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What's New: Government Affairs

Surety Issues in Congress Wait Until Next Year

Thursday, December 11, 2014  
SFAA worked with the federal Construction Coalition throughout 2014 to enact the Coalition’s legislation by having it introduced in Congress and incorporated into the National Defense Authorization Act (NDAA). The House passed its version of the NDAA (H.R. 4435), which contained two surety provisions from the Construction Coalition’s legislation. Included were the provisions from H.R.776 that would increase the SBA’s maximum bond guarantee to the sureties in the Preferred Surety Program of its Bond Guarantee Program from 70% to 90% and that would require individual sureties to play by the same rules as any other person or entity giving collateral to the federal government. The House NDAA also included a prohibition from H.R. 2750 on the use of reverse auctions for construction projects and provisions from H.R. 2751 to improve the design-build process.

When it became apparent that the Senate would not have time to pass its own NDAA bill, the House and Senate Armed Services committee staffs were instructed to develop a compromise bill that could be enacted quickly after the elections. Although we have been successful in the last two years in obtaining provisions in the NDAA, this year’s NDAA does not include either of the surety issues above that were included in the House version of the NDAA. This year’s NDAA contains some limits on reverse auctions and improvements on the design build process, but even these provisions are not the industry-drafted versions from the federal Construction Coalition legislation.

The Construction Coalition legislation would have prohibited the federal agencies from using reverse auctions in any construction project suitable for a small business concern. This year’s NDAA legislation limits the use of reverse auctions within the Department of Defense (DOD) by banning the use of single-round reverse auctions, single-bid reverse auctions absent price protections and third-party reverse auctions that include inherently governmental functions. These limits, however, apply only to military construction let as design build projects so that the number of contracts to which these limits apply is negligible. The NDAA also simplifies the multistep process of competing for design-build contracts. Again, while limited to the DOD projects, the NDAA would apply the current limitation of no more than five bidders in the second step of a design build to all DOD projects in excess of $4 million. The number of bidders shall not exceed five unless the head of the contracting agency approves the contracting officer’s written justification for allowing more than five qualified bidders. Unlike the Coalition’s legislation, the provisions in the NDAA do not require the DOD to give an annual report on all the contracts in which more than five bidders were permitted. This is, however, a first step toward changing the current design build process.

Before Congress adjourns, Senators Ben Cardin (D-MD) will introduce the Construction Coalition’s entire bill in the Senate, with Senator Rob Portman(R-OH) as a co-sponsor. Senators Cardin and Portman were both key Senators that SFAA and its members approached at our Congressional Action Day this year to be the bill sponsors for the Coalition bill. At this point, the bill is a marker and the Coalition’s starting point for the 114th Congress next year. The Construction Coalition’s legislation contains four key surety provisions: excluding the Miller Act from the periodic review and indexing for inflation now required for all federal acquisition thresholds; requiring bonding for the design and construction phase of federal projects let as P3s; increasing the SBA’s maximum bond guarantee to the sureties in the Preferred Surety Program of its Bond Guarantee Program from 70% to 90%; and requiring individual sureties to play by the same rules as any other person or entity giving collateral to the federal government.

In other action, the continuing resolution and omnibus spending package that Congress now is considering would authorize the Secretary of Commerce to waive bonds for the construction of vessels. Existing law permits the military branches and the Department of Transportation to waive bonds for such projects. The government’s waiver authority is expanded in S. 2437, the Commerce-Science-Justice annual appropriations bill, which now is part of the so-called “cromnibus” appropriations bill to fund the federal government until next September.

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