Overview:
“Palau’s new law is breaking down barriers for local builders. With updated bonding rules, small and medium Palauan construction companies can now compete for government projects, helping speed up critical infrastructure and keep jobs in the islands.”
By: L.N. Reklai
Koror, PALAU (Jan. 6, 2026) — “We need to reform our policies to help Palauans,” President Surangel Whipps Jr. said as he signed a new law easing government bonding requirements, a move expected to expand access to public construction projects for local companies.
The measure, RPPL 12-4, updates procurement rules that had not changed since 1993 and were widely seen as a barrier for Palauan-owned construction firms, particularly small and medium-size companies. Palau has 23 registered construction companies, most of them locally owned and unable to meet high bonding thresholds required to bid on government work.
Whipps said the outdated requirements no longer reflected today’s economic realities and slowed the delivery of critical infrastructure projects that directly affect people’s quality of life.
The bill was introduced in the Senate by all senators and led by Sen. Brian Melairei, a former director of public works and manager of the government’s Capital Improvement Projects. Lawmakers said Melairei’s experience overseeing public construction helped shape reforms that balance government protection with increased local participation.
Under the new law, bonding requirements now distinguish between companies wholly owned by Palauan citizens and those with non-Palauan or mixed ownership. Ownership is defined not only by legal title but by actual control and profit rights, ensuring that Palauan-owned companies retain decision-making authority.
For construction contracts of $300,000 or less, performance and payment bonds are automatically waived for Palauan-citizen owned companies. For non-Palauan or mixed-ownership firms in the same range, procurement officers may reduce bond requirements by up to 50 percent if government risk is not substantially increased and the decision is documented.
For contracts between $300,000 and $600,000, procurement officers may fully waive bond requirements for Palauan-owned companies if it is in the government’s best interest. For non-Palauan-owned companies, bonds may be reduced by up to 50 percent but not fully waived.
For contracts exceeding $600,000, bond requirements may be reduced but cannot fall below 50 percent of the contract value.
Any reduction or waiver must be supported by a written risk assessment evaluating the contractor’s past performance, payment history with vendors and subcontractors, current workload, financial health and ability to complete the project on time. Procurement officers may also increase payment retention to mitigate risk.
The law also requires the Ministry of Finance to review and adjust key procurement thresholds every five years to account for inflation, preventing future policies from becoming outdated.
Supporters said the reforms will allow more local companies to compete for government projects, speed up infrastructure delivery and keep public investment circulating within Palau’s economy.