Right-of-Way Bonds

IM WY 2016-018
Instruction Memorandum

UNITED STATES DEPARTMENT OF THE INTERIOR
BUREAU OF LAND MANAGEMENT
WYOMING STATE OFFICE
P.O. Box 1828
Cheyenne, Wyoming 82009-1828

April 18, 2016

In Reply Refer To:
2805/2885/2920 (920 Wrigley) P

EMS TRANSMISSION: 4/21/2016
Instruction Memorandum No. WY-2016-018
Expires: 09/30/2019

To: District Managers

From: Associate State Director

Subject: Right-of-Way (ROW) Bonds

Program Area: Lands and Realty Management.

Purpose: This Instruction Memorandum (IM) supplements the regulations and provides guidance for bonding requirements on Bureau of Land Management (BLM) Wyoming ROWs, leases and permits (grant) for authorized activities other than solar and wind energy authorizations. The guidance for bonding of solar and wind energy authorizations is set forth in Washington Office(WO) Instruction Memorandum (IM) No. 2015-138. Policy/Action: Title V of the Federal Land Policy and Management Act (FLPMA) (43 U.S.C. 1764(i)) and Section 28 of the Mineral Leasing Act (MLA) (30 U.S.C. 185), and the ROW, lease and permit regulations (43 CFR 2805.12(g), 2885.11(b)(7) and 2920.7(g)) authorize the BLM to require a grant applicant/holder provide a bond to secure the obligations imposed by the grant (to include short term ROW and temporary use permits).

Under 43 CFR 2805.12(g), 2885.11(b)(7) and 2920.7(g) the BLM Wyoming will require a performance and reclamation bond for all new grants, amendments, renewals, and assignments to ensure compliance with the terms and conditions of a grant and the requirements of the regulations, including reclamation. The applicant/holder of any new grant, amendment, renewal, or assignment must submit a bond, which must be approved by the BLM authorized officer prior
to the grant being issued. If not already bonded, existing grants (excluding wind and solar grants) will not require a bond unless a renewal, amendment or assignment is submitted for approval. An amendment will trigger the requirement for a bond for the entire grant (new plus existing).

Grants to State and/or local Governments which have statutory or constitutional authorities limiting the amount of liability or indemnification payable, only require a financial guarantee sufficient to fund the amount over the State or local Government's limited liability. The only exception to this policy would be ROW grants to another Federal agency, which do not require a bond.

Statewide or nationwide bonds are not acceptable at this time. A bond will be required for each grant, unless the bond instrument specifies that it covers more than one grant.
Statewide/nationwide oil and gas bonds are valid only for lease activities on the leasehold, and can't be used for ROW administration.

Waivers to the requirement of a bond may be obtained for hardships only and may only be approved by the BLM Wyoming Deputy State Director, Lands and Minerals. The applicant/holder must submit the following information to the authorized officer for all waiver requests:
a. A suggested alternative (adding the BLM as an insured on the homeowners insurance policy, etc.);
b. Specific financial information to support the hardship request (submit the same information that is required for rent waivers at 43 CFR 2806.15).

The authorized officer must submit the complete package to the Wyoming Deputy State Director, Lands and Minerals with a recommendation for consideration.

Bond Amount Determination:
The applicant/holder shall furnish a reclamation cost estimate (RCE) to the BLM authorized officer for review and approval, estimating all the costs (see attachment 1 for example) for the BLM to fulfill the terms and conditions of the grant in the event that the holder may not be able to do so. This estimate shall be prepared by an independent state licensed engineer, who is licensed in the state of Wyoming, and shall include such information including but not limited to,
direct, indirect, administrative, equipment, contracting, monitoring, and reclamation costs, as well as Davis-Bacon and Related Acts locally prevailing wages potentially incurred by the BLM. Costs for the BLM to administer a reclamation contract and inspect and monitor the reclamation activities should be commensurate with the complexity of fully reclaiming the land. This may be a percentage-based determination by the BLM which it adds to the RCE as part of
its bond determination. The RCE shall detail the estimated costs and shall be accompanied by the engineer's seal and signature. All costs of preparing and submitting the RCE shall be borne solely by the applicant/holder. The RCE, along with inflationary estimates, shall be the basis for the bond amount and shall remain in effect for 5 years unless the authorized officer determines that conditions warrant a review of the bond sooner.

