President Joe Biden recently announced a $2.3 trillion U.S. infrastructure spending proposal, the American Jobs Plan, that promises billions of dollars in construction contracts to companies across the country who are trying to determine what a post-COVID-19 economy will look like.
The plan calls for $621 billion for transportation infrastructure and $689 billion for buildings and utilities.
The Biden administration has also submitted a $1.52 trillion 2022 discretionary spending proposal to Congress, in advance of a full budget request, that includes:
- $3.6 billion for water infrastructure improvements.
- $6.8 billion for the U.S. Army Corp of Engineers civil works program.
- $2 billion for federal building construction projects.
- $10.2 billion to the National Science Foundation, which will use part of the money to build new research facilities.
So, it’s no surprise that private-sector contractors might be interested in grabbing a share of any upcoming publicly funded work. In fact, the runup to a potential surge of public projects up for bid is starting to mirror 2008 and the Great Recession, said attorney Lori Ann Lange, partner and co-chair of Peckar & Abramson's Government Contracting & Infrastructure practice.
In reaction to that financial crisis, former President Barack Obama’s administration introduced and oversaw passage of the American Recovery and Reinvestment Act of 2009, which included $105 billion for infrastructure.
“It happens every time there’s a drop in the commercial market,” she said. “And we have been seeing that for the last couple of months — clients who might do a federal project once in a blue moon start seriously chasing federal work.“
Inevitably, she said, interested contractors will contact the firm wanting to know what they have to do in order to qualify for the work or call up and say, "Hey, I got the contract, now what have I got to do?”
A new source of bids
The federal government, Lange said, loves to have all the extra bids — at least at first — because all the new competition many times results in lower prices than contracting agencies anticipated. Inevitably, however, some of the contractors new to federal work don’t always understand their obligations and create administrative headaches for themselves and the contracting officers.
And there’s typically little, if any, help for new federal contractors as they try to sort it all out, barring online information and seminars sponsored by contractor associations and the Small Business Administration, although some contracting offices are more helpful than others, she said.
“They’re leaving it up to the contractor to figure it out,” Lange said.
Below are some of the most important considerations for contractors to address before they start bidding on publicly funded projects:
The time to start getting ready is sooner rather than later, said attorney Lisa Colon, partner in Saul Ewing Arnstein & Lehr’s Fort Lauderdale, Florida, office. There are time-consuming qualification applications that must be completed and then reviewed by the relevant contracting agencies, both state and federal, and depending on the jurisdiction of the project, additional county and city requirements, she said.
2. Unfamiliar contract language and organization
Even the most seasoned private-sector contractor might experience some confusion when evaluating a government contract, Lange said.
Rather than have all the terms and general conditions laid out, she said, many clauses are incorporated by reference, and it really takes an expert to review them properly.
“They’re used to having a complete document in front of them,” Lange said.
There is also little chance of negotiating the terms, she said.
“You may have some negotiation over price, but it's not like a commercial contract where if you don't like a clause in there, you can propose alternate language,” she said. “That just doesn't exist in these public contracts.”
3. The way the project is built
On many commercial projects, Lange said, the owner generally doesn’t care what means and methods are used to construct the project as long as it complies with the plans and specifications. That’s not necessarily true on a public project, where contractors might have to get used to the idea of giving up some control.
“The owner, whether it's the federal government or state or local, are also concerned with how you're physically performing the work,” Lange said. “It [might] be buried somewhere in the statement of work in the specifications. I don’t think sometimes the contractors always realize that the government is serious about that.”
When bidding on private work, Colon said, contractors don’t necessarily know who their competitors are. Not so with public contracts.
“There is no obligation for the private owner to let you know whether or not you’re competing with anyone for your pricing, whereas public bidding is completely different,” Colon said. “All of your information, all of your pricing — all of that becomes public.”
With this competition for the best price, said construction consultant Wally Adamchik, president of FireStarter Speaking and Consulting, there’s a possibility that in the process of trimming fat from the bid that a contractor could leave out a critical piece of the project.
“And you own that,” he said.
Some contractors well versed in public work could perhaps make up a potential loss like that through a meticulous change order process, but a company new to public work might not realize that’s the norm.
“They don’t know what they don’t know,” he said.
Bidding on public work in some jurisdictions has also become technical, with some agencies relying on services like Onvia DemandStar, Bidsearch and EZGovOps to register interested bidders and issue RFPs and other bid documents.
Most government work of consequence requires that contractors be able to provide performance and payment bonds, also known as surety bonds, in the amount of the contract. In order to be bondable, the contractor must apply to a surety company, usually through a broker, and go through a fairly rigorous application process.
If the contractor cannot perform the work or does not pay its bills, the surety company will make good on those obligations.
Some contractors new to the surety bond process might confuse these bonds with insurance since some brokers provide both. But unlike a general liability policy, for example, that pays a claim as long as the insured pays the policy premium, the surety looks to the company and its owners and executives — or whoever guarantees the bonds — for reimbursement in the event of a payout on the bond.
Some of the information that a contractor must provide before being approved for a surety bond are background on the company and the types of projects it performs and financial documents and statements reflecting its stability and success, said Andy Thome, CEO of J.W. Terrill, a Marsh and McLennan Agency based in St. Louis. Companies that have not been bonded before might be surprised at the level of financial and operational detail the applications require.
“If you’ve just been doing private jobs, and you don’t borrow significant money, a lot of times the level of financial documentation that you’re getting from your bookkeeper or CPA is not on the level that’s going to make somebody else feel comfortable,” he said.
On the positive side, sometimes the bonding process is the first solid look that some companies have at their financial situation, Thome said.
A bonding company, said David Freda, partner at accounting and consultancy firm Grassi, wants to see strength in the financials, and that includes cash liquidity.
If the company is not as strong as it should be financially, he said, or is interested in bidding on a type of project it doesn’t have a great deal of experience with, then one option would be to partner with another company that can bring those to the table.
Contractors that have not been involved in public work will encounter a plethora of regulations with which they must comply, Colon said. Prompt payment rules, Davis-Bacon certified payrolls reflecting payment of prevailing wages and benefits, disadvantaged business and minority hiring goals are just some of the rules that come with public contracts.
“For public work,” she said, “there are just so many levels of compliance.”