Privatization and Bonding Are Not Strange Bedfellows for Congress
Public privatization initiatives, known as public-private partnerships or P3s, are frequent discussion topics these days for the construction and surety communities, especially with the growing recognition that pervasive funding shortfalls for needed public infrastructure work will likely continue for the foreseeable future. NASBP regularly tracks state legislative introductions authorizing use of P3 methods to discern whether bonding requirements are referenced or are included in such measures. NASBP also regularly partners with other organizations, such as the American Subcontractors Association (ASA), to advocate for inclusion of bonding requirements in P3 legislation. Based on research conducted jointly by ASA, NASBP and the Surety & Fidelity Association of America, NASBP staff created a
P3 map showing P3 legislation in each state, which is posted on the
NASBP website for the reference of members, affiliates, and associates.
At the federal level, NASBP has been active in educating members of Congress about the importance of bonding requirements for P3 projects undertaken with some level of federal funding. Earlier this year, NASBP staff briefed professional staff of members of the U.S. House of Representatives Committee on Transportation and Infrastructure belonging to a special task force on public-private partnerships. This task force is examining the role that P3s play in the development and delivery of transportation and infrastructure projects in the U.S. and how to balance the needs of the public and private sectors in the implementation of P3 projects. The task force is chaired by Representative John J. Duncan, Jr. (R-TN), who recently briefed the attendees at the NASBP Legislative Fly-in on the morning of June 12. (For more about the Fly-in, see the article in this issue.) NASBP also is one of 13 organizations participating in the Construction Procurement Coalition, which has crafted and advocates for an omnibus procurement reform bill that includes legislation to require bonding requirements for federal P3 initiatives. NASBP members and affiliates made bonding requirements on federal P3 initiatives one of their primary points of emphasis during their congressional office visits at the 2014 NASBP Legislative Fly-in.
Not all may know that Congress previously has made use of privatization initiatives to address federal construction needs. In 1996, Congress passed, what was then, a pilot program for military housing privatization to address a significant inventory of inadequate or substandard military housing, which was affecting troop morale and military readiness, and to increase the stock of safe, modern military housing units. The initiative leveraged private sector capital and private sector expertise in housing development to address the military housing crisis. Although widely regarded as successful, the initiative has not been without some significant bumps, such as performance and quality issues on certain projects. In 2007 such issues prompted concerned U.S. Senators to express to the Secretary of the Air Force the need for better accountability on military housing privatization projects, including the need for better diligence in vetting project bidders. The Senate subsequently introduced legislation that would require enhanced oversight of, and reporting on, housing privatization projects. Can you guess what was among the accountability measures in the legislation? Yes, you guessed it: the establishment of minimum bonding levels for military housing privatization projects. That legislation passed within the National Defense Authorization Act for Fiscal Year 2009 and now is codified at 10 United States Code Section 2885, titled “Oversight and accountability for privatization projects.” Subsection “(c)” which addresses “Bonding levels” states:
| The Secretary concerned shall ensure that the project owner, developer, or general contractor responsible for a military housing privatization initiative project has sufficient payment and performance bonds or suitable instruments in place for each phase of a construction or renovation portion of the project to ensure successful completion of the work in amounts as agreed to in the project’s legal documents, but in no case less than 50 percent of the total value of the active phases of the project, prior to the commencement of the work for that phase. |
In turning to a solution for performance problems on military housing privatization projects, Congress selected a mechanism it knew had a long record of value to the government and to taxpayers, namely minimum bonding levels for entities performing construction. As we continue to educate this and subsequent Congresses on the merits of bonding requirements in relation to federal privatization initiatives in transportation and in other construction contexts, we must make sure we convey the valuable lesson learned in the advancement of the military housing privatization initiative.