On November 24, 2021, South Korean tech giant Samsung Electronics announced its selection of Taylor, Texas as the site for its new semiconductor manufacturing facility (Samsung Chip Factory), known as a “fab.” Its $17-billion budget makes it Samsung’s largest investment in the U.S. to date, with $6 billion allocated to buildings and property improvements and $11 billion to machinery and equipment. It is also the largest ever direct investment in Texas by a foreign company.
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Why Taylor for the Samsung Chip Factory?
Taylor was selected by the Samsung Chip Factory for several reasons:
- Taylor is located about 35 miles northeast of Austin, which is home to an existing Samsung plant with over 3,000 employees fabricating sophisticated microchips, allowing the two sites to share some resources.
- The presence of several other tech companies and manufacturing facilities in the Austin area suggests that there is a local talent pool of individuals with some relevant experience.
- Taylor has a stable infrastructure and offers a high degree of government support.
- Samsung was able to negotiate a favorable economic development agreement with Williamson County.
- Texas offered Samsung a $27 million project grant to create jobs, including 2,000 tech jobs.
Although there has been no public announcement regarding the selection of a designer or architect for the new Samsung chip factory, “fab”, as of this writing, groundbreaking is expected to happen before Q3 of 2022. Samsung aims to have the Samsung Chip Factory facility operational by Q3 of 2024.
The Samsung Chip Factory project is expected to provide temporary employment for 6,500 or more construction workers. Under the economic development agreement with the county, the general contractor and subcontractors will be required to hold local recruiting fairs and hire as many Taylor residents as possible. The plant itself will create 2,000 jobs, with the potential to indirectly create thousands of additional jobs in the area.
The Role of Contractor Bonds for Private Construction Projects
There is much at stake with a construction project of this size, making it essential to protect the interests of project owners and investors. Surety bonds have long been the primary way to mitigate the risks inherent in large construction projects, such as the risk that a contractor will default without completing a job or will fail to meet contract specifications. Performance bonds have been required by law for federally funded projects since 1893, and the Miller Act of 1932 made both performance and payment bonds mandatory for all federal construction contracts valued at more than $100,000. And individual states have passed “Little Miller Acts” requiring performance and payment bonds for state-funded public works projects. In recent years, owners of private construction projects have required their contractors to provide them with similar protection.
Contractors default for several common reasons, such as underbidding a project, inadequate cash flow, poor management, faulty planning, or overcommitting their resources or because of such unforeseen problems as supply chain disruptions and changes in the economic environment. Private project owners can minimize the impact of contractor nonperformance or default by requiring contractors to purchase certain construction surety bonds, most notably bid bonds, performance bonds, and payment bonds. These bonds shift the financial risk from the project owner to a surety, which usually is a division or affiliate of an insurance company.
Advertising a large construction project for bid, soliciting and reviewing proposals, and selecting the lowest qualified bidder can be a time-consuming and labor-intensive undertaking. Requiring the contractors competing for a job to purchase a bid bond ensures the effort does not need to be repeated because the winning contractor ends up refusing the contract or is unable to qualify for the performance bond–that the winning contractor is required to put up as a condition of contract award.
Performance bonds obligate a contractor to complete a project in accordance with contractual requirements and applicable quality standards. If the contractor declares default or the project owner declares the contractor to be in default, it’s up to the surety to come up with a solution. Possible solutions include:
- Takeover, which puts the surety in charge of the project in place of the defaulting contractor, usually with the goal of finding another contractor to complete what remains of the work.
- Tender, which involves the surety tendering a new contractor for the project owner’s approval, without the surety taking control of the project. The surety may pay damages to the project owner or pay the new contractor more than is left on the original contract.
- Providing technical or financial assistance to enable the original contractor to avoid default and complete the project.
- Obligee completion, in which the project owner finds a new contractor without the surety’s help and is compensated for losses resulting from the original contractor’s default.
Payment bonds guarantee the contractor will pay subcontractors and suppliers according to the terms of the contract. A contractor does not have to be in default, just behind on such payments, for a subcontractor or supplier to file a claim for nonpayment.
Your private project need not be as large as the Samsung Chip Factory project to make construction surety bonds a good idea. There are several other types of construction or contractor bonds in addition to the ones described here. Check these out on our construction bond page.
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