Intended to help California reach its carbon reduction goals when completed in 2023, the Edwards Sanborn solar storage facility is expected to be the largest integrated solar-powered battery storage installation in the world! Terra-Gen, LLC, a leading independent renewable energy provider, is the project owner for the Edwards Sanborn solar storage facility and energy storage project, which is under construction on a 6,000-acre site in Kern County, California.
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The Goal for the Edwards Sanborn Solar Storage Facility
The project involves the development of a PV solar facility and all the infrastructure to support it—service roads, transmission lines both above and below ground, a conversion station, solar arrays, substation, battery storage, operations and maintenance facilities, interconnecting power (“gen-tie”) lines, etc.
It will provide clean energy for more than 158,000 households and keep at least 307,000 tons of carbon dioxide out of the atmosphere every year (the amount of CO2 from a comparable amount of traditionally generated electricity). The total estimated cost of the project is $1.15 billion, financed through a variety of funding sources.
The Role of Contractor Bonds for Private Construction Projects
Large construction jobs have a lot of moving parts and management challenges that can result in delays and increased cost or completely derail a project. With millions or even billions of dollars at stake, careful risk analysis and proven strategies for risk management and mitigation are essential to protect the interests of project owners and investors. Surety bonds have long been a key risk mitigation strategy for large construction projects.
Since 1893, performance bonds have been required by law for federally-funded projects. The Miller Act of 1932 mandates both performance and payment bonds for all federally-funded construction contracts with a value in excess of $100,000. In the years since, individual states adopted the same approach and passed their own “Little Miller Acts” making performance and payment bonds mandatory for state-funded construction projects. Today, many private project owners are requiring their contractors to purchase surety bonds to provide them financial protection against contractor default or nonperformance.
The most common reasons for contractor default are:
- Bidding too low
- Insufficient cash flow
- Poor project management
- Inadequate planning/lack of contingency planning
- Taking on too many projects simultaneously
- Labor disputes
- Supply chain disruptions
- Changes in the general economy
Many potential problems can be anticipated, but not all. There will always be some degree of risk in any construction project. That’s why owners of private projects are following the example of the public sector and requiring contractors to purchase certain types of bonds to transfer financial risk to a surety (typically an insurance company or a division or subsidiary of an insurance company).
Bid Bonds
The process of selecting a contractor through competitive bidding can be complex and time-consuming. No project owner wants to have to repeat it because their first choice ultimately doesn’t accept the contract or is unable to qualify for the necessary performance bond. Sometimes contractors realize only after being selected that they bid too low and can’t afford to take on the job at the price they quoted. Or they find they cannot get approved for a performance bond. In such cases, the bid bond provides funds for the project owner to go through the contractor selection process again.
Performance Bonds
A performance bond obligates a contractor to complete a project to the owner’s satisfaction, meeting all contract specifications and quality standards. A contractor who fails to do so can be declared in default by the project owner, or can self-declare default. The surety then must come up with the best way to resolve the situation. Possible remedies include:
- Takeover—a practice in which the surety takes charge of the project, usually for the purpose of finding another contractor that will work under the surety’s oversight to complete the remainder of the work.
- Tender—the surety tenders a new contractor for the project owner’s approval, but does not take over control of the project, potentially paying damages to the project owner or paying the new contractor more than the amount remaining on the original contract.
- Providing the original contractor with technical or financial assistance to avoid default and complete the project.
- Obligee completion—compensating the project owner for losses resulting from the original contractor’s default, so the project owner can find a new contractor without the surety’s involvement.
Payment Bonds
Payment bonds ensure the payment of subcontractors and suppliers according to the payment schedule established for the project. Subcontractors and suppliers can file claims once the contractor falls behind on payments, without there being a declaration of default.
There are several other types of construction or contractor bonds that a project owner might consider requiring, such as maintenance bonds, retention bonds, and completion bonds.
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