NASBP Focal Point - January 16, 2020

Currently, thirty-six state legislatures are in session: Arizona, California, Colorado, Delaware, District of Columbia, Federal, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, Washington, West Virginia, and Wisconsin.

Territories: Guam, Puerto Rico, and Virgin Islands

*Click here for a complete 2020 calendar of the state’s legislative session dates.

In This Issue

Federal Report
Impeachment & Federal Procurement
State Report
Bond Threshold Increase
Bonding/Lien Laws
Private Construction
Public-Private Partnerships
Statute of Limitations
Subcontractor Default Insurance

Federal Report:

Impeachment & Federal Procurement

The big news on Capitol Hill this week is the impeachment trial of President Donald J. Trump, which will begin in earnest on Tuesday, January 21. Chief Justice John Roberts will preside over the impeachment proceedings. Today, the Chief Justice swore in Senators who will serve as jurors. Earlier this week, the House voted 228-193, mostly along party lines, to adopt two impeachment articles.

Now back to legislative news. Just prior to Congress adjourning for the holiday season, the Senate passed the Construction Consensus Procurement Improvement Act (S. 1434). A long-standing priority of the Construction Industry Procurement Coalition (CIPC), this legislation would prohibit federal agencies from purchasing design or construction services using reverse auctions, which includes provisions to ensure federally funded construction projects are competitive—both for cost and quality. The bipartisan bill is sponsored by Senator Rob Portman (R-OH), chairman of the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs, and Senator Mazie Hirono (D-HI), a member of the Senate Committee on Small Business and Entrepreneurship and the Senate Armed Services Committee. Unlike a traditional auction where a buyer with the highest bid wins the right to purchase a good or service, in a reverse auction, a buyer seeking a good or service solicits bids, multiple sellers offer bids, and the seller with the lowest bid wins the competition. The practice of reverse auctions in construction and design procurement is ineffective public policy. It fails to properly allocate risk, makes it more difficult for small and disadvantaged businesses to be awarded a bid, and inhibits the competitive bidding process. S.1434 was referred to the House Committee on Oversight and Government Reform’s subcommittee on Government Operations, which is chaired by Representative Gerry Connolly (D-VA-11 ^th). CIPC members plan to meet with subcommittee staff to encourage movement/passage of the Portman-Hirono bill in the House. We will keep you apprised of this effort.

State Report

Bond Threshold Increase

Pennsylvania Senate Bill 207

PA S. 207 (DiSanto)/H.885 In 2019, legislation was introduced to amend P.L.382 (No.164), known as the “Municipality Authorities Act of 1945,” to increase the bond threshold from $10,000 to $500,000 for local public contracts. The legislation eliminates the local contracting authority’s discretion to accept other financial securities (such as letters of credit and escrow arrangements) in lieu of performance and payment bonds. Moreover, the legislation was in response to the City of Harrisburg’s failure to secure adequate security on the construction of a new incinerator. While both bills removed the discretionary language and required only performance and payment bonds as the accepted form of security for local public projects, the Senate and House versions contemplated different threshold increases. S.207 increases the bond threshold from $10,000 to $500,000, while H.885 increases the threshold from $10,000 to $50,000. The Insurance Federation of Pennsylvania was able to reach a compromise with the Senate bill sponsor to require contracting authorities to accept only performance and payment bonds for local government contracts while raising the threshold from $10,000 to $150,000 to align the bill with the federal Miller Act. We will continue to keep you apprised of this effort.

Bonding/Lien Laws

Florida Senate Bill 1422

FL S.1422 (Flores)/H.897 (Rodriguez) Amends FL Statute 713.02(6) by removing the option that a private owner and a contractor may agree that the contractor furnish a payment bond inlieu of filling a mechanics lien claim. Several bills have been introduced this session addressing the FL Mechanics Lien Law. The Florida Surety Association is attempting to assess the recent surge of legislative activity. S. 1422 was referred to Senate Committee on Innovation, Industry and Technology and the Senate Judiciary. H. 897 was referred to the House Civil Justice Subcommittee and the House Committee on Commerce.

Indiana House Bill 1021

IN H.1021 (Torr) Amends Indiana’s Mechanic’s Lien Law to permit the dishcharge of liens by filing an “indemnification” or payment bond with the recorder’s office in an amount equal to 150% of the lien. The bill requires the surety responsible for issuing the bond to be authorized to conduct business in the state and be at least A- rated by a recognized rating agency. H.1021 requires that the filing of the bond discharges the liability of a person served by a lien claimant not less than 30 days after the filing of a bond. The bill is sponsored by Representative Jerry Torr (R-37 ^th) who Chairs the House Judiciary Committee where the bill was referred.

