March 09, 2021

Van Hollen, Rounds, Lynch Introduce Bipartisan, Bicameral Bill to Provide Financial Security for Federal Infrastructure Projects

Legislation Would Ensure Contractor Defaults Don’t Leave Subcontractors, Workers, and Taxpayers Hung Out to Dry

Today, U.S. Senators Chris Van Hollen (D-Md.) and Mike Rounds (R-S.D.) and Congressmen Stephen F. Lynch (D-Mass.) and Troy Balderson (R-Ohio) reintroduced the Promoting Infrastructure by Protecting Our Subcontractors and Taxpayers Act of 2021. This bipartisan, bicameral legislation would direct the U.S. Department of Transportation (DOT) to ensure public-private partnership (P3) projects using Transportation Infrastructure Finance Innovation Act (TIFIA) financing have appropriate payment and performance security and are sound federal investments by requiring a surety bond.

“Contractor defaults on infrastructure projects can cause costly delays, wasting taxpayer dollars and leaving residents, local stakeholders, and project workers in the lurch. As we work to make historic investments in our nation’s transportation network, we must ensure that projects are financed securely. I’m proud to introduce this bipartisan legislation and will be pushing to pass this important improvement to our nation’s infrastructure financing,” said Senator Van Hollen.

“Our common sense legislation closes a loophole in federal law to protect American taxpayers,” said Senator Rounds. “This legislation would assure the taxpayer’s interests are protected when a contractor does not fulfil their contract as agreed to.” 

“I am pleased to reintroduce my bipartisan, bicameral bill, Promoting Infrastructure by Protecting our Subcontractors and Taxpayers Act of 2021, to help give hard working Americans the protections they deserve when hired to do critical work to improve our nation’s infrastructure,” said Rep. Lynch. “This bill will guarantee subcontractors, suppliers and workers would continue to receive payment and performance protections for their work on projects receiving federal TIFIA loans in case of default.  It is imperative we ensure our workers receive the necessary employment protections as we continue to battle the COVID-19 pandemic, and I would like to thank my colleagues Sen. Van Hollen, Sen. Rounds and Rep. Balderson for their partnership on this important legislation.” 

Bill Summary and Background

This bill amends the TIFIA program, which is used to fund P3 projects, by directing DOT to ensure the design and construction of a project that receives benefits from the TIFIA program have appropriate payment and performance security in place. Currently, some state laws require bonding for P3s – but not all. This bill would require that all projects need a surety bond.

The Issue

P3 projects often do not maintain the same level of protection that have been required on public infrastructure projects for over a hundred years through federal and state Miller Acts. Without these protections, in the event of a contractor default, the project is halted, and can be terminated, leaving subcontractors and workers without pay. Additionally, states and taxpayers then are forced to absorb additional costs of rebidding the project.

For example, a private developer defaulted on a P3 project in Indiana and left subcontractors without pay. The default cost the state and taxpayers over $300 million in additional project costs while also causing significant delays on the delivery.

The Solution

Payment and performance protections, through the use of surety bonds, provide monetary compensation in case a contractor fails to perform the acts as promised. These bonds play a vital role in ensuring contractors in financial distress avoid bankruptcy, allowing subcontractors and workers of public works projects to receive compensation and allowing the project to be delivered within budget and on time. In 2017 and 2018, sureties paid over $1.58 Billion in connection with contractor defaults and “at risk” federal, municipal, and state projects in the U.S., a cost that would otherwise be borne by public government agencies and ultimately taxpayers. 

This bipartisan, bicameral policy seeks to provide added protection for our nation’s workers, subcontractors, and small businesses as they look to solve our country’s infrastructure needs by ensuring essential payment and performance security protections are in place for all forms of project procurement where federal funds are used.

Benefits of Surety Bonds

TIFIA-financed P3 projects are large infrastructure projects with significant federal assets at stake. Bonding protects taxpayer dollars, ensures project completion, supports economic growth, and protects local small business subcontractors.

The legislation is supported by the following organizations: American Subcontractors Association (ASA), The Association of Union Constructors (TAUC), National Association of Minority Contractors (NAMC), Women Construction Owners and Executives (WCOE),  Construction Employers of America (CEA), National Electrical Contractors Association (NECA), Mechanical Contractors Association of America (MCAA), Business Coalition for Fair Competition (BCFC), Finishing Contractors Association (FCA), International, Sheet Metal and Air Conditioning Contractors’ National Association (SMACNA), American Property & Casualty Association of American (APCIA), National Association of Mutual Insurance Companies (NAMIC), The Surety & Fidelity Association of America (SFAA), National Association of Surety Bond Producers (NASBP), Council of Insurance Agents and Brokers (CIAB).

“The COVID-19 economic fallout disproportionately impacted minority-owned businesses that often serve as subcontractors on multi-million-dollar public construction projects,” said Wendell Stemley, Emeritus Director of the National Association of Minority Contractors. “Sen. Van Hollen’s Promoting Infrastructure by Protecting Our Subcontractors and Taxpayers Act provides critical protections for minority workers, suppliers and contractors. This commonsense solution will ensure payment and performance protections are in place to safeguard our nation’s construction community.”

“The Promoting Infrastructure by Protecting Our Subcontractors and Taxpayers Act is critical, bipartisan legislation to ensure that federal funding for infrastructure is protected through guarantees of performance and payment. Such protections make sure that these vital and complex projects can be undertaken and completed by qualified construction firms, without undue risk to taxpayer funds and the businesses who perform as subcontractors and suppliers. The National Association of Surety Bond Producers (NASBP) strongly urges support for the Promoting Infrastructure by Protecting Our Subcontractors and Taxpayers Act from all who seek to improve and advance the Nation’s infrastructure and extends its appreciation to Senator Chris Van Hollen for his insightful leadership on this issue,” said Mark McCallum, Chief Executive Officer, National Association of Surety Bond Producers. 

“The American Subcontractors Association (ASA) proudly supports this important bipartisan legislation because our contractor members witness firsthand the importance of financial securities such as performance and payment bonds on construction projects. These bonds assure that a contractor is qualified to perform the obligations in the award and serve as protection for the public agencies in case the contractor fails to meet their obligations under the contract,” said Gloria Hale and Courtney Little, ASA Government Relations Committee Chairs.

“Bonding provides critical protections for taxpayers, small businesses, and workers. As public-private partnerships become increasingly common, it is more important than ever to extend bonding requirements to these projects in the same manner that bonding is required for traditional public projects,” said Nat Wienecke, Senior Vice President, Federal Government Relations, American Property Casualty Insurance Association.

“Bonding TIFIA financed P3 projects will protect taxpayers’ dollars, ensure project completion, protect local small business contractors and workers, and promote economic growth,” said Lee Covington, President and CEO of the Surety and Fidelity Association of America. “TIFIA should be modernized to include the same payment and performance requirements that protect all other federally funded infrastructure projects.”