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Subs Warned of Pay Risk on Megaproject

Thursday, June 7, 2012

More items for Program/Project Management

Painters, access and coating suppliers, and other subcontractors who are eyeing a piece of the nation’s largest transportation megaproject risk not getting paid for the job, due to a drastic bond reduction being offered the prime contractor, the American Subcontractors Association is warning.

The forthcoming Request for Proposals for the $1.2 billion East End Crossing Phase of the $4.6 billion Louisville-Southern Indiana Ohio River Bridges Project “will provide completely inadequate payment protections for construction subcontractors and suppliers who have provided labor and materials to the prime contractor in a timely manner in full compliance with their subcontract obligations,” ASA wrote May 30 in a letter to the Indiana Department of Transportation and the Indiana Finance Authority.

5% Payment Bond

Officials selecting the contracting team have requested a payment bond equal only to 5 percent of the contract award price and performance security equal to only 25 percent of the award price, the letter notes.

Images: kyinbridges.com

The bridge, with a 17-foot pedestrian/bicycle path along the west side, is designed as “a visually transparent structure to blend with the area.”

Indiana law normally would require a bond equal to 100 percent of the contract award price, but the state’s General Assembly has granted greater flexibility regarding surety bond requirements for Public-Private Agreements like the bridges project.

“The IFA has decided to assume great risk regarding performance of the overall project, expressing confidence in its rigorous evaluation process to select the competing teams,” ASA wrote.

Risk Shifting

“If IDOT were awarding a bridge construction contract pursuant to the bonding requirements specified by the Indiana General Assembly … the prospective contract awardee would be required to furnish a bond equal to 100 percent of the contract award price,” the letter said.

“Subcontractors and suppliers, who have fully and timely performed their contractual obligations, deserve such full payment protection.”

More Cost?

ASA President Kerrick Whisenant says the low bond creates a “massive increase in downstream risk for subcontractors and suppliers” that could backfire in higher project costs.

“If financing or other issues prevented or delayed payments for work or materials, the combined claims against the bond could easily climb to more than 5 percent of the bond amount,” Whisenant said. “This inadequate payment assurance would then raise costs for the project owner, who could be forced to resolve claims and manage potentially incomplete or delayed work.

“It could also start putting unpaid subcontractors and suppliers out of business.”

Higher costs could also come from subcontractors who charge more because of the risk, ASA said. Or contractors may decide not to work on the project at all.

Seeking ‘Full Payment Protection’

The draft RFP shifts “a monumental amount of risk to subcontractors and suppliers trying to decide how to structure their offers to participate on the East End Crossing project,” ASA wrote.

“Ultimately, this will cause projects to either cost more at a time when government can ill afford it, or projects financed by P3s will not have the expertise of some of the best firms in the construction industry.”

The letter asks IDOT to modify the contractor selection process for the project and to structure the Request for Proposals so that subcontractors and suppliers on the project “are accorded full payment protection in the same manner as a bridge project awarded by IDOT exclusively for the transportational benefit of the State of Indiana and its citizens.”

About the Project

The East End bridge (one of two bridges planned for the project) will be a median-tower cable-stayed center cables structure featuring two needle towers with cables running from the towers to the median of the bridge deck. Two concrete needle towers rise 300 feet above the water and support the superstructure with steel and concrete box girders and concrete deck. The sheathed steel strand cables extend from the tower to the bridge deck median in a fan formation.

The center span will have a single, 900-foot wide waterway for river traffic.

Planners say the final design “provides motorists, pedestrians and cyclists with unobstructed views of the surrounding landscape looking outward from the bridge deck and provides the surrounding area with a visually transparent structure to blend with the area.”

Utility and construction work on the East End Crossing is scheduled to begin in 2013, with completion set for 2017.

More information for prospective contractors is available here.