Private Construction

Maryland Senate Bill 75

MD S.75 (Ellis) Requires performance bonds for the construction of new homes. The bill states that liability under the performance bond shall be for the duration of the construction and for a period of five years after completion. NASBP has reached out to the bill sponsor, Senator Arthur Ellis, who represents Charles County, to inquire about the bill’s intent. S.75 is scheduled for a hearing on January 30 in the Senate Finance Committee.

Public-Private Partnerships

New Jersey Senate Bill 2958

NJ S.2958 (Zwicker) Establishes the Energy Infrastructure Public-Private Partnership Act. Section 13 of the bill states that if no public fund has been established for the financing of an energy-related project, the chief financial officer of the governmental entity may require the private entity responsible for the development of the energy-related project to post, or cause to be posted, a bond guaranteeing prompt payment of funds due to the contractor, its subcontractors, and to all persons furnishing labor or materials to the contractor or its subcontractors in the conduct of the work on the energy-related project. An application for a P3 agreement will include evidence of the private entity’s bonding capacity for the development and operation of the energy-related project as, if applicable, a long term service agreement. This bill passed both chambers on January 13, 2020 and was sent to the governor’s desk for signature.

New Mexico Senate Bill 59

NM S.59 (Padilla) Establishes the Public-Private Partnership Act to authorize state and local governments to enter into P3 agreements with private partners for the “construction or improvement that is related to broadband telecommunications network facilities.” The bill states that a P3 agreement shall “require a private partner to provide guarantees, letters of credit, or other acceptable forms of security, the amount of which may be less than 100 percent of the value of the contract involved based on the determination of the public partner, or for the public-private partnership agreements requiring board approval, based on the determination of the board.”

NASBP’s New Mexico members and local contracting groups are hoping to meet with the bill’s sponsor in the near future in order to discuss and gain clarification on the bill’s language.

Ohio House Bill 218

OH H.218 (Patton) Authorizes public-private initiative regarding public facilities. If the P3 agreement contains a construction services component, it must provide a contract performance bond executed by a surety authorized by the Department of Insurance to write surety bonds in an amount specified by the contracting authority, conditioned upon the private entity or contractor performing the construction services portion of the work in accordance with the agreed upon terms, within the time prescribed. If the P3 agreement contains a construction services component, it must also provide a payment bond executed by a surety authorized by the Department of Insurance to write surety bonds in an amount specified by the contracting authority, conditioned upon the payment for all labor, work performed, and materials furnished in connection with the construction services portion of the work.

*Click here for a state-by-state breakdown of P3 statutes.

Statute of Limitations

Virginia Senate Bill 195

VA S.195 (Cosgrove)Amends Title 2(2.2-4337) “Performance Bonds” to provide that no action may be brought by a public body on any construction contract, including construction management and design-build contracts, unless such action is brought within five years after completion of the work on the project.

The bill also limits the time frame during which a public body, other than the Department of Transportation, may bring an action against a surety on a performance bond to within one year after completion of the work on the project. Current law allows a public body, other than the Department of Transportation, to bring such an action within one year after (i) completion of the contract, including the expiration of all warranties and guaranties, or (ii) discovery of the defect or breach of warranty that gave rise to the action.

Similar legislation was introduced over the past couple of years but failed to advance. On January 15, the current bill was referred to the Senate Judiciary Committee.

Subcontractor Default Insurance

Massachusetts House Bill 2773

MA H.2773 (Rogers) Amends the Massachusetts Little Miller Act to allow Subcontractor Default Insurance in lieu of performance and payment bonds. Subcontractors must submit payment and performance bonds to the Construction Manager at Risk (CMAR) at no additional cost to the firm or awarding agency.

NASBP continues to engage actively on this legislation and, last summer, delivered a
letter to the members of Massachusetts’ Joint Committee on State Administration & Regulatory Oversight in opposition to the use of subcontractor default insurance in lieu of performance and payment bonds. As we’ve done previously, NASBP has hired outside counsel to advise and monitor the legislation.

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Focal Point is an e-bulletin sent to members and friends of the
National Association of Surety Bond Producers
when most state legislatures are in session and as needed thereafter. To obtain copies of Bills or other materials discussed above, contact
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