2011

Forty-nine legislatures are currently in session. They are Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Federal, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

Two legislatures are currently in Special Session. They are California and Wisconsin.

The Virginia legislature is currently adjourned.

Bond Threshold Increase

• NY SB 2830 (Stewart-Cousins)/AB 2123 (Millman) Amends the state finance law to increase the contract threshold of performance and payment bonds for single contracts from $100,000 to $150,000 and from $200,000 to $300,000 on multiple contracts and allows for automatic increases based upon the inflation of construction costs.
  
  These bills are intended to enhance the participation of small, certified minority, and women-owned businesses in public projects. Similar legislation was introduced last year but failed to pass.

• NM SB 35 (Asbill) Increases the threshold from $125,000 to $200,000 where subcontractors are required to provide a bond when working on public projects. The bill also requires that prior to the last payment the general contractor and the subcontractor shall provide a notarized statement certifying that the required bonds are in place. The bill passed the Senate, 37-0, on February 11.
  
  NASBP has worked to ensure that an enforcement provision was included in the bill to guarantee that the bonding requirement would be enforced.

• CT HB 6166 (Perillo) Amends section 49-41 of the general statutes to increase the threshold amount for contracts for public buildings and other public works to be subject to the surety bond requirement. This bill is a placeholder and currently does not contemplate an exact dollar amount regarding a threshold increase. We will keep you posted if language is added.
  
  HB 6166 was referred to the Government Administration and Elections Committee on February 14 and a public matter hearing was held on March 3.

• UPDATE! VA HB 1951 (Villanueva) As originally introduced, HB 1951 called for increasing the bond threshold amount from $100,000 for non-transportation-related construction contracts up to $1 million. However, the bill was amended in committee by lowering the bond threshold to $500,000 for non-transportation projects. In addition, Committee Substitute HB 1951 creates a prequalification/self insurance program where state and local contracting agencies would “pre-qualify” contractors for projects under $500,000. The bill also creates, although this language does not appear in the legislation, a risk insurance pool where the state collects a 3-4% premium from those contractors who participate in the program, which will be used to pay claims.
  
  As described in last month’s Focal Point, the legislation was introduced on behalf of Governor Bob McDonnell (R) and was supported by this administration, which included the Secretary of Administration and the Department of General Services who will oversee the prequalification program. The intent of the legislation was that by raising the bond threshold it would help to create opportunities for minority contactors who wish to participate on state construction projects. Moreover, the legislation was also supported by Republicans, especially freshman, who were reluctant to vote against the bill even if they disagreed with its merits. Democrats, on the other hand, who often favor increases to state bonding thresholds, viewed this as a welcome opportunity to help their constituents and voted in favor of the bill.
  
  As most of you may already know, the bill was approved by the House 91-8 and by the Senate 31-9. Governor McDonnell, who spent a great deal of political capital on the bill, will sign it into law. During the Senate Committee hearing, which NASBP, SFAA, ABC-VA Chapter, DC Metro Subcontractors Association and various members from the Independent Insurance Agents & Brokers of America (Big I) testified in opposition. Furthermore, three Senators voiced their objections concerning the creation of a risk insurance pool that was not considered in the bill. NASBP has learned that there may be a possibility that after learning about these concerns the Governor may ask his administration to rework the bill and send it back to the General Assembly for their approval during the veto session scheduled for April 6. We will keep you posted if any changes are made.

• UPDATE! VA SB 1126 (Stosch) As introduced, SB 1126 would have amended the Virginia Public Procurement Act relating to transportation contracts by increasing the threshold for performance and payment bonds from $250,000 to $500,000. The bill was amended in committee by removing the bond threshold increase. The amended bill now requires VDOT to appoint a study commission to review the performance and payment bond requirements in the Virginia Code and to make recommendations to the Secretary of VDOT by December 1, 2011. The commission will include the local road builders and contractors associations and representatives of the surety bonding industry. NASBP has contacted Senator Stosch’s office to ask to participate on this study commission. SB 1126 was approved by the General Assembly and Governor McDonnell will sign the bill into law.

Individual Sureties

• MD S 782 (Pugh)/HB 1071 (Vaughn and Morhaim) Exempts an unlicensed individual from engaging in insurance transactions without the oversight and requirement to have a certificate of authority issued by the Maryland Insurance Commissioner on private projects in Maryland. Currently, Maryland does permit individual sureties to write bonds on Maryland public works projects at the prime contractor level only. NASBP’s position is quite clear, any insurer, regardless of the entity, such as person, partnership or corporation, should be subject to regulatory oversight and control in the jurisdiction in which it conducts business.
  
  Hearings were held on Tuesday, March 1, in the Senate Finance Committee and on Wednesday, March 2, in the House Committee on Economic Matters. Testifying in opposition were NASBP, SFFA, ABC-DC Chapter, DC Metro Subcontractors Association as well as contractors, subcontractors and representatives from Maryland churches. Legislators heard compelling testimony from these injured parties, some of whom spent their life-savings in order to fulfill necessary bonding requirements only to learn the bond was either illusory, or it was rejected because assets used to back the bond were insufficient. NASBP and SFAA continue to meet with legislators to voice our concerns and to educate them about the impact unregulated individual sureties will have on consumers, taxpayers and small business owners in Maryland. NASBP has created a leave-behind document, which voices our strong opposition to the legislation. For a copy, please click here. NASBP will keep you apprised of any changes to the legislation. NASBP may continue to call on its Maryland members for grassroots opposition.
   
• IL HB 262 (Chapa LaVia) Amends the Public Construction Bond Act giving a county or municipality the option to require a cash bond, irrevocable letter of credit, surety bond, or letter of commitment, issued by a bank, savings and loan association, surety, or insurance company to guarantee completion of a project improvement.
  
  This bill strikes current language stating “Except for a municipality or county with a population of 1,000,000 or more, the county or municipality must approve and deem a surety or insurance company good and sufficient for the purposes set forth in this Section if the surety or insurance company is authorized by the Illinois Department of Insurance to sell and issue sureties in the State of Illinois.” This language is extremely problematic as it appears to allow unlicensed insurance companies to write bonds. NASBP will continue to monitor this bill and will alert its members should action be required.

Bond Waiver

• WA SB 5557 (Prentice) Allows state agencies not to require a performance bond for any public works project that does not exceed $100,000 to a “certified business.” SB 5557 amends current law which requires a performance bond for any public works project that does not exceed $25,000 awarded to a prequalified and minority or women-owned business. The bill broadens the scope of businesses that could qualify for the bonding waiver. According to the bill, a certified business means “a business that has been examined by the office of civil rights and deemed to be a minority business enterprise, a women's business enterprise, a minority women's business enterprise, a combination business enterprise, socially and economically disadvantaged business enterprise, or a veteran-owned business enterprise.” The bill was introduced on behalf of Governor Christine Gregoire (D) and was referred to the Government Operations, Tribal Relations & Elections Committee.

Design-Build

• IL SB 1312 (Schoenberg) Creates the Design-Build for Highway Construction Act to allow the Department of Transportation to use the design-build delivery method for public projects if it is shown to be in the State's best interest. This bill also requires bid, performance, and payment bonds. Assigned to the Committee on Transportation on February 23.

Payment Bonds

• NY S 3182 (DeFrancisco)/ A 5025 (Cusic) Amends the state finance law by extending the time period that a claim can be filed on a payment bond. Language has been amended to read “no action on a payment bond furnished pursuant to this section shall be commenced after the expiration of one year from the date on which the public improvement has been completed and accepted by the public owner.” By amending the state finance law, the time period for claimants will be lengthened substantially beyond what is permitted in most states. Moreover, the claimant period would not state the limitation period for all claimants until the date of acceptance of the public improvement owner, which could be many years after a subcontractor last furnished labor or materials to the job.
  
  The House bill has been referred to the Codes Committee and the Senate bill has been referred to Finance Committee as of February 10. Similar legislation was introduced last year.

Privatization

• IL HB 1091 (Nekritz) Creates the Public-Private Partnerships for Transportation Act and grants the Illinois Department of Transportation (ILDOT) and the Illinois State Toll Highway Authority the necessary powers for the development, financing, and operation of transportation projects through public-private agreements with one or more private entities. Bid, performance, and payment bonds or other security determined suitable by ILDOT, including letters of credit, are required. This bill was recommended “do pass” and a hearing was held in the Judiciary I – Civil Law Committee on February 23 and scheduled for a 2nd reading with short debate.
   
• PA HB 3 (Geist)/ SB 344 (Rafferty) Authorizes public entities to enter into transportation development agreements with private entities and other public entities for the development, operation, and financing of transportation facilities. Private development entities will be required to post performance and payment bonds, parent company guarantees, letters of credit, or other acceptable forms of security to the public entity. HB 3 was referred to the Committee on Transportation on February 14 and SB 344 was amended and approved for first consideration on February 8 in the Transportation Committee.
   
• TN HB 1132 (Brooks)/ SB 1916 (Woodson) Authorizes local boards of education to enter into capital leases and build-to-suit capital leases of real or personal property with private developers or construction contractors-at-risk for the use, construction, repair, or renovation of school buildings and facilities. The local Board of Education, in its discretion, may require payment and performance bonds for 100% of the contract amount. A private developer shall also provide a letter of credit (LOC) in the amount of not less than 5% of the total cost of improvements, and shall maintain that LOC throughout the project and for 6 months after completion, for the benefit of laborers and materialmen on any project. These bills were filed together on February 17 and SB 1916 passed first consideration on February 23.

Bond Guarantee Program

• CT SB 736 (Coleman) Requires the Commissioner of Administrative Services to establish a surety bond guarantee program to exempt small and emerging contractors who participate from bonding requirements on state projects. Emerging contractors shall only be eligible to participate in the program for up to 5 years from initial date of application. The bill was amended by Labor and Public Employees Committee and referred to the Joint Committee on Labor and Public Employees on February 9.

Miscellaneous

• ME LD 279 (Snowe-Mello) Repeals the requirement that sureties annually notify the imdemnitor on payment and performance bonds that rely on indemnity agreements. Under current law, if the surety fails to give notice, the indemnity agreement will be terminated. The bill was referred to the Committee on Insurance and Financial Services on February 3. A hearing was held on March 2 and a work session will be held on March 9. NASBP members and representatives from the Maine Insurance Agents Association assisted with getting this bill introduced.
   
• NC HB 172 (Killian) Adds the language “military veteran contractor” to existing code to increase the amount of military veteran business participation on public contracts. The bill also establishes a 10% participation goal for military/veteran businesses and contractors on each state building project. The bill passed the House on first reading on February 24 and was referred to the House Committee on Homeland Security, Military, and Veteran Affairs.
   
• IL SB 1382 (Sandoval) Prohibits contractors, working on public projects for the state, from requiring subcontractors to provide payment or performance bonds. This bill was assigned to the Executive Committee on February 23.
   
• TX HB 1694 (Coleman)/SB 413 (West) Amends the local government code concerning bidding and purchasing requirements relating to construction projects for a county. Current law provides that the county may require a bid bond on contracts exceeding $100,000 and a performance bond on contracts exceeding $50,000. The bill also adds a new section to the local government code under Section 18 of the bill which “the commissioners’ court could establish the financial criteria for accepting surety companies that provide bid, payment or performance bonds.”
  
