the projects and location; show
state(s) project will be in and use permit numbers.
(5) Forward the forms to RO Administration for processing.
(6) The Regional Office will fill in Items 12 and 13. After the Regional Office has
completed and signed the form, it will be returned to the Supervisor's Office for distribution.
b. R-1 Form 6500-7, Request for Release of Blanket Surety Bond, is used to release
amounts previously allocated. See exhibit 2.
(1) Prepare original and four copies.
(2) Complete Item 1 through 12 and have Issuing Officer sign.
FSH 6509.11k - SERVICE-WIDE FINANCE AND ACCOUNTING HANDBOOK
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(3) Forward the forms to RO Administration for processing.
(4) Regional Office will sign and date release and return to Supervisor's Office for further
distribution.
Exhibits 1 thru 2 may be viewed in hard copy.
9. Region-wide Blanket Bonds. The following companies have Region-wide blanket bonds on
file as of February 28, 1985:
Penal Sum
Principal Name
Surety
of Bond
AGIP Petroleum Co. Inc.
Insurance Company of
North America
$ 25,000
AMOCO Production Co.
Seabord Surety Co.
100,000
ARCO-Atlantic Richfield
Federal Ins. Co.
150,000
Cenex
Reliance Insurance Company
25,000
CITCO-Cities Service Co.
Safeco Ins. Co. of America
50,000
Conoco Inc. of Delaware
Federal Ins. Co.
50,000
CGG American Services, Inc.
Hartford Accident &
Indenmity Co.
75,000
Dawson Geophysical Co.
Liberty Mutual Ins. Co.
25,000
Diamond Shamrock
National Fire Ins. Co.
Exploration Co. of Hartford
100,000
Geophysical Service, Inc.
Safeco Ins. Co. of America
20,000
Marathon Oil Co.
Hartford Accident &
Indemnity Co.
25,000
NORPAC Exploration Serv.
The Travelers Indemnity Co.
Inc. (Mile Hi)
70,000
Patrick Petroleum Corp.
St. Paul Fire & Marine
of Michigan Ins. Co.
20,000
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Petty-Ray Geophysical
American Home Assurance Co.
Operations
25,000
Prairie Eagle Exploration
St. Paul Fire & Marine
Ins. Co.
50,000
Seismograph Serv. Corp.
Hartford & Indemnity Corp.
15,000
Shell Western E&P Inc.
Safeco Ins. Co. of America
SOHIO Petroleum Co.
Insurance Co. of North
America
60,000
Texaco, Inc.
Insurance Co. of North
America
50,000
Trans-Con Energy, Inc.
United States Fidelity &
Guaranty Company
50,000
Ultramar Oil & Gas
Insurance Co. of North
Limited
150,000
$100,000