US Army Corps of Engineers
Water Resources Support Center
Institute for Water Resources
HAZARDOUS AND TOXIC WASTE (HTW)
CONTRACTING PROBLEMS
A Study of the Contracting Problems
Related to Surety Bonding in
the HTW Cleanup Program
1990 IWR REPORT 90-R-1
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Unclassified
SECURITY CLASSIFICATION OF THIS PAGE
REPORT DOCUMENTATION PAGE
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Exp Date Jun 30, 1986
la. REPORT SECURITY CLASSIFICATION
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4. PERFORMING ORGANIZATION REPORT NUMBER(S)
IWR Report 90-R-l
5. MONITORING ORGANIZATION REPORT NUMBER(S)
6a. NAME OF PERFORMING ORGANIZATION
USAGE, Institute for Water
Resources
6b. OFFICE SYMBOL
(If applicable)
CEWRC-IWR
7a. NAME OF MONITORING ORGANIZATION
6c. ADDRESS (City, State, and ZIP Code)
Casey Building
Telegraph & Leaf Roads
Ft. Belvoir, VA 22060-5586
7b. ADDRESS (City, State, and ZIP Code)
8a. NAME OF FUNDING/SPONSORING
ORGANIZATION USAGE, Directorate
of Military Programs
8b. OFFICE SYMBOL
(If applicable)
9. PROCUREMENT INSTRUMENT IDENTIFICATION NUMBER
8c. ADDRESS (City, State, and ZIP Code)
Pulaski Building
20 Massachusetts Avenue, NW
Washington, DC 20314-1000
10. SOURCE OF FUNDING NUMBERS
PROGRAM
ELEMENT NO.
PROJECT
NO.
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WORK UNIT
ACCESSION NO
11. TITLE (Include Security Classification)
Hazardous and Toxic Waste (HTW) Contracting Problems - A Study of the Contracting Problems
Related to Surety Bonding in the HTV Clean-up Program
12. PERSONAL AUTHOR(S)
Sharp, Francis, M.
13a. TYPE OF REPORT
final
13b. TIME COVERED
FROM TO
14. DATE OF REPORT (Year, Month, Day) |15. PAGE COUNT
1990/April
16. SUPPLEMENTARY NOTATION
17.
COSATI CODES
FIELD
GROUP
SUB-GROUP
18. SUBJECT TERMS (Continue on reverse if necessary and identify by block number)
Bonding, Miller Act, Service Contracts Act, Davis-Bacon
Act, CERCLA, FAR , HTW, Surety, Performance Bond
19. ABSTRACT (Continue on reverse if necessary and identify by block number)
This study attempts to determine the impact of performance bond availability on the
successful accomplishment of Hazardous & Toxic Waste (HTW) projects.
20. DISTRIBUTION /AVAILABILITY OF ABSTRACT
D UNCLASSIFIED/UNLIMITED ED SAME AS RPT.
22a. NAME OF RESPONSIBLE INDIVIDUAL
Francis M. Sharp
D OTIC USERS .
V/l'flN
•' •"••"• £ *!
21. ABSTRACT SECURITY CLASSIFICATION
522B!RfEiPrtte>NB:f/nc7uc/e Area Code) 22c. OFFICE SYMBOL
(2,02)1 '33J$?r2369 CEWRC-IWR-N
DD FORM 1473, 84 MAR
83 APR edition may be ijS
All other editions are obsolete.
SECURITY CLASSIFICATION OF THIS PAGE
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HAZARDOUS AND TOXIC WASTE (HTW)
CONTRACTING PROBLEMS
A Study of the Contracting Problems
Related to Surety Bonding in
the HTW Cleanup Program
Prepared by
U.S. Army Corps of Engineers
Water Resources Support Center
Institute for Water Resources
Casey Building
Fort Belvoir, Virginia 22060-5586
Commissioned by
Environmental Protection Agency
and
U.S. Army Corps of Engineers
Environmental Restoration Division
July 1990 IWR Report 90-R-1
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TABLE OF CONTENTS
PAGE
I. SUMMARY 1
II. BACKGROUND 5
A. BONDING PROBLEMS 5
B. STUDY GOAL: DETERMINE EXTENT OF THE BONDING PROBLEM AND
PROPOSE SOLUTIONS 5
III, PROBLEM DEFINITION 7
A. APPLICABLE LAWS, REGULATIONS AND OTHER FACTORS 7
1. Miller Act Construction Contract Bonding Requirement .... 10
2. The Service Contract Act 11
3. Davis-Bacon Act 13
4. Superfund Legislation 14
5. Federal Acquisition Regulation 16
B. HAZARDOUS AND TOXIC WASTE (HTW) CONTRACTING PRACTICES 17
C. CORPS HTW PROJECT DATA PRESENTATION, ANALYSIS AND FINDINGS ... 17
1. Introduction 17
2. Analysis and Findings 18
D. HTW INDUSTRY BONDING PROBLEMS PERCEPTIONS 29
1. Contracting Industry Perceptions 29
2. Surety Industry Bonding Perceptions 33
IV. CONCLUSIONS 37
TRENDS OVER TIME 37
V. OPTIONS EXAMINED 45
A. INTRODUCTION 45
B. NON-LEGISLATIVE CHANGES 46
1. Improved Acquisition Planning & Bond Structuring 48
2. Clarify Surety Liability 53
3. Indemnification Guidelines 55
4. Communication With the Industry 56
5. Limit Risk Potential 57
C. LEGISLATIVE CHANGES 58
iii
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TABLE OF CONTENTS (Continued)
PAGE
VI. RECOMMENDATIONS 61
A. NON-LEGISLATIVE CHANGES 61
1. Issue Guidance on Use of Acquisition Planning for HTW .... 61
2. Clarify Surety Liability 62
3. Indemnification Guidelines 62
4. Communication with Industry 62
5. Limit Risk Potential 63
B. LEGISLATIVE CHANGES 63
ENDNOTES 65
BIBLIOGRAPHY 67
APPENDICES
Appendix A List of Contacts 71
Appendix B Sample Forms 75
IV
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LIST OF CHARTS
PAGE
Chart 1A Average Ratio Award Amt./Govt. Est. (by Bid Opening
Date) 24
Chart IB Ratio Award Amt./Govt- Est. Average Award
(by Project Size) 24
Chart 1C Ratio Award Amt./Govt. Est. Average Award
(by Remedy Type) 24
Chart 2A Average Ratio: High/Low Bids over Time 1987-9 25
Chart 2B - Average Ratio: High/Low Bids over Time 1987-9
(by Project Size) 25
Chart 2C Ratio: High/Low Bids (by Remedy Type) 25
Chart 3A Average Number of Bids Over Time 26
Chart 3B Average Number of Bids (by Contract Type) 26
Chart 3C Average Number of Bids Received (by Remedy Type) 26
Chart 4 - Average Number of Bids Received (by Award Amount) 27
Chart 5 Corps HTW Programs Contractor's Dollar Shares 1987-9 28
Chart 6 Contractor's Projects Shares 1987-9 28
Chart 7 - Sureties' Dollar Shares 1987-1989 30
Chart 8 Sureties' Project Shares 1987-1989 30
LIST OF TABLES
Table 1 - Legislation Pertaining to HTW Contracting
Table 2A- Corps HTW Contracts 21
2B- Corps HTW Contracts 22
2C- Corps HTW Contracts 23
Table 3 Types of Options 47
Table 4 Sample Alternative Contract for Incineration 50
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I. SUMMARY
The EPA and the U.S. Army Corps of Engineers ("Corps") have experienced
difficulties in contracting Hazardous and Toxic Waste (HTW) cleanup projects.
The HTW cleanup industry has expressed concern that it could not obtain surety
bonds required as a prerequisite for competing for remedial action
construction projects. It was reported that Treasury Department listed
corporate sureties, which provide the guarantee bonds for Government projects,
had imposed stringent limitations on the provision of performance bonds which
assure the government that the cleanup project will be completed.
Essentially, the bonds guarantee that the surety will either complete
performance or pay the Government its costs associated with completing the
project to the limit of the penal amount of the bond. Various contracting
industry firms stated that they have not been able to secure bonding for some
projects. Those that have obtained bonds had a difficult time doing so, and
some firms that had obtained bonds for previous projects were unable to obtain
bonds for a subsequent project. The surety industry indicated its reluctance
to guarantee performance on HTW projects primarily because of its concern for
possible long-term liability exposure and changing state-of-the-art design
requirements associated with such actions.
The EPA and the Corps commissioned the Institute for Water Resources to
gather information on the subject; to analyze the data to determine the extent
of the existing bonding problems; and to offer recommendations which could be
implemented in an effort to alleviate problems noted. A survey was conducted
of Corps district offices, the HTW cleanup industry, surety firms, and trade
associations, to determine the extent and nature of the problem. A few survey
activities extended to EPA and state offices involved in HTW work.
The study examined 24 ongoing remedial action and completed Corps HTW
construction contracts. Statistics were gathered from actual Corps records on
the contractors and sureties that participated in these contracts. In
addition, a sample of the universe of HTW contractors and sureties was
interviewed along with industry association representatives. The responses to
these interviews appear later in this paper. They were analyzed to arrive at
conclusions concerning industry views and perceptions of the surety problem.
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The interviews elicited the perceptions of the HTW surety and contracting
community regarding their concerns about risks in the HTW Cleanup program.
Many of these concerns are of potential risks that are hypothesized, but have
not yet occurred. However, these risks are perceived and acted upon as real.
The study findings, which centered on Corps executed projects, indicate
that the surety industry is making performance bonds available to certain of
the major firms competing for HTW work. However, it appears that industry's
reluctance over the potential liability associated with such work has prompted
the industry to move toward limiting bonding to firms having other substantial
business with the surety, or major financial assets available, and a history
of past performance on HTW projects. This surety industry reticence has
precluded some firms from being able to secure needed bonding and has also
lessened the opportunity for firms wishing to break into the Federal HTW
marketplace. The resulting concern of both EPA and the Corps is that bonding
availability not curtail qualified firms' ability to compete for HTW projects
to such an extent that the prices for the remedial action work is arbitrarily
and excessively increased.
There is no single solution to remedy the problems encountered in the
study. Rather, there are a number of individual actions that may be
instituted, some at a fairly low institutional cost that will help to
alleviate the situation. The government should mitigate the concerns of the
contractors and the sureties while maintaining appropriate protection of the
government's interests.
The solutions to the cited problems in HTW bonding include the following:
- Requirement for zero based acquisition planning involving an
interdisciplinary team to develop plans that incorporate techniques such as
risk analysis in structuring the project contracting plan. Analysis will
include consideration of the extent of risks assumed by the government will
effect potential project cost savings, increased competition for contracts and
opportunities for more firms to compete in the HTW program. Policy guidance
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will be issued on the appropriate factors to be taken into consideration in
accomplishing this analysis.
Analysis of the option of dividing the project into work elements with
an appropriate level of bonding in each.
- Clarify the government's policy on indemnification of contractors and
sureties.
- To the extent of its authority, each government agency will define its
specific responsibility for the risk aspect of the cleanup project where
appropriate (e.g. accept responsibility for performance specifications).
- The government will specifically accept the responsibility for project
design where the performance specifications have been met.
The thrust of this study was specifically centered on the bonding issue.
While the stated problem of many of the respondents was bonding, the
underlying issue is the uncertainty about risk in general as it applies to the
HTW Cleanup program. There is uncertainty by sureties and contractors
concerning risk and liability. Surety bonds for performance, liability
insurance and indemnification questions are closely related and difficult to
separate when dealing with HTW risk questions.
There are two categories of options available to address these solutions.
First, short term steps can be taken internally by the Corps and EPA that
involve revising internal agency procedures to alleviate the contracting
problem. Changes to government-wide construction procurement regulations,
e.g. standard bond forms, should be pursued with the FAR Council. Finally,
longer term actions could be carried out which concentrate on potential
legislative revisions to the liability and indemnification provisions in the
superfund statute.
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II. BACKGROUND
A. BONDING PROBLEMS
Performance bonds are used in the construction industry to insure the
completion of construction projects. These bonds are mandated by the Miller
Act for all Federal construction projects. While bonds are normally required
only for construction contracts; in some instances, concern for assuring
performance has led to the industry being required to guarantee performance on
work elements that are characterized primarily as service rather than
construction. In general, a 100% performance bond has been required by the
Corps on construction contracts.
The Corps, EPA, and the states have been told by sureties and HTW
contracting firms about the inability of contractors to obtain performance
bonding for HTW cleanup projects. Bond availability problems and contractor
concerns have increased over the past year. In some instances firms
responding to Government HTW contract announcements have not been able to
secure performance bonds. Some firms have also reported that they will not
compete for HTW construction contracts because they know that they cannot
obtain the required surety bonds.
While the inability to secure bonding may occur in other types of
construction contracting and is not exclusive to the HTW field, the frequency
of non-bonding occurrences and the fact that they involve companies that are
of a size and financial stature not normally concerned about such matters, is
itself a cause for concern. Even more disconcerting is the fact that firms
which are most experienced in accomplishing HTW work are in some instances
being precluded from competing for such work by their inability to secure the
required bonds.
B. STUDY GOAL: DETERMINE EXTENT OF THE BONDING PROBLEM AND PROPOSE SOLUTIONS
EPA's Office of Emergency and Remedial Response and the Corps Directorate
of Military Programs, Environmental Restoration Division, commissioned a study
to determine the extent of the bonding problem and identify action which could
be taken to alleviate bonding problems noted. The Institute for Water
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Resources (IWR), a Corps research agency located at Fort Belvoir, VA, was
selected to do the study. The study was initiated in late November 1989. IWR
conducted a series of personal and telephone interviews of HTW industry
contractors, as well as HTW industry associations. In addition, personnel
from insurance and surety industry firms, surety associations, states, EPA,
and the Corps were interviewed about the issue. A listing of the interviewees
appears in Appendix A.
The interviewees were questioned regarding difficulties experienced in the
HTW bonding area. They were also asked for their views on the nature and
magnitude of any bonding problems and requested to provide suggestions on
actions that could be taken to rectify the situation. IWR also gathered
references, such as seminar papers, letters of concern to various agencies,
testimony before Congress, government forms and regulations, and other
relevant documents. A body of background material concerning the problem was
assembled. The study also collected information concerning contracting for HTW
cleanup, in particular information regarding the difficulties in the
acquisition of surety bonds by contractors.
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III. PROBLEM DEFINITION
When surety bonding problems are added to the hurdles that firms must face
when competing for multi-million dollar projects, the number of firms meeting
all the construction contract requirements could be reduced even further.
This study attempts to determine the impact of performance bond availability
on the successful accomplishment of HTW projects. The survey of surety bonding
in the HTW program entails the examination of various institutional and
procedural factors involved in Superfund and related HTW cleanup contracting
programs. While there was general consensus that the potential liability and
uncertainty surrounding such liability was the root cause for the limited
bonding available, it is not clear that this was the only factor affecting
availability. The surety industry's willingness to provide bonding was also
linked to its independent evaluation of a number of factors relating to an
individual contractor's financial and performance history. Construction firms
were not asked why they may not have bid for or obtained contracts. Since
proprietary information concerning the financial status of companies is not
readily available and companies were queried only about the problems they had
in obtaining surety bonds in the survey, and not about their financial status,
the study was not able to establish that the liability issue was the only
reason for sureties refusal to bond.
A. APPLICABLE LAWS, REGULATIONS AND OTHER FACTORS
There are several laws and regulations that affect contract cleanup
activity in the HTW area. They are listed in the following table:
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ACT
Table 1
STATUTES AND REGULATIONS PERTAINING TO HTW CONTRACTING
DESCRIPTION
Miller Act
Construction
Contract Bonding
Requirement
McNamara-0'Hara
Service Contract
Act (SCA)
Davis-Bacon Act
(DBA)
Comprehens ive
Environmental Res-
ponse , Compensation
and Liability Act
(CERCLA), as amen-
ded by Superfund
Amendments &
Reauthorization Act
(SARA)
Federal Acquisition
Regulation (FAR)
Requires Federal agencies awarding construction
contracts to utilize payment bonds to assure that
the prime contractor pays his subcontractors and
performance bonds to guarantee completion of work in
accordance with the contract specifications.
