Issues Involving Surety for Public Transportation Projects (2012)

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96 APPENDIX C—SURVEY ON SURETY BONDING TO TRANSIT AGENCIES Name of Agency: ______________________________________________________________________________ City in which the Agency is headquartered:_________________________________________________________________ Name and Title of Agency representative completing questionnaire:__________________________________________________________________ Representative’s length of employment with Agency:______________________________________________________________________ Would you be willing to be contacted for follow-up information relative to this survey, and if so, would you please provide appropriate contact information (e.g., telephone or email)? _____________________________________________________________________________ ******************************************************************************************* Some of the questions in this survey may seem to request answers given in another sec- tion. We would appreciate your answering the question nonetheless, as it will help us in organizing and categorizing the overall responses. Please indicate “N/A” (not applicable) where appropriate. SECTION ONE: CONSTRUCTION PROJECT DELIVERY SYSTEMS 1. This survey assumes that your Agency’s standard delivery approach for construction pro- jects is design-bid-build (DBB), where your Agency has a contract with a design profes- sional for 100% design of the project and a lump sum contract with a general contractor based upon its obligation to perform 100% of the construction associated with such design. Relative to your Agency’s use of DBB, place a check next to any of the following that your Agency has the authority to use on a DBB project: Prequalification (i.e., prequalifying general contractors before accepting bids) Shortlisting (i.e., reducing the field of general contractors who will be invited to submit by evaluating their qualifications) Non-low bid selection (i.e., selecting a general contractor that is not the low bidder) 2. If you checked any of the boxes in Question 1 above, please explain the circumstances (e.g., dollar value, project complexity, etc.) when your Agency is able to use these techniques on a DBB project. Prequalification ____________________________________________________________________________________ ____________________________________________________________________________________ _____________________

97 Shortlisting: ______________________________________________________________________________ ______________________________________________________________________________ __________________________________________________ Non-low bid selection: _____________________________________________________ ______________________________________________________________________________ __________________________________________________________________ 3. If you checked any of the boxes in Question 1 above, place a check next to those that your Agency has actually used to date on a DBB project. Prequalification Shortlisting Non-low bid selection 4. Place a check next to each project delivery system (“Alternative Delivery System”) your Agency is authorized to use for construction projects. Design-build (DB) Construction management at risk (CMAR) Design-build-operate-maintain (DBOM) Design-build-finance-operate-maintain (DBFOM) Any alternative delivery systems not mentioned above (if applica- ble):______________________________________________________________ 5. Of the Alternative Delivery Systems your Agency is authorized to use, place a check next to those that your Agency has actually used to date. Design-build (DB) Construction management at risk (CMAR) Design-build-operate-maintain (DBOM) Design-build-finance-operate-maintain (DBFOM) Any alternative delivery systems not mentioned above (if applica- ble):______________________________________________________________ 6. Of the following Alternative Delivery Systems, place a check next to those that your Agency requires the successful bidder/proposer to provide either a bid/proposal bond or some other form of security that it will execute the contract (e.g., letter of credit, parent guarantee). Design-build (DB) Construction management at risk (CMAR) Design-build-operate-maintain (DBOM) Design-build-finance-operate-maintain (DBFOM) Any other alternative delivery systems not mentioned above (if applica- ble):______________________________________________________________

98 7. For those Alternative Delivery Systems you checked in Question 6 above relative to bid/proposal security, place a check next to those that your Agency has the ability to waive the requirement for such security. Design-build (DB) Construction management at risk (CMAR) Design-build-operate-maintain (DBOM) Design-build-finance-operate-maintain (DBFOM) Any other alternative delivery systems not mentioned above (if applica- ble):______________________________________________________________ SECTION TWO: USE OF PERFORMANCE AND PAYMENT BONDS ON DBB PROJECTS 1. Does your Agency require the general contractor on a DBB project to provide a performance bond with a penal sum in the amount of 100% of the contract price? Yes No 2. If your answer to Question 1 was yes, does your Agency have the authority to waive this requirement, and if so, what are the circumstances? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 3. If your answer to Question 1 was no, does your Agency require any other form of perform- ance security (e.g., letter of credit, parent guarantee)? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ______________________________________________________ 4. Does your Agency require the general contractor on a DBB project to provide a payment bond in the amount of 100% of the contract price? Yes No 5. If your answer to Question 4 was yes, does your Agency have the authority to waive this requirement, and if so, what are the circumstances? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 6. If your answer to Question 4 was no, does your Agency require any other form of security (e.g., letter of credit, parent guarantee)? ____________________________________________________________________________________

