Six Key Things Contractors Should Know Before Bidding on Public Projects

U.S. President Joe Biden recently announced a$2.3 trillion infrastructure spending proposal—the "American Jobs Plan"—promising billions of dollars in construction contracts for businesses across the country. Meanwhile, the industry is still assessing the post-pandemic economic direction.

The plan proposes $621 billion for transportation infrastructure and $689 billion for buildings and utilities.

Additionally, the Biden administration has submitted to Congress a$1.52 trillion discretionary spending proposal for fiscal year 2022, as a precursor to the full budget request, which includes:

• $3.6 billion for water infrastructure improvements;
• $6.8 billion for the U.S. Army Corps of Engineers civil works program;
• $2 billion for federal building construction projects;
• $10.2 billion for the National Science Foundation, part of which will go toward new research facilities.

So it's no surprise that private contractors are eager to get their hands on upcoming public-funded projects. In fact, the prelude to a wave of bids on potential public projects is beginning to echo the scenes of 2008 and the Great Recession, notes attorney Lori Ann Lange. She is a partner and co-chair of the government contracts and infrastructure practice at Peckar & Abramson.

In response to the financial crisis, the administration of former President Barack Obama pushed through the American Recovery and Reinvestment Act of 2009, which included$105 billion in infrastructure investment。

"This happens whenever the commercial market declines," Lange says. "In the past few months, we've already seen—clients who only occasionally do federal projects are starting to seriously pursue federal work."

She adds that these interested contractors typically contact the firm to ask what conditions they need to meet to qualify for bidding, or simply call and say, "Hey, I got the contract, what do I do next?"

New bid sources

Lange points out that the federal government is initially pleased to see more additional bids because new competition often drives contract prices lower than agencies expect. However, some contractors new to federal work don't always understand their obligations, creating administrative headaches for themselves and contracting officers.

She says that aside from online information sessions and seminars hosted by contractor associations and the Small Business Administration, new federal contractors typically don't get much help in figuring out the rules, though some contracting offices are relatively more accommodating.

"They let contractors figure it out on their own," Lange says.

Here are key considerations for contractors before bidding on publicly funded projects:

1. Qualification applications

Attorney Lisa Colon says the earlier the preparation, the better. She is a partner in the Fort Lauderdale, Florida office of Saul Ewing Arnstein & Lehr. She notes that state and federal contracting agencies require time-consuming qualification applications to review, and depending on the project's jurisdiction, additional county and city requirements may apply.

2. Unfamiliar contract language and structure

Lange says that even the most experienced private contractors can feel confused when evaluating government contracts. Many clauses are incorporated by reference rather than fully listed, truly requiring experts to carefully review them.

"They're used to having a complete document in front of them," Lange says.

She also notes that there is almost no room for negotiation on contract terms. "The price might be negotiable, but it's not like a commercial contract where, if you don't like a clause, you can propose alternative wording. In public contracts, that simply doesn't exist."

3. Construction methods

Lange points out that in many commercial projects, owners typically don't care what construction methods are used as long as plans and specifications are met. But that's not the case with public projects, and contractors may need to accept giving up some control.

"Whether it's the federal government, state government, or local government, the owner equally cares about how you actually perform the work," Lange says. "This may be hidden in the statement of work within the specifications. I think contractors sometimes don't realize how serious the government is about this."

4. Bidding

Colon says that when bidding on private projects, contractors don't necessarily know who their competitors are, but public contracts are completely different. "Private owners have no obligation to let you know whether others are competing for your bid, while public bidding is fully transparent—all your information, all your bids are made public."

Construction consultant Wally Adamchik, president of FireStarter Speaking and Consulting, notes that in the race to win the lowest price, contractors may omit key parts when cutting bid costs. "And you have to be accountable for that," he says.

Contractors familiar with public works might be able to recover potential losses through a detailed change order process, but companies new to the public sector may not realize this is the norm. "They don't know what they don't know," he says.

In some regions, public works bidding has become technical, with some agencies relying on services like Onvia DemandStar, Bidsearch, and EZGovOps to register bidders and publish RFPs and other bid documents.

5. Surety bonds

Most significant government projects require contractors to provide performance and payment bonds (i.e., surety bonds), typically in the amount of the contract. To qualify for bonding, contractors must apply through a broker to a surety company and undergo a fairly rigorous review process.

If a contractor fails to perform or fails to pay bills, the surety company assumes those obligations.

Some contractors new to the bonding process may confuse it with insurance, as some brokers offer both. But unlike general liability insurance—where the insurer pays as long as the policyholder pays premiums—surety companies, when a claim is paid, seek reimbursement from the company and its owners, officers, or any guarantors.

Andy Thome, CEO of J.W. Terrill (a Marsh and McLennan Agency company based in St. Louis), says contractors must provide company background, project types, financial documents, and statements reflecting stability and a track record of success before obtaining bonds. Companies that have never been bonded may be surprised by the level of financial and operational detail required in the application.

"If you've only been doing private projects and don't borrow heavily, the level of financial documents you get from a bookkeeper or CPA is often not sufficient to reassure others," he says.

Thome notes that on the positive side, the bonding process is sometimes the first time a company seriously examines its own financial situation.

David Freda, a partner at accounting and consulting firm Grassi, says surety companies want to see financial strength, including cash liquidity. If a company isn't financially strong enough, or wants to bid on projects where it lacks experience, one option is to partner with a company that has those qualifications.

6. Compliance

Colon points out that contractors who have never worked on public projects will face a host of regulations they must comply with. Prompt payment rules, Davis-Bacon certified payroll reports reflecting prevailing wage and benefit payments, disadvantaged business enterprise and minority hiring goals—these are just some of the rules that come with public contracts.

"For public works," she says, "there are just so many layers of compliance."