Defines the types of activity classified as service
contracts for the purposes of Federal government
procurement.
Applies to all Federally funded construction projects.
Designates the Secretary of Labor as the sole
authority on the classification of wage rates for
construction projects.
CERCLA enacted to eliminate past contamination caused
by hazardous substances pollutants or contaminants
released into the environment. Authorizes EPA to
recover cleanup costs. SARA enacted to strengthen
CERCLA and tighten cleanup target dates. Requires use
Davis-Bacon wage rates for construction projects
funded under section 9604(G) of CERCLA.
Pursuant to the requirements of Public Law 93-400
as amended by Public Law 96-83: provides uniform
policies and procedures for contracting by Federal
executive agencies.
The procedure for obtaining performance and payment bonds from individual
or corporate sureties for HTW cleanup contracts is incomplete without
examining the background of the bonding requirement. The 1935 Miller Act
specified that all construction contracts by the Federal Government would be
covered by performance and payment bonds. The purpose of the performance bond
is to insure that the project is completed in the event that the original
contractor defaults.
The requirement for performance bonds varies with each project and is
affected by the type of project being undertaken. A bond is required by the
Miller Act on all fixed-price construction contracts over $25,000, but must be
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justified for service contracts. HTW cleanup projects may contain activities
classified as either construction or service. According to CERC1A Section
9604, these classifications are governed by decisions issued by the Department
of Labor (DOL). These decisions will control the wage rates applicable to the
particular activities; that is Davis-Bacon for construction activities and
Service Contract Act for service activities. In many cases, it is impossible
to create an HTW contract comprised totally of construction or non-
construction activities. Therefore most HTW contracts are made up of a
combination of these activities. Where construction and service activities
are combined in the same contract, the procuring agency generally will treat
the contract as being under either a service or construction contract based on
the classification of the predominant work. A recent letter (31 May 90) from
DOL to McLong, advises that construction Davis Bacon Wage Rates must be
included if there is a "substantial" amount of construction work involved.
Contracting officers have varied in their decisions on bonding requirements
for contracts involving both classifications of work. In some instances,
performance bond requirements were applied only to the extent of the value of
the construction work; in others the requirement was applied to the total
value of the construction and closely associated service work. In these
latter cases, the decision was usually criticized by contractors unable to
secure bonding as being unduly restrictive of competition and unnecessary to
protect the Government's performance interests. Moreover, where the CO
determines that the contract is principally service related, he may treat the
contract as a service contract and require no bonding.
The Contracting Officer (CO) is responsible for the initial determination
of whether a contract should be service or construction based on the CO's
understanding of the applicable rulings issued by the DOL. On occasions, DOL
has overturned a CO's decision and has caused the Government additional
expense by requiring the CO to include Davis-Bacon Wage Rates and, at times,
paying additional wages retroactively. The Corps experienced one instance
where a service contract classification associated with excavation of HTW
contaminated soil was reversed by DOL to a construction classification
following contract completion. This decision resulted in a significant
contract price increase in order to provide an equitable adjustment to the
contractor for the higher wage rate payments that had to be made to workers on
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the project. The Corps of Engineers is very sensitive to avoiding disputes
with DOL arising from failure to use construction wage rates. EPA is equally
concerned that the proper rate be used by the Corps.
1. Miller Act Construction Contract Bonding Requirements. In order to
fully address the performance bonding requirement and its relationship to the
contracting industry, we must first examine the Miller Act. The Miller Act
requires performance and payment bonds for any contract over $25,000 for the
"construction, alteration or repair of any public building or public work".
P&P bonds are required on all FFP construction contracts and/or delivery
orders over $25,000. The percentage needed for performance bonds is flexible.
However, these bonds are not necessary for cost reimbursement contracts and/or
delivery orders. The level of bonding required is determined by the
Contracting Officer based on the level of risk associated with the project and
the resulting need to protect the Government's interest. The performance bond
guarantees the Government that the building or work will be completed in
accordance with the terms and conditions of the contract or the Government
will be compensated. The payment bond guarantees that subcontractors and
suppliers of the prime contractor will be paid for their work. Performance
and payment bonds are usually issued by the same surety for a particular
project. These bonds protect against contractor non-performance. They are
not intended as insurance for contractor actions which may prompt third party
liability suits, or as a substitute for pollution or any other type of
insurance. A third bond, generally required by agency or acquisition
regulations where the contract solicitation is a formally advertised sealed
bid, is the bid bond. The bid bond protects the Government by providing a
penal amount that will be forfeited by the surety of the lowest responsible
bidder if the bidder fails to accept the award or to provide the required
performance and payment bonds after award has been made. Bid bonds generally
are provided by the same surety that provides the performance and payment
bonds for a particular contract. The surety's decision to issue the bonds
appears to be controlled by the contractors bonding capacity and its analysis
of the risk associated with each particular contract. Hence, it would seem
that difficulties reported in contractors' ability to acquire bid bonds are in
fact directly connected to the same factors causing those contractors
inability to acquire performance bonds.
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Acceptable surety may be provided from a number of other sources in
addition to the more familiar corporate and individual surety bonds. These
other sources are listed in the Federal Acquisition Regulation (FAR) as
including "United States bonds or notes",..." certified or cashier's check,
bank drafts, Post Office money order, or currency".1 Corporate surety bonds
are provided by surety firms that have been approved by the Treasury
Department. These firms cannot provide bonding beyond certain dollar limits
established by the Treasury. Individual surety providers are, as the name
implies, individuals who pledge their personal assets as guarantee. The
corporate bond is the primary guarantee utilized in performance and payment
bonding of both HTW and non-HTW work.
Over the past two years, interest in the use of individual sureties
increased sharply as contractors anxious to compete for all Federal
construction projects, but unable to acquire a corporate surety bonding
commitment, sought to satisfy the Government's bonding requirements from the
only source available. Reports suggest these bonds were made available at
significantly higher cost. Unfortunately, the individual surety's assets
available to secure the bond obligation all too frequently were insufficient
in value to cover the penal amount of the bonds. In each instance where the
contractor proposing the individual surety was disqualified, due to the non-
responsibility of its proposed individual surety, the CO made an award to the
next higher bidder which in every case provided a corporate surety bond. New
regulations instituted in February 1990 place more stringent requirements on
the use of individual surety bonds.
2. The Service Contract Act. The McNamara-O'Hara Service Contract Act
(41 USC 351-358) (SCA) covers all Federal government service contracts
exceeding $2,500, whose principal purpose is the furnishing of services to the
Federal government through the use of service employees. Since the term
"service" is not as explicitly defined within the SCA as the term
''construction" is in the Davis-Bacon Act (DBA), the DOL's implementing
regulations (29 CFR Part 4) are keyed to the terms "service employees" and
"principal purpose."
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Inasmuch as the scope of possible service contracts is extensive, section
7 of the Act lists specific contracts outside the Act. Included among these
exemptions are contracts for "construction, alteration and/or repair,
including painting, or decorating of public buildings or public works." While
DOL's regulations (29 CFR 4.130) contain a number of illustrative service
contracts, none of those listed relate specifically to environmental
restoration (HTW) projects.
The principal purpose emphasis is key inasmuch as a contract may be
principally for services, but may at the same time involve more than
incidental construction.
Existing DOL regulations do not define incidental construction. Guidance
on this issue, however, may be derived from advisory memoranda issued by the
DOL's wage and hour administration relating to construction projects comprised
of different categories or schedules (building, heavy, highway and
residential). As a general rule, DOL advises contracting officers to
incorporate a separate schedule when such work is more than incidental to the
overall or predominant schedule. "Incidental" is here defined as less than
20% of the overall project cost. DOL notes that 20% is a rough guide,
inasmuch as items of work of a different category may be sufficiently
substantial to warrant separate schedules even though these items of work do
not specifically amount to 20% of the total project cost. This same rationale
may apply to contracts involving services and construction.
Under such circumstances, both the SCA and the Davis-Bacon Act (see below)
may apply. In this regard FAR 22.402(b)(l) prescribes that the DBA will apply
when:
a. The construction is to be performed on a public building or work.
b. The contract contains specific requirements for a substantial
amount of construction work exceeding the monetary threshold for application
of the DBA. The term substantial defines the type and quantity of the
construction work and not merely the total value of the construction work as
compared with the total contract value.
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c. The construction work is physically or functionally separate and is
capable of being performed on a segregated basis from the other work required
by the contract.
3. Davis-Bacon Act. The Davis-Bacon Act (40 USC 276) (DBA) covers all
Federally funded or Federally assisted contracts in excess of $2,000 for
"construction, alteration or repair of public buildings or public works."2
The Secretary of Labor's authority to rule on questions of statutory coverage
under DBA is derived from Reorganization Plan No. 14 of 1950 (5 USC App. USC
p. 1050 (1982).
a. Applicability determinations issued by the Secretary's designate,
the Administrator of the Wage and Hour Division, is binding rather than
advisory in nature. Thus, when the DOL decides that the contracting agency
made an erroneous determination not to incorporate the DBA provisions in a
covered contract, the agency must either modify the contract to incorporate
the required wage decision and provisions or terminate the contract (29 CFR
1.6).
In their determinations of DBA applicability relating to HTW work, the DOL
relies on the regulatory definitions set forth at 29 CFR, Part 5. Thus, the
statutory terms "construction, alteration or repair" refer to: "... all types
of work done on a particular building or work at the site thereof, including
without limitation, altering, remodeling, installation (if appropriate) on the
site of the work of items fabricated off-site, painting and decorating, the
transporting of materials and supplies to or from the building or work and
hauling soil to an incinerator by the employees of the construction contractor
or subcontractor...." DOL has defined "Building" or "Work" as follows: "...
construction activity as distinguished from manufacturing, furnishing of
materials, or services and maintenance work. The terms include without
limitation, buildings, structures and improvements of all types, such as...
excavating, clearing and landscaping." DOL, in its review of one
environmental restoration project, has indicated that the term "landscaping"
includes activities such as planting trees, lawns and shrubs in conjunction
with other work, but also elaborate landscaping activities such as substantial
earth moving and/or rearrangement of the terrain. DOL advised further that
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these activities standing alone may be properly characterized as construction,
alteration or repair of a public work.
Section 9604(G) of CERCLA also specifically stipulates the wage rates to
be paid on Response Action Construction projects are to be as determined by
the Secretary of Labor in accordance with the Davis-Bacon Act as follows:
"Sect. 9604(g)(l) All laborers and mechanics employed by contractors
or subcontractors in the performance of construction, repair, or
alteration work funded in whole or in part under this section shall be
paid wages at rates not less than those prevailing on projects of a
character similar in the locality as determined by the Secretary of
Labor in accordance with the Davis-Bacon Act. The President shall not
approve any such funding without first obtaining adequate assurance
that required labor standards will be maintained upon the construction
work.
(2)The Secretary of Labor shall have, with respect to the labor
standards specified in paragraph (1), the authority and functions set
forth in Reorganization Plan Numbered 14 of 1950 (15 F.R. 3176; 64
Stat. 1267) and section 276c of title 40 of the United States Code."
b. The essential point of the foregoing discussion of the Service
Contract and Davis-Bacon Acts is that although the public policy objective
(labor standard protection) of the statutes are similar, there are significant
differences between the two which affect the cost of doing business. Clearly,
the DOL's authority to require contracting agencies to retroactively modify
contracts to add one set of wage rate provisions and/or delete another, will
have consequences for project costs. In view of DOL's authority to issue
determinations as to what comprises "construction" for purposes of the DBA,
there may also be consequences for the coverage and extent of the bonds
required under the Miller Act.
4. Superfund Statute. Inasmuch as considerable concern was expressed by
the surety industry regarding its potential for liability arising from bonding
of HTW projects, a brief discussion of the superfund statute is included in
this section. The Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (P.L. 96-510)(CERCLA), commonly referred to as the
Superfund law, authorized $1.6 billion to clean up abandoned dump sites. The
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law was enacted to eliminate the contamination created by the indiscriminate
disposal of organic and inorganic chemicals and other pollutants. The Act
also allows EPA to force potentially responsible parties (PRPs) to perform the
remediation or recover cleanup costs from the PRPs.
SARA (Superfund Amendments and Reauthorization Act of 1986) (P.L. 99-499)
was enacted to re-authorize and strengthen the CERCLA. It was perceived at
the time that cleanup activity was not proceeding quickly enough. SARA,
therefore, set targets for beginning cleanup work. EPA was required to begin
cleanup activities at 175 sites by October 1989 and an additional 200 sites by
October 1991. CERCLA, as amended by SARA, specifies the basic guidelines for
Superfund liability. Strict and joint and several liability are the
foundations of both the 1980 and the 1986 Acts. These liability concepts are a
powerful tool that can be used by the government to promote voluntary PRP
response actions and to recover cleanup costs from any party found as having
contributed to the contamination.
Strict liability is liability without fault. Thus, even if the firm is
not negligent, the firm may be liable. The basis of joint and several
liability involves the concept that, even if the firm is only responsible for
a portion of the contamination, the firm may be held liable for all costs
expended in the cleanup effort.
Recognizing that the strict and joint and several liability standard of
CERCLA might prove onerous to remedial action contractors that are needed for
cleanup efforts, Congress specifically excluded response action contractors
from liability under Federal laws except for cases involving negligence.
Gross negligence or willful wrongdoing are not covered. Furthermore, in
section 119 of SARA, Congress authorized indemnification for remedial action
contractor negligent liability associated with releases of hazardous
substances. Indemnification for strict liability where it exists at state
level is not authorized. There is no specific reference in either CERCLA or
SARA on the availability of Section 119 indemnification to surety guarantors
on Superfund projects. However, EPA has, at least in one instance, indicated
that it would make indemnification available to a surety following a
15
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performance default on the same basis as such indemnification would be offered
to any remedial action contractor provided the surety assumes substantially
the same role as the original contractor. Some corporate sureties point to
this liability potential as the basis for their refusal or reluctance to
actively provide bonding for HTW work. These sureties urge that it be made
clear that the surety performance bond is a guarantee of performance only and
in no way is intended to serve as insurance for potential third party
liability suits. Likewise, they urge that the application of the Section 119
indemnification to the corporate surety involved in a HTW project be
clarified.
5. Federal Acquisition Regulation. HTW contracts, like other Federal
government procurement procedures, are controlled by the Federal Acquisition
Regulation (FAR). The Federal Acquisition Regulation provides uniform
policies and procedures for all Federal executive agencies. These policies
and procedures define construction and other government procurement
activities. In addition, they specifically define contracting instruments
such as performance and payment bonds (see Appendix B). The development of
the FAR is in accordance with the requirements of the Office of Federal
Procurement Policy Act of 1974 (Pub. L. 93-400) as amended by Pub. L. 96-83
and OFPP Policy Letter 85-1, Federal Acquisition Regulation System, dated
August 18, 1985. The FAR is prepared, issued, and maintained, and the FAR
system is prescribed jointly by the Secretary of Defense, the Administrator of
General Services Administration (GSA) and the Administrator of the National
Aeronautics and Space Administration (NASA). These agency heads rely on the
coordinated action of two councils, the Defense Acquisition Regulatory Council
(DAR Council) and the Civilian Agency Acquisition Council (CAA Council) to
perform this function. Agency heads are authorized to independently issue
agency acquisition regulations provided such regulations implement or
supplement the FAR.
By definition, the term "acquisition" refers to acquiring by contract with
appropriated funds supplies or services (including construction) by and for
the use of the Federal government through purchase or lease - - whether the
services or supplies are already in existence or must be created or developed,
demonstrated, and evaluated. Acquisition begins at the point when agency
16
-------
needs are established, and includes the description of requirements to satisfy
agency needs, solicitation and selection of sources, award of contracts,
contract financing, contract performance, contract administration, and those
technical and management functions directly related to the process of
fulfilling agency needs by contract.
