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Funds for Broadband Infrastructure Bill Development
The infrastructure investment and JOBS Act (IIJA) set aside $65 billion for broadband infrastructure bill deployment and affordability. The Broadband Equity, Access, and Deployment (BEAD) program will be distributing $42.45 billion of those funds to states and territories through the Office of Internet Connectivity and Growth within the National Telecommunications and Information Administration (NTIA). An additional $2 billion will be provided by NTIA through its Tribal Broadband Connectivity Program for broadband deployment and related services on tribal lands. And another $2 billion for broadband development will be distributed through the Department of Agriculture’s Rural Utilities Service, the Distance Learning, Telemedicine, and Broadband program.
It’s an investment that will make a tremendous difference in the lives of people living in previously unserved or underserved areas with little or no access to broadband Internet service.
Encouragement for Public-Private Partnerships
IIJA specifically encourages states to promote partnerships between public and private entities to plan and execute infrastructure projects, including broadband projects. It designates certain broadband projects as eligible activities for which state and local governments can issue tax-exempt private activities bonds to finance projects in partnership with the private sector.
Payment and Performance Security Issues
Public-private partnerships, commonly known as P3s, historically have fallen into a gray area when it comes to construction bonding. Construction firms bidding on publicly-funded projects have been subject to performance and payment bonding requirements since the passage of the federal Miller Act in 1935. Most states subsequently passed their own “Little Miller Acts” to obtain the same financial protections for state-funded projects. The picture gets a little murkier when a project is jointly sponsored by public and private entities.
While the details of IIJA were still being hammered out in Congress, organizations like the American Subcontractors Association (ASA), the National Association of Surety Board Producers (NASBP), the Surety & Fidelity Association of America (SFAA) and American Property Casualty Insurance Association (APCIA) were writing to various Departments and Offices within the federal government, offering their support for infrastructure initiatives. They also offered advice and suggestions regarding security for the funds used to finance infrastructure projects.
For example, in a March 2021 joint letter to the U.S. Senate Committee on Commerce, Science, and Transportation, SFAA, NASBP, and APCIA stated, “We want to underscore our support for the inclusion of performance and payment bonds as a form of security for the construction portion of rural broadband infrastructure projects.” At the time, the FCC’s form of security required from internet service providers (ISPs) bidding on broadband auctions was a letter of credit that would protect the government’s funds if the winning ISP did not meet project milestones. The letter pointed out that small businesses might not have the capital to tie up as collateral for a letter of credit and suggested that a performance surety bond should be considered as an alternative to a letter of credit.
A similar letter, written by ASA, NASBP, and CIPC to the United States Department of Agriculture, also praised the intent to bring broadband to rural America and recommended performance bonding as a way to enable smaller ISPs to participate.
The final version of IIJA includes a rule requiring payment and performance bonding on all federally financed infrastructure projects receiving loans and grants.
Why Payment and Performance Bonding?
The authors of these letters advanced a two-point case for a bonding requirement as an alternative to letters of credit:
- Prequalification of bidders—The underwriting process required to obtain construction bonds ensures that the bond applicant capable of performing the work if chosen as the winning bidder. This determination takes into account the applicant’s financial strength, industry experience, and capabilities.
- Third-party guarantee—In the event that a bonded ISP or other contractor (the bond’s “principal”) does not complete the work as required, the bond’s guarantor (the “surety”) will ensure the project owner (the “obligee”) is compensated for monetary losses and the project is ultimately completed for the contract value agreed upon. In some cases, rather than paying the project owner directly, the surety will take over the project and see it through to successful completion.
Payment bonds provide similar financial protection for a contractor’s suppliers, workers, and subcontractors, giving them a way to be compensated if the contractor fails to pay them according to contractual terms.
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