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The U.S. House of Representatives today passed an amendment offered by Rep. Nydia M. Velázquez (D-NY) aimed at providing better payment protections for small construction firms operating in the federal marketplace.  The provision, which was incorporated into a larger defense authorization bill, adds the threshold for construction contracts that must be bonded under the Miller Act as an exclusion from periodic inflation, ensuring small contractors receive financial protections they need to compete for jobs. 

“When small firms win federal work – as either a prime contractor or a subcontractor – the result is a win-win for businesses and the taxpayer,” said Velázquez who is the top Democrat on the House Small Business Committee.  “The government receives quality goods and services at reasonable rates, while small firms are able to create good paying jobs.  Unfortunately, under current law, payment bond requirements change with inflation every five years, which reduces protections for small contractors doing federal work.” 

For scale reasons, many small construction firms and product suppliers find their best pathway into the federal marketplace is by acting as a subcontractor to a prime contractor performing federal work.  These smaller companies are assured of receiving payment from their prime contractor through surety bonds.  Should the prime contractor fail to complete the project, the smaller subcontractor is still paid out through the bond.  

Unfortunately, an anachronism in federal acquisition rules subjects the dollar threshold to an inflation adjustment every five years. The result is that, every five years, fewer projects are covered under federal bonding requirements.  

“Certain federal acquisition thresholds should be subject to inflation adjustments, but this is not one of them,” Velázquez noted. “Ultimately, the current law results in small contractors either passing on potential contracts or taking on unsustainable risk.”

Velázquez’s amendment would exempt from the inflation adjustment surety bond requirements, meaning more projects would be covered.  The provision was included as part of the National Defense Authorization Act (NDAA) and adopted with bipartisan support.  With the NDAA having passed the U.S. House, the bill, and Velázquez’s amendment, now move to the Senate for consideration.  

Velázquez’s amendment was supported by a range of organizations including: the National Association of Surety Bond Producers; the Surety & Fidelity Association of America (SFAA); the American Institute of Architects (AIA); the American Subcontractors Association, Inc. (ASA); the Associated General Contractors of America (AGC); the Design-Build Institute of America (DBIA); the National Electrical Contractors Association (NECA); and the American Council of Engineering Companies (ACEC).

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