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American Subcontractors Association, Inc.

1004 Duke St., Alexandria, VA  22314-3588 • www.asaonline.com • (703) 836-3482 fax
 

NEWS RELEASE
FOR RELEASE, April 15, 2010
Contact: David Mendes, (703) 684-3450, Ext. 1335, dmendes@asa-hq.com 


Financial Security of Smaller Federal Projects Would Suffer Under Bond Threshold Change
 

ALEXANDRIA, Va. On April 5, 2010, the American Subcontractors Association told federal regulators that a proposal to exempt more small federal construction projects from the requirement to provide surety bonds would increase the financial risk of the projects at taxpayer expense. ASA asked regulators to support the financial stability of smaller federal projects by keeping the threshold for providing surety bonds at $100,000 instead of raising it to $150,000.

Regulators are proposing to adjust the threshold for requiring surety bonds because federal law requires them to adjust acquisition-related thresholds for inflation every five years. ASA pointed out, however, that the extraordinary economic conditions facing the construction industry overcome the arguments in favor of any such increase: “The construction industry has been particularly hard hit by the current Great Recession. Even the most experienced contracting firms have seen their credit worthiness erode.”

Subcontractors typically extend large amounts of credit to federal projects by providing labor, materials, and equipment on promises of future payment. Payment bonds required by the federal Miller Act 40 (U.S.C. Section 3131 to 3134) provide a layer of financial security on such projects by allowing subcontractors to file claims in case they are not paid for their properly performed work. Absent such protection, “A subcontractor that experiences slow or no payment from a customer is almost certain to be forced to curtail its own performance, thus endangering the entire construction project,” ASA said. “The Miller Act’s surety bond requirement protects taxpayers, as well as subcontractors and suppliers.”

Surety bonds also increase the financial stability of projects because sureties “vet” the prime contractors to which they provide bonds. “In order to bid on federal government construction, a prime contractor must pre-qualify for a surety bond by meeting the surety’s standards for capital, capacity and character,” ASA noted. Increasing the bond threshold would mean that prime contractors would not have to provide performance bonds on projects between $100,000 and $150,000, removing the surety-provided guarantee that these projects would continue if the prime contractors failed to complete them.

“For these reasons,” ASA said, “We urge the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council to maintain the Miller Act surety bond threshold at $100,000.”

Founded in 1966, ASA amplifies the voice of, and leads, trade contractors to improve the business environment for the construction industry and to serve as a steward for the community. ASA’s vision is to be the united voice dedicated to improving the business environment in the construction industry. The ideals and beliefs of ASA are ethical and equitable business practices, quality construction, a safe and healthy work environment, and integrity and membership diversity.

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