  The governing body of each of Texas’ 254 counties is the commissioners' court. In Texas, the court has five members: the county judge, and four commissioners whose primary functions are both legislative and executive. It is unclear of the legislative intent and why the Commissioners’ Court would want to take on the responsibility of reviewing sureties financial criteria, which is the regulatory responsibility of the Texas Insurance Commissioner. NASBP will contact interested parties including the bill sponsors to garner additional intelligence. S. 413 was referred to the Intergovernmental Relations Committee, while HB 1694 was referred to the Committee on County Affairs. No hearings have been set for either bill.

Federal 3% Withholding

• Federal S. 89 (Vitter (R-LA)) Repeals the imposition of withholding on certain payments made to vendors by Government entities (3% withholding). The amendment made by section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 would be repealed and the Internal Revenue Code of 1986 shall be applied as if such amendment had never been enacted. S. 89 was referred to the Committee on Finance in early February.
   
• Federal S. 164 (Brown(R-MA)/Snowe(R-ME)) Repeals the imposition of withholding on certain payments made to vendors by government entities (3% withholding) and would rescind unspent and unobligated federal funds to offset the loss of revenue to those who were subject to the 3% withholding. S. 164 was referred to the Committee on Finance on January 25.
   
• Federal S. 340 (Baucus(D-MT)) Amends the Internal Revenue Code of 1986 for the Airport and Airway Trust Fund. Senator Olympia Snowe (R-ME) offered an amendment on February 8 to repeal the 3% withholding mandate on government contracts at the local, state, and federal levels. This bill was placed on the Senate calendar on February 14.

Bond Guarantee

• Federal H.R. 688 (Cummings) Amends Title 49 of the United States Code, to grant authority to the Secretary of the Department of Transportation (DOT) to guarantee sureties against loss resulting from a breach of the terms of a bond by an “eligible small business concern.” Specifically, H.R. 688 authorizes the DOT Secretary to pay to the surety a sum not to exceed 90 percent of the loss incurred resulting from a loss from the breach of a bid, payment and performance bond.
  
  Representative Cummings introduced similar legislation in 2009. This bill was referred to the Committee on Transportation and Infrastructure on February 14.

Forty-six legislatures are current in session. They are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Federal, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, Washington, and Wisconsin.

Five legislatures are currently in special session. They are California, Kentucky, Louisiana, Virginia, and Wisconsin.

Five legislatures have currently adjourned. They are New Mexico, Utah, Virginia, West Virginia, and Wyoming.

Unlicensed Surety Insurers

• UPDATE! MD SB 782 (Pugh)/HB 1071 (Vaughn and Morhaim) Yesterday, a subcommittee of the Senate Finance Committee cast an unfavorable vote on SB 782. SB 782 was then sent to the full committee (Senate Finance) but prior to the vote, the bill sponsor, Senator Pugh, opted that the bill be held with no committee action, which killed the bill for the session. This procedural move was taken so the bill would not receive a second unfavorable committee vote. While its companion, HB 1071, still remains alive until the crossover deadline of Friday, March 25, without the support of the Senate and the pending budget deficit debates occurring in Annapolis, HB 1071 will unlikely advance out of committee.
  
  While the surety industry was able to defeat the legislation that would have exempted an individual from having to obtain a certificate of authority to engage in surety transactions or private contracts, this bill will be back next year. NASBP, SFAA, and a number of our industry partners spent a great deal of time over the past several months educating legislators and the Acting Insurance Commissioner about the importance of regulatory oversight of unlicensed sureties. In addition, the surety industry owes a great deal of thanks to those injured parties who came forward and testified at committee hearings and told their stories how bonds placed by individual sureties turned out to be either illusory, or were rejected because assets used to back the bonds were insufficient. The surety industry will continue to fight its position that any insurer, regardless of the entity, such as a natural person, partnership or corporation, should be subject to regulatory oversight and control in the jurisdiction in which it conducts business.
  
  Finally, the Baltimore Sun recently featured a timely article describing the problems a Maryland church faced while using an individual surety. For a copy of the article titled “Church Woes show need for insurance oversight,” please click here.
   
• UPDATE! IL HB 262 (Chapa LaVia) This bill was re-referred to the Rules Committee on March 17. The bill amends the Public Construction Bond Act giving a county or municipality the option to require a cash bond, irrevocable letter of credit, surety bond, or letter of commitment, issued by a bank, savings and loan association, surety, or insurance company to guarantee completion of a project improvement.
  
  This bill strikes current language stating “Except for a municipality or county with a population of 1,000,000 or more, the county or municipality must approve and deem a surety or insurance company good and sufficient for the purposes set forth in this Section if the surety or insurance company is authorized by the Illinois Department of Insurance to sell and issue sureties in the State of Illinois.” This language is extremely problematic as it appears to allow unlicensed insurance entities to write bonds. NASBP will continue to monitor this bill and will alert its members should action be required.

Bond Threshold Increase

• NY SB 3699 (LaValle) Authorizes the State University Construction Fund to waive performance and payment bonds on construction projects less than $250,000; state statute requires performance and payment bonds on public works projects if the contract exceeds $100,000, or $200,000 for multiple contracts. Amending the state education law by raising the bond threshold from $50,000 to $250,000 on state university construction projects is being touted as a way to encourage participation by smaller business, such as minority and women-owned businesses, because such companies may not have the financial history to secure a performance bond. This bill was placed on the Senate floor calendar on March 15.

Bond Guarantee Program

• UPDATE! CT SB 736 (Coleman) Requires the Commissioner of Administrative Services to establish a surety bond guarantee program for small and emerging contractors, so they may participate on state projects. The bill, however, waives the requirement for payment and performance bonds on projects for these participating contractors. Emerging contractors shall only be eligible to participate in the program for up to 5 years from initial date of application.
  
  The bill was passed by the Labor and Public Employees Committee and has been filed with the Legislative Commissioner’s Office in the General Assembly as of March 15. On March 22, the bill was referred to the Office of Legislative Research and the Office of Fiscal Analysis.

Construction Defect

• TX HB 958 (Workman) Amends Chapter 41 of the Civil Practice and Remedies Code by adding a section that the amount of actual damages for the cost to cure a construction defect that might otherwise be awarded in a claim be reduced by 10% for each anniversary of the date of substantial completion of the construction or repair that occurs before the date the action asserting the claim is filed. An award of exemplary damages, multiplied damages, or other damages that is computed on the basis of the amount awarded as damages for the cost to cure the construction defect must reflect any reduction of that amount. A hearing is set for March 31 in the House Committee on Business & Industry.

Public-Private Partnerships

• NV SB 214 (Stewart, Hardy) Requires the Department of Transportation to establish a demonstration project for a toll road in connection with the Boulder City Bypass Project and to enter into one or more public-private partnerships to design, construct, develop, finance, operate or maintain the demonstration project; providing for the establishment of tolls, administrative fines and penalties. In connection with a PPP, a private partner must obtain a performance bond, payment bond, letter of credit, parent guarantee or other security acceptable to the Department. SB 214 was referred to Committee on Transportation on March 3.
   
• FL SB 1956 (Bennett)/ FL HB 1313 (Williams) Establishes the Florida Public-Private Partnership Act to allow for timely and cost-effective acquisition, design, construction, improvement, renovation, expansion, equipping, maintenance, operation, implementation, or installation of public projects. The agreement between parties shall provide for delivery of maintenance, performance, and payment bonds and letters of credit in connection with the development or operation of the qualifying project, in the forms and amounts satisfactory to the responsible public entity for those components of the qualifying project that involve construction. HB 1313 was referred to the Government Operations and State Affairs Committee. On March 16, SB 1956 was referred to Community Affairs, Government Oversight and Accountability, and Budget.
   
• TX HB 2432 (Davis)/ SB 1048 (Jackson) Authorizes the state to enter into public-private partnerships on public projects, except for state highway projects. Parties must enter into a comprehensive agreement requiring the delivery of maintenance, performance, and payment bonds and letters of credit in connection with the development or operation of the qualifying project, in the forms and amounts satisfactory to the responsible governmental entity and in compliance with all applicable statutes for those components of the qualifying project that involve construction. NASBP is troubled by the underlined language as it may appear to allow the governmental entity to allow less than the 100% bonding requirements as mandated by statute. The surety industry is currently working on drafting language to alleviate this concern. HB 2432 was referred to the Economic and Small Business Committee on March 14 and SB 1048 was referred to the Committee on Economic Development on March 16.
   
• TX HB 3789 (Phillips) Authorizes a toll project entity to enter into a public-private partnership for the design, development, financing, construction, maintenance, repair, operation, extension, or expansion of a toll project. A toll project entity shall require a private entity to provide a performance and payment bond or an alternative form of security in an amount equal to the cost of constructing or maintaining the toll project.
  
  If the toll project entity determines that it is impractical for a private entity to provide security in the full contract amount, the toll project entity shall set the amount of the bonds or the alternative forms of security.
  
  In addition to or instead of a performance and payment bond, the department may require a cashier's check drawn on a financial entity specified by the department, a United States bond or note, or an irrevocable bank letter of credit from a United States domiciled bank acceptable to the department. Performance and payment bonds are not required for the design and planning portions of contracts. Filed on March 11.

Design-Build

• MO HB 846 (Wieland) Authorizes the governing body of any city or county to enter into design-build project contracts for neighborhood improvement districts. Performance bonds for the construction period specified in the contract are required equal to a reasonable estimate of the cost of construction are required. Payment bonds are required with an amount equal to a reasonable estimate of the total cost of construction work under the terms of the design-build project contract unless the governing body of any city or county determines in writing supported by specific findings that a payment bond or bonds in such amount is impractical, in which case the governing body shall establish the amount of the payment bond or bonds; except that the amount of the payment bond or bonds shall not be less than the aggregate amount of the performance bond or bonds and any additional security to such performance bond or bonds. Introduced on March 10 and read a second time on March 14.

Payment Bond Claims

• CA SB 293 (Padilla) Amends existing law that requires a claimant to give a preliminary notice before asserting a claim against a payment bond. SB 293 states that the preliminary notice requirement does not apply to a laborer. Referred to the Committee on Judiciary on February 24.

Miscellaneous

• UPDATE! TX HB 1694 (Coleman)/SB 413 (West) S. 413 was referred to the Intergovernmental Relations Committee and has a hearing set for March 23, while HB 1694 was referred to the Committee on County Affairs for a hearing on March 24. NASBP sent letters expressing our opposition to these bills to Committee Chairs Coleman and West and asked Texas NASBP members to reach out to their legislators in opposition as well.
  
  These bills amend the local government code concerning bidding and purchasing requirements relating to construction projects for a county. Current law provides that the county may require a bid bond on contracts exceeding $100,000 and a performance bond on contracts exceeding $50,000. The bill also adds a new section to the local government code under Section 18 of the bill which the commissioners' court could establish the financial criteria for accepting surety companies that provide bid, payment or performance bonds.
  
  It is unclear why the Commissioners’ Court would want to take on the responsibility of reviewing sureties financial criteria, which is the regulatory responsibility of the Texas Insurance Commissioner. The surety industry is working to have this language removed from the bills. NASBP will keep you apprised of the outcome.
   
