Last year can certainly be deemed an eventful one for public-private partnerships (P3s) in the United States. In 2017, numerous states moved on to create and enact P3 legislation that allows or expands the use of partnerships for public projects.
Legislators have opened up to the potential of private investments, which can supplement states budgets that are rather limited at times. In this way, they seek the facilitation of public projects’ realization through P3s. These untapped opportunities are often the motivation behind new P3 laws that are appearing across the country.
In the same time, state representatives are interested in ensuring adequate protection for taxpayers’ money, which is invested in partnership projects. That’s why new P3 laws typically include a surety bond requirement to guarantee the completion of projects and proper handling of funds.
As for 2018, the trend for expanding P3 legislation is likely to continue. The same should apply for the application of surety bonds in P3 contracts in the United States.
Several States Enable P3s for Public Projects
Acknowledging the possibilities that P3 projects offer, in 2017 many states made bold steps to allow such partnerships. In fact, about half of all states considered and worked on P3 legislation. In some places, the laws focused not only on enabling P3s, but also on establishing P3 offices, that can coordinate and oversee the partnerships (e.g., Oklahoma and Hawaii).
With Senate Bill 651, Arkansas passed a new law in March 2017 that enables P3 projects. Oklahoma also introduced new rules for public-private partnerships. With Senate Bill 430, the state aims to expand the use of P3s, together with ensuring adequate security for their completion.
Kansas made a similar move by adding a protection for P3 projects. Senate Bill 55 places security requirements on public projects executed through such partnerships. Nevada enacted a new P3 law, which also includes bonding criteria for participating contractors.
Louisiana changed its legislation as well, and now House Bill 379 allows the Regional Transit Authority to use P3s for transportation projects.
In Oregon, the Port of Hood River was authorized to opt in for P3s for tollway projects. Additionally, state and local public projects can now be executed via P3s in Utah.
Massachusetts, Michigan, New Jersey and Pennsylvania are working on P3 laws as well, but their status was pending as of the end of 2017.
Bonding Becomes a Standard Security Requirement for P3s
Together with the rapid introduction of P3 laws across the country, many states moved on to include or add security measures that guarantee the proper execution of projects. Most notably, surety bonds were on top of legislators’ and surety organizations’ agendas.
In Arkansas, the Arkansas Economic Development Commission adopted bonding requirements for the newly passed P3 law in the state. The commission has set what the P3 agreement should contain in terms of maintenance, payment and performance bonds. Their purpose is to ensure the duly delivery of work on public projects and facilities constructed via P3 contracts.
Additionally, organizations such as the Surety and Fidelity Association of America (SFAA) and the National Association of Surety Bond Producers (NASBP) have actively promoted the use of surety bonds as a security instrument in P3s. The SFAA has worked on making bonds the security instrument of choice for P3 projects in Pennsylvania by amending the Little Miller Act in the state, and will continue this year as well.
What Lies Ahead for P3s in 2018
As P3s prove useful for construction of public projects that could otherwise remain unrealized, states are likely to continue introducing new P3 laws. With a proper legal framework for P3s, the goal of legislators would be to enable P3s and thus use their potential, while keeping a close overview and regulating their execution.
For example, Minnesota is working on a draft P3 bill that would allow the use of partnerships for all types of public projects. The law is in the making, but it is likely to be introduced in 2018.
Some of the priorities of surety bonds organizations for 2018 are to change the P3 laws in Indiana to include bonding requirements and to ensure that bonds are not eliminated from public works projects in Missouri.
Furthermore, in Michigan, the SFAA is working on clarifying the bonding requirements for P3 projects, which have remained unclear in Senate Bill 97. If passed, the bill would authorize such partnerships in Michigan. Last year, it moved in the House, but stalled after being referred for a second reading. The projections are that it is likely to be introduced in 2018.
