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C. Maintenance Contracting 1. Performance bond requirement. A governmental entity that enters into a public works contract with a prime
contractor must require the contractor, before beginning the work, to execute
with the governmental entity a performance bond if the contract is in excess of
$100,000. The performance bond is solely for the protection of the state or
governmental entity awarding the contract. The performance bond must be in the
amount of the contract and conditioned on the faithful performance of the work
in accordance with specifications and contract documents. However, TxDOT is not
authorized to require a performance bond for contracts under $100,000. Under the recent direction of the Texas Legislature, TxDOT has increased the
amount of maintenance work contracted out to over 50 percent. Many of these
maintenance projects are typically $100,000 or less, which in turn has increased
the number of projects that have no performance bond. When a contractor defaults
on a project under $100,000, the work must be re-advertised for bid or performed
by state employees. Most maintenance work must be performed in a timely manner.
If the work is not performed, unsafe conditions may exist or develop. Reducing the number of defaults on maintenance contracts is a high department
priority. Of the 2,300 maintenance contracts that were awarded during fiscal
years 1996 and 1997, eighty percent were unbonded. The default rate in fiscal
year 1996 was 1.8 percent, but it increased to 4.3% in 1997, an increase of over
240 percent. When no bonds are posted or retainage withheld, contractors can
walk away from a contract, thereby leaving the state without financial recourse. While the ability to require performance bonds will add to a contractor’s cost,
it will also protect the department in cases where a contractor defaults.
Currently, when there is a default on contracts with no performance bond
attached, the department must either finish the work with state forces, execute
an emergency contract or re-let another routine maintenance contract. In each
instance, it costs TxDOT time and money. According to information supplied by several surety companies, the cost of a
performance bond is $9.40 for each $1,000 of a contract. Therefore a contract of
$80,000 would require a performance bond costing $752. It is TxDOT’s expectation
that this cost will be passed on to TxDOT by a contractor as an added overhead
cost. However, from
TxDOT’s perspective, absorbing this $752 is worthwhile to insure the timely
completion of the contract in the event of a default. The department does not
believe that this proposal would have a significant impact on maintenance
contractors. Possible statutory change: Require performance bonds on contracts of $25,000
instead of the current $100,000. 2. Award of contract to second bidder. TxDOT is currently required to award maintenance contracts only to the lowest
bidder. However, when a low bidder indicates after letting but prior to award of
a contract that it has no intention of performing the contract, the department
is still required by statute to award the contract to that contractor anyway. In
these cases, the department must let the
default take place, then relet the contract. This could be solved by allowing
the Commission to award the contract to the second bidder without ever awarding
it to the first low bidder. However, this option must be left to the discretion
of the Commission because such a scenario could invite collusion between the
first bidder and the second bidder.
Possible statutory change: Allow the Commission to award a maintenance contract
to the second low bidder under rules
determined by the Commission. |