• NV Reg. NAC 338.150, 240, 260, 280 (Adopted by the State Public Works Board) Clarifies the criteria used for determining whether a prime contractor is qualified to bid on a contract for one or more public works costing less than $100,000, more than $100,000, and more than $5,000,000. Financial ability to perform, proof of license, and a statement of previous bankruptcy filing, if applicable, are required at all levels. For contracts above $100,000, a certified, original statement of the bonding capacity of the prime contractor obtained from a surety authorized to issue bid, performance and payment bonds in this State, and has an A-rating or better from the A.M. Best Company, are also required. Contracts more than $5,000,000, must be classified in a financial size category of ‘VII” or better, as determined by A.M. Best Company, and included on the list of approved sureties in Circular 570 of the United States Department of the Treasury.
   
• CA AB 53 (Solorio) Requires that each admitted insurer, with California premiums written equal to or in excess of $100,000,000, submit annually to the Insurance Commissioner, a detailed and verifiable plan for increasing procurement from women, minority, and disabled-veteran business enterprises, in order to facilitate their participation on state procurement projects. After being introduced in Special Session in December 2010, the bill was carried over, amended and re-referred to the Committee on Insurance on March 22.
   
• U.S. Department of the Treasury (Proposed Rule - 31 CFR Part 223, RIN 1510-AB27) The U.S. Department of the Treasury, Financial Management Service, who administers the Federal corporate surety program and issues certificates of authority to qualified sureties to underwrite and reinsure Federal bond obligations, are proposing to amend their regulation to clarify the circumstances when an agency bond-approving official can decline to accept a bond underwritten by a Treasury-certified surety. The department is also proposing to amend the procedures to be used in adjudicating any complaint received from an agency requesting that a surety's certificate be revoked for failure to satisfy an administratively final bond obligation due the agency.
  
  Comments on the proposed rule must be received by May 16, 2011. For more information, contact Rose Miller, Manager, Surety Bond Branch, Financial Management Service, at (202) 874-6850 or rose.miller@fms.treas.gov, or James J. Regan, Senior Counsel, Financial Management Service, at (202) 874-6680 or james.regan@fms.treas.gov. To submit your comments, click here. For a copy of the proposal, click here.
   
• UPDATE! DC B 18-610 (Cheh) Mayor Vincent Gray signed this bill into law on February 3, 2011.
  
  As reported in the December 2010 edition of Focal Point, this bill amended the DC procurement statute pertaining to performance and payment bonds but retained the current bond threshold at $100,000. The legislation now requires 100% payment and performance bonds but gives the Chief Procurement Officer (CPO) the authority to reduce both bonds to 50% of the contract price. Under the previous law, the CPO determined the amount of the performance bond and the payment bond could be reduced to 50%. The bill did not address bonding requirements for service contracts, which the DC Council had contemplated, and permits alternative securities for design-build-operate-maintain or design-build-finance-operate-maintain services, to assure timely and uninterrupted operations.

Forty-four legislatures are current in session. They are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Federal, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Washington, and Wisconsin.

Five legislatures are currently in special session. They are California, Kentucky, Louisiana, Virginia, and Wisconsin.

Seven legislatures have currently adjourned. They are Kentucky, New Mexico, South Dakota, Utah, Virginia, West Virginia, and Wyoming.

Unlicensed Surety Insurers

• UPDATE! MD SB 782 (Pugh)/HB 1071 (Vaughn and Morhaim) The Maryland General Assembly is scheduled to adjourn on April 11. SB 782/HB 1071 were not approved in either committee and did not meet the necessary cross over deadlines for bills to pass out of their house of origin. While SB 782/HB 1071 appear to be dead for the session, that will not officially happen until the General Assembly adjourns.
  
  While the surety industry was able to defeat the legislation that would have exempted an individual from having to obtain a certificate of authority to engage in surety transactions on private contracts, this bill will be back next year. Recognizing this, NASBP will begin to strategize for the 2012 legislative session in Maryland and will call upon its Maryland members for assistance. For those you have not seen the Baltimore Sun article, describing the problems a Maryland church faced while using an individual surety, please click here.

Bond Threshold Increase

• UPDATE! VA HB 1951 (Villanueva) Governor Bob McDonnell (R) amended HB 1951 to address the concerns raised during the Senate Committee hearing pertaining to risk insurance pools. In Virginia, the legislature holds a Reconvened Session after the Regular Session adjourns to consider any amendments and/or votes to legislation passed by the General Assembly. This is the only business that can occur during the Reconvened Session, which begins on April 6. The legislature can either accept or reject the governor’s amendments. The major components of HB 1951 still remain however, which includes raising the bond threshold amount from $100,000 for non-transportation-related construction contracts to $500,000 and establishing a prequalification/self insurance program where state and local contracting agencies would “pre-qualify” contractors for projects under $500,000.
  
  The new language establishes a risk management plan to be administered by the Virginia’s Department of Treasury’s Risk Management Division. Expect the General Assembly to agree to the governor’s amendment, due to the fact that it raised few objections to HB 1951 by approving the bill 31-9 in the Senate and 91-8 in the House.
   
• NY SB 2808 (Budget Bill) The legislature approved its budget, which included a provision that increases the bonding threshold on State University of New York (SUNY) construction contracts. The threshold for performance and payment bonds increased from $50,000 to $250,000. Governor Andrew Cuomo (D-NY) and the State University were strong advocates for this position, which they believe will provide greater opportunities for Woman-and Minority-Owned Business Enterprises (MWBEs) to participate on state projects. The threshold sunsets on June 30, 2016.
   
• UPDATE! VA SB 1126 (Stosch) Governor McDonnell signed SB 1126 into law on March 25. The bill goes into effect on July 1, 2011. As you recall, SB 1126, as originally introduced, would have increased the threshold for performance and payment bonds from $250,000 to $500,000 for VDOT projects. SB 1126 was amended in committee by removing the bond threshold increase. The amended bill now requires VDOT to appoint a study commission to review the performance and payment bond requirements in the Virginia Code and to make recommendations to the Secretary of VDOT by December 1, 2011.
   
• UPDATE! NM SB 35 (Asbill) The New Mexico Legislature adjourned on March 19 and, though SB 35 passed the Senate, it stalled in the House and is dead for the session. SB 35 aimed to increase the threshold from $125,000 to $250,000 where subcontractors are required to provide a bond when working on public projects. The bill also required that, prior to the last payment, the general contractor and the subcontractor shall provide a notarized statement certifying that the required bonds are in place. NASBP worked to ensure that an enforcement provision was included in the bill to guarantee that the statutory bonding requirement would be enforced.

Bond Waiver

• MO HB 647 (Schneider) Permits alternatives to surety bonds for public works contracts between $25,000 and $500,000. Specifically, HB 647 allows a contractor to contract with a title insurer, agency, or agent authorized to conduct business as an escrow agent in lieu of requiring a bond for certain public works contracts between $25,000 and $500,000. NASBP members were engaged on this bill, and it is not expected to move. When the bill was heard on March 16 in the Committee on Local Government, no further action was taken. 

Bond Guarantee Program

• IL House Resolution (HR) 234 (Currie) Resolves that the Department of Commerce and Economic Opportunity should consider whether a surety program successfully administered years ago be resurrected to provide financial guarantees to bonding companies for contracts awarded to minority-and women-owned small businesses to lower the costs to their firms and increase their access to capital.
  
  This resolution also recommends that the Department of Transportation and the Capital Development Board review their bonding requirements for minority-and women-owned small business participants, in light of the number of defaults by those companies over the last 5 years, to determine whether their requirements are more stringent than necessary and to report to the General Assembly any recommendations to reform bonding requirements for minority-and women-owned small business firms engaging in public construction projects. This resolution was introduced on March 30.
   
• UPDATE! CT SB 736 (Coleman) Requires the Commissioner of Administrative Services to establish a surety bond guarantee program for small and emerging contractors, so they may participate on state projects. The bill, however, waives the requirement for payment and performance bonds on projects for these participating contractors. Emerging contractors shall only be eligible to participate in the program for up to 5 years from initial date of application.
  
  The bill was reported out of the Legislative Commissioner’s office with a favorable report and placed on the Senate calendar on March 29.

Public-Private Partnerships

• TX HB 2032 (Darby) Requires a private entity entering into a comprehensive development agreement to provide a performance and payment bond issued by a corporate surety authorized to issue bonds in Texas. If the contract amount exceeds $500 million, and the department determines that it is impractical for the private entity to provide security in the amount described, the department may set the amount of the security at or above $500 million, as determined by the department. In addition to, or instead of, a performance and payment bond, the department may require a cashier’s check, United States bond or note, or an irrevocable bank letter of credit from a United States domiciled bank acceptable to the department.
  
  HB 2032 was heard in the Transportation Committee on March 30, but no action was taken at that time.
   
• UPDATE! TX HB 2432 (Davis)/ SB 1048 (Jackson) HB 2432 is scheduled for a hearing in the Economic and Small Business Committee on April 7. SB 1048 was left pending in the Committee on Economic Development on March 16. The Texas Surety Federation has been involved actively with this legislation and is working to have the problematic bonding provisions addressed.
   
  The bill authorizes the state to enter into public-private partnerships on public projects, except for state highway projects. Parties must enter into a comprehensive agreement requiring the delivery of maintenance, performance, and payment bonds and letters of credit in connection with the development or operation of the qualifying project, in the forms and amounts satisfactory to the responsible governmental entity and in compliance with all applicable statutes for those components of the qualifying project that involve construction.
   
• UPDATE! TX HB 3789 (Phillips) This bill was heard in the Transportation Committee on March 30, but no action was taken at that time. HB 3789 authorizes a toll project entity to enter into a public-private partnership for the design, development, financing, construction, maintenance, repair, operation, extension, or expansion of a toll project. A toll project entity shall require a private entity to provide a performance and payment bond or an alternative form of security in an amount equal to the cost of constructing or maintaining the toll project. If the toll project entity determines that it is impractical for a private entity to provide security in the full contract amount, the toll project entity shall set the amount of the bonds or the alternative forms of security.
  
  In addition to or instead of a performance and payment bond, the department may require a cashier's check drawn on a financial entity specified by the department, a United States bond or note, or an irrevocable bank letter of credit from a United States domiciled bank acceptable to the department. Performance and payment bonds are not required for the design and planning portions of contracts.

Privatization

• UPDATE! TN HB 1132 (Brooks)/ SB 1916 (Woodson) HB 1132 was placed on the calendar in the Education Committee, and the Committee has deferred taking action until April 5. SB 1916 is still pending in the Senate Committee on Education as of February 24.
  
  HB 1132 and SB 1916 authorize local boards of education to enter into capital leases and build-to-suit capital leases of real or personal property with private developers or construction contractors-at-risk for the use, construction, repair, or renovation of school buildings and facilities. The local Board of Education, in its discretion, may require payment and performance bonds for 100% of the contract amount. A private developer shall also provide a letter of credit (LOC) in the amount of not less than 5% of the total cost of improvements, and shall maintain that LOC throughout the project and for 6 months after completion, for the benefit of laborers and materialmen on any project.

Payment Bond Claims

• UPDATE! CA SB 293 (Padilla) Amends existing law that requires a claimant to give a preliminary notice before asserting a claim against a payment bond. SB 293 states that the preliminary notice requirement does not apply to a laborer. This bill has been scheduled for a hearing in the Committee on Judiciary on April 5.

