The Surety & Fidelity Association of America (SFAA) and National Association of Surety Bond Producers (NASBP) in Washington, D.C. endorse House legislation that will maintain essential payment protections for subcontractors, suppliers, and workers on federal construction contracts of $150,000 or more. Sponsored by Congresspersons Nydia Velasquez (D-N.Y.) and Byron Donalds (R-Fla.), H.R. 2949 exempts the threshold in the Miller Act—a 1935 statute requiring payment and performance bonds on federal work—from arbitrary increases currently required under a broad indexing law.
“Congress recognized that certain protections should not be subject to periodic inflationary adjustments as required under Title 41, and this same statutory exclusion should also apply to the essential protections of the Miller Act,” observes NASBP CEO Mark McCallum. “It’s important to understand the only protection certain subcontractors and suppliers have on federal construction contracts are payment bonds, since no liens can be placed on public property, and periodic increases to the Miller Act threshold will subject more subcontractors and suppliers to risk of non-payment, which can cause dire if not catastrophic impacts to their businesses.”
“Bonding federal infrastructure protects taxpayers’ dollars, ensures project completion, protects local small businesses and workers, and promotes economic growth,” says SFAA President Lee Covington. “The Miller Act provides essential remedial protections for many small businesses which furnish labor and materials on public work. If the bond threshold is raised, thousands of federal projects will no longer be protected by payment and performance bonds, leaving downstream parties exposed to significant risk of nonpayment if the contractor fails to pay them or goes out of business.”
SFAA and NASBP are promoting H.R. 2949 along with 16 peer groups under the Construction Industry Procurement Coalition. If the bond threshold increases from $150,000 to $200,000, the group notes, the result is an estimated 1,700 unbonded federal contracts annually worth approximately $300 million of taxpayer dollars potentially exposed to unprotected loss.
“Small businesses are the lifeblood of our economy, and as a member of the House Committee on Small Business, it is imperative members come together to ensure small businesses have the protection they deserve,” says Rep. Donalds, adding that H.R. 2949 is a “common-sense, bipartisan solution to a problem impacting many small subcontractors who do business with the federal government.”
“The U.S. government is the largest purchaser of goods and services on the planet, and it’s vital to the economy that small firms are included in these contracting opportunities,” Chairwoman Velázquez asserts. “Under current law, the Miller Act threshold increases every five years, reducing protections for small subcontractors and potentially leaving them in a precarious position if the prime contractor fails to pay them. This bill will allow [them] to participate in federal projects without taking on unsustainable risk.”
Due to their size, many small firms often find that the most practicable avenue for them to participate in the federal procurement arena is by leveraging subcontracting opportunities. These subcontractors are guaranteed payment through the issuance of surety bonds by their prime contractors. If a prime contractor defaults, the surety bond ensures the subcontractor is compensated for their work on the project. Surety bonds under the Miller Act take two forms: payment and performance bonds. Thus, in addition to subcontractors, surety bonds protect taxpayers. When the dollar threshold for issuing surety bonds is raised to account for inflation, taxpayers also lose protections against nonperformance.