B. HAZARDOUS AND TOXIC WASTE (HTW) CONTRACTING PRACTICES
The Corps contracts with industry for construction and other services,
e.g., architect-engineer services, research and development services, and
supplies.
The decision on whether to use a firm fixed price (FFP) contract, cost
plus award fee (CPAF). cost plus fixed fee (CPFF), or a combination of fixed
price and cost depends on whether complete specifications can be provided in
the solicitation. Other factors determining the decision are the size of the
project, incremental funding, urgency, and the type of design required for
implementation.
Prior to issuing a delivery order against an indefinite delivery type,
umbrella contract (Pre-Placed Remedial Action (PPRA) or Rapid Response (RR))
or requesting a proposal from a contractor, a written determination must be
made describing the type of project (service, construction, or both) and the
type of delivery order to be issued (FFP, CPAF, CPFF, or mixed).
C. CORPS HTW PROJECT DATA PRESENTATION, ANALYSIS AND FINDINGS
1. Introduction. The study analyzed data relative to the Corps HTW
contracting experience for Superfund projects. The prime offices responsible
for HTW contracting within the Corps are the Omaha and Kansas City Districts.
Contracting records from these districts for the years 1987 through 1990 were
assembled and examined. The Tables and Charts on the following pages
summarize information on the 24 Superfund contracts carried out in the 1987-89
time period. A summary of the charts is shown below.
17
-------
Bid Information
Award Amount/
Gov. Estimate
High Bid/
Low Bid
Number of Bids
Bid Open
Date
1A
2A
3A
Project
Size
IB
2B
3B
Project
Date
1C
2C
3C
2. Analysis and Findings.
a. Ratio of Award Price to Government Estimate. Chart 1A illustrates
the trend in the ratio of award price to the government estimate over the
study period from 1987 to 1989. The ratio of award amount to government
estimate rose from .8 to 1.2. In addition, the ratio of award amount to
government estimate tended to increase with the size of the project, as shown
in chart IB. The type of remedy that was utilized also affected the
award/estimate ratio. Award ratios of 1.3 were observed for the waste
containment projects, on the average, as opposed to .85 on the other extreme
for alternative water supply projects as displayed in chart 1C. The remainder
of the projects were around the 1.0 area. The conclusion drawn from this
information is that there is a tendency for large proj ects to run at a higher
ratio of award/estimate and through time. This tends to lend credence to the
fact that there is a tight market for HTW contracts.
b. High to Low Bid Ratio. An analysis of the contract data indicated
that out of the 24 projects four contracts involved situations where the
initial bid winner was not awarded the bid due to inability to secure bonding.
These four contracts totaled about $31 million. $3.9 million additional costs
were incurred because of the necessity to utilize the next lowest bidder.
This was an average of a 14% increase in costs for the four contracts. The
ratio of high bids to low bids has been found to drop from around 2 to 1 in
1987 to 1.3 to 1 in 1989 as illustrated in chart 2A. The range of bids also
tends to decrease with the size of the project. Chart 2B shows this tendency.
The high-low bid ratio also varies by the type of project. The collection and
disposal of waste products has a large variation in the ratio of the bids
18
-------
while the waste containment, innovative technology projects and alternative
water supply products have high-low bid ratios of around 1.2. This
information also would support the case for less competition in the bidding
for HTW projects through time.
c. Bidding Competition Climate. To determine if the bonding issues
had contributed to any reduction in the competition for HTW projects, the bids
for the 24 projects conducted by the Corps in the 1987 through 1989 period
were examined. The number of bids was reduced from 6.2 on the average in
early 1987 to 4.6 in late 1989 as shown in chart 3A. The number of bids also
tended to lessen somewhat as the size of the project increased. This is
illustrated in chart 3B. The latter phenomena is also experienced on all
large construction projects. Chart 3C shows that the type of project also
influences the number of bids received. Waste containment projects received
the most bids--seven on the average--followed by alternative water supply and
soil and waste water treatment projects. The least number of bids was
received by the innovative technology projects. These projects received an
average of only two bids. The data does not support a finding of significant
cause and effect of bonding problems on the bidding for cleanup projects, but
it does indicate a trend toward fewer bids for HTW projects.
The state lead EPA HTW projects have experienced similar problems in
performance bonding as the Corps districts. The Texas Water Commission issued
a second invitation for bids on a project due to limited competition and
excessively high bids. The first attempt was unsuccessful due to the
inability of four of the five contractors to obtain bonds and the final bid
being excessively high. The EPA recommended contractual changes in the second
attempt, and these changes resulted in a successful outcome with a contract
being awarded at a substantial reduction in contract price. The changes
recommended by EPA were as follows:
Allowing the use of an irrevocable letter of credit or a conventional bond
in lieu of a performance bond.
Reduction in the security amount of the performance bond.
19
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Deletion of the handling of hazardous material in the first phase of the
project and shifting it to the second phase and deletion of a test burn of
contaminated soil, thus removing the sureties' objections to bonding the
first phase.
The writing of separate bond agreements for the two project phases and the
precise definition of what liability is covered by the performance bond
and the time limits of liability.
Reducing the dollar cap on the retainage for the last phase of the project
from $6 million to $2 million and reducing the time the retainage is held
from 60 to 18 months.
Giving the surety the right to choose the option of whether to complete the
project or forfeit the bond if the contractor defaults on the performance
bond.
Providing the requirements for the surety to obtain indemnification in case
of contractor default and the surety assuming project completion.
d. Distribution of HTW Contracts. There is considerable variation in
the distribution of contracts among HTW contractors. In the Kansas City
District, about 400 firms are on the bidders' mailing list for all
construction, including HTW contracts. In 1987 through January 1990, 24
contractors competed in the HTW program, and 14 received contracts. According
to Corps District personnel, the same few companies continually appear in the
final bidders' lists for HTW contracts.
Charts 5 and 6 list the contractors that have worked on Corps HTW
construction projects and their market share of the total competed Corps HTW
outlay or activity. Five contractors, individually or in partnerships, have
received 78% of the HTW contract dollars (Chart 5). Five of the 14 firms
obtained about 58% of all the projects (Chart 6). The firms receiving awards
are, for the most part, large firms with experience in waste handling in
general. They are not the only firms with the qualifications and credentials
to do the work, nor are they the only firms that have expressed interest in
the hazardous and toxic waste projects. There are many contractors interested
in participating in these projects. There appears to be legitimate concern
that contracting impediments, such as bonding, might lessen further the
Government's ability to expand contractor participation. Contracting
impediments must be carefully considered as to their relative significance.
20
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TABLE 2A
CORPS HTW CONTRACTS
HIGH BIDS COMPARED WITH LOW BIDS
$1,000,000s
BID
DATE
6/04/87
3/23/88
5/17/88
6/07/88
6/07/88
8/02/88
10/06/88
10/12/88
10/18/88
11/16/88
12/06/88
2/02/89
3/28/89
6/22/89
7/11/89
7/24/89
8/01/89
8/01/89
8/02/89
8/23/89
8/31/89
9/06/89
9/19/89
9/19/89
REMEDY TYPE HIGH
ST PROJECT NAME TYPE CONTRACT BID
PA
MA
MA
NJ
NJ
OH
PA
PA
IN
NJ
CA
NJ
NJ
NH
MD
NY
KS
DE
RI
MA
NJ
MD
NJ
PA
Lackawanna Refuse
Nyanza Chemical Waste Dump
Charles George Landfill
Lang Property
Metaltec Aerosys terns
New Lyme Landfill
Bruin Lagoon
Heleva Landfill
Lake Sandy Jo
Bog Creek Farm
Del Norte Pesticide Storage
Bridgeport Rental/Oil Svcs .
Caldwell Truck Co.
Lipari Landfill on- site
Kane & Lombard St. Drums
Wide Beach Development
Cherokee County Storage Tanks
Delaware Sand/Gravel Landfill
Western Sand & Gravel
Baird & McGuire
Montclair W orange Sites
S.Md.Wood Treating
Helen Kramer Landfill
Moyers Landfill
CA
CA
CA
CD
CD
CA
CA
CA
CD
TW
TW
TW
AS
TW
CA
IT
AS
CA
AS
TW
GV
CO
TW
CA
IFB
IFB
IFB
IFB
IFB
IFB
IFB
IFB
IFB
RFP
IFB
IFB
IFB
IFB
IFB
RFP
IFB
IFB
IFB
IFB
IFB
IFB
IFB
IFB
40
14
23
4
7
18
9
7
3
14
2
85
0
28
5
17
0
2
1
13
0
3
73
33
.0
.5
.3
.7
.5
.5
.4
.8
.9
.4
.0
.0
.3
.0
.4
.4
.7
.4
.2
.5
.4
.4
.0
.9
LOW
BID
15
8
13
2
2
13
4
5
2
13
1
52
0
16
5
15
0
1
0
11
0
2
35
28
HI BID/
LOW BID
.9
.3
.8
.7
.4
.7
.0
.0
.4
.9
.2
.5
.2
.0
.4
.6
.6
.5
.9
.3
.2
.6
.9
.5
2
1
1
1
3
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
2
1
.5
.7
.7
.7
.1
.4
.4
.6
.6
.0
.7
.6
.5
.8
.0
.1
.2
.6
.3
.2
.0
.3
.0
.2
TOTAL:
410.6 254.5 1.6
KEY: REMEDY TYPE
TW- Treatment of wastes (soil and water)
CA- RCRA Cap
CO- Collection and disposal of wastes
IT- Innovative technologies
AS- Alternative water supply
GV- Gas venting
CO- Containment of wastes
IFB- Invitation for bids
RFP- Requests for proposals
21
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TABLE 2B
CORPS HTW CONTRACTS
COST OF PROJECT COMPARED TO GOVERNMENT ESTIMATE
NUMBER OF BIDS PER PROJECT
BID
DATE
6/04/87
3/23/88
5/17/88
6/07/88
6/07/88
8/02/88
10/06/88
10/12/88
10/18/88
11/16/88
12/06/88
2/02/89
3/28/89
6/22/89
7/11/89
7/24/89
8/01/89
8/01/89
8/02/89
8/23/89
8/31/89
9/06/89
9/19/89
9/19/89
ST
PA
MA
MA
NJ
NJ
OH
PA
PA
IN
NJ
CA
NJ
NJ
NH
MD
NY
KS
DE
RI
MA
NJ
MD
NJ
PA
PROJECT NAME
Lackawanna Refuse
Nyanza Chemical Waste Dump
Charles George Landfill
Lang Property
Metaltec Aerosystems
New Lyme Landfill
Bruin Lagoon
Heleva Landfill
Lake Sandy Jo
Bog Creek Farm
Del Norte Pesticide Storage
Bridgeport Rental/Oil Svcs .
Caldwell Truck Co.
Lipari Landfill on- site
Kane & Lombard St. Drums
Wide Beach Development
Cherokee County Storage Tanks
Delaware Sand/Gravel Landfill
Western Sand & Gravel
Baird & McGuire
Montclair W orange Sites
S.Md.Wood Treating
Helen Kramer Landfill
Moyers Landfill
GOVT
PROGRAM EST
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
SF
23.
13.
15.
4.
3.
12.
5.
4.
2.
14.
1.
42.
0.
21.
4.
15.
0.
1.
1.
9.
0.
2.
36.
25.
0
0
0
1
5
0
0
7
3
0
3
0
2
0
0
6
7
2
0
6
2
0
0
0
AWARD AWARD
AMT /GOVT
15
8
15
3
3
13
4
5
2
14
1
52
0
15
4
15
0
1
0
11
0
2
55
28
.9
.6
.6
.6
.4
.7
.0
.4
.4
.0
.2
.5
.2
.8
.5
.6
.6
.5
.9
.3
.2
.6
.7
.0
0
0
1
0
1
1
0
1
1
1
0
1
0
0
1
1
0
1
0
1
1
1
1
1
AMT
EST
.7
.7
.0
.9
.0
.1
.8
.1
.0
.0
.9
.3
.8
.8
.1
.0
.9
.3
.9
.2
.0
.3
.5
.1
NO.
BIDS
7
13
6
6
5
5
5
8
3
4
11
5
9
4
1
2
2
3
9
5
3
7
4
4
TOTAL: 256.4 277.2
$1,000,000s
SF- SUPERFUND
1.12 AVG.
22
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TABLE 2C
CORPS HTW CONTRACTS
PARTICIPATING CONTRACTORS AND SURETYS
BID
DATE
6/04/87
3/23/88
5/17/88
6/07/88
6/07/88
8/02/88
10/06/88
10/12/88
10/18/88
11/16/88
12/06/88
2/02/89
3/28/89
6/22/89
7/11/89
7/24/89
8/01/89
8/01/89
8/02/89
8/23/89
8/31/89
9/06/89
9/19/89
9/19/89
ST PROJECT NAME
CONTRACTOR
SURETY NAME
PA Lackawanna Refuse
MA Nyanza Chemical Waste Dump
MA Charles George Landfill
NJ Lang Property
NJ Metaltec Aerosystems
OH New Lyme Landfill
PA Bruin Lagoon
PA Heleva Landfill
IN Lake Sandy Jo
NJ Bog Creek Farm
CA Del Norte Pesticide Storage
NJ Bridgeport Rental/Oil Svcs.
NJ Caldwell Truck Co.
NH Lipari Landfill on-site
MD Kane & Lombard St. Drums
NY Wide Beach Development
KS Cherokee County Storage Tanks
DE Delaware Sand/Gravel Landfill
RI Western Sand & Gravel
MA Baird & McGuire
NJ Montclair W orange Sites
MD S.Md.Wood Treating
NJ Helen Kramer Landfill
PA Moyers Landfill
Chem Waste
Tricil
Tricil
Sevenson
Sevenson
Sevenson
GeoCon
Chem Waste
We ston
Chem Waste
U A Anderson
Ebasco
Ellas Constr.
Bechtel
GeoCon
Kimmons
Pitt/Desmoines
Weston
R H White
Barletta
Summa Env.
Weston
IT, Davy
Chem Waste
Federal Ins.
Seabd St Paul Maine
Seabd St Paul Maine
Wausau
Wausau
Wausau
INA
Federal Ins.
none, escrow
Federal Ins.
Great America
Seabd St Paul Maine
Wausau
Aetna Cas.& Surety
INA
individual
INA
Indiana Lumbermans
Wausau
Wausau
Intl. Fid. Ins.
Indiana Lumbermans
Natl. Union
American Home
23
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CH 1A flATIO: AWARD AMOUNT/GOVT EST
OVER' TIME 1967-1968
AWD/EST^?
1987 1988
AWD/ESTREGRES
1989
CH 1B RATIO: AWARD AMOUNT/GOVT ESTIMATE
8Y PROJECT SIZE
1.50
Ul
I
- 1.00
0.50
o.oo
10.00
20.00
30.00
40.00
50.00
60.00
0.00
1
o
AWARD AMOUNT $1,000,0003
I AWARD AMOUNT # BIDS NO. BIDS REGR
CHART 1C RATIO: AWARD AMOUNT/GOVERNMENT ESTIMATE
BY REMEDY TYPE
UY: RBffiDY TYPI
TV- Treatment of wastes (toll and water)
CA- RCSA C«p
'CO- Collection «nd disposal of vast«t
'IT- Innovatlv* t»chnolo(t*i
[AS- Alternative water supply
|CV- Caa venting
.CO- Contalraent of vastas
"I
B -AWARD AMT.; (XIV EST.
