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During his campaign for the presidency, one of Donald Trump’s key initiatives was a $1 trillion 10-year infrastructure spending package with funding from private investors and the federal government. Specifically, financing from private investments would secure public-private partnership (P3s) agreements to help address the nation’s infrastructure problems.

President Trump recently has moved away from P3s by questioning their effectiveness, and the administration’s focus for the remainder of 2017 will be on tax reform. As such, all signs seem to point to the unveiling of an infrastructure plan in early 2018. 

However, states are not waiting for Congress to act. Eight states increased their gas tax this year to fund needed infrastructure projects, and 26 states have raised their gas tax in the last four years. But state budgets are tight for the foreseeable future, leaving little room for significant increases in spending. 

Federal Activity

Rep. Nydia Velázquez (D-N.Y.) sponsored an amendment to the House version of the FY 2018 National Defense Authorization Act (NDAA) that exempts the Federal Miller Act from required indexing of the bond threshold for inflation. Periodically increasing the Miller Act threshold means that subcontractors and suppliers on federal construction projects will have no payment protection on increasingly larger projects. Members of the Construction Industry Procurement Coalition  signed a letter in support of the Velázquez amendment and delivered it to the chairmen and ranking members of the House and Senate Armed Services Committees. 

The annual defense spending bill is being reconciled in conference committee and is expected to reach the House and Senate floors sometime in December. 

A provision included in S.1320, the Senate’s version of the Federal Aviation Administration (FAA) Reauthorization bill, establishes P3 agreements for the construction and renovation of general aviation (GA) facilitates, but it is silent on surety bond requirements. There was interest in the Senate to consider bonding requirements, but Congress was unable to reach a compromise on the FAA Reauthorization bill prior to the Sept. 30 funding deadline. 

Subsequently, Congress approved a short-term extension to fund the FAA through March 30, 2018. Discussion among members of Congress regarding the importance of including bonds for P3 agreements for the construction of GA facilities will resume next year.  

On the regulatory side, the Small Business Administration’s Office of Surety Guarantees established regulations to: 

• increase the guarantee percentage in the Preferred Surety Bond Program from 70 percent to not more than 90 percent; 
• increase the contract amount for its Quick Bond Application from $250,000 to $400,000; and
• raise the threshold change order notice requirement from $100,000 to $500,000.  

Finally, the construction industry awaits the release of proposed regulations to address the recent statutory changes adopted in the FY 2016 NDAA that restrict the types of assets that individual sureties can provide to secure their bonds on federal construction contracts. The industry anticipates that these regulations will be released in the fall and will include a 60-day public comment period.

State P3 Activity

This year, half of the states considered legislation authorizing P3s or expanding existing authority to use P3s. Even though procurement methods have evolved, construction remains a risky business, making the protections that surety bonds provide for taxpayers’ investments and the payment guarantees for subcontractors and suppliers just as relevant and important in P3s.

Most new P3 laws enacted in the past five years require bonding of any construction, and that trend continued in 2017. The Arkansas and Oklahoma legislatures enacted legislation providing guidance on the terms and conditions for a P3, which require consideration of bonding. In Arkansas, regulations were promulgated that require bonding. In Oklahoma, the Little Miller Act was amended in 2012 to require bonding in P3s for construction on public land funded with public money, so bonding already is required.  

Connecticut extended the authority for a P3 pilot project under an existing law that requires bonding for the P3s. Kansas enacted a new law to require contractors to provide payment and performance bonds in public works projects under a P3. Louisiana now allows the Regional Transit Authority to use P3s, which must follow the bonding requirements for any other transportation project. Nevada authorized counties with a population in excess of 700,000 to use P3s for transportation projects under a new law that provides that payment and performance bonds may be required under the P3 agreement. It remains to be seen how that law will be implemented. 

Oregon now allows the Port of Hood River to use private partners in tollway projects and requires any P3 to comply with prevailing wage and bonding requirements. Utah amended its procurement code to include P3s as another method of delivery for state and local public works projects, leaving bonding and other requirements applicable to P3s. West Virginia extended the authorization for the Division of Highways to enter into P3s for transportation facilities, which was set to expire this year.

With the Trump administration signaling that an infrastructure bill in Congress would include leveraging of private funds, federal financing and grants, as well as direct funding, states without P3 authority may seek a P3 law in 2018 to assure their participation in any new federal program. 

State Bond Thresholds 

Three states considered raising their bond threshold to $150,000. North Dakota and Washington raised their threshold to $150,000, while negotiations in New Hampshire led to an increase in the state bond threshold from $35,000 to $75,000 (and to $125,000 for local governments). As more states look to the Miller Act thresholds, subcontractors, suppliers and workers will work on larger jobs without payment protection. This makes eliminating the indexing of the Miller Act all the more important.  

In other action, a new law in Idaho established a $50,000 bond threshold for public building and public works projects. There was no bond threshold under prior law. Indiana now allows state educational institutions to waive bonds for projects under $500,000. Wisconsin eliminated the biennial indexing of its state and local bond thresholds for inflation. The new law freezes the state bond threshold at $369,000 and the local government bond threshold at $148,000. The thresholds were scheduled to increase to $413,000 and $165,000, respectively.

Local governments in Virginia sought to waive existing prequalification requirements for any projects under the $500,000 state bond threshold. A compromise was reached to waive bonds only for Class A contractors and for no more than 10 contracts annually between $100,000 and $300,000. The waiver provisions expire July 1, 2021.