Since Congress passed the Fixing America’s Surface Transportation Act at the end of 2015, long term infrastructure investment has remained an elusive goal in Washington, D.C. Republican and Democratic administrations have touted bold plans as a campaign promise and put forward ambitious proposals while in office, but despite strong bipartisan support and recognition of a clear urgent need, lawmakers still have not acted. This year the American Society of Civil Engineers provided an update to its periodic report card on the state of our nation’s roads, bridges, waterways, and other infrastructure sectors, and the overall message is clear, our D+ and C- grades are not cutting it. America’s infrastructure shortfalls are worsening; the 10-year infrastructure investment gap has increased from $2.1 trillion in 2017 to $2.6 trillion in 2021. Action is needed to ensure America’s infrastructure can continue to meet the needs of our expanding economy and growing population.
Although some of the historic hurdles that have hamstrung lawmaker’s ability to advance infrastructure investment remain, including agreeing to a sustainable user-based funding source such as a gas tax increase or vehicle miles traveled tax, the stars are aligning for significant movement during the 117th Congress. President Biden’s American Jobs Plan has laid the foundation for a significant, wide-spanning, federal investment in infrastructure sectors ranging from roads and bridges to newer, less traditional sectors like electrical vehicle charging stations. Both chambers of Congress are actively vetting infrastructure proposals with the goal of advancing infrastructure legislation this year.
With significant infrastructure investment comes significant risk and opportunity for the insurance industry, in particular the surety sector. Contract surety bonds will play a critical role in protecting federal and state investments in public infrastructure by providing essential protections against the risk of a contractor defaulting on its performance and payment obligations.
The insurance industry has long stood as a safeguard to ensure only qualified and financially sound contractors are allowed to take on public works projects. Federal, state, and local governments rely on insurers to prequalify contractors as a condition to bid on public infrastructure projects. If a bonded contractor is unable to fulfill its contractual obligations, the insurer is there to step in to get the project back on track without any additional costs falling back on the taxpayers. Without these protections, when a contractor defaults, the project is delayed and can be terminated, often leaving subcontractors, suppliers, and workers unpaid. Sureties protected approximately $3 trillion of federal, state, and local public works projects from 2009-2019 in the U.S.
Contract surety performance bonds have played a critical role in ensuring the construction of public projects and the Surety & Fidelity Association of America (SFAA) is advocating Congress to maintain and strengthen bonding requirements as they consider further infrastructure investment. Currently, SFAA is strongly advocating to advance legislation introduced by Senators Chris Van Hollen (D-MD) and Mike Rounds (R-SD) and Representative Stephen Lynch (D-MA) and Troy Balderson (R-OH) to ensure all projects that receive federal financing through the Transportation Infrastructure Finance and Innovation Act (TIFIA) program maintain these bonding protections. Some alternative project delivery methods, namely public-private partnerships (P3s), have not maintained the same level of protection as traditionally procured projects, despite posing the same risk to taxpayers and subcontractors. The Federal government should ensure all projects that receive federal financing or funding, including TIFIA financed P3s, maintain an adequate level of security to protect taxpayers and downstream parties that may be impacted when a contractor defaults on a public job.
As Congress deliberates its next steps on infrastructure, the construction and insurance industries will need to prepare for increased demand. Our industry will play a critical role in protecting against the risk of contractor default, particularly as the construction sector recovers from a period of significant economic uncertainty caused by the COVID-19 pandemic. Recently over 100 members of the Surety & Fidelity Association of America and the National Association of Surety Bond Producers had the opportunity to highlight the importance of our industry to Capitol Hill staff and members of Congress. SFAA appreciates Zurich’s leadership in our organization, including Bob Murray, SFAA’s Vice Chairman, Mary Jean Pethick, SFAA’s Chair of the Government Affairs Committee, and David Mork, a critical member of the Federal Affairs Subcommittee. Our members’ subject matter expertise is the core of our advocacy efforts and highlights the important role surety plays in the broader construction ecosystem.
Congress and the Biden Administration have set ambitious timelines to advance infrastructure legislation. SFAA and other industry partners are working tirelessly to ensure lawmakers advance deliberate and meaningful investment in our nation’s infrastructure to jumpstart our economic recovery and put Americans back to work.
By Dalton DeFendis
Director of Federal Government Affairs at The Surety & Fidelity Association of America (SFAA)