Armed Services Board of Contract Appeals

Case no.: ASBCA No. 64426
Date filed: August 20, 2026

The Armed Services Board of Contract Appeals has ruled that a limited liability partnership did not qualify as a corporate surety. The managing partner, signing in his organizational capacity, did not qualify as an individual surety. The contractor’s other creative attempts to satisfy the bonding requirements violated the Assignment of Claims Act.

The US Navy awarded a fixed-price contract to Visionary Construction Inc. to perform repairs to a parking garage at Great Lakes Naval Base in Illinois. The contract required Visionary to provide payment and performance bonds in the amount of 100% of the contract price within 10 days of the contract award date.

Upon contract award, the Navy extended the bonding period to 15 days. Visionary submitted Standard Form 25 (performance bond) and Standard Form 25A (payment bond). Both forms identified the surety as First Standard Asurety LLLP (FSA). The signature block on each form was executed by “David Harris, Managing Partner of FSA, LLLP.”

The Navy informed Visionary that the bond submittal was noncompliant. FSA was not listed by the Department of the Treasury as an approved surety corporation, as required by federal regulation. Visionary replied that Mr. Harris had signed the forms as an individual surety. The Navy said Mr. Harris had clearly signed in his capacity as managing partner of FSA LLLP, which was not on the Treasury list and was not a corporation.

The Navy said Mr. Harris was free to sign in his individual capacity, provide a financial disclosure, and seek approval as an individual surety. Visionary did not respond to this suggestion. Instead, Visionary told the Navy it was working with a bonding agent and would soon be submitting “SBA-backed bonds.”

Visionary’s submittal was actually a proposed “teaming agreement” with Martin Construction, which would resolve the bonding problem. The agreement called for Martin to receive contract payments directly from the Navy. But the Navy said this would violate the Assignment of Claims Act because Martin Construction was not a bank or other financing institution.

Visionary then proposed obtaining bonds from ACSTAR Insurance Co. and asked whether the Navy would allow the assignment of contract payments to that institution. The Navy said it did not believe ACSTAR met the definition of a financing institution, so it would not allow the assignment of payments.

The Navy sent Visionary a cure notice threatening default termination 146 days after the contract award. Visionary asked the Navy to exercise its discretion and terminate the contract for the government's convenience. The Navy declined and terminated the contract for default, 181 days after the contract award. Visionary Construction appealed the default termination.

The board agreed with the Navy that the bonding arrangements proffered by Visionary did not meet the regulatory requirements. The Navy followed proper procedures in terminating the contract for default.

“While Visionary cites its 'good faith efforts' to obtain compliant bonding as evidence that the default termination was improper, a review of the Navy’s actions and rejections of Visionary’s proposed bond submittals demonstrates a reasonable effort to allow Visionary additional opportunities and time to secure adequate bonding despite Visionary’s repeated failures to do so.”

The board rejected Visionary’s argument that a termination for the convenience of the government would have been more appropriate under the circumstances. The Navy still required the construction work in question. This was evidenced by the Navy's award of a contract to another contractor shortly after terminating Visionary's contract. And regarding abuse of discretion, “The Navy exhibited a remarkable amount of patience.”

Small businesses frequently lack access to the corporate surety market. They are more likely to rely on arrangements such as individual sureties or teaming agreements with larger companies.

A default termination has serious long-term consequences for a business. Before submitting a binding bid, contractors should be confident they can comply with the bonding requirements.

Participants:
For Visionary Construction: pro se
For the Navy: Tracey R. Rockenbach

Before: Administrative Judges Osterhout, Prouty, and D’Alessandris

Opinion by: Administrative Judge Osterhout

Outcome: Summary judgment granted in favor of the government

Source: Please click here to read the complete opinion.