If the proposed grant would not allow any surface disturbance on the public land (e.g. power line corner crossing) or if the preparation cost of the RCE would be a hardship for the applicant/holder, the BLM (realty and/or engineer) may prepare the RCE for the applicant/holder. The engineering staff in the District and Field Offices may help with completion of the RCE.

The RCE is key to determining the bond amount, and will be included as part of the plan of development (POD) required under 43 CFR 2804.25(b), 2884.22(a), and 2920.5-2. If no POD is required (assignment or renewal), then an individual RCE must be provided to the BLM for its review and consideration in determining a bond. The BLM has issued policy and guidance for determining bonding requirements under 43 CFR 3809 for mining operations on the public lands (IM 2009-153, dated June 19, 2009, https://www.blm.gov/policy/im-2009-153) that provides detailed information about the process for determining the appropriate financial guarantees for intensive land uses on the public lands. This
guidance will be used to assist in calculating the bond amount for grants on public lands. Attachment 1 to IM 2009-153, "Guidelines for Reviewing Reclamation Cost Estimates", can be used as a guideline to assist in reviewing RCEs. The engineering staff in the District and Field Offices will assist with review of the RCEs for adequacy.

The RCEs will consist of three components of financial liability for purposes of determining its amount. Each component may individually or jointly contribute to a significant bond amount. The three required components of the RCE are:
1. Environmental liabilities including hazardous materials liabilities, such as securing, removal or use with hazardous waste and hazardous substances. This component may also account for herbicide use, petroleum-based fluids, and dust control or soil stabilization materials.
2. The decommissioning, removal, and proper disposal, as appropriate, of improvements and facilities.
3. Interim and final reclamation, revegetation, restoration, and soil stabilization. This will be determined based on the amount of vegetation retained onsite and the potential for flood events and downstream sedimentation from the site that may result in offsite impacts.

Ultimately, the performance and reclamation bond will be a single instrument to cover all potential liabilities. The entire bond amount could be used to address a single risk event such as hazardous materials release or groundwater contamination regardless of the fact that in calculating the total bond amount other risks were also considered. If the bond is used to address a particular risk, the holder would then be required to increase the bond amount to compensate for this use. This approach to establishing a bond is preferable to one allowing holders to maintain separate bonds for each contingency. If separate bonds are held, an underestimation of one type of liability may leave the BLM responsible for making up the difference, as the funds associated with one bond may not be applicable for the purposes of another. Requiring a single, larger bond will ensure that the holders are bonded with a surety that has the capacity to underwrite the entire amount associated with the grant.

Salvage value for structures, equipment, or materials should not be included in the RCE. RCEs will be calculated as if there were no such values since these are generally based upon a transient market value for commodities. An addendum to the RCE may be provided where the salvage and recycling value for the structures, equipment, or materials can be detailed. However, the addendum for salvage values will only be included in BLM's bond determination with adequate third-party documentation and justification for salvage or considering special circumstances, such as State mandates to recycle and salvage project materials. The addendum must include current local market information and be readily available for BLM review and consideration in making its bond determination.

The authorized officer may require the holder to submit a new estimate at any time during the term of the grant. The bond, in a form acceptable to the authorized officer, shall be furnished by the applicant/holder prior to any grant or decision being issued. Should the bond furnished under this authorization become unsatisfactory at any time to the authorized officer, the holder shall, within 30 days of demand, furnish a new bond satisfactory to the authorized officer.

The applicant/holder shall submit the RCE both in hard copy and in a standardized electronic format (Microsoft Excel or compatible electronic spreadsheet is preferred) that can be easily updated with current costs by the BLM for future reviews. A guide for the bond estimate is attached (attachment 1).

Based on a review of the RCE, the BLM authorized officer must provide the applicant/holder with a written decision as to the amount required for the performance and reclamation bond. Bond determination letters must be adequately documented in the case file and supported by an RCE provided by the applicant/holder. The RCE is the basis for determining the amount of the performance and reclamation bond. The additional administrative and other such costs must also be properly documented and retained in the case file to be included in the final bond determination. The case file will have a section that fully documents the RCE for the grant, the BLM review of the RCE, the basis for the final bond determination, communications with the applicant/holder regarding the bonding requirements for the grant and records related to the bond instruments provided by the applicant/holder.