24
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CH2A RATIO: HI/LO BIDS
OVER TIME 1987-
1987
1988
1989
CH 2B RATIO: HIGH/LOW BIDS
BY PROJECT SIZE
3.50
3.94
0.00
10.00
20.00
50.00
60.00
0.94
AWARD AMOUNT $1,000,0003
AWARD AMOUNT
CHART 2C
RATIO: HIGH/LOW BIDS (BY REMEDY)
A
V
G
TV- Treatment of wastes (soil and vatar)
CA- RCRA Cap
CO- Collection and disposal of vaacea
IT' Innovative technologies
AS- Alternative watei supply
GV- Gas venting
CO- Contalnaent of wastes
AS CA
.HI BID / LO BID
GV IT
REMEDY
25
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CH3A< BIDS PER PROJECT
OVER TIME 1987-1989
1987
# BIDS REGRS H # BIDS
1988
1989
14.00
•o.oo
0.00
CH 3B NUMBER OF BIDS (BY AWARD AMOUNT)
1987-1989
10.00
I.OO
30.00
40.00
50.00
60.00
AWARD AMOUNT ($1,000,000s)
AWARD AMOUNT
CHART 3C
AVERAGE NO. BIDS RECEIVED (BY REMEDY)
UY: REMEDY TYPE
TV- Treatment of vaatea (loll and water)
CA- RCJtA Cap
CO- Collection and dl«po«al of w««t««
IT- Innovative t«ehnolo|l«»
AS- Alternative vater aupply
CV- Caa ventlnf
CO- Containment of vaatea
• tsne
av IT
REfcCDY
26
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CH 4 NUMBER OF BIDS
BY CONTRACT TYPE
RFP
CONTRACT TYPE
NO. OF BIDS
IFB=INVITATION FORBIDS
RFP=REQUEST FOR PROPOSALS
27
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A
W
A
R
D
A
M
T
CHART 5 CORPS HTW PROGRAM
CONTRACTORS' SHARES ($280 MILLION TOTAL)
IT, Davy(20.1%)
Ebasco(18.9%)
Chem Waste(22.8%)
Other(1.1%)
Weston(2.3%)
GeoCon(3.1%)
Bar1etta(4.1%)
Tricil(8.7%)
Sevenson(7.5%)
CONTRACTOR
Kimmons(5.6%)
Bechtel(5.7%)
CHART 6
CONTRACTORS' SHARES (24 PROJECTS TOTAL)
Weston(12.5%)
Trteil(8.3%)
GeoCon(8.3%)
Bechtel(4.2%)
IT, Davy(4.2%)
Sevenson(12.5%)
Chem Waste(16.7%)
Ellas Constr.(4.2%)
U A Anderson(4.2%)
Ebasco(4.2%)
Summa Env.(4.2%)
Barletta(4.2%)
Prtt/De»fnoine8<4.2%7
R H White (4.2%)
CONTRACTOR
28
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e. Surety Firm Participation. The material from the Corps districts
indicates that no HTW project requiring bonding was precluded from being
placed under contract because of nonavailability of bonding. Some firms,
however, were disqualified from competition because of their inability to
provide acceptable surety. These instances usually involved contractors' use
of individual sureties that after examination were found to have insufficient
assets to protect the Government's interests. Where this occurred, award went
to the next lowest bidder providing acceptable bonding. All contracts were
eventually awarded despite problems reported by certain contractors. The
surety industry participation in the Corps HTW program during 1987-1989 is
depicted in Charts 7 and 8. Chart 7 indicates the percent of sureties'
dollars shares covered by each surety firm. Six firms received 83% of the
project dollars. Chart 8 shows the percent of sureties' project shares
covered by each surety firm. Seventy-one percent of the projects were covered
by five sureties.
D. HTW INDUSTRY BONDING PROBLEMS AND PERCEPTIONS
1. Contracting Industry Perceptions. From the point of view of the
contracting industry, a major problem in the HTW program is that many
contractors competing for contracts are unable to obtain the required surety
performance bonds for construction contracts.3 Some contractors are unable
to secure bonds due to the surety's perception of liability risk at HTW
projects; others because contractors have exhausted their bonding capacity.
Noncompeting firms maintain close contact with the surety industry and
routinely seek information relative to bond availability. They are aware of
the surety industry's stated reasons for not providing surety bonds. But,
contractors assert that corporate surety decisions on providing bonding are
not uniform. Consequently, bonding may be provided in some instances based on
the surety's relationship to the contractor rather than on purely objective
standards. Noncompeting firms do request mailings concerning HTW project
solicitations, but they do so only to keep up to date on HTW activities or
they anticipate involvement as a subcontractor. On HTW contracts around 100
firms request plans but fewer than seven usually bid.
Remedial action contractor (RAG) associations point out that there are
many firms that are interested in participating in the HTW cleanup program,
29
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A
W
A
R
D
A
M
T
CHART? CORPS HTW PROGRAM 1987-9
SURETIES' SHARES ($280 MILLION TOTAL)
Na«. Unlon(20.0%)
Federal lns.(12.7%)
Seabd St Paul Malne(27.9%)
Other(0.5%)
none, escrow (0.9%)
Indiana Lumb«rmans(1.5%)
INA(3.3%)
indrvidual(5.6%)
Wausau(12.0%)
Aetna Cas.& Surety(5.7%)
>rican Home (10.0%)
SURETY
CHART 8
SURETIES' SHARES (24 PROJECTS TOTAL)
INA(12.5%)
Wausau(25.0%)
Seabd St Paul Malne(12.5%)
Federal lns.(12.5%)
American Home (4.2%)
Great America(4.2%)
none, escrow (4.2%)
Indiana Lurnbermans(8.3%)
Natl. Unton(4.2%)
Intl. Fid. lns.(4.2%)
Aetna Cas.& Surety(4.2%) indlvWual(4.2%)
SURETY
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however, only a few are consistently able to meet the bonding requirements
necessary to continually compete for contracts. Some companies stated that
they did not even participate in bidding on HTW projects for reasons of
liability and the inability to obtain performance surety bonds in the HTW
area. On formally advertized sealed bid procurements inability to obtain
performance bonding normally has the added effect of precluding the contractor
from being able to provide the required bid bond, without which the bid is
considered nonresponsive by the Government and not considered for award.
The HTW industry stated that the number of contractors bidding on HTW
treatment projects is fewer than those bidding on non-hazardous and toxic
waste projects, in part due to the bonding problem.4 One contracting firm
pointed out that the HTW program is comparatively small in relation to the
entire engineering and construction industry activity in this country. Many
firms reported that they have elected not to participate in the HTW cleanup
program when they experienced difficulties in securing bonds or anticipated
complications in that area.
Contractors perceive that the problems in contracting in the HTW area to
some extent are due to the Government's use of contracting procedures
developed for non-HTW construction and service contracting. HTW work involves
a perceived increase in the possibility of liability in excess of traditional
construction projects. There is also a strong perception in the surety and
insurance industry that the odds of incurring liability given recent asbestos
litigation are much greater than before. Contracting firms felt that the
laws, regulations, standard Government procurement forms and procedures on HTW
contracting efforts were not totally appropriate. They recommended more
careful scrutiny of the acquisition process to assure avoidance of
inappropriate applications.
The contractor respondents were also of the opinion that the total
contract amount of indefinite delivery covered hazardous and toxic waste
contracts engaged in by a contractor would be assessed by the surety when
upper bonding limits were decided upon for a contractor. This concern
prevails in spite of the fact that the Federal government only requires
bonding for delivery orders written against indefinite delivery contracts.
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This had particular concern to contractors that had been awarded "Large,
indefinite delivery contracts. They feared that sureties might use the total
contract maximum, rather than actual work orders issued, to compute their bond
capacity limitation.
Tables 2A-C illustrate the experience of the Omaha and Kansas City Corps
districts. There were a small number of bids received on several HTW
projects. This low number of bids is not necessarily due to the lack of
interest in the projects. According to several HTW organizations interviewed,
including the Hazardous Waste Action Coalition, Environmental Business
Association, Associated General Contractors, National Solid Waste Management
Association and the Remedial Contractors Institute, the key factor
contributing to lower competition for some HTW projects is the inability of
many contractors to secure bonding. It should be noted that in many cases
firms cannot obtain bonding despite a proven history of competence in doing
such work, strong financial assets and profitability and sound leadership and
experience in the firm.
In some cases it was reported by both contractors and government
contracting agencies that projects have been delayed due to the shortage of
contractors who can obtain bonding and related surety problems. Contracting
representatives for both the Corps and the states advised that they have had
administrative delays as a result of contractors not being able to obtain
appropriate bonding. This additional work has resulted in the slippage of
project schedules.
The resulting shortage of qualified firms that are able to consistently
arrange surety bonding may be reflected in higher costs to the government.
Bonding's limitation on competition, with only four or five final bidders in
many cases, may have resulted in higher contract bids than would otherwise be
expected. Tables 2A and 2B illustrate the experience of two Corps districts
in bid prices and number of bidders.
Smaller contractors, in particular, may be screened out of the HTW cleanup
program market due to their inability to secure surety bonding. Several
contractors stated that they do not have the extensive financial equity
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necessary to satisfy corporate sureties and secure surety bonds. The results
of a survey conducted by the Environmental Business Association (TEBA) showed
that half of the 45 firms surveyed were unable to successfully compete for a
project due to the lack of adequate bonding or had decided not to bid on
contracts due to problems with securing performance bonds.
2. Surety Industry Bonding Perceptions. The problems that are perceived
by the surety bond community are summarized in a document entitled "Hazardous
Wastes and the Surety."5 This document, revised in November 1989, was
continually mentioned in the interviews as the "bible" of the HTW industry
concerning hazardous and toxic waste. This document delineates the issues
concerning sureties in handling HTW. Some of the factors that are of
particular interest and concern to the sureties follow:6
a. The sureties believe that design of any sort is not traditionally
a surety bonded activity. Bonding companies perceive that the risk of bonding
design elements of HTW cleanup is even more substantial than what is faced on
normal construction projects. This stems from the view that the actual
knowledge and experience in the area is limited. Designs may become obsolete
very quickly as changes in the HTW processes evolve and generally there is
considerable difference of opinion among technical experts on design adequacy.
Performance bonds are normally used in construction contracts. In such
instances, the design is fixed and technical interpretations are more uniform.
However, where design elements and construction are combined in the same
contract (e.g. through performance specifications), bonding problems may arise
due to the increased risk to the surety associated with the unknowns on HTW
project designs. However, bonding firms believe and the government agrees
that the builder who specifically carries out U.S. Government-approved and-
accepted plans and specifications should not be subject to these potential
liabilities - absent knowledge on its part that the specifications were
defective which was not brought to the Government's attention. This builder
is implementing an accepted and approved design, and, therefore, is not
responsible for the technology nor the methods used to carry out the cleanup.
b. Technological unknowns, particularly those in an area with
potential liability such as the toxic cleanup program, are worrisome to the
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surety community. Bonding companies perceive that the state of technology of
the HTW cleanup process is constantly changing and very ambiguous. It is their
opinion that little is known about the adequacy of the technology either
concerning immediate or long-term experience. Technology may evolve that
renders the present method inadequate. Sureties are concerned that this may
leave the designer-builder potentially liable if the present HTW legal climate
continues.
c. Surety firms have stated that the present unfavorable legal
environment, with widespread litigation and large awards, has made insurance
companies very cautious about insuring HTW projects. Although vocal in their
assertions that they not be treated as a substitute for insurance, they fear
that by bonding such work they may in the future be sought out based on a
legal theory which would treat them as if they were insurance. The cause for
liability, such as the appearance of a disease 20 or more years after exposure
to toxic substances, leads to a very uncertain situation for sureties.
d. According to the surety firms interviewed, toxic tort litigation
features are an important reason for their present reluctance to participate
in the HTW cleanup field. In the toxic tort arena a very long time period (10
or 20 years) between exposure and development of injury is typical. Unlike
other prototypical injury situations, toxic liability involves long time
periods7 between the alleged exposure and the discovery of damages. Since
this litigation takes place in state courts, the indemnification under SARA is
not helpful, nor legally binding on the states.
e. Insurance. The Hazardous Waste Action Coalition, an organization
comprised of technical consulting firms in the HTW field, along with Marsh and
McLennan, a large insurance broker, held a meeting in Washington, D.C. on
September 13, 1989, in which a series of speakers outlined the insurance and
indemnification problems confronting the contracting industry. The collected
papers of this meeting are entitled "Pollution Insurance/Indemnification
Issues for Engineers in Hazardous Waste Cleanup". The papers point out that
the present insurance coverage is not adequate in many areas. They also
express the insurance industry's concern that potential litigation
uncertainties play a major part in their decisions to forego providing
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pollution liability insurance coverage. The same concerns regarding the
unknown risk of involvement in the HTW market are equally important to
sureties that must decide whether to provide needed bonding for the program.
The following summarizes some of the findings contained in these papers on the
shortcomings of present coverage for HTW projects:
1) Present HTW construction contractors' pollution insurance
coverage has only limited spatial or geographic coverage. Some policies cover
only on-site liabilities. In some cases, HTW liability may be off-site due to
hazardous substances being carried beyond the borders of the site by wind,
water runoff, or underground seepage.
2) Claims-made insurance only. The insurance coverage is on a
claims-made basis and does not cover the period after the completion of the
project unless the contractor continues to carry the insurance. Moreover,
even where a contractor may choose to continue coverage, it may not be able to
do so because of the insurance company's decision to no longer make such
coverage available. The short time period (one year) covered by claims-made
insurance precludes coverage over the long period of 20 years or so in which
claims may be made in the HTW area. In claims-made insurance, the policy is
only in force during the period when premiums are being paid. With respect to
HTW cleanup, this would be normally the period of contract performance
including any contractually required warranty periods.
3) Low dollar limits. Surety organizations state that the upper
dollar limits in presently available pollution liability coverage are
insufficient to cover the risks associated on HTW projects. The comparatively
low limits of the insurance policies outlined in the document would only be
adequate for smaller HTW projects where proven technology would be employed on
an isolated site.
4) There is a concern by surety firms that they will be targeted
by third party liability plaintiffs in the event other parties whose actions
may have caused the injury are judgment proof. The lack of sufficient
insurance or indemnification for the HTW remedial action contractor leads
some bond underwriters to be concerned that the corporate surety based on its
providing a surety performance bond may be adjudicated to fill the insurance
void so that the third party's injury can be compensated. They worry that,
after insurance coverage has lapsed or expired, and perhaps after decades have
passed, the corporate surety firm which provided the bond may be looked upon
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by the courts as the insurer of last resort or a "deep pocket."8 This
unknown risk has led some corporate sureties to forego involvement in the HTW
market. Surety bond producers that have made such a decision indicate that
they would be more likely to participate in the market if the applicability of
SARA indemnification to the surety was clarified. Moreover, that the
performance surety bond be clearly represented as being intended by the
Government solely as a guarantee of performance by the contractor and not in
anyway as protection for the contractor's tortuous injuries to third parties.
f. Greater risk to Government. In response to claims by some
contractor interests that bonding could be substantially reduced for certain
categories of HTW work, surety sources stated that risks of non-performance
increase if construction contracts are awarded either without surety bonds or
with lower rated surety performance bonds. Surety officers contacted in the
survey pointed out the trade-offs involved risks to the government if surety
bonds were not used on projects that normally would be surety bonded. They
emphasized that surety firms perform a valuable service for the government in
screening out potential problem contractors from the pool of contractors
competing on government construction projects.
g. Indemnification. The sureties and contractors have listed many
perceived problems with the present SARA9 indemnity law. There is
dissatisfaction over the amount of indemnification coverage, as well as the
extent of the coverage and even what events are indemnified. Sureties find
that the definition of what is the maximum dollar coverage of the indemnity is
not specific. CERCLA sets the upper limit of the indemnification amount as
the funding that is remaining in the Superfund account. However Section 119
says "If sufficient funds are unavailable in the...Superfund... to make
payments pursuant to such indemnification or if the fund is repeated. There
are authorized to be appropriated such amounts as may be necessary to make
such payments. Sureties and contractors are of the opinion that such
limitation on indemnification may prove inadequate in the future if there are
limited funds available in the Superfund account at the time indemnification
requests ripen. The EPA is presently addressing the limit on indemnification
problem in proposed draft guidelines for implementing Section 119 of SARA.
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IV. CONCLUSIONS
TRENDS OVER TIME
Twenty four HTW projects were examined in the study. Contract data was
assembled for the bidding process on these projects including contractors and
sureties participating, bid amounts, project dates, project types and
government estimates. The information presented in Tables 2A-C and Charts
la-c and 3a-c summarize the relationships of these factors and shows the
trends in these elements over the past few years. The information was
analyzed with emphasis on the relationships between award amount and
government estimates, the ratio between high and low estimates and the number
of bids received. The respective shares of the HTW market for contractors and
for sureties were also examined.
