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Senate May Expand Preferred Contractor Benefits for Local Contractors

Preferential status for local contractors on government contracts will be expanded by further reducing preferential bonding requirements and requiring semi-autonomous government agencies to give preferred provider benefits, if a bill approved in committee Thursday becomes law.

Under the V.I. Preferred Provider Act enacted in 1971, central government contracts entered into by Property and Procurement are required to go to local contractors on a list of preferred providers, even when the local bid is more expensive, as long as the local provider’s bid exceeds the lowest bid by no more than 15 percent. That law, which has been amended several times over the years, also has reduced bonding requirements for preferred providers, with bid bonds capped at 2 percent of the bid amount for up to $300,000, and 5 percent for contracts greater than $500,000. Performance bonds are capped at 25 percent of the bid for preferred providers.

Multiple online sources suggest performance bonds are frequently set at 100 percent of the bid. The bond is purchased and functions like an insurance policy, at a cost of several percent of the project, with the expectation that the bond will not have to be paid out, because the work was performed.

Sen. Diane Capehart, who sponsored the bill [30-0438], said it came about after a meeting last year with five contractors in her office, talking about their difficulties bidding for contracts they could have performed.

"This would actually give the advantage to local contractors on bidding for local contracts … and this further reduces the amount of money required to be put down for surety bond, " Capehart said.

The bill expands the reach of the Preferred Provider Act to include contracts by semi-autonomous agencies that do not rely on the Department of Property and Procurement. That includes the University of the Virgin Islands, the V.I. Water and Power Authority and the territory’s hospitals, among others.

It removes language in the law saying the commissioner of Property and Procurement "may accept forms of surety from preferred bidders other than bid bonds or performance bonds," replacing it with a short list of specific alternative forms of surety, including "a 20 percent cash escrow" of the performance bond cap of 25 percent of the bid.

This would mean that on a $100,000 government contract, a preferred provider could set aside $5,000 in escrow and that would suffice as surety to guarantee performance on the contract.

Several local contractors testified in support of the bill, saying many large construction contracts that local companies are capable of doing are instead going to companies based in Puerto Rico, who bring in employees from Puerto Rico and have greater financial resources.

Local companies can’t do a bond between $2 and $5 million dollars, said Carlos Zenon of Zenon Construction. Don’t be surprised if local contractors start bidding on $20 million projects, Zenon added.

Property and Procurement’s chief of procurement testified against the bill, saying there is already flexibility in the law and that many of the local contractors simply do not want to pay any performance bonds. "The existing law already gives reasonably low bonding requirements," Lloyd Bough Jr. said.

"This bill would lower it further and the government cannot afford it if a contractor defaults on a project," Bough said.

He added that Property and Procurement regularly calls for preferred bidders, "but the bottom line is preferred bidders do not want to put up surety bonds for any amount."

"There is a process with flexibility, and they get this money back, it’s not like you lose it," Bough said. If you complete the work correctly and on time, you get paid and get your money back, he said.

Voting to send the bill on for further consideration in the Rules and Judiciary Committee were Capehart, Sens. Judi Buckley, Clifford Graham, Alicia "Chucky" Hansen and Terrence "Positive" Nelson. Sen. Donald Cole was absent.

The committee voted to hold a bill setting specific, very low prices for residents of Williams Delight to purchase small homes belonging to the V.I. Housing Authority. VIHA Executive Director Robert Graham testified that federal law and regulations governing VIHA preempt anything the local legislature may pass, but that the Williams Delight homeowners could appeal to the U.S. Department of Housing and Urban Development for a waiver.

The legislation violates federal regulations and laws requiring housing agencies to sell property at market prices, among other problems, Graham said.

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