Bond determinations must also consider compliance with State of Wyoming standards for public health and safety, environmental protection, construction, operation and maintenance of a grant. Consideration must be made when the State standards are more stringent and are not inconsistent with the applicable Federal standard. If a State regulatory authority requires a bond to cover some portion of the environmental liabilities or other requirements for the grant, the BLM must be listed as an additional named insured on the bond instrument and this documentation must be included in the case file. This inclusion would suffice to cover the BLM's exposure should the holder default in any environmental liability listed in the respective State bond.

Bond Instrument:
Acceptable bond instruments include personal bonds, surety bonds or policy of insurance. Surety bonds from the approved list of sureties (U.S. Treasury Circular 570) must be payable to the BLM. The BLM will not accept a corporate guarantee as an acceptable form of bond. If a state regulatory authority requires a bond to cover some portion of environmental liabilities, such as hazardous material damages or releases, reclamation, or other requirements for the project, the BLM must be listed as an additionally named insured on the policy. This inclusion would suffice to cover the BLM's exposure should a holder default in any environmental liability listed in the respective state bond. The authorized officer shall not accept bonds from any entity or individual other than the applicant/holder, (i.e., the holder's contractors, subcontractors, lessees,
or subsidiaries).

Personal Bonds:
Personal bonds will be accompanied by BLM Form 2800-17 (attachment 3) and payment for the amount required by the authorized officer. Book entry deposits must be accompanied by a power of attorney authorizing the Secretary of
the Interior to collect the proceeds in the event the holder fails to adhere to the grant stipulations covered by the bond. In the past, personal bonds in the form of a Treasury bond or note involved the physical handling by Bureau personnel. This is no longer acceptable. A change in the procedures of the Department of the Treasury in 1983 provides that the notes and bonds will be in a book entry form on deposit in the Federal Reserve System and no actual handling of the securities themselves are involved. A charge is assessed by the Federal Reserve System for security safekeeping and transfer services. This charge is to be paid by the principal.

The only acceptable forms of security for personal bonds are:

• Cash (cash, certified or cashier's check, (personal/business checks will not be accepted));
• Book entry deposits;
• Irrevocable letters of credit payable to the BLM issued by a financial institution that has the authority to issue irrevocable letters of credit and whose operations are regulated and examined by a Federal agency, or;
• A policy of insurance that provides the BLM with acceptable rights as a beneficiary and is issued by an insurance carrier that has the authority to issue insurance policies in the applicable jurisdiction and whose insurance operations are regulated and examined by a Federal agency.

Bonds which are not acceptable forms of security are negotiable bonds, notes issued by the United States, certificates of deposit, U.S. Savings Bonds, and notes or bonds issued by State or local Governments or private companies. These instruments can't be transferred to the Federal Reserve System and must be physically stored in a protected BLM facility. Fire, theft, and loss resulting from lack of long term vigilance all pose unacceptable risks to BLM.

Surety Bonds:
Surety bonds will be accompanied by BLM Form 2800-16 (attachment 4).

A surety bond consists of a promise to the United States by the applicant/holder and a surety that the surety will correct any failure of the holder to adhere to grant stipulations or pay up to the limits of the amount of the bond. For all Federal bonds, the surety corporation must be approved by the Department of the Treasury and in Circular 570 as an acceptable surety. The acceptance of the surety bond by the authorized officer on behalf of the United States and authorization of activity based upon the bond completes the cycle and makes the bond a 3-way contract between the holder, the surety, and the United States, which can be enforced should the holder fail to comply with the grant stipulations. The money paid by the holder to obtain the surety's entry into the arrangement is normally called the premium and is solely a matter between the principal and the surety.

You can find Circular 570 at https://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/c570.htm.
This circular is published annually in July.

Bond Recordkeeping:
The LR2000 and the Bond and Surety System (B&SS) are the BLM's data systems used to track information for grants, including the status of performance and reclamation bonds. It is critically important that all managers and staff place a high priority on the timely and accurate entry and update of information in LR2000 and the B&SS, consistent with current data standards for both systems. The LR2000 and the B&SS are used for both national and local reporting and tracking purposes and are also used as a public information and data source. This IM establishes a mandatory policy that LR2000 and the B&SS data entry for all ROW authorizations occur within 10 business days of the action. Each BLM Field office will identify and designate the appropriate staff for LR2000 and the B&SS data entry for grants.

