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What's New: Public-Private Partnerships (P3s)

New Hampshire Considers Bonding in P3s and Wants Further Study of P3s

Wednesday, March 12, 2014  

New Hampshire SB 399 was heard today in the Executive Department and Administration Committee.  The bill would add a new Chapter 21-V to the state procurement code to permit state agencies to use the following methods for delivery of a public infrastructure facility, including any structure, building, or other improvements: design-build, operations and maintenance, design-bid-build, construction management at-risk, design-build-operate-maintain and design-build-finance-operate-maintain.  The bill provides that bid security would be required for design-bid-build procurements that exceed $100,000 at 5% of the bid amount.  The bill provides that for design-build, design-build-operate-maintain, or design-build-finance-operate-maintain contracts in excess of $25,000, performance bonds and payment bonds would be required in an amount equal to 100% of the contract price, not including the cost of operation, maintenance, and finance.  The bill, however, would permit performance and payment bonds to be reduced to 50% of the required amount according to rules promulgated under the state administrative procedure act.  The state Little Miller Act currently requires a 100% payment bond.  

AIA state counsel testified for the sureties and recommended that the authority to reduce the amount of the payment and performance bonds to 50% of the price of the construction contract be stricken from the bill.  Reducing the amount of the payment bond means that subcontractors and suppliers can be left with no means to collect for their services and supplies if the contractor is unable or unwilling to pay them.  Every time the surety pays a claim, the penal sum of the bond is reduced by that amount, leaving less and less protection.  If the amount of a performance bond is less than 100% of the contract price, the taxpayers take on the risk that the contractor will default.  There will be more contracts on which state agencies will bear the burden of re-letting work and paying any excess completion costs.  This also lessens the protection for the public owner without saving any costs as the surety’s analysis and underwriting of the contractor is based on contract and not on the amount of the bond.  

No action was taken on the bill today at the committee hearing.  We were able to confirm that the committee chair intends to establish a study commission to further study provisions in this bill and that the committee generally understood the problems with reducing the bond amount.  At the hearing, various governmental entities spoke to whether they would want authority to engage in the new methods of delivering a public works project that would be authorized under SB 399, and several indicated that the bill would be a lot of work and would require additional staff to implement.  The Department of Administrative Services said that many of the provisions in the bill should be deferred for further study.  The local AGC chapter representative also testified that the bill needed further study.  The deadline for the Senate to pass legislation is March 27 so that the committee will need to finalize its recommendations before then.


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