99 ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 7. If your answer to Question 4 was no, because your Agency requires the general contractor to provide a payment bond in an amount less than 100% of the contract price, what is the amount of the payment bond in relation to the contract price? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ SECTION THREE: USE OF PERFORMANCE AND PAYMENT BONDS ON ALTERNATIVE DELIVERY SYSTEMS FOR CONSTRUCTION PROJECTS 1. If your Agency is authorized to use design-build (DB), place a check next to the responses below relative to your Agency’s policies and/or requirements for performance bonds: Our Agency’s policies on performance bonds for DB projects are identical to our poli- cies for DBB projects. Our Agency’s policies on performance bonds for DB projects are different than our policies for DBB projects. Our Agency has not specifically addressed our policies on performance bonds for DB projects. Our Agency does not require that performance bonds on a DB project cover the de- sign component of the work. Our Agency allows performance bonds to be less than 100% of the contract price on projects that are over a specific dollar size. 2. If your answer to Question 1 was that your policies on performance bonds for DB projects are different from those on DBB projects, please describe the primary differences. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 3. If your Agency is authorized to use DB, place a check next to the responses below relative to your Agency’s policies and/or requirements for payment bonds: Our Agency’s policies on payment bonds for DB projects are identical to our policies for DBB projects. Our Agency’s policies on payment bonds for DB projects are different than our poli- cies for DBB projects. Our Agency has not specifically addressed our policies on payment bonds for DB pro- jects.

100 Our Agency allows payment bonds to be less than 100% of the contract price on DB projects that are over a specific dollar size. 4. If your Agency is authorized to use construction management at risk (CMAR), place a check next to the responses below relative to your Agency’s policies and/or requirements for per- formance bonds: Our Agency’s policies on performance bonds for CMAR projects are identical to our policies for DBB projects. Our Agency’s policies on performance bonds for CMAR projects are different than our policies for DBB projects. Our Agency has not specifically addressed our policies on performance bonds for CMAR projects. Our Agency requires that the CMAR contractor provide a performance bond on or before the date of contract award in the estimated value of the contract price (or, as applicable, guaranteed maximum price). Our Agency does not require the CMAR contractor to provide a performance bond until the full contract price (or, as applicable, guaranteed maximum price) has been established, even if this is after the date of contract award. Our Agency allows the CMAR contractor to provide a performance bond for only the value of its services (e.g., general conditions, self-performed work and fees), and re- quires that each trade subcontractor to the CMAR contractor provide a bond that runs in favor of both the Agency and the CMAR contractor. 5. If your answer to Question 4 was that your policies on performance bonds for CMAR pro- jects are different from those on DBB projects, please describe the primary differences. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 6. If your Agency is authorized to use CMAR, place a check next to the responses below rela- tive to your Agency’s policies and/or requirements for payment bonds: Our Agency’s policies on payment bonds for CMAR projects are identical to our poli- cies for DBB projects. Our Agency’s policies on payment bonds for CMAR projects are different than our policies for DBB projects. Our Agency has not specifically addressed our policies on payment bonds for CMAR projects. Our Agency allows payment bonds to be less than 100% of the contract price (or, if applicable, guaranteed maximum price) on CMAR projects that are over a specific dollar size. 7. If your Agency is authorized to use either DBOM or DBFOM project delivery, place a check next to the responses below that are applicable:

