As America continues to struggle in the wake of Covid-19, we need to take advantage of every economic opportunity possible. Fortunately, the construction sector has the potential to play a key role in our nation’s financial recovery. As Congress continues to consider ways to jumpstart our economy, including through investing in infrastructure, lawmakers need to ensure these potential solutions have the right protections.
Even under normal circumstances, construction is a risky business. Between 2014 and 2016, roughly 30-percent of contractors and builders went out of business. Being “too big to fail” doesn’t exist in this industry. Contractor failure doesn’t discriminate between large and small-scale operations—everyone is at risk. Federal, state, and local laws have long protected workers and subcontractors. Now, amid significant macroeconomic uncertainties, these protections will be more important than ever. Workers, subcontractors, and taxpayers deserve protection when taking the necessary risk in an uncertain economy.
Notably, minority-owned contracting businesses have benefited significantly from the current payment and performance security attached to public infrastructure projects. Many minority-owned contracting businesses often serve as subcontractors on multi-million-dollar public construction projects and benefit from existing protections. The Covid-19 economic fallout disproportionately impacted these businesses. Now, as they take risks to spur our nation’s economic recovery, they need continued protection.
Existing state and federal laws specifically require contractors to obtain surety bonds—a three-party contract by which one party guarantees the borrower's performance or obligations. This agreement helps determine a contractor’s ability to do the job and meet its payment obligations. Then, if something goes wrong during construction, the surety is there to complete the project and manage and pay the subcontractors and suppliers. In 2017 and 2018, sureties paid over $1.5 billion in connection with contractor failures and “at risk” projects in the U.S—a cost that otherwise would have fallen back on taxpayers.
There are plenty of less fortunate subcontractors, workers, and taxpayers who have suffered the consequences of inadequate protections. Some construction delivery methods, including public-private partnerships (PPP), do not require the same protection levels in certain circumstances and PPPs are not immune from experiencing financial difficulty.
A P3 highway project in Indiana showcased this shortcoming. The state of Indiana assumed control of the project after the original contractor/developer was terminated. Although bonding was utilized for the job, the unusually low bonds required for the project impaired Indiana’s ability to re-let the work, which led to a two-year delay in project completion and also impacted the ability of subcontractors, suppliers and the sureties to quickly resolve payment claims. The total cost of completing the job grew from the originally planned $369 million to over $556 million. In Indiana, the initial specification of inadequate bonding protection led to negative consequences for the workers, subcontractors, suppliers, and taxpayers. The use of an industry-standard, 100% payment bond would have provided superior protection for unpaid subcontractors and suppliers.
We need to be proactive in limiting these failures and maximizing potential. Thankfully, lawmakers recognize this industry as one that's deserving of more safeguards, and they are working on implementing solutions.
Perhaps the best one proposed thus far is Reps. Stephen Lynch (D-MA) and Troy Balderson’s (R-OH) Promoting Infrastructure by Protecting Our Subcontractors and Taxpayers Act. This bipartisan legislation will provide long-overdue investment for our roads, bridges, waterways, and other critical infrastructure. It will retain existing essential protections for workers, Disadvantaged Business Enterprise Program Supportive Services Program participants, small business contractors, and taxpayers while safeguarding all forms of project financing they currently use—including federal PPP funds—so that they can continue rebuilding our communities.
This bill will significantly benefit localities of all shapes and sizes. It is a commonsense solution to a complex problem, and through their key committee and subcommittee assignments, Reps. Peter DeFazio (D-OR) and Sam Graves (R-MO) and Sens. John Barrasso (R-WY), Tom Carper (D-DE), Mike Rounds (R-SD), Kevin Cramer (R-ND), Ben Cardin (D-MD), and Cory Booker (D-NJ) should work on moving it forward.
While passing this legislation will help tremendously in protecting infrastructure in U.S. towns and cities in this time of great need, it alone will not be enough to resolve all local concerns. Citizens must also remain involved with local leaders, such as mayors, city council members, and congressional representatives, to ensure that their communities' individual needs are included in the appropriations to protect America’s infrastructure.
For the sake of helping reboot our economy and protecting workers and taxpayers—including many minority-owned contractors—this is a clear policy that every congressional member should support. The National Association of Minority Contractors (NAMC) urges you to ask government representatives how they will ensure that their rebuilding plans work for and benefit small businesses and local communities.
Wendell Stemley is the Emeritus Director of the National Association of Minority Contractors