Bonding P3s – Public-Private Partnerships

Probably large in part due to our most recent recession, public-private partnerships also known as P3s, have become increasingly popular as a construction method for projects. These P3s are projects that ultimately benefit the public but private companies have a significant role in the design, finance, ownership, etc. of the public good.  This method has proven to often deliver projects faster and at a lower cost.

However, one of the issues that has faced P3s from the start, is whether or not performance and payment bonds should be required.  For public projects, the Miller Act requires that any project greater than $150,000 be bonded.  And most states have adopted ‘little Miller Acts’ with its own dollar thresholds.  Bonding requirements for P3s have been debated on whether it’s required, needed, or the law.

The argument in favor of bonding P3s is that if the end product is for the benefit of the public, shouldn’t the public agency have some control over the contractor building the project.  Further, the payment bond on a public project protects the GC’s suppliers and subcontractors should they not be paid what they are owed.  The recourse is filing a claim against the payment bond.  If the project is for a public good and there is no payment bond in place, can the supplier or subcontractor place a lien against the property?  The answer is murky and would differ from person to person.

The argument against bonding P3s is that the private owner financing feels like it should be able to determine whether or not a bond is required.

As it stands today, it looks as though the bonding of P3s varies from state to state, agency to agency, and even job to job.  Many public agencies are enacting legislation to address the bonding requirements for P3s.  The cost of a bond relative to the protection it gives is minimal.  It’s my belief that most P3s will adopt bonding the project as commonplace, regardless of the public agency’s statute.