There tends to be an increasing trend in the ratio of contract award
amount to government estimate over time. The average ratio has climbed from
.8 to 1.2 over approximately a two year period. This has transpired while the
ratio of high bids to low bids has been falling from 2 to 1.3 and the number
of bids received on the average for each project has dropped from 6.2 to 4.6.
This information suggests a decrease in competition for projects in the HTW
field over the time period and to an apparent increase in price at the same
time. The decreasing ratio of high to low bids over the same period also is
an indication of a changed competitive situation.
Relationship of project size. The relationship of the project size and
these various factors was examined. As the projects increased in size, the
ratio of the award amount to the government estimate increased from .9 for
small projects to 1.5 in the $60 million dollar range, indicating the
lessening of competition for large contracts where few contractors can
compete. At the same time the average number of bids per project decreased
with the size of the project, reflecting the fact that few contractors are
currently available to compete for these large HTW projects. The average of 6
bids for smaller contracts was reduced to 4.5 on the contracts in the range of
$60,000,000 at the higher end of the scale. These findings, although not
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conclusive, indicate a pattern of competition in the field that shows a
limited availability of eligible contractors. The expanding HTW cleanup
requirement will exacerbate this situation
Relationship of project type. Examination of the relationship of the
ratio of award amount to government estimate shows that the ratio is
acceptable, except for containment projects where the ratio was 1.3 to 1. The
largest spread for the variation of high and low bids was in the projects
involving collection and disposal of wastes, 2.2 to 1, while the next greatest
variation was for gas venting projects which ran 2 to 1. The heaviest
competition was evidenced in the average number of bids (7) received for waste
containment projects with the next highest number (6.5) bids for alternate
water supply projects. It is noted that the average number of bids received
for RFP's was only 3, compared with nearly double that amount for Invitations
for bids.
Contractors' project market shares. The shares of the HTW cleanup market
(24 Corps projects) are heavily concentrated in a relatively small number of
contractors. Chart 5 shows that three firms or joint partnerships have about
60% of the dollar market of HTW projects and 5 of the 15 firms have
successfully bid for about 58% of the total number of projects. The rest of
the projects are being spread among the remainder of contractors, some of
which are quite large. While the total is still small, the concentration of
activity in a few firms tends to persist and is not assuring to those aspiring
to participate in the program.
Sureties' market shares. Surety bond providers are also unequally
represented in the list of sureties shares of the project pie. Five sureties
or surety combinations account for 83% of the project bond dollars and five
sureties or combinations bonded 70% of the Corps 24 projects analyzed in the
study. This illustrates the case that few sureties are interested in
providing bonding for HTW projects.
The foregoing experience presented in the contracting information from the
Corps Kansas City and Omaha Districts reinforces the story presented by the
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government contracting officers, and the contracting and surety industries.
The experience is that the market is constricted for contractors in the HTW
field and the availability of bonding is a problem. Although all projects
have proceeded and none have been stopped by lack of bond availability, the
difficulties that have been encountered in the bonding area have impacted the
cleanup process by delaying schedules, reducing competition and ultimately
thereby, increasing the prices paid for cleanup.
Financial risk. Who is affected? The government, the HTW contractors and
the surety industry are all at risk in the HTW cleanup process. A key aspect
in this analysis is the assumption of financial risk in the HTW program. Some
risk is assumed by the government and some by industry. The problems arise
when the financial risks are examined in detail and found to be such that
private industry declines to participate due to the perception that it will
have to bear what it considers to be more than its share of the risk.
Historically, the surety industry has provided performance bonds to cover the
risks of nonperformance by construction contractors. However, in the HTW
area, there has been a great deal of reluctance to do so for fear of extended
liability due to the long term nature of liabilities involved and other
factors of uncertainty in the CERCLA area. The projects involved risk
uncertainties in terms of the present and the future state of the art of the
HTW cleanup technology. The state of the art is constantly changing and
improved techniques lead to future pollution standards that may be higher and
more stringent.
Physical risk. Who or what is impacted? The environment, cleanup site
workers and the local residents are affected by the physical risk. The risks
exist during the cleanup of the project, and extend through the warranty and
the latent defect period of the cleanup project. However, due to the nature
of hazardous waste, the risk may last for years, decades or forever. This
problem of unknown risk and uncertain liability must be addressed and the risk
to industry must be bounded in order to gain its full participation in the HTW
program. In order to reduce the physical risk over the long term, the actions
taken involve financial uncertainties and liabilities. The government must
assume a certain level of responsibility for these uncertainties. The total
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level of risk does not disappear; it is merely transferred from one entity of
society to another. It is not reasonable to expect private industry to
voluntarily participate in a high risk enterprise unless a high premium is
paid. Many government programs are structured to reduce this uncertainty in
new high tech and experimental enterprises to a level that is manageable by
the private sector.
Indemnification, insurance, bonding and contractual agreements are all
mechanisms to transfer risk. The present situation in the HTW cleanup area
brings this aspect of risk, and who must assume risks for the nation's
cleanup, into focus. There is a need in the HTW program for the definition of
the risk involved and the assignment of each risk to the proper entity.
Guidelines are necessary to spell out and clarify the appropriate
responsibilities that will be borne by government agencies and those that are
within the purview of private enterprise.
Indemnification is a tool that transfers the risks from private industry
to the government. One problem with indemnification in HTW cleanups is the
uncertainty of coverage. It is not known at the time of bid openings whether
coverage will be available to the contractor or the surety, and, if it is, the
maximum amount of coverage is unknown.
Another tool commonly used to manage uncertainty is insurance. Insurance
presently available to contractors is inadequate. The maximum amount
available is much too low, the time period of coverage is too limited, and
third parties are not covered. Thus, the transfer of risk to the insurance
industry is quite limited.
The bonding process is another way to transfer uncertainties from the
government. It is a traditional way to transfer risk in the construction area
where construction occurs over a long time period and commitments must be made
for the entire project before the project can proceed. The traditional risk
covered by construction performance bonds was that the project be completed as
designed, that the contractor assumed responsibility during the construction
period, the warranty and the latent defect period. Problems have arisen in
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the bonding of HTW projects because of perceived new and unanticipated risks
being possibly transferred to the surety. These perceived new risks entail
additional possible responsibilities for project efficacy, design (performance
specifications) and third party suits. It is in this area that the present
problems of uncertainty have surfaced and are at this time a subject of
considerable concern.
This study indicates that the problem of performance bond availability for
HTW construction work may be limiting the number of qualified contractors that
can compete for such work. In some cases, the limitation on firms able to
compete, when coupled with requirements on the government necessitating a high
number of HTW contract awards within a short span of time, may have caused
competing firms to be less competitive in their bid submittals.
The data analyzed does not clearly indicate any serious problems at this
time. However, the contract information on the twenty-four projects analyzed
may be skewed due to a concentration of contracts during September and October
of 1989. Although trends are suggested, the data is not sufficient to draw
specific conclusions. Continuous observations of award data is necessary to
determine if trends are developing.
While not yet resulting in the government not being able to get
competition on its HTW projects or to carry through on its remedial action
programs, the clear implication of industry comments received is that the
concern being expressed by the surety industry over providing bonding for HTW
projects may well ultimately lead to a situation where bonding limitations
will arbitrarily curtail the extent of competition realized by the government
for such work. This concern may threaten the government's ability to
successfully acquire the construction services needed.
This report has reviewed both subjective data gained from interviewing
various HTW industry representatives and objective data based on bids received
by the Corps. While the information from interviews is subjective, it does
represent the industry mind set and as such govern industry decision- making.
Where there is little or no risk, it is appropriate to try to minimize
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industry fears. The underlying industry concern is risk to the contractor
and/or the surety. Factors affecting risk include: indemnification,
insurance and bonding. These risk factors influence one another, e.g., if
indemnification is available to the surety, then bonding may be more readily
available. No single action will solve all the bonding problems. Additional
conclusions are listed below:
The government must select the most appropriate acquisition strategy
early in the solicitation process. Risk to sureties, contractors and the
government should be considered in addition to other site requirements.
The government acquisition strategy should address the need to make an
early decision whether to use a service or construction contract. In some
cases, different contract types may be used for different project phases
within the same contract. Miller Act, Davis-Bacon Act and Service Contract
Act decisions should be made on their merits and without regard to bonding or
cost implications.
Contracts should be structured, the type of contracts selected and
bonding requirements established, to appropriately protect the government's
interests. These interests include: insuring that contractors capable of
performing the contract remain eligible and that the selected contractor
performs as promised.
HTW cleanup agencies should explicitly decide how much performance
bonding is required and how that bonding should be structured. Normal
practice is to require 100% performance bonding for construction contracts and
zero bonding for service contracts, although the contracting officer can
select other percentages. We need to assure that the amount selected is only
that needed to protect government interests.
Sureties only want to assure that the remedial action contractor
constructs what was required by the plans and specifications. They wish to
avoid design/construct contracts or contracts containing major performance
specifications.
There is a strong perception by the industry that difficulties with
bonds is limiting competition. RA contractors report that they have not bid
projects due to unavailability of bonding. Sureties indicate that the risk is
too large.
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Contractors want to be able to provide alternate monetary protection to
the Government, i.e., letters of credit. While the Government cannot at
present accept letters of credit directly, letters of credit can be used as an
asset by an individual surety. Regulations would be required to allow the
Government to directly accept letters of credit in lieu of surety bonding.
Sureties want indemnification for both themselves and their contractors
should they have to assume responsibility for project execution or design.
Protection of the Government interest can be achieved by performance
bonding, by careful selection of competent contractors or a combination of the
two. The Corps has, for the most part, used construction contracting where
the primary method of contractor selection is by low bid. Since control over
contractor selection is limited, the Government has compensated by demanding
100% bonding. An alternative would be to use an RFP where technical
capability, management expertise, experience, and price are considered in
contractor selection. With more confidence in contractor capability, a lower
performance bond might be appropriate. The government should attempt to
mitigate contractor and surety concerns while maintaining appropriate
protection of the government interest.
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V. OPTIONS EXAMINED
A. INTRODUCTION
Discussions conducted during the study with Industry, contractor, and
government personnel raised several possible alternatives that might be taken
to increase the availability of bonds to HTW construction contractors. These
alternatives fall into two general categories as follows:
o Non-Legis1ative Changes. Internal Corps and EPA non-legislative
changes in procedures related to contracting strategy and
implementation of the authorities which each agency already possesses.
o Legislative Changes. includes revisions to regulations which guide
each agency but which neither possesses the authority to revise
independently; revisions to existing statutes so as to, (1) eliminate
requirements that serve to lessen the corporate surety industry's
interest in bonding of HTW projects and, (2) to clarify that
performance bonds are to be used only to assure that the contractor
will complete all contractual requirements and are not a vehicle by
which third party claims may be satisfied.
Of the options available to the government to alleviate the bonding
problem, many are centered on the concept of management of risk by the
government. Financial and physical risk exist in the cleanup process and the
government needs to incorporate risk analysis into its planning process to
examine the trade offs in costs and benefits of the transfers of these risks
between government and the private sector. In the case of bonding HTW cleanup
projects, the government must examine the assumption of higher risks in non-
performance of contracts for HTW cleanup against the gains of more competition
by the cleanup industry and the resultant lower prices for projects.
It should be pointed out that the bonding community generally does perform
a service for the Government contracting agency in making its evaluation to
bond a particular contractor. In making this decision, it carefully analyses
the contractor's financial and technical competence to do the work as well as
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its history of performance. In this respect, it supplements the pre-award
survey performed by the contracting officer to make his affirmative
determination of contractor responsibility. However, in the case of HTW
projects, the surety community appears to allow its concern for the unknown
risks associated with such work to overshadow its consideration of more
conventional factors reflecting the contractor's capability to perform. The
study indicated that many sureties foreclosed any consideration of bonding a
contractor based solely on the fact that the project was associated with HTW.
In doing so, the surety did not analyze the contractor's ability to perform as
it would have done on a non-HTW construction project.
B. NON-LEGISLATIVE CHANGES
These options address solutions which can be readily implemented by the
various agencies concerned. They primarily focus on issues related to the
contracting process. In some cases, they call for clarification of each
agency's existing activities. In other instances, they call for new
initiatives by the agencies to assure that bonding requirements and the
acquisition factors which may have a major impact on the availability of
bonding will be given careful consideration during the acquisition planning
process. Table 3 summarizes the types of options, their advantages and
disadvantages, the lead agency for implementation, and their priority.
In some cases, the options recognize that implementation will necessitate
a tradeoff of protection for the Government against contractor nonperformance.
The advisability of accepting such a tradeoff will need to be evaluated for
each contract. This will be done in light of the risk being assumed by the
Government, versus the benefits to be derived from the potential improvement
in the competitive climate associated with lowering the bond requirement.
While implementation of these options may promote greater interest in HTW
work by both contractors and corporate sureties, increased interest and
competition may not necessarily reduce the cost of the work. Moreover, any
decision to lessen bonding requirements must be completed with special
emphasis being placed on the pre-award survey procedures by the procuring
agency.
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TABLE 3
TYPES OF OPTIONS
Option!
Advantag*i
Disadvantages
Implemented By
NON-LEGISLATIVE CHANGES
1. Improved Acquisition Planning and Bond
Structuring;
A. Require increased acquisition planning.
Incorporate analysis of service contracts vs.
construction contracts and incorporate coat
type contracts into acquisition plan.
B. Provide Guidance on Bonding
Requirement*. Reduction of penal amount of
bond. HTW Policy Guidance, 2 year test
program.
C. Clarify performance period.
2. Clarify surety liability under SARA;
A. Define third party risk.Bond form and
contract modifications including 3rd party
exclusion clauses, exclusion of bond as
liability insurance substitute. Requires a
change in the regulations.
B. Surety Indemnification. Provide
indemnification for sureties if they assume
project control.
C. Define bond completion period.
3. Indemn
ificatiqn gui
indeminficati
delines: Modify
proposed indeminfication regulations,
establish high maximum limits and clarify
qualifying requirements.
4. Communication with Industry: Outreach
frogram for contractors and sureties.
echnology education program.
5. Limit Risk Potential;
A. Clarify contract policy on RFP
performance specifications and design-build.
B. Use of irrevocable letters of credit
vm. bonds.
May reduce obstacles, induces store participation
by contractors
Reduces bond portion project costs, induces more
and greater variety of contractors to bid (e.g.
smaller firms).
Same as above.
Removal of sureties' stated objections to
contractual clauses. Inducement to participate
in HTW program.
Induce more surety and contractor participation
in HTW program.
Induces more surety and participation in
program. f
Limlts Federal liability for idemnitication.
May encourage contractors sureties to partici-
pate in program.
Separating out design portion may encourage
sureties to participate in program.
Enables some contractors to participate in
program.
Use of service contracts with no bonds may increase
risk to government. May request use of bonds from
USAGE. B.C. Procurement.
Limits non-performance protection to government,
more marginal contractors.
All bonds must be in place before notice to proceed
is issued. Initially difficult to set up guidance.
Can be accomplished more simply by reduction of
penal amount of bond.
Hill take one and one-half years to Implement
interagency coordination needed.
May increase Federal liability for indemnification.
None.
May discourage participation by sureties, if limits
are set too low.
Effectiveness unknown.
Imprecise clause could limit contractor performance
obligations more than necessary.
Additional adminstrative burden, increased
financial costs to contractors ties up assets.
Each agency
Each agency
Each agency
Each agency
EPA
Each agency
EPA
Each agency
Each agency
Each aganey
LEGISLATIVE CHANGES:
A. Increase separate dollar limit reserves
from SARA fund and increase types of coverage
for indemnification and types of coverage for
indemnification.
B. Specify • dollar cap on liability.
C. Preempt atata'a itrict liability
sureties. Provide universal indemnity.
D. Modify CEBCLA or Miller Act. Specify
performance bonds ares only to assure
completion of contract requiremets.
