Here are some considerations if you are new to bidding federal projects
The $1.2 trillion Bipartisan Infrastructure Law, also known as the Infrastructure Investment and Jobs Act (IIJA), has many contractors considering federal projects for the first time. Before you dive into the world of federal construction, there are a few key factors you should examine to ensure you are well-equipped and ready for the challenge.
About the Author: Published author, award-winning lawyer, devoted wife and mother, and owner and seasoned managing partner of The Cromeens Law Firm (TCLF), Karalynn Cromeens is a true jack of all trades. She is the co-founder of Morrell Masonry Supply and owner of The Subcontractor Institute, an easy-access online educational platform for contractors. In the 17 years Cromeens has practiced construction, real estate and business law, she has reviewed and explained thousands of subcontracts. Providing education to contractors on a national level has become her personal mission, and she is always doing what she can to help make it a reality.
Federal projects are slow paying
If you are working directly for the government, it could easily be 90 days from the time you submit a pay application to when you get paid. If you are a subcontractor, it could take even longer because of the Pay-When-Paid (PWP) clause. Before taking on a federal project, ensure that your cash flow is steady enough to handle financing your materials and labor for the project for several months after submitting your pay applications.
Federal projects often require bonds
Nearly every federal construction project requires bonds. There are two types: a payment bond and a performance bond. A payment bond guarantees that all your laborers and material suppliers are paid. A performance bond covers the cost of completing your scope of work if you abandon or are terminated from the project.
The law requires that the general contractor acquires a payment bond for federal projects, but the federal government has no duty to make sure that one is actually provided. This is why it is so important to get a copy of the general contractor’s bond before you start work, so you know exactly who you need to contact if you don’t get paid.
The general contractor’s bond company will usually require that all subcontractors “bond back,” which means that they will receive both a payment and performance bond in the full amount of their subcontract that is payable to the general contractor in case they cannot pay their team or complete their work. If you are a subcontractor or material supplier, you must send the general contractor notice of your bond claim. The notice must be sent within 90 days of the last day of work or the last time materials were supplied. While you don’t have to send it to the bond company, you’ll probably have more leverage if you do.
If you rarely sign public works contracts, consider having your contract reviewed by an experienced construction attorney. Even if you do not want to negotiate any of the terms, it’s wise to clearly understand what you are agreeing to do when you sign the contract, and be prepared on the front end.