As discussed above, surety bonding requirements should be modified for PPP projects to take into account the differences between PPP projects and traditional projects. FTA's Circular on Third Party Contracting Requirements, FTA C 4220.1E, section 11(b)40, requires performance bonds in the amount of 100 percent of the contract price. For payment bonds, section 11(c) of the Circular establishes a sliding scale according to the size of the contract, requiring payment bonds in the amount of $2.5 million for all contracts with a price of $5 million or more being required. Section 11(d) of the Circular does allow the grantee to seek FTA approval for a bonding policy that does not meet these minimum requirements. FTA has granted waivers from the 100 percent bonding requirement in larger design-build and DBOM projects, including Colorado's $1.1 billion T- REX project, New Jersey Transit's River LINE project, and BART's Oakland Airport Connector project.
With larger PPP projects a more flexible approach to bonding is required. While still protecting the government's interests, the requirements should be modified to take into account the maximum amount of bonding available in the market, the risk that requiring very large surety bond amounts may significantly limit the level of competition for large projects, the nature of the risks being addressed, and the alternative forms of surety that the private partner may provide.
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