Archive for September, 2011
Texas HB 628 repeals the Texas Building and Procurement Commission’s authorization to adopt rules to determine the use of project delivery methods for construction and design services. The new law contains procurement provisions instead, including bonding requirements for each type of delivery method. The new law prohibits reverse auction procedures for obtaining services related to a public works contract for which a surety bond is required under existing law. The new law authorizes the following project delivery methods: construction manager agent, construction manager at risk, design-build, and job order contracting. For all delivery methods, the new law requires payment and performance bonds with a penal sum in an amount equal to the fixed contract amount or the guaranteed maximum price, unless neither of these was specified. In that case, the penal sums of the bonds would be in an amount equal to the project budget as specified in the request for proposal. The bid bond or other security would have to guarantee that once the guaranteed maximum price was established, the contractor would furnish the required performance and payment bonds. Construction managers at-risk and design-build firms are required to provide performance and payment bonds. The new law also provides that a payment or performance bond is not required and may not provide coverage for the design portion of the design-build contract. The construction manager-agent may not provide or be required to provide performance and payment bonds for the construction, rehabilitation, alteration, or repair of a facility. The general contractor hired under the manager-agent would have to provide the bonds. Source: Surety & Fidelity Association of America (SFAA) (www.surety.org)
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Louisiana HB 227 requires the unit owners’ association for a condominium to maintain a blanket fidelity bond if the association collects assessments for common expenses. The blanket bond must cover the officers, directors, and persons employed by the unit owners’ association and any managing agent and employees of the managing agent. The bond must provide coverage in an amount equal to $1 million or the amount of reserve balances of the unit owners’ association plus one-fourth of the aggregate annual assessment of the unit owners’ association, whichever would be less. The minimum coverage would have to be $10,000. If the association’s managing agent maintained its own bond, the bond must comply with the above provisions in the new law. The new law requires the agent’s bond to name the association as an additional insured. Source: Surety & Fidelity Association of America (SFAA) (www.surety.org)
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Representative Bobby Rush (D-IL) introduced HR 2424 last week. The bill would make reforms to the U.S. Small Business Administration (SBA) Bond Guarantee Program. The bill would increase the maximum of the contract that is bonded under the SBA Program from $2 million to $5 million and would permit guarantees of up to $10 million in certain cases. The bill also would give the SBA Administrator discretion to determine the liabilities of its Program when claims are made in order to prevent the SBA from unraveling bond guarantees. These are the amendments that Senator Ben Cardin (D-MD) incorporated into the economic stimulus package that Congress enacted in 2009. These provisions have since expired and Senator Cardin has been active in Congress to have these changes to the SBA Program made permanent by attaching them to a variety of bills that might move in Congress this session. H.R. also would establish a $65 million threshold for un-bundling construction contracts. It also would increase the government-wide small business participation goal from 23% to 25%. It also would increase the procurement goals for awarding contracts to women-owned businesses from 5% to 10 % of the total value of all prime contract and subcontract awards for each fiscal year. Further, the bill would create a” retention” requirement on federal contracts for contractors that do not meet the contracting goals for socially and economically disadvantaged business enterprises when the procurement is subject to a subcontracting plan. Under this provision, for contractors not meeting the goals, the funds would be withheld as follows: on contracts of $100,000 or less, $5,000 would be withheld; on contracts of $100,000 to $5 million, 3% of the contract would be withheld; and on contracts of $5 million or more, 5% of the contract would be withheld. The bill also would direct the Minority Business Development Agency (MBDA) to establish additional assistance programs for minority-owned businesses, including a technical assistance program. Source: Surety & Fidelity Association of America (SFAA) (www.surety.org)
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SBA Bond ProgramThe bill would increase the maximum size of the bond that the SBA can guarantee from $2 million to $5 million. The increased bond guarantee would be in effect until the end of fiscal year 2012, which is September 30, 2012. The purpose of this increase is to make it easier for small businesses to take advantage of new contracting opportunities under the American Jobs Act. The bill also provides $3 million in mandatory funding to Surety Bond Guarantee Revolving Fund to cover the costs of this increase in guarantees. Senator Benjamin Cardin (D-MD) had this increase in bond guarantees included in the economic stimulus package enacted in January, 2009. The provisions from the economic stimulus package expired in 2010, and Senator Cardin has attempted unsuccessfully to date to make the increase in the SBA’s bond guarantees it permanent. The new jobs bill does not make the increase permanent nor does it contain the provisions from the economic stimulus package that SFAA and NASBP sought, which would limit the ability of the SBA to unravel bond guarantees.
Three Percent WithholdingThe new jobs bill would delay until December 31, 2013, the implementation of the three percent withholding tax on all government contractors that was enacted in 2005. The law, which has not been implemented, mandates that federal, state and local governments withhold three percent from all payments for goods and services to assure that contractors have paid their taxes.
Construction SpendingThe President’s package includes $50 billion in new spending on transportation projects, $27 billion of which is highway spending.
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The Surety & Fidelity Association of America (SFAA) Advisory Organization Legislation–Enactments. Arizona SB 1184 and Oregon SB 674 are SFAA’s legislation to eliminate the requirement in the state insurance codes that require SFAA, as a licensed rate service organization in the surety bond industry, to submit an examination report that is less than five years old in order to renew our license to file forms, rules, and loss costs on behalf of their members. SFAA retained counsel in these states to pursue the bills for them and obtained enactments in both states. SFAA may be unique among the industry advisory organizations regarding the impact of the prior Oregon law. The commercial surety bond lines that SFAA represents have sophisticated consumers. States review and/or approve our loss cost and form filings as they are made. For SFAA, renewal of licenses in states like Oregon can be a real problem if there lacks a current exam report, which must be less than five years old. To their credit, state insurance regulators are reluctant to use their limited resources to examine an advisory organization of two small lines. Yet, Oregon and the states with periodic exam requirements cannot waive the exam requirements in their law, which means that SFAA must have a current exam report to renew their license. Therefore, every five years, SFAA is in the position of actively seeking out an exam so that they can maintain all of the state licenses.
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