February 20, 2015 Issue
Currently there are forty legislatures in session. They are Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, District of Columbia, and Federal.
- H.R. 838, the “Security in Bonding Act of 2015"
On February 10, Representative Richard Hanna (R-NY-22nd) introduced H.R. 838, the “Security in Bonding Act of 2015,” which addresses the type of assets eligible to back individual surety bonds on federal construction projects and increases the guarantee to sureties that participate in the Preferred Program of the Small Business Administration’s (SBA) Surety Bond Guarantee Program from 70% to 90%. H.R. 838 is cosponsored by the Chairman of the House Small Business Committee, Steve Chabot (R-OH-1st) and Representative Grace Meng (D-NY-6th). As you recall, the House version of the National Defense Authorization Act (NDAA) in the prior Congress included these provisions from H.R. 776, the predecessor bill to H.R. 838. Unfortunately, the H.R. 776 provisions were not included in the final NDAA bill that was signed into law in December 2014.
- FAR Acceptability of Individual Sureties
That same day, members of the Construction Procurement Coalition (CPC) submitted a letter to the Administrator of the Office of Federal Procurement Policy (OFPP), Anne Rung, requesting a modification to Part 28.203 (Acceptability of Individual Sureties) of the Federal Acquisition Regulation (FAR) to require that the assets pledged by an individual surety meet the standards currently required by FAR Part 28.204. The coalition’s letter noted recent instances in which contracting officers have accepted individual sureties backed by assets that subsequently turned out to be illusory or unacceptable. The coalition urged modification of FAR Part 28.203.2 (Acceptability of Assets) to conform to the existing standards of FAR Part 28.204.This revision to the FAR would reduce the administrative burden placed on the contracting officer to assess the assets being pledged by an individual surety and ensure that pledged assets are real, sufficient in amount, readily available and in the care and custody of the U.S. Government. By requesting that OFPP initiate a FAR Case to modify the types of assets eligible to be pledged by individual sureties, the coalition has taken a two-pronged approach to the problem of worthless individual surety bonds.
- Federal Public-Private Partnership (P3) Summit
At the opening session of last week’s Federal Public-Private Partnership (P3) Summit hosted by the National Council for Public-Private Partnerships (NCPPP), Representatives John Delaney (D-MD-6th) and Mike Rogers (R-AL-3rd), co-chairs of the House P3 Caucus, discussed the importance of P3s at the federal level concerning the new budget scoring rules and H.R. 413, the Partnership to Build America Act, which has 34 co-sponsors. Representative Rogers focused on budgetary scoring, which he described as an issue that has “long stifled P3s at the federal level.” In January the House changed the way tax and entitlement proposals are evaluated, shifting from static to dynamic scoring. The new rule will require budget forecasters to use dynamic scoring to evaluate the impact of certain spending bills. The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) provide Congress with a nonpartisan projection, i.e. a “score” concerning the impact proposed legislation will have on the federal budget. Previously CBO and JCT have made their determination using a “static” methodology that makes limited assumptions about how legislation would change people’s behavior. Dynamic scoring will require the CBO to consider behavioral and macroeconomic changes that result from new legislation. Using static scoring, tax cuts are broadly assumed to “cost” a raw amount of reduced revenue. With dynamic scoring, the new revenue may increase economic activity produced by a tax cut. But new investments such as P3s also create scoring problems: Under static scoring, a $1 billion investment in infrastructure is assumed to cost $1 billion, with no consideration given to any new tax revenue produced by the project. With dynamic scoring, that $1 billion investment will “cost” less than $1 billion because of the effect of new jobs, goods sold and other economic factors.
Representative Delaney discussed H.R. 413, the Partnership to Build America Act, a bill he introduced to create a large-scale financing mechanism to rebuild the nation’s infrastructure. The legislation would allow for $750 billion in infrastructure investment funded by repatriated corporate earnings and leveraged through P3s. “I do believe that the private sector is much more innovative than government,” said Delaney at the NCPPP’s P3 Summit. “We are at a point in our country’s history where the innovation curve is very steep and this creates enormous opportunities to do things better.” H.R. 413 creates the American Infrastructure Fund (AIF) as a wholly-owned government corporation to provide bond guarantees and make loans to state and local governments, non-profit infrastructure providers, private parties, and public-private partnerships for state or local government sponsored transportation, energy, water, communications, or educational facility infrastructure projects. As introduced, H.R. 413 does not included a surety bond requirement. NASBP and others plan to visit Representative Delaney’s office to discuss the merits of including surety bonds on P3 agreements.