Design-Build

• UPDATE! IL SB 1312 (Schoenberg) A hearing scheduled for March 30 was postponed by the Committee on Transportation. SB 1312 creates the Design-Build for Highway Construction Act to allow the Department of Transportation to use the design-build delivery method for public projects if it is shown to be in the state's best interest. This bill also requires bid, performance, and payment bonds.

Payment Bond Claims

• UPDATE! CA SB 293 (Padilla) Amends existing law that requires a claimant to give a preliminary notice before asserting a claim against a payment bond. SB 293 states that the preliminary notice requirement does not apply to a laborer. This bill has been scheduled for a hearing in the Committee on Judiciary on April 5.

Miscellaneous

• Federal S 652 (Kerry/Hutchison/Warner) Entitled “The Building and Upgrading Infrastructure for Long-Term Development (BUILD) Act,” this bill establishes an American Infrastructure Financing Authority (AIFA) to facilitate efficient investments and financing of infrastructure projects and new job creation and to provide for an extension of the exemption from the alternative minimum tax treatment for certain tax-exempt bonds, and strengthen America’s competiveness.
  
  This national infrastructure bank is a proposed way to leverage private-public partnerships and maximize private funding to address our water, transportation, and energy infrastructure needs. There currently is no mention of payment or performance bonds for construction in the bill. S 652 was introduced in the Senate on March 17.
   
• UPDATE! IL SB 1382 (Sandoval) This bill was assigned to the Executive Committee on State Operations and action was postponed on March 10. Prohibits contractors working on public projects for the state from requiring subcontractors to provide payment or performance bonds.
   
• UPDATE! ME LD 279 (SP 85) (Snowe-Mello) This bill has been passed by the Senate and the House as of March 31 and has been ordered to be sent to the Governor.
  
  LD 279 repeals the requirement that sureties annually notify the imdemnitor on payment and performance bonds that rely on indemnity agreements. Under current law, if the surety fails to give notice, the indemnity agreement will be terminated. NASBP members and representatives from the Maine Insurance Agents Association assisted with getting this bill introduced.
   
• UPDATE! TX HB 1694 (Coleman)/SB 413 (West) HB 1694 and SB 413 were both amended in their respective committees and reported favorably on March 23 and March 30. The amended versions of both bills removed Section 18, which would have allowed the commissioners' court, the governing body of each of Texas’ 254 counties, to establish the financial criteria for accepting surety companies that provide bid, payment or performance bonds, which is the regulatory function of the Texas Insurance Department. NASBP sent letters expressing our opposition to these bills to Committee Chairs Coleman and West and asked Texas NASBP members to reach out to their legislators in opposition as well.

Thirty-six legislatures are currently in session. They are Alabama, California, Colorado, Connecticut, Delaware, District of Columbia, Federal, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, and Wisconsin.

Five legislatures are currently in special session. They are Alaska, California, Virginia, Washington, and Wisconsin.

Sixteen legislatures have currently adjourned. They are Alaska, Arizona, Arkansas, Georgia, Idaho, Kentucky, Maryland, Mississippi, Montana, New Mexico, South Dakota, Utah, Virginia, Washington, West Virginia, and Wyoming.

Update: In the April 6, 2011 issue of Focal Point, there was an update regarding Unlicensed Surety legislation in Maryland. The Baltimore Sun column referred and linked to in that segment of NASBP Focal Point contained an error. The Baltimore Sun has published a revised version of the column, linked here, and states the following at the end of the column: "An earlier version of this column incorrectly said that Karen Barbour, head of the Barbour Group, opposes greater regulation of individual surety bonds for construction projects because of potentially higher costs and diminished coverage. Barbour backed a bill that would leave individual sureties unregulated by the Maryland Insurance Administration, but she didn't make those specific arguments against regulation. The Sun regrets the error."

Federal

• S. 493 (Landrieu) The “Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) Reauthorization Act,” contains two amendments that are important to the surety industry. Amendment 212, submitted on March 15 by Senators Scott Brown (R-MA) and David Vitter (R-LA), repeals the 3% tax withholding rule. Amendment 240, proposed on the Senate floor by Senator Landrieu (D-LA) on behalf on Senator Ben Cardin (D-MD) on April 6, reinstates the reforms made to the SBA Surety Bond Guarantee Program as part of the Economic Stimulus Plan that increased surety bond guarantee limits from $2 to $5 million and up $10 million with the approval from the SBA Administrator, and allowed the Administrator discretion to determine the Program’s liabilities. As you remember those reforms sunsetted on September 30, 2010. We will keep you apprised with up-to-date information if the Senate takes up S. 493 and both amendments are included in the bill. If so, NASBP will lobby its friends on the House Small Business Committee for their support.
   
• 76 Fed. Reg. No. 78 (April 22) The Department of Defense (DOD), General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) have issued a request for comments regarding an extension for an existing OMB clearance. Under the provisions of the Paperwork Reduction Act (44 U.S.C. chapter 35), the Regulatory Secretariat (MVCB) will be submitting a request to review and approve an extension of a current information collection requirement concerning Affidavit of Individual Surety, Standard Form 28. Standard Form 28 must be submitted by individual sureties that are on bonds executed in connection with Government contracts. The acceptance of Miller Act performance and payment bonds with individual sureties is governed by Federal Acquisition Regulation (FAR) Part 28.
  
  NASBP will be issuing a comment letter. Comments are due by June 21, 2011. If you would like to submit comments, you may do so by visiting http://www.regulations.gov and search for the heading “Information Collection 9000-0001”.
  
  To view the request in the Federal Register, click here.
   
• 76 Fed. Reg. No. 63 (April 1) An interim rule was added to amend the FAR (48 CFR Chapter 1), Women-Owned Small Business (WOSB) Program (FAR Case 2010–015). This rule will assist Federal agencies in achieving the 5 % statutory goal for contracting with women-owned small businesses (WOSB). Agencies may restrict competition to economically disadvantaged women-owned small business (EDWOSB) concerns for contracts assigned a North American Industry Classification Systems (NAICS) code in an industry in which the Small Business Administration has determined that WOSB concerns are underrepresented in Federal procurement. This addition to the FAR was effective as of April 1. To review the notice in the Federal Register and for more information, click here.

Bond Threshold Increase

• UPDATE! NY SB 2808 (Budget Bill) On March 31, as part of the budget bill, the Governor signed into law a provision that increases the performance and payment bonding threshold on State University of New York (SUNY) construction contracts from $50,000 to $250,000. The threshold sunsets on June 30, 2016.

Bond Waiver

• NC SB 500/ HB 584 (Governor’s Budget) Provides for a waiver of payment and performance bond requirements, in whole or in part, for projects estimated to cost $2 million or less providing for repairs or renovations to State facilities and related infrastructure, including the University of North Carolina. Currently, the bond threshold for all state departments, state agencies, and the University of North Carolina, and its institutions is $500,000 after being raised from $300,000 in 2010. This budget bill was introduced on April 5.
   
• NY SB 4457 (M. Smith) Amends executive law to allow the director of the division of minority and women's business development to conduct educational outreach programs to encourage and increase the participation of minority and women-owned business enterprises to participate on state construction projects. The legislation seeks to maximize utilization by minority and women-owned business enterprises of available federal resources including but not limited to federal grants, loans, loan guarantees surety bonding guarantees, technical assistance, and programs and services of the federal small business administration. This bill also amends State Finance Law to provide for a waiver of the requirements for the furnishing of a performance bond or a payment bond in cases where a contract is awarded to a small business concern or to a minority or women-owned business concern (MWBE). In these cases, all performance bonds and payment bonds may be waived when the aggregate amount of the contract is under $500,000. This bill was introduced and referred to the Committee on Finance on April 6.

Public-Private Partnerships

• UPDATE! TX HB 2032 (Darby) Requires a private entity entering into a comprehensive development agreement to provide a performance and payment bond issued by a corporate surety authorized to issue bonds in Texas. As amended in CSHB 2032, if the contract amount exceeds $250 million in construction costs, and the department determines that it is impracticalable for the private entity to provide security in the amount equal to the cost of constructing or maintaining the project, the department may set the amount of the security at or above $250 million, as determined by the department to be in the best interest of the state. HB 2032 was reported favorably as substituted from the Committee on Transportation on April 20.
   
• UPDATE! TX HB 2432 (Davis)/ SB 1048 (Jackson) As originally introduced, this bill authorized the state to enter into public-private partnerships on public projects, except for state highway projects. Parties must enter into a comprehensive agreement requiring the delivery of maintenance, performance, and payment bonds and letters of credit in connection with the development or operation of the qualifying project, in the forms and amounts satisfactory to the responsible governmental entity and in compliance with all applicable statutes for those components of the qualifying project that involve construction.
  
  Both bills have been amended to require the delivery of payment and performance bonds in compliance with Chapter 2253, the Texas Little Miller Act, which states that a performance bond is required on contracts over $100,000 and a payment bond is required on contracts over $25,000. SB 1048 was passed, as amended, and passed over to the House Committee on Economic and Small Business Development where it was reported favorably as substituted on April 29. HB 2432 was reported favorably as substituted out of the Committee on Economic and Small Business Development as of April 20.
   
• UPDATE! NV SB 83 (Department of Transportation) An bill that allows the Nevada Department of Transportation to enter into public-private partnerships to plan, design, construct, or improve and maintain transportation facilities, including design-build projects, was recommended for passage by Senate Committee on Transportation on April 22.
  
  This bill has been amended to state that any private entity entering into a partnership with the NVDOT is required to obtain a performance bond, payment bond, letter of credit, parent company guarantee, or other security acceptable to the Department, or any combination thereof, in amounts determined by the Department.
  
  Every contract must provide for the filing and furnishing of one or more bonds by the person to whom the contract is awarded with corporate sureties approved by the Department and authorized to do business in the State, in a sum equal to the full or total amount of the contract awarded. The bond or bonds must be performance bonds or labor and material bonds, or both. If enacted, the bill will go into effect July 1, 2011.

Privatization

• UPDATE! TN HB 1132 (Brooks)/ SB 1916 (Woodson) HB 1132 was amended in the Committee on Education by removing “in its discretion, may require payment and performance bonds...” by substituting with “the local Board of Education shall require private (and public) developers to provide a payment and performance bond for 100% of the contract amount.” The bill was subsequently placed on the calendar in the Subcommitee on Finance for a hearing on May 11.
  
  Its companion, SB 1916, has been placed on the calendar in the Senate Committee on Education, but action has been deferred until May 4. SB 1916 still, however, contains the original language authorizing local boards of education to enter into capital leases with the discretion of “may” requiring payment and performance bonds for 100% of the contract amount.

Payment Bond Claims

• UPDATE! CA SB 293 (Padilla) This bill passed 36-0 in the Senate and was transferred over to the Assembly on April 14. SB 293 amends existing law that requires a claimant to give a preliminary notice before asserting a claim against a payment bond. SB 293 states that the preliminary notice requirement does not apply to a laborer.

Miscellaneous

• UPDATE! ME LD 279 (SP 85) (Snowe-Mello) This bill was signed into law by the Governor on April 15.
  
  LD 279 repeals the requirement that sureties annually notify the imdemnitor on payment and performance bonds that rely on indemnity agreements. Under current law, if the surety fails to give notice, the indemnity agreement will be terminated. NASBP members and representatives from the Maine Insurance Agents Association assisted with getting this bill introduced and ultimately passed into law.
   
