If there was ever a cautionary tale illustrating what can go wrong with a construction project, this is it—the US-Mexico border wall that was a major campaign promise and presidential goal of Donald Trump. Despite Trump’s insistence that Mexico would pay for the US-Mexico border wall, U.S. taxpayers paid for all construction work on the border wall.
One of Trump’s first actions in office was to sign an executive order in January 2017 directing the federal government to begin work on the US-Mexico border wall using existing federal funding, but construction only started in June 2018. Upon his inauguration in 2021, President Biden halted all construction on the border wall.
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Funding Issues for the US-Mexico Border Wall
The Department of Homeland Security estimated the original cost of the border wall in early 2017 at $21.6 billion, with a construction timeframe of 3.5 years. By December 2020, the total funding allocated for new barrier construction was about $15 billion, but Trump ordered roughly two-thirds of that amount to be taken from the military budget; Congress appropriated only one-third for the specific purpose of building the US-Mexico border wall. The $15 billion was to cover the cost of building 738 miles of new fencing, covering a little more than half of the 1,300 miles where no fencing existed, at a cost of about $20 million per mile.
The wall is not an actual wall, but rather a series of physical fences and walls and virtual barriers of sensors, cameras, and other surveillance technologies. Out of the total 1,954 mile length of the U.S. border with Mexico, only 47 miles of new barriers were built; the remainder of the 408 miles where construction occurred saw only the replacement of old fencing with taller steel fencing.
Among the issues causing construction delays and failures were:
- Multiple contractors hired to work on different segments of the border wall
- Difficulties in acquiring lands from private landowners and on Native American reservations
- Construction in federally protected wilderness areas
- Disagreements over appropriate barrier designs
- Rough and remote terrain, including deserts and mountains
- Civil protests and court challenges
In February 2020, the Department of Homeland Security waived certain federal contracting laws to speed up construction of the US-Mexico border wall. Among the legal requirements waived were those mandating open competitive bidding, the justification of contractor selection, and the receipt of all surety bonds from a contractor before work can commence.
Why Surety Bonds Are Required for Construction Projects
Since 1893, surety bonds have been required from contractors working on federally funded projects. The federal Miller Act, passed in 1932, requires contractors working on federal projects valued at more than $100,000 to provide both performance and payment bonds as financial protection for the federal government. (“Little Miller Acts” passed by the individual states impose the same requirement for contractors working on state-funded projects.)
There are many reasons for contractor default. Contractors may underestimate the construction challenges and bid too low. Underbidding results in inadequate cash flow for paying subcontractors, workers, and/or suppliers on time. Some contractors accept too many jobs at one time and overcommit their resources. A lack of contingency planning and poor project management often are to blame for delays and quality issues, but even well-planned and well-managed projects can be derailed by unforeseen supply chain problems or sudden changes in the economic environment.
The construction industry relies heavily on the use of bid bonds, performance bonds, and payment bonds for risk mitigation, though other types of surety bonds may be required as well. Surety bonds transfer financial risk from the project owner to a surety, as described below.
A bid bond protects a project owner’s investment in advertising a project, soliciting bids, reviewing proposals, and negotiating a contract. (The border wall project did not require open competitive bidding, but that is the exception rather than the rule.) A bid bond allows a contractor to guarantee they will accept the contract if selected as the winning bidder and to obtain a performance bond as a condition of contract award. The project owner can claim compensation for expenses incurred if it becomes necessary to repeat the contractor selection process.
Performance bonds protect project owners when a contractor defaults on a project. The bond ensures the surety will remedy the situation in a way that results in project completion. This typically involves one of these approaches:
- The surety takes charge of the project (known as a “takeover”), usually to oversee another contractor chosen to complete the job.
- The surety offers the project owner a new contractor for approval (a “tender”), without taking control of the project, and may also pay damages to the project owner or pay the new contractor more than the amount remaining on the contract.
- The surety provides the original contractor with financial and/or technical help to prevent default and allow completion of the project.
- The surety pays damages to the project owner to use to get the project completed, without the further involvement of the surety.
Payment bonds ensure payment of subcontractors and suppliers according to the contract’s payment schedule when a contractor is behind in payments or in default.
It is unclear from public reports the extent to which bonding was used to remedy any of the problems associated with construction of the border wall given the waivers granted by the Trump administration. But for most construction projects, bonds protect everyone involved and get everyone that much closer to a completed project.
Our surety bond professionals will get you the construction bonds you need at a competitive rate.