- Joint Comments to Federal Highway Administration (FHWA)
On February 6, NASBP submitted joint comments with the American Subcontractor Association (ASA) and the Surety & Fidelity Association of America on the FHWA's Draft Toll Concession Public-Private Partnership (P3) Model Contract Guide—Addendum. The comment letter highlights the importance of surety bonding on public projects, regardless of the project delivery or financing method chosen and the precedent set by current federal regulations requiring bonding on federal transportation projects.
Bond Threshold Increases
- CT HB 5622 (Perillo) increases the bond threshold to an unspecified amount. This bill has been introduced as a placeholder bill and language is not yet available.
- NV SB 108 (Settlemeyer) increases the current bonding threshold from $100k to $1M. The bill was referred to the committee on Government Affairs on 02/02/2015 and has not moved. NASBP has contacted and had discussions with the Nevada AGC and is working with them on a strategy of opposition.
Performance and Payment Bonds
- MD HB 279/SB 396 (Robinson/Pugh) prohibits a unit from drafting specifications requiring unnecessary experience or excessive bonding on prospective responsible bidders or offerors. A hearing was conducted in the House Health and Government Operations Committee on 02/18/2015 and one is scheduled in the Senate Education, Health, and Environmental Affairs Committee on 02/26/2015. NASBP's contract lobbyist testified, requesting clarification as to what is considered "excessive bonding." NASBP's contract lobbyist was able to speak directly to the House bill sponsor, who believed excessive bid specifications in her district were preventing small and emerging contractors from bidding on work. NASBP will continue contact with the sponsors to clarify or remove the language addressing "excessive bonding."
- AR HB 1111 (Sabin) authorizes the state to enter into public-private partnership agreements for public facilities and infrastructure. These P3 comprehensive agreements require the components of the qualifying project that involve construction, provisions for the delivery of maintenance, payment, and performance bonds, as required under the Little Miller Act, §18-44-503, and for components of the qualifying project that do not involve construction, bonds, letters or credit, or other forms of security acceptable to the responsible public entity in connection with the development of the qualifying project. HB 1111 was introduced on 01/21/2015 and was referred to the House Committee on Agriculture, Forestry & Economic Development.
- GA SB 59 (Hill) authorizes the state to enter in P3 agreements. These agreements require delivery of maintenance, performance and payment bonds, letters of credit, or other form of security acceptable to the responsible public entity in connection with the development or operation of the qualifying project, in the forms and amounts required in Georgia's various Little Miller Acts for those components of the qualifying project that involve construction. SB 59 was read a second time on 02/12/2015.
- IN SB 482 (Eckerty) requires a public-private agreement entered into after June 30, 2015, which includes the following bond requirements: (A) A performance bond in an amount equal to the cost to design and construct the project; (B) A payment bond conditioned on payment for labor and material furnished for use in construction of the project. SB 482 was referred to the Committee on Tax and Fiscal Policy on 01/14/2015 and has not moved since.
- MD SB 453 (Guzzone) makes a technical correction to Maryland's P3 law to clarify that both payment and performance bonds are required on P3 agreements under Title 17, Subtitle 1. A hearing is scheduled on SB 453 in the Senate Budget and Taxation Committee on 02/25/2015.
- NM HB 299 (Larrañaga) authorizes the delivery of public projects through public-private partnerships. These agreements require a private partner to provide, either directly or through the principal contractor who is in charge of the project, performance and payment bonds as required by New Mexico's Little Miller Act, §13-4-18 NMSA 1978 for those components of a public project that involve construction. HB 299 was introduced on 01/24/2015 and referred to the House Transportation and Public Work and Judiciary Committees.
Statute of Limitations
- NASBP has continued to work with the Connecticut Statute of Limitations coalition to encourage the Connecticut State Legislature to pass legislation to codify a statute of limitations for public works projects. Currently the State may bring suit against a party at anytime following the completion of the work on a project. A legislative concept containing the coalitions proposed bill language was heard at a Joint Judiciary Committee Hearing on 02/04/2015.