Surety bonds have played a crucial role in public and private infrastructure development for nearly a century and continue to adapt to the evolving needs of the construction industry. According to an Ernst & Young report titled “The Economic Value of Surety Bonds,” surety bonds offer significant benefits
throughout the lifecycle of construction projects, extending beyond the financial protection provided if a contractor defaults. These benefits include:
- Reduced likelihood of contractor default
- Enhanced project oversight
- Lower completion costs in case of default
- Expertise in project completion
- Improved contractor pricing
The surety-bonding process helps ensure contractors have sufficient workforce and expertise to undertake the entire backlog of work under consideration as well as the financial ability to cash flow a project through completion while paying workers, subcontractors and suppliers.
PROGRESSIVE DESIGN-BUILD LEADING THE WAY
As funds from the IIJA flow to the states, many projects have seen increased scope, scale and costs. This has led to new procurement methods, including progressive design-build. PDB is a phased procurement process that involves design milestones before finalizing the budget. This approach allows for bonding obligations to align with each project phase rather than requiring a single bond for the entire contract upfront. This results in more accurate pricing for labor, supplies and surety bonds, and potentially increases the number of contractors bidding on projects.
The surety industry has adapted to the growing use of PDB by supporting phased bonding. Recently approved in states such as Ohio and Florida, phased bonding expands the pool of contractors and reduces the impact on a contractor’s bonding capacity. In Ohio, the .6-billion Brent Spence Bridge Corridor Project prompted legislation to allow phased bonding. Similarly, Florida has passed legislation permitting multiple surety bonds corresponding to different project phases.
As infrastructure projects become more expensive and timelines lengthen, it is expected that federal and state agencies will increasingly adopt phased bonding. The Surety & Fidelity Association of America is assisting with this transition by providing customized bonding packages and templates for interested parties.
MODERNIZING BROADBAND
While IIJA-funded projects in traditional areas like roads and bridges are familiar, a new demand is emerging in the broadband sector. The BEAD Program, managed by the Commerce Department’s National Telecommunications & Information Administration, is a $42-billion initiative to expand high-speed internet across the U.S. through broadband cable expansion and
consumer subsidies.
To support this initiative, SFAA and the National Association of Surety Bond Producers have created the BEAD Program Surety Bond Information Kit. This kit includes performance bond forms, model award agreement language and sample letter templates to help internet service providers assess their bondability. The BEAD Program Surety Bond Information Kit is available for free
download.
The surety industry is committed to supporting our construction partners in managing risks and growing their businesses as they undertake new projects and adopt innovative methods. We look forward to continued success together.
SEE ALSO: RISKY BUSINESS: SURETY EXPERTS TALK RISK MITIGATION IN CONSTRUCTION