Induce more sureties and contractors to
participate.
Induce more contractor and surety participation.
Induce sureties and contractors to participate
in program.
Induce sureties and contractors to participate
in program.
Additional administrative burden, increased
financial coats to contractors ties up assets.
Federal government assumes more risk.
Reduction of public protection against HTH hazards.
Reduction of public protection against HTH
liability hazards.
Each agency
EPA
EPA
Each agency
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1. Improved Acquisition Planning & Bond Structuring. These options
require that the procuring agency be especially sensitive to its
characterization of the work to be performed under the HTW contract and
vigilant to preclude bonding requirements that are excessive to the needs of
the Government. If work under one contract is both service and construction
and duties are not severable, the largest part of the effort (service or
construction) will prevail. HTW contracts involving incineration or other
treatment technologies will usually involve work elements in both the
construction and service categories of work. The Miller Act bonding
requirements apply only to construction, while service work does not require
any bonding unless the contracting officer views it as being needed to protect
a legitimate Governmental interest.
a. Background. The study found that early soil incineration
contracts were considered by a Corps district to be service work requiring no
bonding. When a decision by the Department of Labor concluded that hazardous
soil excavation for shipment to a landfill constituted construction, a
different Corps district treated excavation associated with an HTW
incineration project as construction requiring Miller Act performance and
payment bond protection. In this latter case, the actual incineration process
was classified as being service work. Although as service work there was no
need to provide bonding for the work, the contracting officer, concluded that
the incineration process was so closely tied to the excavation work that the
penal amount of the performance bond should encompass both work categories.
This substantially raised the performance bond amount and led to a protest
from a firm which was precluded from competing due to its inability to obtain
the required bonding. This firm had successfully performed the work required
under the original service incineration project. The comptroller general
ultimately updated the contracting officers discretion to require 100% of
performance bonding for this project.
This incident, as well as indications from a recent Superfund project
performed for EPA by the State of Texas, (see page 18) highlight the necessity
for the procuring agency to closely analyze its bonding requirements in light
of the work to be performed and the extent of protection needed for the
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Government. This should be done early in the acquisition process to assure
that the competition benefits that might be gained by such effort can be fully
maximized. The decision of whether to use a service contract or a
construction contract must be made on their respective merits and not on the
impacts of securing performance bonding. A separate set of procedures is
required to establish the bonding requirement.
In making this bonding determination it is also important to recognize
that the surety community's concern regarding the risk associated with HTW
work will probably lead to the surety not stepping forward to complete the
project in the event of a contractor default. Consequently, it is likely that
the Government will benefit only from the surety's providing the penal sum of
the performance bond. The Government probably will still need to reprocure
the work. Contractors pointed out that sureties were requiring substantial
financial commitments from contractors as a prerequisite to providing bonding.
This fact would tend to make the surety even more inclined to buy itself out
rather than assume the greater risk burden associated with its takeover of the
defaulted contract. The reality then appears to be that the performance bond
is primarily protecting the Government's financial stake in the contract
rather than its interest in not having to deal with reprocurement upon
default.
In looking at the character of work to be performed under an HTW contract,
it may well be that the nature of the work and the payment arrangements
employed by the Government may provide a measure of protection in themselves
that could warrant a lower bonding percentage. In the excavation situation,
and even more so where we are dealing with incineration service work, many of
the payments to the contractor are subject to its performing satisfactorily.
A default after partial performance requires that the Government procure
another contractor to continue performance. This default situation, however,
is substantially different from that faced where we are dealing with a
building construction project. In the former case, the work to be completed
is relatively easy to determine. This is in sharp contrast to the problem
facing the Government where multiple subcontractors and complex design
requirements must be determined and taken into consideration in a vertical
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construction project. While some bonding may be appropriate to cover the risk
to the Government associated with paid mobilization costs and potentially
higher reprocurement costs on HTW treatment technologies projects, it may
appear excessive to require that performance bonding cover 100% of the total
contract amount where that includes the cost of the treatment technology
service over a significant period of time. In the case of incineration
projects, an incinerator is constructed by the contractor, operated over an
extended period of time during the cleanup and demobilized and moved away
afterwards. The Corps should analyze, in its acquisition plan preparation,
the possibility of the Government utilizing the incinerator for continuing the
cleanup in the event of contractor default. The contract may be modified to
include terms for this contingency. Many alternative contract structures may
be utilized. Some specific alternatives are shown below in Table 4. These
are merely examples. The contracting officer is within his discretion to
require no bonding whatever where the project is predominantly for service.
TABLE 4
Sample Alternative Contract for Incineration
Phase
Alt#l:
Single
Construction
Contract with
Davis -Bacon
Wage Rates
Alt#2 :
Service
Contract &
Service
Contract
Rates
Erection &
Prove Out
Full Bond
Full Bond
Operation
Excavation &
Stockpile
Very Low Bond
No Bond
Operation
Incineration
Site
Restoration.
Capping,
Landscaping
Very Low Bond
No Bond
Demobili-
zation of
plant and
equipment
Full Bond
Full Bond
50
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b- Require Increased Acquisition Planning. The contracting process,
including the bonding issues, should be integrated into a project acquisition
plan. An analysis of the risk trade offs to the Government may be
incorporated into the acquisition planning process for HTW projects.
Presently the Federal Government requires performance bonds to assure against
the uncertainty of project non-performance on construction projects as
mandated by the Miller Act. The cost of this protection should approximate
the cost of the potential non-performance risk in the long run. The trade
offs of this risk may be examined in the acquisition planning process for each
project. The process will analyze the benefits and costs of the Government
assuming slightly higher risks in project performance and the resultant
benefits and costs of improving the competitive climate for HTW contracting
and the consequent reduction in contract prices. This may involve the
analysis of each phase of the cleanup and the appropriate level of bonding
that would afford adequate protection for the Government's interests and still
encourage participation by the bonding industry. Careful examination of the
contract alternatives, service contracts or construction contracts, should be
carried out by an interdisciplinary team, "recommending" to the contracting
officer, although final disposition will be made by the Department of Labor.
Meetings are being planned for early summer 1990 between EPA, Corps and
Department of Labor representatives to clarify the classification of
construction and service contracts under the Davis-Bacon and Service contract
Acts.
Cost type contracts should be given careful consideration where there are
significant technological unknowns associated with undertaking an HTW project.
It is not in the program's interest for the contractor to be required to bear
an inordinate share of the risk. Requiring fixed priced contracts under such
conditions places both the contractor and surety in an unacceptable risk
condition and would increase the cost to the government significantly.
Multiple contracts are another action which could be considered by the
Government during its acquisition planning to limit the risk potential for the
bonding community. The approach would be to structure the contract
requirements so as to limit or isolate the activity requiring a surety bond
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from other work that normally would not require bonding if contracted
independently. The project should be divided into separate contracts with
appropriate bonding for each contract. This would require the use of multiple
contract awards to assure that elements of work not requiring bonding are
procured separately from construction work elements.
There are drawbacks to multiple contracts. If the requirement is split,
it must be determined to be severable. Problems may well be encountered in
assuring timely award of contracts. A delay in one award or a failure to
insure timely completion of a contract will mean delay for all later
contracts. This will require substantially increased administrative oversight
and procurement effort on the Government's part because of the greater number
of awards to be made. Furthermore, the lack of bonding on what may be key
elements of the remedial action will require greater care by the Government in
performing its pre-award survey on the contractor's responsibility.
c. Provide Guidance on Bonding Requirements. Uniform guidance needs
to be issued on evaluating bonding requirements appropriate for HTW work. It
is imperative that any such guidance take into consideration the importance of
safeguarding the discretion of the contracting officer in such matters.
d. Clarify Performance Period. Minimize the time period of surety
performance and thereby reduce the time exposure for surety coverage. Use
time-phased bonding, with incremental reduction in the penal amount through
time, as the work is completed. A similar strategy involves the division of
the project into phases and a requirement for bonding only on the active part
of the project.
The amount of a bond can be reduced by separating the project into parts
and only requiring a bond for the amount needed to complete each phase
sequentially. All bonds must be secured before issuance of the notice to
proceed. This has the same effect as reducing the penal amount of the
bonding. Thus, a bond will be rolled over, with the bond terminated on the
first part when it is completed, and started on the second part, etc. This
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plan would place an administrative burden on the project. If additional firms
participate, there is a chance of reduced project costs.
2. Clarify Surety Liability
a. Background. Interviews conducted in the course of the study with
contractors and sureties focused on the real concern in the surety community
regarding the potential liability arising from their willingness to act as
guarantors for HTW projects. This is consistent with the sureties' stand that
they are bonding execution of plans and specs, not project performance. This
is a perceived danger, not one based on any particular court ruling involving
a surety guarantee situation. The perceived liability arises from potential
third party injury claims and an ill-defined bond coverage completion period.
The surety's concern for liability results from the trend in cases arising
from the monumental asbestos litigations where the courts have sought some
deep pocket to compensate the injured party. In some cases, the courts have
looked to insurance companies for such relief despite the insurance industry's
disclaimer of any liability under their policies. The sureties view
themselves as similar to these situations, with potential deep pockets from
which injured parties may seek relief. They recognize that they are not
insurers of such injury, but have little faith that the courts will take note
of the distinction between insurer and guarantor if there is no other
financially viable party against which a valid judgement can be executed.
The surety community, similar to the insurance industry, uses a secondary
market to spread the risk associated with any particular bond arrangement.
This secondary market has made it clear that it is not interested in sharing
the risk associated with HTW projects. As a consequence, surety firms are
more and more being called upon to undertake greater risk levels for such
work. The insurance industry responded to the loss of its secondary insurers
by withdrawing completely from the pollution liability coverage market. The
surety industry, although still maintaining a reduced presence, does have
certain members of its community which have followed the insurance industry
lead and chosen to withdraw from providing bond coverage for such work.
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Discussion with the surety industry raises two specific actions which may
result in encouraging greater surety firm involvement in HTW work. The first
action arises from the surety industry concern that it not be perceived as an
insurer of third party injuries as a result of the bond. The surety
performance bond is intended as a guarantee of contractor performance of the
work. However, the bond form does not make any specific statement indicating
that the surety bond is not intended to provide coverage for third party
injury actions which might arise as a result of the contract work performed.
The surety industry representatives have indicated that some statement on the
performance bond form noting specifically that the bond is not available for
coverage of third party injury suits could improve the secondary markets'
perception of the risk for HTW projects and thereby improve the willingness of
sureties to come into the marketplace and provide bonding for such work.
The second action would clarify, within the invitation or solicitation
package, the time at which the performance bond completion requirements will
be seen to have been accomplished. For the construction projects, the bond is
available for the execution period of non-HTW construction plus the warranty
period. It also is available to cover latent defects which may come to light
following the end of the warranty period. There is nothing unusual about an
HTW project that would require any different coverage period for its
performance bond.
b. Define third party risk. Define in the contract which party has
responsibility for specific risks. Transfers of risk, usually to the
Government will probably be tested in the courts. The government will make
explicit that Performance Bonds are not available for third party coverage.
This may be addressed in two ways:
modify the invitation or solicitation package with a disclaimer.
This solution can be implemented by the procuring agency.
modify the performance bond form to include a disclaimer. This
would require the approval of the General Services Administration
and a revision to the Federal Acquisition Regulation.
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c- Surety Indemnification. Another concern that needs to be
clarified is the extent of indemnification, if any, that the surety would be
entitled to as a result of providing bonding on the contract. Indemnification
for remedial action contractors performing HTW work is permitted by 42 U.S.C.
9619, provided that certain requirements are met. Sureties question the
applicability of this indemnification to them. Since it has a major impact on
the evaluation of the risk for bonding such work, clarification is needed to
allow the industry to adequately quantify its potential long-term risk.
d. Define bond completion period. The government will define the
point at which bond completion requirements have been fulfilled. This
definition is within the authority of the procuring agencies.
Recently, in reply to a surety's concern over its right to indemnification
in the event of a default of the bonded contractor, EPA advised that the
surety would be eligible for indemnification if it elected to stand in the
shoes of the defaulted contractor and complete performance of the remedial
action. A final decision has not been made as to how this will apply to a
surety that elects to take on responsibility for performance, but does so
through its procuring another contractor. It is clear that this issue must be
clarified with respect to the EPA superfund projects.
3. Indemnification Guidelines.
a. Background. There is no defined limit of coverage in EPA's
interim guidance on indemnification that can be addressed with certainty by
surety or contractor interests in assessing their potential risk. Likewise,
the requirements that will need to be met to become eligible for the
indemnification are not completely clear with respect to the contractor. They
are even more ambiguous regarding the surety. These unknowns appear to
exacerbate an already bad situation and provide no incentive for industry to
move forward and commit themselves and their assets to support the program.
It is unclear from the data compiled in the study the effect that
clarification of this issue will have on the surety and contractor community.
DOD, which has not provided indemnification, for its work, has been able to
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obtain adequate competition. In fact, there is some indication that the
design and construction firms performing this work have structured themselves
to limit the potential financial burden that might be associated with claims
made against them in the absence of government indemnification. Once EPA has
defined clearly the extent of its indemnification coverage and the
requirements for obtaining it, the surety industry may well decide to provide
bonding for EPA projects.
Regardless of the final decision on these issues, it is vital that the
procedures for implementing the indemnification and for making claims be
simplified as much as possible. At this time, there is no written statement
of the procedure that will be followed if EPA receives a claim demand notice
from an indemnified contractor. Also it is important that the extent of
litigation costs and the timing for payment of such costs be defined. The
industry is particularly concerned that litigation costs associated with
injuries covered by indemnification not become a major drain on its financial
assets. The industry is concerned that it will have to carry such costs over
long periods of litigation and may well have to forego its recovery from the
indemnification pool if a settlement is reached prior to final judgment on the
case. It would seem advisable that the claims procedures include some early
decision by the Government with respect to the Government taking over
responsibility for defense or settlement of the claim.
b. Publish final indemnification guidelines. In completing the
indemnification guidelines EPA should consider the following.
explicitly describe the limits of coverage.
define the claims procedure including claims for ongoing litigation
costs.
explicitly state under what conditions indemnification for surety
firms is available.
4. Communications With the Industry.
a. Background. It is evident from the study that there is not a
clear understanding among the surety community's members when advanced
technology is used on HTW projects versus when conventional engineered
construction is used. While there is no dispute that some HTW work can be
56
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hazardous and complex, many projects use proven engineering principles which
have a long history of use and acceptance. The extreme caution on the part of
the surety industry, limited number of projects constructed and reluctance of
sureties to become involved in HTW projects, all mesh together to cause the
surety to assume each HTW project is the same despite the considerable
variation in the types of projects. A number of projects are water supply
construction alternatives that have no direct involvement with hazardous
wastes.
b. Outreach Program. To overcome this lack of understanding, the EPA
and the Corps could sponsor outreach efforts aimed at bringing both sureties
and contractors together for purposes of discussing with industry technical
aspects of different types of HTW projects. The agencies should also focus on
the different site conditions and various contractual provisions that can
distinguish one site from another and the technical aspects of using state of
the art technology. While not eliminating all impediments to surety
involvement, this could go a long way toward lowering the surety industry's
reticence to participate on some of the less complex projects.
5. Limit Risk Potential.
a. Background. Sureties expressed particular concern that the
Government not package its procurements, as design-build contracts including
the use of performance specifications. In these cases, the surety is
concerned that its risks are significantly enlarged from the situation it
faces where design has been completed and the contractor need only construct
the designed project in order to satisfy performance.
b. Clarify Contract Policy. The government should consider accepting
design responsibility where performance specification requirements have been
met. Performance specifications are used to some extend in all construction
contracts. Incineration and ground water treatment contracts have a very
large performance specification component and will remain that way. The
government will continue to allow contractors to propose the complex equipment
needed to meet specific site treatment requirements. Once the contractor has
demonstrated that the equipment meets the performance specification, the
57
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government could consider more explicitly reduction of the contractors
liability as long as the performance specification continues to be met.
