Ensuring Transportation P3s are Protected by Bonding
Many major players in the transportation industry are moving forward with plans to incorporate public-private partnerships (P3s) into their infrastructure planning. P3s allow government agencies to leverage private capital to complete public work projects to serve their constituents. NASBP strongly believes the bonding on these projects must be set at 100% of the construction portion of the contract. Thirty-three states currently authorize P3s, but not all of these explicitly outline bonding requirements in their statutes. In an effort to rectify this silence on bonding, NASBP has engaged extensively at the state and national level to encourage lawmakers and regulators to require the protection of bonds. Payment and performance security in the form of surety bonds are essential to the timely completion and execution of any construction project regardless of delivery method.
The Illinois Department of Transportation (DOT) is jointly developing the Illiana Corridor Project with the Indiana DOT. Legislation has been enacted in both states to authorize this project to move forward as a P3. This crucial roadway will connect Northwest Indiana with Northeast Illinois, a region heavily utilized by three sectors of travel: roadways, rail, and air. In early June, the Illinois DOT requested comments from potential stakeholders regarding the project. NASBP submitted comments regarding the importance of surety bonds on projects delivered by alternative project delivery methods. By first enacting 30 ILCS 550, “Public Construction Bond Act,” requiring the furnishing of payment bonds by contractors performing public construction contracts, the Illinois Legislature recognized the importance of having payment bonds in place to protect the downstream businesses that supply labor and materials on Illinois public construction projects. Often these business entities, the project subcontractors or suppliers, are small businesses whose only viable remedy in the event of nonpayment by the prime contractor is to claim on the payment bond. Recently, the Illinois Legislature went a step further and explicitly recognized the importance of requiring performance and payment bonds on the Illiana Corridor Project, specifically, by enacting “(30 ILCS 550/1.5) Sec. 1.5. Public private agreements. This Act applies to any public private agreement entered into under the Public Private Agreements for the Illiana Expressway Act.”
The Illinois DOT can be looked to as a model for other state agencies to emulate when considering P3 projects, i.e. requiring the construction portion of the project to be fully bonded.
In May, NASBP submitted comments to the Federal Highway Administration (FHWA) on the topic of model contracts for P3s as required by Moving Ahead for Progress in the 21st Century Act or MAP-21. As described in the comment letter, NASBP raised the concern of the current state of varying state statutory requirements relating to P3s and requested the FHWA set an appropriate policy to include requirements for performance and payment bonds. This would ensure that transportation P3 projects would provide contracting authorities with qualified contractors capable of performing the construction work while offering payment protection to subcontractors and suppliers. NASBP recommended in its comment letter that FHWA include contract language in the model P3 contracts, so that performance and payment bonds are required in the amount of the total value of the construction elements of the P3 contract.
During the 2013 state legislative sessions, NASBP tracked 22 pieces of legislation that authorize P3 at the state and county level. With summer now in full swing, nearly all state legislatures have adjourned. Only five P3 bills remain active, and most appear to be stalled in committee. For further updates and to view past issues of the NASBP Focal Point e-bulletin, click here.
