A coalition of eight associations, including NASBP and the American Subcontractors Association, is calling for changes to Federal Acquisition Regulation the (FAR) to place stricter requirements on individual sureties used by contractors on federal projects.
The coalition in February sent a
letter to Anne Rung, Administrator for Federal Procurement Policy at the Office of Management and Budget, requesting the modification to ensure that assets pledged by an individual surety are “real and readily available.” Currently, acceptable assets backing an individual surety bond include stocks, bonds and real property owned in fee simple, but such assets have proven problematic for various reasons, such as inflated value.
An example of a problematic asset would be unmined coal, which has been used to back individual surety bonds and which is among the types of assets that are not easily liquidated and pose an “untenable risk for a subcontractor or supplier,” said Colette Nelson, Chief Advocacy Officer of the American Subcontractors Association.
The federal government may be able to wait if a project fails and liquidation of assets takes a year or longer, but contractors on federal projects are required by law to pay their employees weekly, Nelson said. “You can't liquidate coal in a week,” she said.
A $5 million project might not represent a major risk for the government, but can be a “killer risk” that might put a subcontractor or supplier out of business, and such risk emerges when bonds provided by an individual surety are accepted without undergoing sufficient scrutiny, she said.
Technological improvements are allowing federal contracting officers to manage a higher volume of contracts, but budget cuts for the federal workforce in the past few decades have also increased the burden on contracting officers, Nelson said. Amid the increased workload, contracting officers often lack the skills necessary to adequately evaluate an individual surety's documents and assets that are presented by a bidder, she said.
Meanwhile, rejecting such a bidder would almost certainly result in a bid protest that would slow the project, and the contracting officer faces a high level of pressure to meet the ultimate goal of making sure a project is completed, Nelson said.
The coalition plans to ask for a meeting with federal officials regarding the requested FAR modification, and the organizations are also pursuing legislation to address the issue. H.R. 838, the Security in Bonding Act of 2015, has been introduced by Rep. Richard Hanna, R-N.Y.
“We are tackling the problem on multiple fronts to increase the likelihood that we get a remedy for our members,” Nelson said.
The American Subcontractors Association is reminding federal agencies that “they don’t need Congress to tell them the right thing to do” to protect taxpayers, subcontractors and suppliers, because the agencies have the leeway and authority to resolve the issue by issuing a rule for public comment and then finalizing the rule, she said.
The other groups in the coalition that sent the letter to OMB are the Associated General Contractors of America, the Design-Build Institute of America, Independent Electrical Contractors, the National Electrical Contractors Association, the Sheet Metal and Air Conditioning Contractors' National Association, and The Surety & Fidelity Association of America.
“What makes this letter so important is the breadth of the construction organizations that are supporting it,” Nelson said.