Bonding

A bond is a financial guarantee, given to provide assurance to one party that another party will fulfill an obligation it has undertaken to perform. Under a bond, the principal on a personal bond is responsible to fulfill a contractual obligation. If the principal does not perform the contractual obligation, the bond may be collected. 

The operator on the notice or plan must be the principal (obligor) on the bond.  If the principal is not the operator, then a bond rider is required to cover operations conducted by the operator. 

The BLM and many states require a surface management bond on all so-called “3809 notices and plans of operation,” which are those governed by the 43 CFR Subpart 3809.  These regulations require anyone intending to develop mineral resources on the public lands to prevent unnecessary or undue degradation of the land and reclaim disturbed areas. To guarantee this you must file a bond. You may be able to file a joint bond to demonstrate that the operator/principal is bound to the United States and the state where you plan to operate. In those cases, the financial instrument must be payable to the United States and the state.  Check with you local BLM office and your state government for specific guidance.

 

Requirements

Cash Bond Requirements 


A cash bond must be submitted in the form of a guaranteed remittance, this is, cashier’s check, bank draft, certified check, USPS money order, or cash that is deposited in BLM's suspense account when received.  The check must be payable in U.S. dollars and issued by a U.S. bank.  A check posted with the BLM must be issued to the U.S. Department of the Interior-BLM; and the BLM Surface Management Personal Bond form (Form 3809-2) must accompany the check. 

Letter of Credit (LOC) Requirements

  
The LOC must be an irrevocable letter of credit issued by a bank organized to do business in the United States and is Federally insured. LOCs a not allowed on some non-energy permits. Requirements include:

 

  • When posting a joint bond, it must be payable to both the U.S. Department of Interior-BLM and the state agency involved. The BLM Surface Management Bond form (Form 3809-2) must accompany the LOC. 
  • Initial expiration of the LOC must be not less than 1 year after the date filing with the BLM. It must contain an automatic renewal in one-year increments.
  • The LOC must contain provisions allowing collection by BLM in cases of default of obligor or if the bank revokes the LOC.

Certificates of Deposit (CD) Requirements

The CD must be Federally insured and payable to the BLM and the state, if applicable.  Required information:

  • The CD must indicate that "The Secretary of the Interior-BLM and State (if applicable) are granted full authority to demand immediate payment in case of default. Approval by the Secretary of Interior-BLM is required prior to redemption of the CD by any party.”
  • The CD should be issued to or for the benefit of the U.S. Department of the Interior-BLM and the state (if applicable).  The BLM Surface Management Personal Bond form (Form 3809-2) must accompany the CD.
  • If CD is issued to another person/company then BLM/state, proof must be provided that the right to payment of the principal under the CD has been assigned to BLM/state, together with the proof that the bank has changed its records to show that only BLM/state may collect the amount of the CD. The financial agency must place a hard hold on the CD.
  • The principal must ensure that the CD can be redeemed prior to maturity. If there are any penalties for early redemption, such penalties will be paid out of the principal’s interest earned.  
  • There should be no expiration date for the CD that would restrict the right of the BLM/state to collect the principal at any time of default. 
  • It must be clear that the deposit is for the sole and exclusive use of the Department of the Interior-BLM and the state. The financial institution must agree to not use the deposit to off-set any monetary default of the principal.

 

Types of Bonds

There are two types of bonds that a principal can put forward – a surety bond is a guarantee by a third party and a personal bond depends on the operator’s assets.

Surety Bond

A corporate surety bond consists of a promise by a principal and surety to the United States that the surety will correct any default should the principal not do so, paying up to the limits of the amount of the bond. A surety bond is a three-way contract between the principal, the surety, and the United States (and the State in the case of joint bond). 

When filing a joint bond with the BLM, the Surface Management Surety Bond form (Form 3809-1) must be used. Check with your state for forms that it may require.

Information Required on a Surety Bond:  

a.  Bond must be properly executed by the principal, including display of corporate seal (if available). The relationship of the signatory to the principal is to be shown on the bond form itself or in an accompanying document.

b.  Bond must be properly executed by acceptable surety, with the seal of corporate surety affixed, accompanied by the power of attorney (POA) showing proof of signing authority as surety’s representative. Surety bonds must be issued by a qualified surety (insurance company) approved by the Department of Treasury, Bureau of the Fiscal Service.

c.  Bond must be at least for the required amount.

d.  Principal and surety must be indicated in proper locations on the bond form. 

e.  The dollar amount must be spelled out, for example, Ten Thousand Five Hundred Fifty and no/100 Dollars ($10,550.00).

f.  Execution date on bond must be completed and date must precede the date of filing of bond.

g.  Power of attorney (POA) must show that person signing for surety had authority to do so on the date bond was executed. At the end of the POA, there should be a completed certificate indicating that the POA is still valid on a certain date.  This certificate must be dated the same date the bond is executed or within a few days thereafter.

Personal Bond

The principal may furnish a personal bond in lieu of a surety bond to ensure compliance with all the terms and conditions of a plan of operations on public land.

The BLM accepts three financial forms of personal bonds: Cash Bond, Letter of Credit (LOC), and Certificate of Deposit (CD).  The BLM Surface Management Personal Bond form (Form 3809-2) must accompany the financial instrument.  The dollar amount must be spelled out on the bond form, for example, Ten Thousand Five Hundred Fifty and no/100 Dollars ($10,550.00).   The personal bond form must be notarized.