A Surety’s Perspective on Public Private Partnerships
OK, I admit it. In recent memory, I don’t think I’ve read any articles on P3s from a surety’s perspective. I don’t find myself worrying “How does the surety feel?” when I read a case of an unpaid subcontractor.
I, for obvious reasons, tend to gravitate towards the portions of statute that protect our clients and afford those furnishing to construction projects the opportunity for payment security.
So, how does the surety industry view Private Public Partnerships (aka P3)? This precise question is answered in an article from Engineering News-Record (ENR).
Lenore Marema, VP of government affairs of the Surety & Fidelity Association of America (SFAA), wrote Surety Sector P3 Progress Report: How the Surety Industry Sees Public-Private Partnerships and she says, that although states are slowly adopting P3 laws, the number of states that have the laws is subordinate to whether or not the laws recognize the value of bonds necessary to complete these projects.
“State lawmakers have been adopting P3 laws slowly and steadily for over a decade. From the perspective of The Surety & Fidelity Association of America (SFAA), the critical issue isn’t how many states have such laws, but whether the laws recognize the value of surety bonds and lead to getting needed infrastructure projects done in states that lack the necessary funding.”
Marema goes on to note that SFAA and the American Insurance Association (AIA) feel the P3 laws need to have a bonding requirement and that these projects should be bonded in line with those projects bonded under a state’s Little Miller Act.
“Construction under any P3 produces a public facility, such as a road or wastewater facility, and it should be bonded under the state Little Miller Act just like a public works project delivered under any other method.”
Marema also noted that it’s important that these bonds only cover design and construction and are not for operations and maintenance, as design and construction are within their qualified purview.
Based on Marema’s review of 2016 P3 legislation, it appears states are on the right track. She specifically referenced the four states that have passed P3 legislation this year, (KY, LA, NH & TN), as all four have included a requirement for a surety bond for design and construction within their statute.
Marema’s parting words reinforce the vital need for sureties and bonds.
“There is a lot more work to be done to ensure sureties’ role in these projects. Bonding is sound public policy that has assured successful completion of construction projects and protected businesses for decades—and that holds true regardless of who is providing the revenue stream for the projects.”