Where appropriate assume governmental responsibility for risk. Consider
developing specific language that relieves the contractor of third party
liability when meeting government-dictated performance specifications. Where
performance specifications are provided to the contractor, and the government
is solely responsible for the performance criteria selected, the government
would accept responsibility for harm to the environment or third party
resulting from the use of the performance criteria. An exception to this is
where the contractor had knowledge of deficiencies in the performance criteria
and failed to disclose such fact to the government.
c. Letters of Credit. Indications from the contractor community
received during the study were that allowing the use of letters of credit will
give new contractors and those with little experience a chance to get started
in the HTW field and build a track record. The letter of credit is not
without its detrimental aspects. They may prove to be financially draining to
a contracting firm and limit a firm's ability to compete, much as surety bonds
do in relation to the firms financial capacity. Again, one must weigh the
benefits of increased participation against the chances of problems due to
using less experienced firms. To pursue the issue further the agencies should
explore the use of letters of credit in lieu of bonds by (1) reviewing the
acceptability of individual sureties' use of letters of credit as assets, and
(2) determining the feasibility and desirability of modifying the FAR to allow
letters of credit.
C. LEGISLATIVE CHANGES
The path for change in the laws governing the hazardous and toxic waste
area is long and complex. However, SARA is due to be reauthorized in 1991, so
plans may be made for proposed changes to the future legislation. The EPA is
the lead agency in the Superfund program and, thus, the agency to initiate
activity in the legislative area. Possible changes mainly apply to the
indemnification question. They include the following:
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1. Increase the coverage for indemnification. Expand the types of
coverage for liability indemnification and make these available to the surety
as well as the contractor.
2. Establish a dollar cap on HTW liability.
3. Preempt state laws covering strict liability, and provide universal
indemnity.
4. Amend CERCIA and/or Miller Act to specify that the purpose of
performance bonds is to assure the government that the contractor will
complete all contractual requirements and obligations. Performance bonds
shall not be a vehicle for third party liability claims.
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VI. RECOMMENDATIONS
Table 3 lists all options which have been considered as a result of the
study. It represents in capsule form the pros and cons associated with each
and provides an indication of the potential for increasing competition
associated with implementation of the option. It also shows the specific
actions which are recommended to be taken by EPA and the Corps as a means of
increasing the availability of bonds for HTW work.
A. NON-LEGISLATIVE CHANGES
1- Issue Guidance on Use of Acquisition Planning for HTW.
The most effective strategies for alleviating the scarcity in bonding of
the HTW program are those emphasizing improved acquisition planning, both
formal and informal, additional risk sharing guidance which gives emphasis to
the careful consideration of the bonding requirements, and contract type that
will maximize qualified contractor competition. This particular alternative
permits immediate implementation by the agencies concerned. It also places
the burden on the contracting officer to make appropriate decisions on matters
which may impact substantially the competitive climate for a particular
invitation or solicitation. Each agency should have this guidance issued by
an appropriate office within their headquarters for immediate implementation.
The steps in the recommended acquisition planning process are as follows:
a. Determine appropriate wage rate categories for anticipated
required labor.
b. Determine contract type, e.g., service, construction, etc.
c. Decide whether to subdivide the project into phases.
d. Decide on the appropriate performance bonding level based on a
risk analysis. Explicitely consider less than 100% bonding for construction
contracts and greater than zero for service contracts.
e. Decide on contract method (consideration of cost type contracts in
addition to firm fixed price contracts).
The guidance should emphasize that the Miller, Davis-Bacon or Service
contract act decisions must be made on their merits without consideration of
cost or bonding factors involved.
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EPA and Corps representatives should meet with Department of Labor to
clarify the contract requirements of the HTW program and the relationship of
these to the: Miller Act, Davis-Bacon Act and related regulations.
A program of continuing review of contract actions will insure continued
competition in the contracting process.
Emphasis should be placed on appropriate acquisition planning which takes
into consideration all factors that relate to the competitiveness of the
contract situation.
2. Clarify Surety Liability Under SARA.
EPA should move immediately to clearly define the extent to which it will
provide indemnification coverage to sureties on HTW projects. Extending
indemnification by the Federal government to sureties should be explored when
they fulfill these surety obligations by stepping in and completing the
project for the defaulting contractor. Presently this area is not well
defined. EPA should also institute, in conjunction with the Corps, an effort
to revise the present FAR performance bond form to deal with the concerns
raised by sureties on potential for third party actions looking to the bond
for injury judgement recovery. A task force composed of appropriate personnel
from both agencies should be established to work on having this revision
instituted for HTW projects. At the same time, each agency should require its
internal procurement elements to assure that wording is included in
invitations and solicitations disclaiming any interest by the Government in
having the performance bond being available to cover third party injury
claims.
3. Indemnification Guidelines.
A new indemnification clause will be implemented by the Corps which will
assure the indemnification of HTW contractors in the event that they are not
able to secure adequate insurance for firm fixed price contracts. The
indemnification will extend to third party liability by the surety.
4. Communication with Industry.
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EPA and the Corps should jointly establish an outreach program designed to
discuss with the surety and construction industry as to the nature of the HTW
program, the realities of the technology being employed on remedial action
projects and the contract clause addressing risk. The joint working group,
including procurement and PARC representatives, would seek out prominent
industry members and associations and urge that a dialogue be initiated on a
periodic basis to address specific concerns of the industry stemming from
bonding particular types of HTW projects.
5. Limit Risk Potential.
Each agency should immediately issue guidance to assist contracting
officers in making their decisions on the amount of risk for the government to
assume in the issuance of performance bonds. The guidance should emphasize
that performance specifications and design-build contracts should be used only
when necessary and solicitations should be clear on what responsibilities the
government assumes for the technical criteria of the project. Additionally,
the contracting officer should be urged to assure that the contract be
structured to reduce bonding requirements, where the risk of non-performance
to the government is minimal which can have a detrimental effect on
competition from qualified firms. Guidance should emphasize protecting
governments' interests. These include ensuring that the contractor performs
as promised and all contractors, capable of performing, remain eligible. The
agencies should seek approval of a contract clause which will clearly indicate
that in professional specifications the government is responsible for
establishment of the level of cleanup and the contractor is responsible for
the method and means used to achieve this level.
A joint working group should be established between the Corps and EPA to
better define the implications associated with proposing a recommendation for
a FAR revision to permit the acceptance of letters of credit in lieu of a
surety bond.
B. LEGISLATIVE CHANGES
Recommend EPA consider proposing legislative changes for indemnification
and third party liability. Analysis of the comments received during the
course of this study indicates that legislative changes in these areas will
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substantially reduce many of the concerns of the surety industry and
contractor community in being involved with Superfund remedial action work
64
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ENDNOTES
1. FAC 84-12 January 20, 1986. Part 28. Bonds and Insurance - Subpart
28.203-1 and 28?D3-?
2. Information paper on Davis-Bacon Act. Gregory Noonan, Army Corps of
Engineers. 1989.
3. Omaha District Corps of Engineers, Analysis of Contract Bidding. 4th
quarter, 1989.
4. Testimony of Warren Diederich, Associated General Contractors of America
to the Committee on Merchant Marine and Fisheries, U.S. House of
Representatives on the topic of Hazardous Waste Cleanup of Coast Guard
Facilities, November 1, 1989.
5. Hazardous Waste and the Surety. American Bar Assn. William Ryan and
Robert Wright. November 1989.
6. Briefing on Pollution Insurance/Indemnification Issues for Engineers in
Hazardous Waste Cleanup. Hazardous Waste Action Coalition, Marsh and
McLennan. Washington, DC. September 1989.
7. Briefing on Indemnification Issues. Marsh and McLennan.
8. Hazardous Waste Action Coalition. Briefing on Pollution/Indemnification
Issues for Engineers in Hazardous Waste Cleanup. Marsh and McLennan. Sept.
13, 1989.
9. EPA Indemnification under SARA S 119. American Consulting Engineers
Council. March 1989.
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BIBLIOGRAPHY
American Insurance Association. Information Papers. June 1989.
Associated General Contractors of America. Information Papers. December
1989.
Comprehensive Environmental Response, Compensation, and Liability Act, 1980
(CERCLA), US.
Hazardous Waste Action Coalition, American Consulting Engineers Council.
Briefing on Pollution
Insurance/Indemnification Issues For Engineers In Hazardous Waste Cleanup.
Marsh & McLennan. September 13, 1989.
Hazardous Waste Action Coalition, American Consulting Engineers Council. EPA
Indemnification Under SARA #119. March 1989.
Gibson, Jim. Information papers. Army Corps of Engineers, OCE, CEMP-RS,
December 1989.
Grace Environmental. Information Papers. November 1989.
Killian, Bernard P. Information Paper. Illinois Environmental Protection
Agency. May 1989.
Noonan, Gregory M. Labor Standards and Environmental Restoration Projects.
Information Paper. Army Corps of Engineers, OCE, CECC-L. 1989.
Ryan, William F. , Jr. and Robert M. Wright. Hazardous Waste Liabilities and
the Surety. American Bar Association. Revised October 1989.
Surety Association of America. Information Papers. July 1989.
Tietenberg, Tom H. "Indivisible Toxic Torts: The Economics of Joint and
Several Liability". In Land Economics. Board of Regents of the University of
Wisconsin System, 65 (4), November 1989. pp. 305-319.
Unknown. "Industry Probes Effect of Dwindling Bond Market on Superfund
Cleanups". Inside EPA. November 10, 1989.
United States General Accounting Office. Contractors Are Being Too Liberally
Indemnified by the Government. GAO/RCED-89-160. September 1989.
Waldorf, Dan. Memorandum. A & A Research and Development. October 1989.
Watling, Edward T. Information Paper. Army Corps of Engineers, OCE, CEMP-R.
December 1989.
Whalen, Thomas A. P. E. Performance and Payment Bonds for Construction
Contracts. Environmental Protection Agency, December 1989.
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APPENDICES
69
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Appendix A:
List of Contacts
71
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APPENDIX A
HTW BONDING STUDY
List of Contacts
Name
John Steller
Lynn Schubert
Brian Deery
Stuart Binstock
Dave Johnson
Jack Mahon
Greg Noonan
Chuck Schroer
Walter Norko
Sara Bunch
Jim Gibson
Paul Lancer
Noel Urban
Gene Jones
Bruce Anderson
Norm Spero
August Spallo
Joan Chapman
Steven Switzer
Frank Bader
Lee Fuerst
Donald Robinson
Cathy Vanetta
Kirk Williams
Stanley Karlock
Gary Henninger
Ann Wright
Rick Heinz
Mary Melhorn
George Wischman
Richard Corrigan
S. McCallie
Jim Lane
Peter Bond
Mike Yates
William Bodie
Paul Nadeau
Tom Whalen
Carl Edlund
Tom Bosley
John Herguth
Terre Belt
Joe Turner
John Daniel
Organization
111. Dept land Pollution Ctrl
American Ins. Assn
Assn. Genl. Contr/Amer
Assn. Genl. Contr/Amer.
Assn. Genl. Contr/Amer.
CECC-C OCE
CECC-C OCE
CEMP-C OCE
CEMP-CP OCE
CEMP-RS OCE
CEMP-RS OCE
CEMP-RS OCE
CEMP-RS OCE
CEMRD-CT
CEMRD-OC
CEMRD-OC
CEMRK-OC
CEMRK-CT
CEMRK-CT-K
CEMRK-ED-T
CEMRK-ED-T
CEMRO-CT
CEMRO-CT
CEMRO-CT
CEMRO-ED-E
CEMRO-OC
CEMRO-OC
CEORD-RS
CEPR-ZA
CEPR-ZA
CH2M Hill
CH2M Hill
Corroon & Black
Davy Corp
Ebasco Constr. Inc.
Environmental Bus. Assn.
EPA HQ
EPA HQ
EPA Reg Off 6 (Dallas)
Fidelity & Deposit Co.
Foster Wheeler Corp.
Hazardous Waste Action Co
Huntington Dist.
IT Corp
Address
Springfield
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Washington
Omaha
Omaha
Omaha
Kansas City
Kansas City
Kansas City
Kansas City
Kansas City
Omaha
Omaha
Omaha
Omaha
Kansas City
Omaha
Cincinatti
Washington
Washington
Washinton
Denver
Madison
San Francisco
Lyndhurst
Washington
Washington
Washington
Dallas
Baltimore
Clinton
Washington
Huntington
Washington
IL
DC
DC
DC
DC
DC
DC
DC
DC
DC
DC
DC
DC
NE
NE
NE
MO
MO
MO
MO
MO
NE
NE
NE
NE
Mo
NE
OH
DC
DC
DC
CO
WI
CA
NJ
DC
DC
DC
TX
MD
NJ
DC
wv
DC
73
-------
Name
Organization
Address
Phil Deakin
Norman Delbridge
Joseph Smith
Craig Muetter
James Malony
Myra Tobin
B. De Castro
Barbara Haugen
Ed Putnam
Jim Walker
Walter Youngblade
Bruce Miller
Michael Quinn
Dennis Wine
James Feeley
E. Schutt
IT Corp
Jones Gp.
Jos.J Smith & Assts.
Louisville Dist.
Marsh & Mclennan
Marsh & Mclennan
Nat. Solid Wastes Mgmt. Assn.
Nat .Assn. Ins . Brokers
New Jersey Environmental Dept.
0 H Materials Corp
0 H Materials Corp.
Perland Env. Tech. Inc
Risk Science Intl. Inc.
Surety Ass. of Amer.
Texas Water Comm.
W.R. Grace/Grace Env.
Washington
Springfield
Greenwood
Louisville
Columbia
N.Y.C.
Washington
Washington
Trenton
Finley
Finley
Burlington
Washington
Iselin
Austin
St. Joseph
DC
VA
IN
KY
SC
NY
DC
DC
NJ
OH
OH
MA
DC
NJ
TX
MI
74
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Appendix B:
Sample Forms
75
-------
STANDARD FORM 28 (6-66)
GENERAL SERVICES ADMINISHATION
FED P*OC. »EG. (4 1 CF«) I — 1 6.101
AFFIDAVIT OF INDIVIDUAL SURETY
(See Inifrucf/onj on Reverse)
FORM APftOVEO
Ox I No. 29-D0030
STATE Of
COUNTY Of
SS:
I, the undersigned, being duly jworn, depose and jay that I am one of the sureties to the attached bond; that I am o citizen of the United States
(or a permanent resident of the place where the contract and bond are executed as provided in paragraph 3 of the Instructions on reverse),and
of full age and legally competent; that I am not a partner in any business of the principal on the bond or bonds on which I appear as surety;
thatthe in. .motion herein below furnished is true and complete to the best of my knowledge. This affidavit is made to induce the United States
of America to accept me as surety on the attached bond.
1. NAME (First. middle, last) (Type or print J
3. TYPE AND DURATION Of OCCUPATION
2. HOME ADDRESS (Number, Slrttt. Cily
4. NAME OF EMPLOYER (If self-employed.
Stall. ZIP Code)
so slate)
i. BUSINESS ADDRESS (Number, Street. City. State. ZIP Code)
(,. TELEPHONE NO:
HOME-
BUSINESS—
7. THE FOUOWING IS A TRUE REPRESENTATION OF MY PRESENT ASSETS, LIABILITIES, AND NET WORTH AND DOES NOT INCLUDE ANY
FINANCIAL INTEREST I HAVE IN THE ASSETS OF THE PRINCIPAL ON THE ATTACHED BOND:
a. Fair value of solely owned real estate* $
b. All mortgages or other encumbrances on the real estate included in Line a
c. Real estate equity (subtract Line b from Line a)
d. Fair value of all solely owned property other than real estate*
e. Total of the amounts on Lines c and d
f. All other liabilities owing or incurred not included in Line b
g. Net worth (subtract Line f from Line e) $
*Do not include property exempt from execution and sale for any reason. Surety's interest in community property may be
included if not so exempt.
