KOROR, Palau — A new bill introduced in the Olbiil Era Kelulau aims to amend bonding requirements for government construction projects, a move that could significantly benefit Palauan-owned construction companies.
Senate Bill No. 12-22 proposes to lower the mandatory bonding thresholds for local enterprises bidding on government contracts. Under current law, all bidders are required to submit a bid security of at least 10% of the total bid amount and, upon contract award, provide both performance and payment bonds equal to 100% of the contract price. These conditions, according to the bill’s findings, have placed an excessive financial burden on small and medium-sized Palauan contractors and have discouraged broader participation in public construction bids.
The legislation notes that many of these contractors rely on the National Development Bank of Palau to secure bonding services, which adds to their costs. As a result, only a limited number of firms can meet the requirements, often leading to delays in project completion due to overstretched capacity. The Republic currently faces a backlog of incomplete projects dating back to 2020.
Key Proposed Changes
If enacted, SB 12-22 will:
- Reduce bonding requirements for wholly Palauan-owned companies by allowing them to submit a combined payment and performance bond totaling 50% of the contract price, instead of the current 100%.
- Automatically waive performance and payment bonds for contracts $250,000 and under awarded to Palauan-owned businesses — up from the current $100,000 threshold.
- Allow the Procurement Officer to reduce or waive bond requirements for Palauan-owned entities on contracts up to $500,000, a significant increase from the previous $250,000 cap.
- Remove the authority of the Procurement Officer to reduce or waive bond requirements for foreign-owned companies, citing heightened financial risks.
- Additionally, the bill introduces a new requirement that the Procurement Officer provide a detailed written determination when deciding to reduce or waive bond requirements. This determination must consider the contractor’s past performance, subcontractor payment history, current workload, and any identifiable risks to the government.
Impact on the Construction Industry
Local contractors have welcomed the bill as a potential game-changer. By lowering upfront financial barriers, more Palauan-owned companies may now be able to compete for government projects, potentially increasing competition and accelerating project delivery.
“It’s a big step forward,” said a representative of a mid-sized local construction firm. “This levels the playing field for local businesses that have been locked out by costly bond requirements.”
The legislation now awaits further deliberation and approval by the Olbiil Era Kelulau and the President of Palau.