• UPDATE! TX HB 1694 (Coleman)/SB 413 (West) HB 1694 was voted on and passed the House on April 26 by a vote of 147-0-3. Both bills were amended in their respective committees and reported favorably at the end of March. The amended versions of both bills removed Section 18, which would have allowed the commissioners' court, the governing body of each of Texas’ 254 counties, to establish the financial criteria for accepting surety companies that provide bid, payment or performance bonds, which is the regulatory function of the Texas Insurance Department. NASBP sent letters expressing our opposition to these bills to Committee Chairs Coleman and West and asked Texas NASBP members to reach out to their legislators in opposition as well.

Twenty-three legislatures are currently in session. They are Alabama, California, Connecticut, Delaware, District of Columbia, Federal, Illinois, Iowa, Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina, and Wisconsin.
Four legislatures are currently in special session. They are California, Texas, Virginia, and Wisconsin.

Twenty-nine legislatures have adjourned. They are Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

Federal

• Update! S. 493 (Landrieu-D-LA)/ H.R. 1425 (Elmers-R-NC) A motion for cloture was requested on S. 493, the “Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) Reauthorization Act,” on May 2. Unfortunately, with a vote of 52-44, 8 votes short of the required 60 to end debate, the bill failed. S. 493 contained two amendments that were important to the surety industry - Amendment 212, submitted by Senators Scott Brown (R-MA) and David Vitter (R-LA), which repealed the 3% tax withholding rule and Amendment 240, proposed by Senator Landrieu (D-LA) on behalf on Senator Ben Cardin (D-MD), which reinstated the reforms made to the SBA Surety Bond Guarantee that increased surety bond guarantee limits from $2 to $5 million and allowed the Administrator discretion to determine the Program’s liabilities. As you recall, those reforms sunsetted on September 30, 2010. There may be other opportunities to advance these measures later in this legislative session.
  
  H.R. 1425, which does not contain the amendments for the SBA Surety Bond Guarantee Program or the repeal of the 3% withholding rule, was heard in the Science, Space & Technology Committee on May 4. The bill has been reported from committee with a recommendation that it be heard by the full House.
   
• H.R. 674 (Herger-R-CA) Amends the Internal Revenue Code of 1986 to repeal the 3 percent withholding on payments made for goods and services, including construction services, provided to federal, state, and local governments with revenues above $100 million. Though H.R. 674 was filed in the House Committee on Ways and Means, a hearing, on May 26, was held in the Committee on Small Business’ Subcommittee on Contracting and Workforce, chaired by Representative Mick Mulvaney (R-SC), who will be speaking at this year’s NASBP Legislative Fly-in on June 23.
  
  NASBP submitted a statement for the record supporting the repeal of the 3% withholding rule and has also joined the Government Withholding Relief Coalition (GWRC), a group of 125 businesses of all sizes and a diverse range of industries, formed to spread the message about the negative and harmful effects the passage of the 3% withholding rule will have on small businesses and the nation as a whole. We will keep you apprised of any further hearings and developments. The repeal of the 3% withholding tax will be one of the top issues that Fly-In attendees will address as they visit with their members of Congress.
   
• S. 223 (Rockefeller-D-WV)/H.R. 658 (Mica-R-FL), Reauthorizes the Federal Aviation Administration Reauthorization Act (FAA Act), which was approved by the Senate 87 to 8 and by the House 223 to 196. Because there are major differences between the two bills, a conference committee was created to resolve those differences. Included in S. 223 was the following language, “The Secretary shall establish a program to eliminate barriers to small business participation in airport-related contracts and concessions by prohibiting excessive, unreasonable or discriminatory bonding requirements for any project funded under this chapter or using passenger facility revenues under section 40117. This language, however, was not included in H.R. 658. NASBP and SFAA will seek to have it removed from the final conference report. This will be another issue NASBP members will address when they meet with their members of Congress during the NASBP Legislative Fly-in.
  
  Senate conferees include Jay Rockefeller (D-VW), Barbara Boxer (D-CA), Bill Nelson (D-FL), Maria Cantwell (D-WA) and Kay Bailey Hutchinson (R-TX), Jim DeMint (R-SC) and Johnny Isakson (R-GA). The House has not yet named its conferees but will most likely include Representative John Mica (R-FL), Chair of the House Transportation Committee, and Representative Tom Petri (R-WI), Chair of the Aviation Subcommittee.
   
• UPDATE! U.S. Department of the Treasury (Proposed Rule - 31 CFR Part 223, RIN 1510-AB27) The U.S. Department of the Treasury, Financial Management Service, who administers the Federal corporate surety program and issues certificates of authority to qualified sureties has proposed to amend their regulation to clarify the circumstances when an agency bond-approving official can decline to accept a bond underwritten by a Treasury-certified surety. The department has also proposed to amend the procedures to be used in adjudicating any complaint received from an agency requesting that a surety's certificate be revoked for failure to satisfy an administratively final bond obligation due the agency.
  
  NASBP submitted comments on May 12 expressing its concern with the proposed rule. To view NASBP’s comment letter, click here. For a copy of the proposal, click here.
   
• 76 Fed. Reg. No. 103 (May 27) The Office of Small and Disadvantaged Business Utilization (OSDBU) with the Department of Transportation have issued a notice of funding availability for which organizations can compete in their Small Business Transportation Resource Center (SBTRC) of the West Central Region.
  
  OSDBU will enter into Cooperative Agreements with organizations for the purpose of outreach to the small business community in their designated region and provide financial and technical assistance, business training programs, business assessment, management training, counseling, technical assistance, marketing and outreach, and the dissemination of information, to encourage and assist small businesses to become better prepared to compete for, obtain, and manage DOT funded transportation-related contracts and subcontracts at the federal, state and local levels.
  
  Applications must be electronically submitted to OSDBU via e-mail at SBTRC@dot.gov by June 17, 2011 at 5 pm EST. To review the notice in the Federal Register, click here.
   
• 76 Fed. Reg. No. 89 (May 9) The U.S. Treasury and Internal Revenue Service (IRS) issued a Final Regulation in the Federal Register relating to the 3% withholding tax by government entities. Initially, the goal was for the 3% rule to apply to payments made after December 31, 2011 after an extension was made under the American Recovery and Reinvestment Act (ARRA). Comments were received regarding the administrative burdens of compliance and revenue effects on entities subject to the withholding, and a ruling was issued to extend that date to December 31, 2012 to allow more time for implementation. To view the announcement in the Federal Register, click here.

Bond Guarantee Program

• PA SB 696 (Washington) Establishes a statewide bonding program that implements a mentor-protégé program and Small Business Reserve Fund. These programs will enable small and disadvantaged businesses to build capacity, to competitively bid on State and other public contracts, to foster long-term business relationships between disadvantaged businesses and prime contractors, and to assist, support and enable disadvantaged businesses to successfully compete as prime contractors and/or as subcontractor. The sum of $5 million, or as much as necessary, may be appropriated for fiscal year July 1, 2011 to June 30, 2012, which will be used to guarantee sureties against losses sustained as a result of contractor defaults. The bill was introduced on May 3 and referred to the Committee on State Government.
   
• UPDATE! IL Senate Resolution (SR) 199 (Sandoval)/IL HR 234 (Currie) Resolves that the Department of Commerce and Economic Opportunity should consider whether a surety program successfully administered years ago be resurrected to provide financial guarantees to bonding companies for contracts awarded to minority-and women-owned small businesses to lower the costs to their firms and increase their access to capital. SR 199 was adopted by the Senate on May 27.
  
  SR 199/HR 234 recommends that the Department of Transportation and the Capital Development Board review their bonding requirements for minority-and women-owned small business participants, in light of the number of defaults by those companies over the last 5 years, to determine whether their requirements are more stringent than necessary and to report to the General Assembly any recommendations to reform bonding requirements for minority-and women-owned small business firms engaging in public construction projects.

Bond Waiver

• NC HB 919 (Wray) Provides for a waiver of payment and performance bond requirements, in whole or in part, for projects estimated to cost $2 million or less for repairs or renovations to State facilities and related infrastructure, including the University of North Carolina. Currently, the bond threshold for all state departments, state agencies, and the University of North Carolina, and its institutions is $500,000 after being raised from $300,000 in 2010. This bill was introduced on May 5 and includes the same language contained in the Governor’s Budget Bill, NC SB 500.

Public-Private Partnerships

• UPDATE! TX HB 2032 (Darby) Approved in the House by a vote of 138-0 and referred to the Senate Committee on Transportation and Homeland Security, however, the bill did not pass the Senate before the legislature adjourned for the session. Even though the bill failed to pass, a great deal of progress was made - the Texas Surety Federation, as well as the Texas Construction Association should be commended for all of their efforts in advocating for legislation to improve bonding provisions in the Transportation Code.
  
  HB 2032 was amended to require a private entity entering into a comprehensive development agreement to provide a performance and payment bond issued by a corporate surety authorized to issue bonds in Texas if the contract amount exceeds $250 million in construction costs, and the department determines that it is impracticalable for the private entity to provide security in the amount equal to the cost of constructing or maintaining the project, the department may set the amount of the security at or above $250 million, as determined by the department to be in the best interest of the state.
   
• UPDATE! TX SB 1048 (Jackson) Requires, in its amended form, the delivery of payment and performance bonds in compliance with Chapter 2253, the Texas Little Miller Act, which states that a performance bond is required on contracts over $100,000 and a payment bond is required on contracts over $25,000. SB 1048 has been passed in the House and the Senate and was sent to the Governor on May 30.

Privatization

• UPDATE! TN HB 1132 (Brooks)/ SB 1916 (Woodson) Amended in the Committee on Education by removing “in its discretion, may require payment and performance bonds...” by substituting with “the local Board of Education shall require private (and public) developers to provide a payment and performance bond for 100% of the contract amount.” The bill was removed from the calendar in the Subcommittee on Finance on May 10.
   
  SB 1916, has been placed on the calendar in the Senate Committee on Education, but action has been deferred until January 4, 2012. SB 1916 still contains the original language authorizing local boards of education to enter into capital leases with the discretion of “may” requiring payment and performance bonds for 100% of the contract amount.
   
• IL HB 1091 (Nekritz) Creates the Public-Private Partnerships for Transportation Act and grants the Illinois Department of Transportation (ILDOT), excluding all airport authorities, and the Illinois State Toll Highway Authority the necessary powers for the development, financing, and operation of transportation projects through public-private agreements with one or more private entities. Bid, performance, and payment bonds or other security determined suitable by ILDOT, including letters of credit, are required. HB 1091 passed both chambers.

Payment Bonds

• UPDATE! NY S 3182 (DeFrancisco) Passed the Senate with a vote of 60-0 on May 18 and was referred to the Assembly Ways and Means Committee. S 3182 amends the state finance law by extending the time period that a claim can be filed on a payment bond. Language has been added to read “no action on a payment bond furnished pursuant to this section shall be commenced after the expiration of one year from the date on which the public improvement has been completed and accepted by the public owner.” By amending the state finance law, the time period for claimants will be lengthened substantially beyond what is permitted in most states.

