Bonding Necessary in Public-Private Partnership (P3) Agreements
Construction, the backbone of the American economy, has been developing different techniques at a rapid pace over the last 100 years. Aside from the amazing strides made in the types of buildings being constructed, the construction industry has pushed itself to innovate in every facet.
The constant change being seen in the construction industry is also affecting government. While commercial ventures have been adept at changing, government has been slower. With the advent and the embrace of Public-Private Partnerships (P3) in the construction of traditionally government infrastructure, such as bridges, airports and roads, new agreements have been formed to try to deal with the laws relating to government projects.
In the past, governments were often required to publicly bid projects, with plans in hand, budgets ready with funds allocated, and the project itself usually required surety performance and payment bonds. P3 projects were never anticipated, and the law often does not cover P3 projects. This left a hole in the laws of many states, especially when it came to protecting subcontractors in the event of non-payment.
Kansas has taken steps to resolve one of the holes in their public construction laws, by enacting SB 55, Public construction contracts and performance and payment bonds. Recently, after the bill was passed by the Kansas Legislature, Governor Sam Brownback (R) approved the bill. The new bill will require a payment and performance bond from any prime contractor with a contract exceeding $100,000.00 on any P3 project. The purpose of the payment bond is for the “protection of claimants supplying labor or materials to the contractor or subcontractors in the performance of the work.” This will allow subcontractors and suppliers to make a notice of claim on payment bonds when they are not paid for the work they perform. The bill permits the claimants to seek attorneys fees and costs.
The official summary of Kansas SB 55 is as follows:
Bonding Necessary in Public-Private Partnership (P3) Agreements;
SB 55 SB 55 revises the Kansas Fairness in Public Construction Contract Act by requiring a contractor involved in a public-private partnership (P3) agreement with a public entity to furnish the following bonds:
● A performance bond, which is equal to the full contract amount; and
● A payment bond, which is equal to the full contract amount for the protection of claimants supplying labor or materials to the contractor or subcontractors in the performance of work.
The bill applies to P3 contracts valued at more than $100,000. The bonds must allow for the recovery of attorney fees and related expenses.
The terms “public-private agreement,” “private contribution,” and “public benefit” are defined in the bill.