101 Our Agency mandates the type of performance security the contracting entity will require from the DB contractor (e.g., 100% performance and payment bonds, letters of credit). Our Agency allows the contracting entity with discretion to determine whether and how to secure the performance of the DB contractor. Our Agency requires the DBOM and/or DBFOM contracting entity to provide 100% performance bonds. Our Agency requires the DBOM and/or DBFOM contracting entity to provide 100% payment bonds. 8. Are you aware of any construction project undertaken by your Agency that used DB (or any other Alternative Delivery System where the contractor was in privy of contract with the designer) where a surety was unwilling to bond the design component of the work, resulting in only the construction work being bonded? If so, please identify the project and approxi- mate dollar value of the project. ____________________________________________________________________________________ ____________________________________________________________________________________ __________________________________________________________________ 9. Is there a contract price under any Alternative Delivery System in which your Agency has the authority to consider using a performance bond in a penal sum that is less than 100% of the contract price? Yes No 10. If your answer to Question 9 was yes, what is the dollar value of such contract price? ______________________________________________________________________________ 11. If your answer to Question 9 was yes, has your Agency actually executed a contract where it allowed a penal sum performance bond less than 100% of the contract price? ______________________________________________________________________________ 12. If your answer to Question 11 was yes, give project-specific examples of the amounts of the penal sum of the performance bond in terms of either a percentage of the contract value or specified dollar value. ____________________________________________________________________________________ ____________________________________________________________________________________ __________________________________________________________________ 13. If your answer to Question 11 was yes, did your Agency require the contracting entity to provide other security in addition to the reduced performance bond (e.g., parent guarantees or letters of credit) to support the obligations of the contracting entity? ____________________________________________________________________________________ ____________________________________________________________________________________ __________________________________________________________________ 14. If your answer to Question 11 was yes, place a check next to the responses that described how your Agency established a performance bond amount less than 100% of the contract price.

102 Our Agency applied a specific formula to determine the amount of the bond. Our Agency conducted an assessment of the likely loss in the event of a default to determine the amount of the bond. Our Agency relied heavily on what the surety market told us regarding available bonding capacity. Our Agency’s finance/treasury department heavily influenced the amount of the bond. Our Agency has guidance memoranda that assist in determining the amount of the bond. Other: _________________________________________________________________ 15. If your answer to Question 11 was yes, was the value of the payment bond equivalent to the value of the performance bond? No Yes 16. If your answer to Question 11 was yes, what, if any, process did you use to arrive at the value of the payment bond? _____________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ 17. Has your Agency ever de-bundled or reduced the scope of a contract to ensure that your Agency could create a market to obtain a 100% performance bond? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 18. Under what circumstance, if any, does your Agency use an alternate form of security (e.g., letters of credit and corporate guarantees) in lieu of performance and payment bonds on its construction projects? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 19. How would you rank the following instruments in providing your Agency with the fullest protection of contractor performance on a project delivered through an Alternative Delivery System? (“3” being most effective, “1” being least effective) Letter of Credit in the amount of 10% of the contract price ___ Parent Guarantee of all of the obligations of the contractor ___ Performance bond for 100% of the contract price ___ 20. If you ranked the 100% performance bond as anything other than “most effective,” please state why you deem other security instrument(s) superior to the performance bond.

103 ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 21. Has your Agency ever allowed a contracting entity to use a security other than a perform- ance bond (e.g., letter of credit or parent guarantee), yet still required the contracting entity to furnish a payment bond? No Yes 22. If your answer to Question 21 was no, did your Agency permit the contracting entity to pro- vide something other than a payment bond to protect the interests of lower tier subcontrac- tors and suppliers that would otherwise have been protected by a payment bond? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 23. If your answer to Question 21 was yes, give project-specific examples of the amounts of the payment bond in terms of either a percentage of the contract value or specified dollar value. ____________________________________________________________________________________ ________________________________________________________________________ 24. Has your Agency ever required a contractor to provide a warranty bond in an amount less than the performance bond to protect the Agency for warranty obligations of the contractor? No Yes 25. If the answer to Question 24 was yes, describe the process that your Agency went through to assess the amount and terms of the warranty bond? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ SECTION FOUR: USE OF PERFORMANCE AND PAYMENT BONDS ON CONSTRUCTION PROJECTS THAT ARE FUNDED BY FTA 1. In the past ten (10) years, has your Agency requested FTA to approve the use of a performance and payment bond less than 100% of the contract value on any construction project? No Yes 2. If your answer to Question 1 was yes, for how many projects has your Agency requested such approval? 1 2–4