Miscellaneous

• NV AB 574 Introduced on behalf of the Committee on Ways and Means, and referred to the Assembly Committee on Government Affairs, AB 574 revises provisions recently enacted in AB 144 this session that went into effect on April 27, 2011. The premise behind AB 144, the Nevada First Act, was to increase the number of Nevada residents employed on state works projects. AB 144 sets forth requirements that a contractor, applicant or design-build team must meet to receive a preference in bidding on a public works contract. The penalty for failing to comply with any of the requirements is considered a material breach of the contract that entitles the public body to damages in the amount of 10% of the cost of the contract. Additionally, each contract between a contractor, applicant or design-build team who receives a preference in bidding and a subcontractor includes a provision that apportions the liability of damages for a material breach in proportion to each party’s liability. Finally, a contractor who breaches any of the requirements for a contract exceeding $5 million loses his/her certification for a preference in bidding for five years. Furthermore, any party who breaches any of the requirements for contracts exceeding $25 million loses his/her ability to bid on public works for one year.
  
  AB 574 makes the following revisions to the requirements set forth in AB 144: requires at least 25% of the suppliers to be located in Nevada, unless the materials or equipment cannot be obtained from a supplier located in the State, and limits the amount of the liquidated damages equal to 10% of the cost of the largest contract to which he/she is a party, or $50,000, whichever is less. The public owner would have the right to enforce the recovery of this amount directly against the party causing the breach and no other party would be liable. AB 574 requires the Legislative Commission to appoint a committee to conduct an interim study concerning the availability of sureties for parties entering into contracts for public works. The study must include: 1) a review of state laws governing sureties by contractors; 2) the availability of sureties by contractors and other persons entering into public works contracts; 3) the impact that limitations on amounts of liquidated damages for breaches of contracts for public works have on the availability of sureties and; 4) any other matter which the Commission deems relevant.
  
  In conducting this study, the committee shall consider testimony from experts that include representatives from the surety industry, construction management, labor organizations and the State Public Works Board. The Legislative Commission shall submit a report of the results of the study and any recommendations for legislation to the 77th (2012) Legislature.
   
• OH HB 153 (Amstutz) The state’s budget bill passed the House with a vote of 59-40 and was referred to the Senate Committee on Finance and Appropriations. The bill includes a provision that would permit the use of the single prime, design-build and construction manager at risk (CM at Risk) methods as alternatives to the current multiple prime delivery of public works projects. As originally drafted, the bill included language that stated “a bond in an amount not less than the combined contract values of any work under contract prior to the establishment of the guaranteed maximum price or in the amount of the guaranteed maximum price as agreed to by the public authority, as the case may be.”
  
  As amended in the Senate, the bill now states that “before construction begins pursuant to a contract for design-build services with a design-build firm, the design-build firm shall provide a surety bond to the public authority in accordance with the rules adopted by the Director of Administrative Services under Chapter 119 of the Revised Code.”
  
  The surety industry has participated in a number of meetings with interested parties including key senators from the Finance Committee. Legislators want the construction reforms to move forward and recognize the importance of competition for contractors as critical for job growth, however, they also recognize the concerns of the surety industry. The surety industry continues to stress the importance of 100% bonding in accordance with provisions of Ohio’s Little Miller Act. We will keep you apprised of information as the issue develops.
   
• TX HB 1951 (Taylor) Passed in the House and the Senate, HB 1951 was sent to the Governor for his signature on May 30. HB 1951, the Texas Department of Insurance Sunset Bill, includes a provision that states that “any bond that is made, given, tendered, or filed under Chapter 53, Property Code, or Chapter 2253, Government Code, may be executed only by a surety company that is authorized to write surety bonds in this state. If the amount of the bond exceeds $100,000, the surety company must also: hold a certificate of authority from the United States Secretary of the Treasury to qualify as a surety on obligations permitted or required under federal law; or have obtained reinsurance for any liability in excess of $1 million from a reinsurer that: is an authorized reinsurer in this state; or holds a certificate of authority from the United States secretary of the treasury to qualify as a surety or reinsurer on obligations permitted or required under federal law.”
   
• UPDATE! TX HB 1694 (Coleman) Passed the House on April 26 with a vote of 147-0-3 and the Senate on May 19 with a vote of 31-0; the bill was enrolled and sent to the Governor on May 23. The amended version of HB 1694 removed Section 18, which would have allowed the commissioners' court, the governing body of each of Texas’ 254 counties, to establish the financial criteria for accepting surety companies that provide bid, payment or performance bonds, which is the regulatory function of the Texas Insurance Department.

Eleven legislatures are currently in session. They are California, District of Columbia, Federal, Illinois, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin.

Five legislatures are currently in special session. They are California, Connecticut, Delaware, Virginia, and Wisconsin.

Forty-one legislatures have adjourned. They are Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

Federal

• H.R. 2357 (Guinta/Carnahan) Amends United States Code to increase the effectiveness of Federal oversight of motor carriers. HR 2357 increases the bond limit from the current $10K to $100K and expands the bond requirement to include any trucking company who brokers their freight load to another trucker. Under this bill, sureties will be required to reimburse “reasonable costs and attorney’s fees to any claimant who sues over a denied claim and prevails,” “terminate the bond if the principal experiences financial failure or insolvency, publicly advertise for claims for 60 days, and pay all claims (or prorated if they exceed the bond) within 30 days after the 60 day claim submission period,” and publish all claims paid upon payment. If the surety fails to comply with the provisions listed, it will be liable to the U.S. for a civil penalty up to $10K. Similar legislation was introduced in the 111th Congress by Senator Olympia Snowe (R-ME). NASBP met with the Senator’s staff to voice our concerns. While a senate version has not been introduced, it is expected. NASBP will keep you apprised of our efforts regarding this legislation.

Bond Guarantee Program

• UPDATE! CT SB 736 (Coleman) SB 736 would have required the Commissioner of Administrative Services to establish a surety bond guarantee program for small and emerging contractors, so they may participate on state projects that cost more than $500K. The bill, however, waived the requirement for payment and performance bonds on projects for these participating contractors. Emerging contractors would have only been eligible to participate in the program for up to 5 years from initial date of application. SB 736 died as the legislature failed to take further action prior to adjournment.

Public-Private Partnerships

• UPDATE! NV SB 83 (Department of Transportation) SB 83 died, as the Legislature failed to take action before adjournment. SB 83 would have allowed the Nevada Department of Transportation to enter into public-private partnerships and required that entity to obtain a performance bond, payment bond, letter of credit, parent company guarantee, or other security acceptable to the Department.

Payment Bonds

• UPDATE! NY S 3182 (DeFrancisco) Passed in the Assembly as a substitute for AB 5025 with a vote of 90-0 and has been returned to the Senate as of June 6. Language has been added to read “no action on a payment bond furnished pursuant to this section shall be commenced after the expiration of one year from the date on which the public improvement has been completed and accepted by the public owner.” By amending the state finance law, the time period for claimants will be lengthened substantially beyond what is permitted in most states.

Miscellaneous

• UPDATE! NV AB 574 Approved and signed by the Governor on June 15. AB 574 revises provisions recently enacted in AB 144 this session that went into effect on April 27, 2011. AB 574 makes the following revisions to the requirements set forth in AB 144, the "Nevada First Act": requires at least 25% of the suppliers to be located in Nevada, unless the materials or equipment cannot be obtained from a supplier located in the State, and limits the amount of the liquidated damages equal to 10% of the cost of the largest contract to which he/she is a party, or $50,000, whichever is less. The public owner would have the right to enforce the recovery of this amount directly against the party causing the breach and no other party would be liable. Provisions for a Legislative Study Commission to study the current laws for sureties were removed when the bill was amended.
   
• UPDATE! OH HB 153 (Amstutz) The state’s budget bill was signed by the Governor on June 30 and goes into effect immediately. Included in the bill is a provision that would permit the use of the single prime, design-build and construction manager at risk (CM at Risk) methods as alternatives to the current multiple prime delivery of public works projects. HB 153, also included language stating “a bond in an amount not less than the combined contract values of any work under contract prior to the establishment of the guaranteed maximum price or in the amount of the guaranteed maximum price as agreed to by the public authority, as the case may be.”
  
  Amended in the Senate, and included in the final budget bill was language stating, “before construction begins pursuant to a contract for design-build services with a design-build firm, the design-build firm shall provide a surety bond to the public authority in accordance with the rules adopted by the Director of Administrative Services (DAS) under Chapter 119 of the Revised Code.” The approved budget bill also requires DAS to prescribe the procedures for determining the best selection for a CM at risk or design-build firm and how to award subcontracts.

NASBP Activity

• 3% Withholding—NASBP sent a letter that was included in the record as part of a hearing in the House Small Business Subcommittee on Contracting and Workforce in May. The Chair of that Subcommittee, Representative Mick Mulvaney (R-SC), who spoke at the NASBP Congressional Fly-in, believes there is a good chance of repealing the 3% withholding rule before takes effect in 2013. There are currently 176 House co-sponsors who have signed on to H.R. 674.
  
  NASBP is part of the Government Withholding Relief Coalition, which is comprised of over 130 organizations. The coalition has delivered over 4,000 letters to Capitol Hill offices asking lawmakers repeal the 3% rule. A member of the coalition has asked members to contact Representative Kenny Marchant (R-TX), who serves on the House Ways and Means Committee to become a cosponsor of H.R.674. If you are a constituent, or have a business located in Representative Marchant’s district, please consider sending him a letter requesting he signing on as a co-sponsor. NASBP has created a sample letter for members to send letters to their Congressional Delegation asking they consider repealing the 3% rule. You may view this letter by clicking here.
   
• NASBP Fly-in On June 23, more than 50 participants came to Washington D.C. to show their passion for surety and make their presence known on Capitol Hill at the 2011 NASBP Congressional Legislative Fly-in Day. The event included a morning briefing and orientation program with key policymakers such as Congressman Mick Mulvaney (R-SC), Congressman Richard Hanna (R-NY), Brandon Neal from the Department of Transportation’s Office of Small Business Disadvantaged Utilization, Peter Gibbs from the U.S. Small Business Administration, Krystal Brumfield from the U.S. Senate Committee on Small Business and Entrepreneurship, and Caren Street from the office of Senate Majority Leader Harry Reid (D-NV).
  
  After an afternoon of over 30 visits with Congressmen, Senators, and their staff, the day concluded with an NASBP-hosted reception on Capitol Hill that was well-attended by Hill staff and NASBP members.
  
  For more details, please review the article in Pipeline. For those of you who attended, thank you for your participation. If you didn’t get the chance to attend this year, we hope you’ll consider coming out to the next event to experience and take part in the success!
   
• Legislative Outreach—NASBP has begun to meet with Maryland legislators who may have a voice in deciding the fate of legislation in 2012 to address individual surety should a bill be reintroduced. Thus far, NASBP has attended events hosted by Senators Catherine Pugh, Robert Garagiola and Delores Kelley, all of whom serve on the Senate Finance Committee and Delegate Dereck Davis who is Chairman of the House Economic Matters Committee, where the individual surety bill was heard last session. You may recall that Senator Pugh was the sponsor of legislation in 2011 to exempt an individual surety from having to obtain a certificate of authority from the Maryland Insurance Commission to write bonds on private construction contracts in Maryland. Since then, NASBP has made a concerted effort to educate Senator Pugh on the importance of surety bonds and the protection it offers to small businesses. Last month, at the invitation from NASBP, Senator Pugh attended a workshop as part of the Department of Transportation Bonding Education Program to witness how the Program is helping to prepare small and minority business contractors to become bondable. In addition, NASBP has begun to meet with Baltimore City leaders to discuss opportunities for small minority contractors in Baltimore City. Undoubtedly, there will be an advocacy role for Maryland NASBP members to play in with their Maryland state representatives as the next legislative session nears.
   
