By: Eoghan Olkeriil Ngirudelsang
KOROR, Palau – Local construction companies are calling for greater flexibility in government bonding requirements, saying current rules hinder their ability to compete for public contracts and limit their growth.
During a recent public hearing, contractors voiced concerns over Senate Bill 12-22, which aims to support small and medium-sized construction firms by easing bonding regulations. The bill, now before the Senate, proposes to automatically waive performance and payment bonds for contracts valued at $250,000 or less for wholly locally owned businesses—an increase from the current $100,000 threshold.
For contracts between $250,000 and $500,000, the legislation would give procurement officers discretion to either waive bonding entirely or reduce the required bond by up to 50%.
However, contractors argue the proposed changes do not go far enough.
Under the bill, a 50% reduction would apply separately to both performance and payment bonds, meaning companies would still need to provide security equal to 100% of the contract value when combined. Although this is a decrease from the current 200% requirement—100% for each bond—contractors say the financial burden remains too high for smaller firms.
Industry representatives made several recommendations at the hearing:
- Allow a single bond to serve dual purposes as both a performance and payment bond. This would effectively halve the total required bond amount.
- Recognize the government’s existing “payment progress” system as sufficient protection. Under this system, payments are made only after each project phase passes inspection, reducing financial risk to the government.
- Clarify the definition of “wholly Palauan-owned” companies in the legislation to prevent misuse of the relaxed bonding rules by front companies that are not genuinely locally owned.
Contractors emphasized that the difficulty in securing bonds limits them to only a few projects at a time, curbing business opportunities and stalling growth in the local construction sector.
Despite their push for more lenient terms, company representatives acknowledged the Senate’s effort to support small businesses through legislative reform.