104 5 or more 3. If your answer to Question 1 was yes, how many such requests were approved by FTA? All of our requests were approved Most of our requests were approved None of our requests were approved 4. If your answer to Question 1 was yes, which of the following delivery systems were used on those projects? Design-Bid-Build Design-Build Construction Management at Risk Other Alternative Delivery System _________________ 5. If your answer to Question 1 was yes, for those projects where FTA approved an amount less than 100% of the value of the contract, what was that amount in terms of either a per- centage of the contract value or an actual dollar amount? ____________________________________________________________________________________ ________________________________________________________________________ SECTION FIVE: USE OF PERFORMANCE AND PAYMENT BONDS ON LARGE CONSTRUCTION PROJECTS 1. How many construction contracts has your Agency executed over the past ten (10) years that have a contract value in excess of $200 million? 0 1 2–4 5 or more 2. If your Agency entered into at least one construction contract in excess of $200 million within the past ten (10) years, which of the following delivery systems were used on that project? Design-Bid-Build Design-Build Construction Management at Risk Other Alternative Delivery System 3. If your Agency entered into at least one construction contract in excess of $200 million within the past ten (10) years, did you ever use something other than a performance and payment bond with penal sums in the amounts of 100% of the contract value? No Yes

105 4. If your answer to Question 3 was yes, please identify the project and the amount of the per- formance and payment bonds. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 5. If your Agency entered into at least one construction contract in excess of $200 million within the past ten (10) years, using a delivery form other than DBB, how often did you re- quire bid or proposal bonds? Always Often Sometimes Never 6. If your Agency entered into at least one construction contract in excess of $200 million within the past ten (10) years, and you allowed the contracting entity to provide something other than 100% performance and payment bonds, what were the primary reasons for doing so? The surety market did not have the capacity to support providing bonds for 100% of the contract value. Requiring 100% bonds would have negatively impacted competition. The scope of the work included financing, which the surety market would not cover. The scope of the work included design, which the surety market would not cover. The scope of the work included long term warranties, which the surety market would not cover. Other _____________________________________________ 7. Are you aware of any time in which your Agency had to make demand on a surety under a performance bond for a construction project that had a contract value in excess of $200 mil- lion? No Yes 8. If your answer to Question 51 was yes, please identify the project and whether the surety performed its obligations. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 9. Are you aware of any time in which a surety on one of your Agency’s projects failed to honor its payment bond obligations to unpaid suppliers on a construction project that had a con- tract value in excess of $200 million? No Yes

106 10. If your answer to Question 9 was yes, please identify the project and describe the eventual outcome. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ SECTION SIX: BONDS FOR NON-CONSTRUCTION CONTRACTS 1. Does your Agency have any policies that require the contracting entity to provide your Agency with performance and/or payment bonds for any non-construction contract? No Yes 2. If you answered yes to Question 1, what are the types of procurements to which these poli- cies apply? ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 3. If you answered yes to Question 1, are these policies substantially the same as the policies your Agency has for DBB construction projects? No Yes 4. If you answered no to Question 3, please explain how your Agency’s policies for non- construction procurements differ from your Agency’s policies for DBB projects. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 5. Has your Agency ever required a performance and/or payment bond for a rolling stock pro- curement? No Yes 6. If you answered yes to Question 5, please provide a description of a representative pro- curement and the type and amount of the bonds. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 7. Has your Agency ever required a performance and/or payment bond for a bus procurement? No Yes

107 8. If you answered yes to Question 7, please provide a description of a representative pro- curement and the type and amount of the bonds. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ______________________________________________________ 9. Has your Agency ever required a performance and/or payment bond for an operations and maintenance contract? No Yes 10. If you answered yes to Question 9, please provide a description of a representative pro- curement and the type and amount of the bonds. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ______________________________________________________ 11. Has your Agency ever required a performance and/or payment bond for hardware, software or other IT contract? No Yes 12. If you answered yes to Question 11, please provide a description of a representative pro- curement and the type and amount of the bonds. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ 13. Has your Agency ever required a performance and/or payment bond for train control sys- tems? No Yes 14. If you answered yes to Question 13, please provide a description of a representative pro- curement and the type and amount of the bonds. ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________________________________ ____________________________________________________________ END OF SURVEY WE SINCERELY APPRECIATE YOUR HELP ******************************************************************************