8. LOCATION AND DESCRIPTION Of REAL ESTATE OF WHICH I AM SOLE OWNER, THE VALUE OF WHICH IS INCLUDED IN LINE (a), ITEM 7 ABOVE
Abiounl of assessed valuation of above real estate for taxation purposes:
9. DESCRIPTION OF PROPERTY INCLUDED IN LINE (d), ITEM 7 ABOVE (List the talue of each category of property separately)
10. ALL OTHER BONOS ON WHICH I AM SURETY (Stall character and amount of each bond; if none, so state)
11. SIGNATURE
12. BOND AND CONTRACT TO WHICH THIS AFFIDAVIT RELATES
(Where appropriate)
SUBSCRIBED AND SWORN TO BEFORE Mi AS FOLLOWS:
DATE OATH ADMINISTERED
MONTH
NAME AND TITLE Of
(Tyft or print)
DAY YEAR
OFFICIAL ADMINISTERING OATH
CITY STATE (Or other jurisdiction)
SIGNATURE
MY COMMISSION
EXPIRES
Official
Seal
28-104
77
-------
CERTIFICATE OF SUFFICIENCY
I Hereby Cercify, That che surety named herein is personally known to me; that, in my judgment, said surety is
responsible, and qualified to act as such; and that, to the best of my knowledge, the facts stated by said surety in the
foregoing affidavit are true.
NAME (Tlpcu-rillen)
OFFICIAL TITLE
ADDRESS I dumber. Strsel, City. Stale, ZIP Code)
INSTRUCTIONS
1. This form shall be used whenever sureties on
bonds to be executed in connection with Government
contracts are individual sureties, as provided in gov-
erning regulations (see 41 CFR 1-10.203, 1-16.801,
1 01 -45.3), There shall be no deviation from this form
except as so authorized (see 41 CFR 1-1.009,
101-1.110).
2. A corporation, partnership, or other business
association or firm, as such, will not be accepted as a
surety, nor will a partner be accepted as a surety for
co-partners or for a firm of which he is a member.
Stockholders of a corporate principal may be acccepted
as sureties provided their qualifications as such are
independent of their stockholdings therein. In arriv-
ing at the net worth figure in Item 7 on the face of
this affidavit an individual surety will not include any
financial interest he may have in the assets of the
principal on the bond which this affidavit supports.
3. An individual surety shall be a citizen of the
United States, except that if the contract and bond
are executed in any foreign country, the Common-
wealth of Puerto Rico, the Virgin Islands, the Canal
Zone, Guam, or any other territory or possession of
the United States, such surety need only be a perma-
nent resident of the place of execution of the contract
and bond.
4. The individual surety shall show net worth in a
sum not less than the penalty of the bond by supply-
ing the information required on the face hereof,
under oath before a United States commissioner, a
clerk of a United States Court, or notary public, or
some other officer having authority to administer oaths
generally. If the officer has an official seal, it shall
be affixed, otherwise the proper certificate as to his
official character shall be furnished.
5. The certificate of sufficiency shall be signed by
an officer of a bank or trust company, a judge or
clerk of a court of record, a United States district at-
torney or commissioner, a postmaster, a collector or
deputy collector of internal revenue, or any other of-
ficer of the United States acceptable to the depart-
ment or establishment concerned. Further certificates
showing additional assets, or a new surety, may be
required to assure protection of the Government's
interest. Such certificates must be based on the
personal investigation of the certifying officer at the
time of the making thereof, and not upon prior
certifications.
U.S. GOVERNMENT PRINTING OFFICE 1984 0 437-307
STANDARD FORM 28 BACK (6-66|
78
-------
OMB NO. 9000-0045
DATE BONO EXECUTED • '«'«•• "
Man bid opmtng datm)
BIO BONO
(Stf Inttrucaon* on nvertal
PRINCIPAL ILttal nam* and
VPE 6* oRfiANi2Af ION r'X" on,) •
^ INOIVinUAL Q PARTNERSHIP
^] JOINT VENTURE Q CORPORATION
STATE OF INCORPORATION ~
SURETY (I ES) (Nam* and butlnfu addnu)
PERCENT
OF BIO
PRICE
PENAL SUM OF BONO
AMOUNT NOT TO EXCEED
MILLION(S)
THOUSANO(S)
HUNOREO(S)
CENTS
I BIO IDENTIFICATION
BIO DATE
FOR IConttruction,
Suppllti or Strviettl
INVITATION NO.
OBLIGATION:
We, the Principal and Surety(ies) are firmly bound to the United States of America (hereinafter called the Government) in the above penal
sum. For payment of the penal sum, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally. However,
where the Sureties are corporations acting as co-sureties, we. the Sureties, bind ourselves in such sum "jointly and severally" as well as
"severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself,
jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indi-
cated, the limit o.f liability is the full amount of the penal sum.
CONDITIONS:
The Principal has submitted the bid identified above.
THEREFORE:
The above obligation is void if the Principal — (a) upon acceptance by the Government of the bid identified above, within the period speci-
fied therein for acceptance (sixty (60) days if no period is specified), executes the further contractual documents and gives the bond(s) re-
quired by the terms of the bid as accepted within the time specified (ten (10) days if no period is specified) after receipt of the forms by the
principal; or (b) in the event of failure so to execute such further contractual documents and give such bonds, pays the Government for any
cost of procuring the work which exceeds the amount of the bid.
Each Surety executing this instrument agrees that its obligation is not impaired by any extension(s) of the time for acceptance of the bid
that the Principal may grant to the Government. Notice to the surety(ies) of extension(s) are waived. However, waiver of the notice applies
only to extensions aggregating not more than sixty (60) calendar days in addition to the period originally allowed for acceptance of the bid.
WITNESS:
The Principal and Surety(ies) executed this bid bond and affixed their seals on the above date.
Signature(s)
Name(s) &
Title(s)
fTyp*d)
1.
rstoi)
i.
2.
(S*ol)
2.
Corporate
Seal
INDIVIDUAL SURETIES
Signatured)
Named)
(Typfdl
1.
(Stall
1.
2.
tStol)
2.
CORPORATE SURETY(IES)
| SURETY A
Name&
Address
Signatured)
Named) &
Titled)
(Typtot
1.
1.
STATE OF INC.
2.
LIABILITY LIMIT
$
2.
Corporate
Seal
NSN 7S40-01-1S2-8059
PREVIOUS EDITION NOT USABLE
24-105
STANDARD FORM 24 (REV. 4-85)
Prescribed Dy GSA
FAR (48 CFR S3.22B(«))
-------
CORPORATE SURETY(IES) (Continued)
SURETY B
SURETY C
SURETY D
SURETY E
SURETY F
1 SURETY G
Name 81
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name 81
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
(Typed)
STATE OF INC. LIABILITY LIMIT
$
1.
1.
2.
2.
STATE OF INC. LI ABILITY LIM IT
$
1.
1.
2.
2.
STATE OF INC. LI ABILITY LIMIT
$
1,
1.
2.
2.
STATE OF INC. LIABILITY LIMIT
$
1.
1.
2.
2.
STATE OF INC. LI ABILITY LIMIT
$
1.
1.
2.
2.
STATE OF INC. LIABILITY LIMIT
$
1.
1.
2.
2.
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
INSTRUCTIONS
1. This form is authorized for use when a bid guaranty is required.
Any deviation from this form will require the written approval of
the Administrator of General Services.
2. Insert the full legal name and business address of the Principal in
the space designated "Principal" on the face of the form An
authorized person shall sign the bond. Any person signing in a rep-
resentative capacity (e.g., an attorney-in-fact) must furnish evi-
dence of authority if that representative is not a member of the
firm, partnership, or joint venture, or an officer of the corpora-
tion involved.
3. The bond may express penal sum as a percentage of the bid
price. In these cases, the bond may state a ma U.S. Government Printing Office: I 9BS— 48 1 -648/39343
-------
PERFORMANCE BOND
fStf Inttmctioni on
PRINCIPAL (Lflal namt and biuum*
u•—<" '•<«' <
E OP ORGANIZAVlON ("tf" ant) '
INDIVIDUAL Q PARTNERSHIP
JOINT VENTURE Q] CORPORATION
STATE OF INCORPORATION
SURETY(IES) (Namidl and ftubm* adttrtH(till
PENAL SUM OF BONO
MILUION(S)
THOUSANO(S) (HUNDRED^) [CENTS
CONTRACT DATE CONTRACT NO.
OBLIGATION:
We. the Principal and Surer/lies), are firmly bound to the United States of America (hereinafter called the Government) in the above penal
sum. For payment of the penal sum, w« bind ourselves, our heirs, executors, administrators, and successors, jointly and severally. However,
where the Sureties are corporations acting as co-sureties, we. the Sureties, bind ourselves in such sum "jointly and severally" as well as
"severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself,
jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indi-
cated, the limit of liability is the full amount of the penal sum.
CONDITIONS:
The Principal has entered into the contract identified above.
THEREFORE:
The above obligation is void if the Principal -
(a)(1) Performs and fulfills all the undertakings, covenants, terms, conditions, and agreements of the contract during the original term of
the contract and any extensions thereof that are granted by the Government, with or without notice to the Surety lies), and during the life
of any guaranty required under the contract, and (2) perform and fulfills all the undertakings, covenants, terms conditions, and agreements
of any and all duly authorized modifications of the contract that hereafter are made. Notice of those modifications to the Surety(ies) are
waived.
(b) Pays to the Government the full amount of the taxes imposed by the Government, if the said contract is subject to the Miller Act,
(40 U.S.C. 270a-270e), which are collected, deducted, or withheld from wages paid by the Principal in carrying out the construction con-
tract with respect to which this bond is furnished.
WITNESS:
The Principal and Surety(ies) executed this performance bond and affixed their seals on the above date.
PRINCIPAL
Signatured)
Named) &
Titled)
1.
(Slat)
1.
2.
(Stall
2.
Corporate
Seal
INDIVIDUAL SURETY(IES)
Signatured)
Nanwd)
-------
CORPORATE SURETY(IES) (Continual
SURETY B |
SURETY C
SURETY D
SURETY E
SURETY F
1 SURETY C
Name &
Address
Signatured)
Named) &
Titled)
Name &
Address
Signatured)
Nsme(i) &
Titled)
rTyjwd)
Name&
Addresi
Signatured)
Named) &
Titled)
iTyptd)
NameJ.
Addresi
Signatured)
Named) &
Titled)
(Typed)
Name&
Addresi
Signatured)
Named) &
Titled)
(Typtd>
Name&
Address
Signatured)
Named) &
Titled)
ITypid)
I.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
1.
1.
LIABILITY LIMlt
$
2.
2.
1.
1.
STATE Of INC.
LIABILITY LIMIT
$
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
1- ^
1.
STATE Of INC.
LIABILITY LIMIT
$
2.
2.
Corporate
Seal
Corporate
Seat
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
BONO ^.
PREMIUM W
RATE PER THOUSAND
$
TOTAL
$
INSTRUCTIONS
1. This form is authorized for use in connection with Government
contracts. Any deviation from this form will require the written
approval of the Administrator of General Services.
2. Insert the full legal name and business address of the Principal in
the space designated "Principal" on the face of the form. An
authorization person shall sign the bond. Any person signing in a
representative capacity (e.g., an attomey-in-fact) must furnish evi-
dence of authority if that representative is not a member of the
firm, partnership, or joint venture, or an officer of the corpora-
tion involved.
3. (a) Corporations executing the bond as sureties must appear on
the Department of the Treasury's list of approved sureties and
must act within the limitation listed therein. Where more than one
corporate surety is involved, their names and addresses shall appear
in the spaces (Surety A. Surety B, etc.) headed "CORPORATE
SURETY(IES)" In the space designated "SURETY(IES)" on the
face of the form insert only the letter identification of the sureties.
(b) Where individual sureties are involved, two or more respon-
sible persons shall execute the bond. A completed Affidavit of
Individual Surety (Standard Form 28), for each individual surety.
shall accompany the bond. The Government may require these
sureties to furnish additional substantiating information concerning
their financial capability.
4. Corporations executing the bond shall affix their corporate
seals. Individuals shall execute the bond opposite the word "Corpo-
rate Seal", and shall affix an adhesive seal if executed in Maine,
New Hampshire, or any other jurisdiction requiring adhesive seals.
5. Type the name and title of each person signing this bond in the
space provided.
82
STANDARD FORM 28 BACK (REV. 10-83)
* UJ. OoMntiiMm Prtntlm Offlcai lt««—4»1-«S4/»«"I
-------
PAYMENT BOND
(See Instructions on reverse)
*ecu'
JCIPAL (Legal name and business address)
TYPE OF ORGANIZATION f'X" one; ~
[^INDIVIDUAL [^PARTNERSHIP
[]] JOINT VENTURE [^CORPORATION
STATE OF INCORPORATION
;URETY(IES) (Named) and business addressfes)/
PENAL SUM OF BONO
MILLION(S)
THOUSANO(S)
CONTRACT DATE CONTRACT NO.
HUNDREO(S) CENTS"
OBLIGATION:
We, the Principal and Surety(ies), are firmly bound to the United States of America (hereinafter called the Government) in the above penal
sum. For payment of the penal sum, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally However,
where the Sureties are corporations acting as co-sureties, we, the Sureties, bind ourselves in such sum "jointly and severally" as well as
"severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself.
jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indi-
cated, the limit of liability is the full amount of the penal sum.
CONDITIONS:
The above obligation is void if the Principal promptly makes payment to all persons having a direct relationship with the Principal or a sub-
contractor of the Principal for furnishing labor, material or both in the prosecution of the work provided for in the contract identified
above, and any authorized modifications of the contract that subsequently are made Notice of those modifications to the Surety(ies) are
waived.
WITNESS:
The Principal and Surety(ies) executed this payment bond and affixed their seals on the above date
PRINCIPAL
Signature(s)
Name(s) &
Title(s)
(Typed)
1.
(Seal)
1.
2.
(Seal)
2.
Corporate
Seal
INDIVIDUAL SURETY(IES)
Signaturels)
Name(s)
(Typed)
1.
(Seal)
1.
2.
(Seat)
2.
CORPORATE SURETYIIES)
SURETY A |
Name &
Address
Signature(s)
Namelsl &
Title(s)
(T\oed)
'STATE OF INC. LI ABILITY LIMIT
1 $
1.
1.
2.
2.
Corporate
Seal
NSN 7540-01-152-8061 25204 STANDARD FORM 25-A ( RE V. 10-83)
PREVIOUS EDITION USABLE oo Prescribed By GSA
oJ FAR (48 CFR 53.228
-------
CORPORATE SURETYIIES) (Continued)
SURETY B |
SURETY C
SURETY D
SURETY E
SURETY F
1 SURETY G
Name &
Address
Signature(s)
Name(s) &
Title(s)
ITyped)
Name &
Address
Signaturels)
Name(s) &
Titlels)
(Typed)
Name 81
Address
Signs ture(s)
Name(s) &
Titlels)
(Typed)
Name &
Address
Signature(s)
Name(s) &
Title(s)
ITyped)
Name &
Address
Signaturels)
Namels) &
Titlels)
(Typed)
Name &
Address
Signaturels)
Namels) &
Titlels)
ITyped)
1.
1.
STATE OF INC. '
LIABILITY LIMIT
$
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
2.
2.
1.
1.
STATE OF INC.
LIABILITY LIMIT
$
2.
2.
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
Corporate
Seal
INSTRUCTIONS
1 This form, for the protection of persons supplying labor and
material, is used when a payment bond is required under the Act
of August 24. 1935, 49 Stat 793 (40 USC 270 a-270e) Any
deviation from this form will require the written approval of the
Administrator of General Services.
2. Insert the full legal name and business address of the Principal in
the space designated "Principal" on the fa'H of the form An
authorized person shall sign the bond Any ; '-rson signing m a
representative capacity (e.g , an attorney-m-f* ti r"ust furnish evi-
dence of authority if that representative is i-nt 3 "^"ber of the
firm, partnership, or joint venture, or an " ^' :>\ ;ne corpora-
tion involved.
3 (a) Corporations executing the bond as s .'• ' - s •••••st ai i ^Jr '-n
the Department of the Treasury's list of ui : '• •.'
------- |