• U.S. Green Building Council (USGBC)—NASBP has become actively involved with the USGBC whose mission is “committed to a prosperous and sustainable future for our nation through cost-efficient and energy-saving green buildings.” USGBC is compromised of 79 local affiliates, more than 16,000 member companies and organizations, and more than 160,000 LEED Professional Credential holders. NASBP has met with USGBC on two separate occasions to bring awareness of concerns regarding federal, state and municipal jurisdictions that are considering or have enacted laws and regulations mandating green building/sustainability requirements in public and private construction that include surety bonding requirements that place inappropriate risks on contractors and sureties. We will continue to keep you updated on this initiative.
   
• Construction Specification Institute--NASBP CEO Mark McCallum was appointed to the Owners Task Team of the Construction Specifications Institute which will examine the importance of specifications for risk management in 2012. 

Ten legislatures are currently in session. They are District of Columbia, Federal, Illinois, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin.

Six legislatures are currently in special session. They are Connecticut, Delaware, Missouri, New Mexico, Virginia, and Wisconsin.

Forty-two legislatures have adjourned. They are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

Federal

• S.B. 1549 (Reid, by request) President Barack Obama has released his economic stimulus plan, a bill titled "The American Jobs Act." The bill is significant for the surety industry, not only because of the billions of dollars requested to be appropriated for construction infrastructure projects, but also because it includes language that 1) increases surety-bond guarantee limits of the U.S. Small Business Administration's (SBA) Surety Bond Guarantee Program from $2 million to $5 million and 2) amends the section of the Small Business Investment Act that limits liability for surety-bond guarantees in situations when the guarantee was obtained by fraud or material misrepresentation, the surety has breached a material item of the guarantee agreement or the surety has violated SBA's surety-bond regulations. The bill provides that the increased surety-loan size will sunset at the end of fiscal 2012, which affects 1) and 2) above. In addition, the bill includes a provision to delay the implementation of the 3% Tax Withholding Law until 2013, although it does not repeal the law. NASBP has joined a coalition that includes construction-industry organizations and the U.S. Chamber of Commerce seeking an outright repeal of the 3% Tax Withholding Law, not merely a delay in implementation. NASBP is reviewing the president's proposal to ensure statutory bonding requirements (the Miller Act) are followed and not waived on federal construction projects. For more details, please click here to view the President's bill.

Bond Guarantee Program

• PA HB 1856 (Simmons) Establishes a Surety Bond Guarantee Fund to encourage the participation of small and disadvantaged businesses to competitively bid on eligible government contracts. Payments from the Fund shall not exceed $1 million per small or disadvantaged business. HB 1856 was referred to the Committee on State Government on September 22.

Privatization

• UPDATE! IL HB 1091 (Nekritz) Signed into law by the Governor on August 23, this bill creates the Public-Private Partnerships for Transportation Act and grants the Illinois Department of Transportation (ILDOT) and the Illinois State Toll Highway Authority the necessary powers for the development, financing, and operation of transportation projects through public-private agreements with one or more private entities. Bid, performance, and payment bonds or other security determined suitable by ILDOT, including letters of credit, are required.

Performance and Payment Bonds

• UPDATE! VA SB 1126 (Stosch) Passed by the 2011 Virginia General Assembly, this law requires a committee appointed by the Transportation Commissioner to review performance and payment bonding requirements for transportation related construction projects identified in §2.2-4337, “Performance and Payment Bonds," of the VA Code. The committee, which includes producers and underwriters, will be charged with providing recommendations of suggested changes to performance and payment bonding requirements for transportation-related construction projects to be presented to the Commissioner by December 1, 2011. The committee will meet for the first time in Richmond on Thursday, September 29. NASBP understands that the committee may meet for up to four times with all meetings to be completed by November 1, 2011. NASBP will keep you apprised of the committee’s recommendations and the final outcome of the process.
   
• 44 IL ADC 6.290 Proposes to amend the Illinois Department of Transportation Procurement Regulations, specifically the “Requirement of Contract Bond for Construction Contracts” to allow for state officials, boards, commissions, or agents to accept bonds in an amount less than the contract amount. NASBP submitted a letter to address the fact that, unless there is a compelling reason, such as bonds are not available in the amount of the contract, performance and payment bonds should be set in 100% of the contract amount. NASBP received a response letter from the Chief Procurement Officer of the ILDOT stating that the rule was proposed for the sole reason of allowing the ILDOT greater flexibility to encourage participation of smaller firms in construction. We will update you once ILDOT issues its final rule.
   
• UPDATE! NY S 3182 (DeFrancisco) Signed by the Governor on August 3, this bill contains language stating that “no action on a payment bond furnished pursuant to this section shall be commenced after the expiration of one year from the date on which the public improvement has been completed and accepted by the public owner.” By amending the state finance law, the time period for claimants will be lengthened substantially beyond what is permitted in most states.

Alternative Project Delivery

• NY SB 3035 (LaValle)/ AB 4735 (Canestrari) Authorizes the use of an alternative project delivery method, including design-build and construction management-at-risk, as methods for the construction, reconstruction, alteration, repair or improvement of a state building. SB 3035/AB 4735 also contains language stating, “If a fixed contract amount or guaranteed maximum price has not been determined at the time the contract is awarded, the penal sums of the performance and payment bonds delivered to the state agency must each be in an amount equal to the project budget, as set forth in the request for qualifications.” A report from the Committee on Education with justification for SB 3035 has just been submitted as of September 21, while AB 4735 was referred to the Committee on Insurance.
   
• UPDATE! OH HB 153 (Amstutz) In the last issue of Focal Point, NASBP reported that this budget bill had been signed by the Governor on June 30. Included in the final version of the budget bill was language stating “before construction begins pursuant to a contract for design-build services with a design-build firm, the design-build firm shall provide a surety bond to the public authority in accordance with the rules adopted by the Director of Administrative Services (DAS) under Chapter 119 of the Revised Code.” The draft proposed rules require payment and performance bonds for 100% of the contract amount for projects less than $20 million, but only requires bonds in 50% of the contract amount for projects greater than $20 million. NASBP submitted a comment letter addressing our concerns with the proposed surety bonding rule regarding the 50% bonding requirement. To view the NASBP comment letter, click here. We will continue to keep you updated on this important issue.

NASBP Activity

• NASBP Fly-in On June 23, more than 50 participants came to Washington D.C. to show their passion for surety and to make their presence known on Capitol Hill at the 2011 NASBP Legislative Fly-in Day. The event included a morning briefing and orientation program with key policymakers. Click here to view a brief video, now on NASBP’s home page, which encompasses the highlights of another successful Legislative Fly-in Day!
   
• Bonding Education Program Update NASBP has agreed to participate in a joint effort of the U.S. Department of Transportation (DOT) Office of Small and Disadvantaged Business Utilization (OSDBU) and Surety and Fidelity Association of America (SFAA) to provide bonding-education programs to small and emerging business owners in 11 cities. NASBP bond producers are needed at each of these programs to work with individuals one-on-one at the beginning of selected program workshops scheduled once a week during a six-week program.
  
  Recently, New York, Minneapolis, Seattle, and Columbia (SC) have all held their stakeholder interest meetings. Minneapolis is slated to begin their DOT/BEP series of workshops on October 15 and continue through November 19. Each of the six workshops will take place from 9 a.m. to 1 p.m. on Saturday at the MN/DOT Training & Conference Center, 1900 W. County 1, Shoreview, Minn. 55126. The Small Business Transportation Resource Center (SBTRC) and the MN Procurement Technical Assistance Center are hosts for the workshops. To participate in the Minneapolis program, please RSVP to Sherri Komrosky at skomrosky@mnptac.org or (612) 259-6565, or Rhonda Wilson at wilsonrh@missouri.edu or (573) 882-0139, by Sept. 30.
  
  The New York DOT/BEP series of workshops will begin October 22 and continue through November 12 and will meet from 8:00 a.m. to 1:30 p.m. on Saturday at LaGuardia Community College, 30-20 Thomson Ave., 3rd Floor – Room 305, Long Island City, NY 11101. To participate in the New York program, contact Elizabeth Perdomo, project director, SBTRC, at eperdomo@lagcc.cuny.edu or (718) 482-5941.
  
  Please notify Larry LeClair at lleclair@nasbp.org at NASBP of your intended participation in any of the programs. To learn more about the status of all 11 programs held nationwide, visit nasbp.org and keep your eye on NASBP SmartBrief for timely updates.

Proposed Federal Regulations (Federal Maritime Commission)

• The Federal Maritime Commission (FMC) proposes to amend its regulations regarding passenger vessel financial responsibility by increasing the current performance coverage from $15 million to $30 million; adjusting the amount of coverage required for small passenger vessel operators by providing for consideration of alternative forms of protection; revising the application form; adding an expiration date to the certificate of performance and making additional technical changes to the regulations.
  
  Current regulations require performance coverage to be provided by a surety bond underwritten by a surety acceptable to the Department of Treasury, acceptable insurance, a guaranty underwritten by an acceptable guarantor or an escrow account established in accordance with the terms of an escrow agreement approved by the Commission. Comments must be submitted on or before November 21, 2011. To review the proposed regulation, please click here.

Information Collection Requirement on SF 28, Affadavit of Individual Surety

• Last spring, NASBP submitted a comment letter to the General Services Administration (GSA) regarding proposed regulations to review and approve an extension of the current information and collection requirement concerning Standard Form 28, Affidavit of Individual Surety. NASBP’s comment letter recommended an extension to the current information collection requirement which provides that, in order to qualify as a surety, individuals must complete and furnish contracting officers with Standard Form 28, Affidavit of Individual Surety.
   
  Because GSA received only two public comments, they have decided to reopen the commentary period. NASBP urges members and industry partners to submit comments. Please feel free to use NASBP’s comment letter as a guide. To review the proposed regulation, please click here. Comments are due on or before October 28, 2011.

3% Withholding Tax Set for a Floor Vote Soon - Surety Community, Please Take Action

• NASBP has learned that the U.S. House of Representatives is expected to begin consideration early next week on H.R. 674 (Herger, R-CA-2), legislation that repeals the 3 percent withholding tax. During the week of October the 10th, the House Ways and Means Committee will mark up H.R. 674, followed by a vote on the House floor as early as the week of Oct. 24.
  
  NASBP needs as many Representatives to vote for the bill as possible in order to send a strong message to the U.S. Senate, so they will also take action. Please contact your Representative and urge they cosponsor and support passage of H.R. 674. Please do so even if you have already contacted your Representative and he/she has already signed on as a cosponsor. Please also encourage your colleagues to do the same.
  
  NASBP has created a sample letter that you may send to your Representative in Congress. Please click here to access NASBP’s grassroots action center and select the 3% withholding rule letter. Please add anecdotal stories from those clients who would be negatively impacted by the 3% withholding tax. The Government Withholding Relief Coalition, comprised of over 130 organizations including NASBP, stresses the importance of real world examples. Please let NASBP know once you have sent a letter to your Representative, so we may share that information with the Coalition. 
  
