As U.S. lawmakers debate the nation’s proposed $2.3 trillion infrastructure bill, many contractors are eagerly waiting to see what funds will be allotted for transportation and building projects. As private projects begin to slow in some regions, the possibility of working on public projects is intriguing for many contractors.
However, for contractors who have never contracted with a public agency, there are a few things you may want to consider.
Lengthy Applications and Prequalification Requirements
Even before you submit a bid or proposal, understand that many government projects have extensive applications and prequalification requirements. These requirements will vary by agency, but you can usually find the project requirements in the solicitation documents issued by the procuring agency; typically, the Invitation to Bid or Request for Proposal, depending on the selected procurement method. Be sure to thoroughly review the solicitation documents well in advance to give yourself enough time to meet the requirements and to provide all information requested by the agency timely. This process can be time-consuming, and you can expect to encounter some hiccups along the way.
Disclosure of Records
On private projects, the information provided by your competitors to the owner during the procurement process may not ever be disclosed to you. But with public projects, the information you provide to the public agency during the procurement process — even your pricing details — could be disclosed by the agency to the public (including your competitors) if an exception does not apply. Many public agencies are subject to strict laws concerning the public’s access to information received by the agency during the procurement process.
While these laws are designed to promote transparency and fairness in the procurement process, you should keep in mind that the information you provide to the agency could wind up in the hands of your competitor. Therefore, there should be some level of thought and tactfulness in the manner in which you express or provide information to the agency, as it could go a long way in helping you to maintain your competitiveness or helping you to avoid a protest over a contract awarded to you down the road.
It should come as no surprise that public contracts are often voluminous, covering every aspect of the project in great detail, and frequently include numerous procedures and provisions that are specific to the contracting agency. It is common to find extensive provisions pertaining to project participation and reporting requirements, insurance, indemnity and bonding requirements, and a host of other requirements. If that is not enough, public contracts often incorporate various statutes and regulations into the contract by reference. While a copy of the contract is typically provided by the contracting agency in the solicitation documents, in practice we find that many contractors surprisingly submit their bid or proposal to the agency without ever reviewing the contract. Do not let this be you.
Put the time and effort on the front end to review the contract with an attorney experienced in construction law. While the agency may have little leeway to negotiate the terms of the contract, a thorough review and understanding of the contract will help you to make an informed decision as to whether to take on the project. It will help you to assess your exposure and account for it in your pricing, and will help you to strategically raise questions concerning uncertainties in the contract that could affect your pricing. This could also put the issue on your competitors’ radar and force them to account it in their pricing, ultimately leveling the playing field.
On most public projects, you will be required to obtain a few types of construction-related bonds — one of those being a bid bond. A bid bond is a guarantee to the agency that the agency will be compensated if you are awarded the project and backout or fail to honor the terms of the bid. The other commonly required construction bonds are called performance and payment bonds, both of which are types of surety bonds. A performance bond provides a guarantee to the agency that the project will be satisfactorily completed, while the payment bond guarantees that those performing work on the project on your behalf will be paid for their work.
While these surety bonds may seem a lot like insurance, they are vastly different. Under a surety contract, if you fail to meet your contractual performance obligations or pay your bills, the surety assumes your obligations under the contract with the agency. However, the surety will have the right to recover any losses incurred in fulfilling your obligations from you as the principal on the bond. Conversely, under a standard commercial general liability policy, the carrier generally has no duty by way of its insured’s contract with the agency to assume the contractual performance obligations of its insured. Additionally, a standard general liability policy does not typically provide the carrier with a basis to recover from its insured any losses resulting from a claim made against the policy.
Given the surety’s potential exposure, sureties tend to be very selective as to who they will issue a bond and the principal is typically required to go through a stringent process beforehand. As part of this process, an exhaustive assessment of personal and company financials, assets, and past performance on similar projects by the surety should be expected. You can also expect to be required to execute a general indemnity agreement, both personally and on behalf of the company, that will require you to indemnify, defend and hold the surety harmless from any claims made or losses incurred by the surety related to the bond.
Considering the foregoing, it would be smart to establish a relationship with a qualified bonding agent once you decide to pursue public projects. You should also have a good understanding of construction bonds and have a written commitment from the surety that it will issue the required bonds to you before you spend unnecessary time and resources pursuing the project.
With rising material and labor costs affecting the residential sector, and funding for public projects appearing on the horizon, we will likely see a rise in the number of solicitations for public construction projects and a rise in the number of contractors looking to transition to public work.
While public construction projects can be great opportunities, your success on these projects will hinge, in large part, on your understanding of the agency’s procedures and the contractual requirements for each project. If you would like to pursue public projects, we recommend that you consult with an experienced construction lawyer. A little time spent on the front end could help you to avoid a disaster down the road.
Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.
About the author: Roscoe Green is a Partner at Cotney Attorneys & Consultants who focuses his practice on construction law. Cotney is an advocate for the construction industry and represents industry professionals in all facets of construction law. For more information, contact the author at (866) 303-5865 or visit cotneycl.com.