Financial Instrument Handling:
The handling of financial instruments such as personal and surety bonds, and other instruments that are received as bond payment to the BLM must be handled in accordance with the BLM Manual 1372 - Collections, and Manual 1270 - Records Administration, and their policy guidance. Cash or checks are required to be deposited into a BLM suspense account in a timely manner, but until they are deposited, they are required to be safeguarded in a fireproof safe or file cabinet with adequate locking devices and with access limited to those designated employees with direct responsibilities for collections. The bond instrument itself received by the BLM must be properly safeguarded within a secure BLM records room or secured file cabinet, and documented in the case file. Under no circumstances should bond records be held in desk drawers or other inadequate storage containers where they are readily susceptible to loss or theft. Access to safes and financial securities are addressed within these manuals and must be adhered to when reviewing and handling furnished bond instruments. Specific attention must be given to ensure that personally identifiable information (PII) received as part of the bond instruments and documentation is not kept for public review in case files.

It is recommended that copies of bonds and all other supporting bond information be kept in a blue envelope on the left side of the case file. This would make the information easy to locate and remove for public review of the case file. For major projects (those projects which require a National Project Manager, etc.), a separate case file containing all the bond information would be maintained in the administrative record. In an effort to keep the volume of paper at a minimum in the case files, an electronic file folder on a shared drive either in the Field Office or the State Office could be used to store the bond information. The electronic folder would limit access to
only those who need it.

Bond Review:
Each year the Wyoming BLM District Offices will coordinate Field Office reviews of at least 20 percent of the RCE's and bonds for grants within their administrative boundaries that are less than 5 years of age for bond adequacy. These reviews will prioritize higher risk projects that involve greater land disturbance acreage, projects with a history of incidents of noncompliance, projects with abandoned or disabled equipment, or projects that may have potential environmental liabilities associated with use of hazardous materials and substances, hazardous waste, or herbicides.

Each bond and RCE must be reviewed at least once every 5 years, regardless of its review priority. These reviews should be completed throughout the Fiscal Year to moderate workload impacts. Within 90 days of the end of each Fiscal Year, beginning the Fiscal Year this policy is effective, these reviews must be completed and documented in each case file. For any authorization determined to have an inadequate RCE, the appropriate BLM Field Office will issue a letter to the grant holder requesting that it provide an updated RCE within 90 days of the date of the letter.

Oversight and Implementation:
Each District Office must coordinate with the Wyoming State Office Realty Officer when implementing these policy requirements. The attached Bond Review Coordination Spreadsheet will be used and filled out by each Field Office, documenting the status of each application/authorization and associated bond, as well as the basis for minimum bond amounts and the bond determinations for the grants that require bonds. An updated spreadsheet, from each district office, must be provided to the Wyoming State Office Realty Officer by the last business day of each month until all actions are completed.

All WY Field Offices must review and update data in the LR2000 (Case Recordation & the Bond and Surety System) on an annual basis. The annual certifications, using the attached memorandum form will be submitted to the Wyoming State Office Realty Officer, by each district office, within 30 days of the end of each Fiscal Year.

Timeframe: This IM is effective upon issuance and will remain in effect unless formally modified.

Budget Impact: The application of this policy will have a minimal budget impact. The bond determination, adequacy and compliance review workload are subject to the processing and monitoring fee provisions of the regulations (43 CFR 2804.14(a), 2805.16(a), 2884.12(a), 2885.24(a), and 2920.6(b)).

Background: Historically, the BLM Wyoming has not required a bond on all grants. With the increasing concern over changes in financial markets and corporate financial volatility, the BLM is reducing the potential liabilities to the United States associated with grants by requiring a performance and reclamation bond. The BLM would use the bond for reclamation of sites or meeting other grant requirements in the event a holder is unable to meet their obligations.

Coordination: This bonding policy was coordinated with the Office of the Solicitor, Washington Office Branch Chief for ROW (WO-350), Renewable Energy Coordination Office (WO-301).

Contact: If there are any questions related to this IM, please contact Janelle Wrigley at 307-775-6257.

Signed by:
Larry Claypool
Acting Associate State Director
Authenticated by:
Jessica Camargo
State Director's Office

4 Attachments:
1 - Bond calculator spreadsheet (1 p)
2- Bond calculator example (1 p)
3 - Personal bond form 2800-17 (1 p)
4 - Surety bond form - 2800-16 (1 p)

Distribution
Director (WO 350) 1/watch.
Field Managers 1 w/atch.
Resource Advisors 1 w/atch.
CF 2 w/atch.