  As you know, starting January 1, 2013, all federal and state contracts for goods and services including construction will be subject to a 3 percent tax withholding on each and every payment over $10,000 to a contractor. The requirement also applies to state and local governments with revenues of $100 million or more in annual expenditures for goods and services. The 3 % withholding is larger than the profit margins realized under many government contracts and will significantly impede cash flow thereby jeopardizing a construction firm’s ability to attain bonding, compete for business, or even complete projects, making public construction less desirable.
  
  Thank you for your support and your willingness to taking action on this important issue. Please contact Larry LeClair at lleclair@nasbp.org or 202-464-1217 if you have any questions.

Ten legislatures are currently in session. They are District of Columbia, Federal, Illinois, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin.

Seven legislatures are currently in special session. They are Delaware, Nebraska, North Dakota, Rhode Island, Virginia, and Wisconsin.

Forty-two legislatures have adjourned. They are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

Federal

• UPDATE! VICTORY! H.R. 674 (Herger) Repealed the 3 percent withholding tax, which, beginning in 2013, mandated that federal, state and local governments with revenues in excess of $100 million withhold 3% of all government payments made to contractors. As a recap, two weeks ago, the U.S. House of Representatives passed H.R. 674 by a vote of 405-16, sending the bill to the Senate with a strong message of bipartisan support. H.R. 674 was passed in conjunction with an offset bill to raise enough revenue to offset the repeal legislation, which has an estimated cost of $11 billion. 
  
  On November 10, the Senate passed H.R. 674 with a vote of 95-0. Before final passage, an amendment to H.R. 674 was approved to include tax credits for hiring veterans, a Treasury study of tax delinquency among federal contractors, and a technical clarification about the application of the existing federal levy program to reflect congressional intent that payments for property can be levied along with payments for goods and services.
  
  Yesterday, by a vote of 422-0, the House concurred with the Senate's amended version of H.R. 674. The bill now goes to the White House for the President’s signature!
  
  NASBP has advocated for the repeal of this law dating back several years. In 2006, NASBP joined the COST (Construction Organizations for Sensible Taxation) Coalition, to support efforts to repeal the 3% withholding requirement. In 2011, NASBP joined the Government Withholding Relief Coalition, organized by the U.S. Chamber of Commerce, which consisted of over 160 organizations that sent thousands of letters to members of Congress imploring them to support the outright repeal of the 2005 law. NASBP would like to thank its members who sent letters and who met with their Congressional Delegation during the NASBP Fly-in to advocate in the outright repeal of the 3% withholding requirement. Five years ago, NASBP recognized this issue as a significant impediment to small construction owners that would impinge upon their cash flow, thereby jeopardizing its ability to attain bonding, compete for business, or even complete projects, making public construction less desirable. The repeal of the 3% withholding tax is an important victory for the construction industry.
   
• S. 1813 (Boxer) Reauthorizes Federal-aid highway and highway safety construction programs. S. 1813 also encourages public-private partnerships for engineering and design services as a way to promote jobs in the private sector and save money in the public sector. This bill, a bipartisan bill with no earmarks, was reported favorably out of the Committee on Environment and Public Works on November 9. The bill now moves to the Senate floor calendar, where it will wait for three other committees to approve revenue, transit, and safety components that will eventually be merged into one piece of legislation. As currently drafted, S.1813 does not address a bonding requirement. NASBP will continue to monitor this legislation as it makes its way through the U.S. Senate.

Bond Guarantee Programs

• UPDATE! PA HB 1856 (Simmons)/ SB 1004 (Pippy) Establishes a Surety Bond Guarantee Fund to encourage the participation of disadvantaged businesses, to bid on eligible government contracts. The bill defines a disadvantage business as a small business which is owned or controlled by a majority of persons, not limited to members of minority groups, who have been deprived of the opportunity to develop and maintain a competitive position in the economy because of social disadvantages. HB 1856 provides for a surety bond guarantee for up to $1 million for any one disadvantaged business. HB 1856 was referred to the Committee on State Government on September 22. SB 1004 is being considered in the Committee on State Government as of October 25.

Public Private Partnerships

• FL SB 576 (Bennett)/ HB 337 (Williams) Establishes the Florida Public-Private Partnership Act by providing for private entities to develop and operate public-purpose projects and requiring public entities to adopt and make publicly available specified guidelines for public-private agreements. The bill also lays out guidelines of the Department of Management Services for providing requirements and procedures for interim and comprehensive agreements between private and public entities and providing for material default and remedies with respect to projects and agreements and establishes the Public-Private Partnership Advisory Commission to submit annual reports.
  
  The bill requires the “delivery of maintenance, performance, and payment bonds and letters of credit in connection with the development or operation of the qualifying project, in the forms and amounts satisfactory to the responsible public entity for those components of the qualifying project that involve construction.” The Senate bill was filed for the 2012 session and has been referred to the Governmental Oversight and Accountability, Community Affairs, and Budget Committees. The House bill has been referred to the Government Operations Subcommittee, Government Operations Appropriations Subcommittee, and State Affairs Committee.

Ten legislatures are currently in session. They are the District of Columbia, Federal, Illinois, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Wisconsin.

Three legislatures are currently in special session. They are Delaware, Rhode Island, and Virginia.

Forty-two legislatures have adjourned. They are Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wyoming.

Federal

• H.R. 3534 (Hanna, Mulvaney) Curtails abuses occurring in the federal individual surety program on federal construction projects. H.R. 3534, the “Security in Bonding Act of 2011,” will remedy this significant problem by requiring individual sureties to pledge solely those assets described as “eligible obligations” by the Secretary of the Treasury and to deposit them in the custody and control of the federal government. By doing so, H.R. 3534, eliminates future instances where individual surety bonds are pledged with insufficient or illusory assets. Thus, if a surety bond is furnished on a federal project by an individual surety in the future, the small businesses which provide goods and services on those federal construction contracts will not need to worry about the integrity of their payment bond remedy. H.R. 3534 was introduced on December 1 and was referred to the House Judiciary Subcommittee on Courts and Administrative Law.
  
  NASBP worked closely with Representative Hanna’s office to have this bill introduced and served an integral part in the assistance of drafting bill language. NASBP submitted a support letter to accompany the bill introduction and also released a press release with SFAA on H.R. 3534.
  
  Prior to the holidays, NASBP and SFAA began their lobbying efforts with members of the House Judiciary Committee by meeting with the Subcommittee Chair, Howard Coble’s (R-NC-6th) staff. Please consider sending a support letter to your member of Congress, especially if he/she is assigned to the House Judiciary Committee. For a list of the House Judiciary Committee, please click here.

Bond Waivers

• NY SB 50002 (Budget Bill) The state’s budget bill was introduced on December 7 and was passed and signed by Governor Cuomo on December 9. SB 50002’s main focus was to increase jobs through public projects as well as to rebuild NY’s economy with tax incentives. SB 50002 allows the use of best value contract awards with a cost-plus not to exceed guaranteed maximum price method or lump sum contract. Language was included, however, that authorizes state entities to establish requirements for performance and payment bonds as it deems necessary in capital projects. An “authorized state entity” is defined as the New York State Thruway Authority, the Department of Transportation, the Office of Parks, Recreation and Historic Preservation, the Department of Environmental Conservation and the New York State Bridge Authority. NASBP is concerned about inclusion of very subjective language and will seek to monitor and address issues in implementing regulations.
   
• WA HB 1970 (Haigh, Dammeier) Allows for the waiver of bonding requirements and retainage on public works projects that cost less than $5,000 by a state agency or municipality. If the agency or municipality elects to waive bonding requirements, it must assume liability of the contractor’s and subcontractor’s nonpayment to laborers, suppliers, etc. HB 1970 has been recommitted during the second Special Session to the Committee on State Government and Tribal Affairs and is likely to be retained and reintroduced in the 2012 Regular Session.
   
• WA HB 1958 (Hunt) Waives performance bond requirements for public contracts under $100,000 for contracts awarded to certified businesses. Though introduced in February during regular session, this bill has been reintroduced and retained in its current state for reconsideration during the second Special Session in the Committee on State Government and Tribal Affairs and is likely to be retained and carried into the 2012 Regular Session.

Green Building

• DC LB 19-603/LB 19-604 Amends the Green Building Act (GBA) of 2006, one on a temporary basis and the other on an emergency basis. Both bills were passed by the DC Council last week and still require financial security to ensure LEED certification through a bond, letter of credit, or escrow arrangement. Under LB 603/604, the “applicant” is required to furnish financial security, but “applicant” is not defined. Thus, “applicant” might be either the developer or the contractor. NASBP and SFAA believe the financial security requirement should be the responsibility of the developer. Also, language was added in LB 603/604 that permits an “applicant” to provide a “binding pledge” in lieu of posting financial security, including a bond. The legislation provides for fines based on the square footage of the building, should the building fail to meet LEED within two years of occupancy and that any unpaid fines will act as a lien on the property.
  
  Under these amendments, however, the bond requirement contained in the Act shall not take effect until the mayor has issued rules. This delay in implementation of the bonding requirement gives the surety community the opportunity to participate more fully in the rule-making process and provides opportunities to shape the implementation of any bonding regulations in an effort to come up with workable requirements. For more background of the original GBA of 2006 and more explanation of these two amendments, visit the advocacy article in the most recent issue of Pipeline.

Claims

• FL HB 897 (Moraitis)/SB 1202 (Bogdanoff) Amends multiple statutes relating to construction bond requirements. Though containing mostly stylistic changes, there appears to be problematic language which states that “if the payment bond is not recorded before commencement of construction or a claimant is not otherwise notified in writing of the existence of the bond, the time periods for the claimant to serve any required notices or file suit on the bond shall run from the date the claimant is notified in writing of the existence of the bond.” Throughout HB 897/SB 1202 the term “shall” is replaced by “may” concerning when action can be brought against a contractor or surety, which appears to lengthen the current statute of limitations. HB 897 was pre-filed on December 7 and SB 1202 was pre-filed on December 5.

Miscellaneous

• NV Reg – NAC 338.240, 370 Amends the Nevada Administrative Code for the State Public Works Board pertaining to contractors and subcontractors in regards to acceptable surety companies used for their bonds. For a contract that is more than $5,000,000, the surety must be classified in a financial size category of ‘VII” or better, as determined by A.M. Best and be included on the list of approved sureties in Circular 570 of the United States Department of the Treasury. For contracts that are $5,000,000 or less, the surety must be included on the list of approved sureties in Circular 570 of the United States Department of the Treasury. The proposed regulation was introduced on December 8.
   
• TX Reg – 43 TAC 9.152 Amends the Texas Administrative Code to outline rules for design-build contracts under the management of the Department of Transportation. Language in the regulation states that, “The department shall require a private entity entering into a design-build contract to provide a performance and payment bond or an alternative form of security, or a combination of bonds and other forms of security to include irrevocable letters of credit, U.S. bonds or notes, or cashier’s checks, in an amount that, in the department's sole determination, is sufficient to ensure the proper performance of the agreement, and to protect the department and payment bond beneficiaries supplying labor or materials to the private entity or a subcontractor of the private entity.” This language would appear to vest discretion in the DOT for determining the amount of the bond furnished by the design-build entity. The proposed language was introduced on December 2.