The American Subcontractors Association is disputing the
concept that reducing the amount of payment and performance bonding on public
private projects under Indiana’s recently enacted law governing public private
agreements will actually reduce the overall costs of the Louisiana Southern
Indiana Ohio River Bridges construction project. In a letter to IDOT and the
Indiana Finance Authority, the trade association of construction subcontractors
and material suppliers strongly objects to the RFQ for the East End Crossing
phase of the project, which calls for payment bonding at only 5% of the bid
price, and performance bonding at 25% of the bid price.
ASA’s letter points out that shifting 95% of the risk of
nonpayment of subs and suppliers from the bonding company to the subs and
suppliers themselves may result in a lower bond premium, but won’t produce any
equal reduction in project cost. “You are asking these prospective
subcontractors and suppliers to accept substantial risk on the basis of a
selection process in which they were simply observers,” the letter says. “The
prudent subcontractor or supplier, which the IFA and IDOT want to participate
in this project, needs to respond to the risk currently being proposed to be
transferred to its firm and employees. The current inadquate protections for
ultimate payment of a subcontractor or supplier working on the East End Crossing
Project will not come free of dollar costs to the overall project.”
In other words, subs and suppliers will increase their bids
by an aggregate amount greter than the reduction in payment bond premiums the
state expects to realize from reducing payment bond coverage 95% on the job.
Indiana’s legislature needs to revise its economic model of public construction
projets to take these realities into consideration.
