Many PPP projects are of such a size (more than $100 million) that small contractors may have difficulty obtaining financing. And, even if a smaller contractor had the financing capacity, the level of financial risk would negatively affect its bonding capacity. Performance bonding is an important element to a PPP, as it provides the public sector some assurance that a project will get completed if the concessionaire has financial difficulty.
In its Report to Congress on Public-Private Partnerships (2004), U.S.DOT identified bonding capacity and warranty requirements as potential impediments to small businesses competing for PPP projects. This concern was echoed at a House Committee on Transportation and Infrastructure hearing on innovative contracting (April 2007) by various industry representatives. According to Thomas (2007), few sureties are willing to accept risk exceeding $250 million under any given bond. This situation is further affected by the requirement for extended warranties in many of these PPP projects. Warranties require larger bonds, driving project costs up, limiting participation as prime contractors of small and mid-sized companies. However, these companies can and do still participate as subcontractors.
In contrast, an FHWA representative stated in his testimony that, in the case of design-build, the higher bond requirements, among other factors, do not appear to affect small businesses participation (Ray 2007). In his written testimony, Ray indicated that data on design-build contracting show that "the percentage of design-build project costs going to small businesses is almost the same, on average, as the amount under the traditional design-bid-build" contracting.
A related concern is that states need to verify that their performance and payment bond statues allow flexibility that the private sector can respond to, because the amount and term of typical state statute bonds are not available in the marketplace.