SENATE BILL 436

48th legislature - STATE OF NEW MEXICO - first session, 2007

INTRODUCED BY

James G. Taylor

AN ACT

RELATED TO PUBLIC WORKS; PROVIDING FOR ALTERNATIVE METHODS OF PROVIDING SECURITY FOR CONTRACTORS AND SUBCONTRACTORS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     Section 1. Section 13-1-146 NMSA 1978 (being Laws 1984, Chapter 65, Section 119) is amended to read:

     "13-1-146. REQUIREMENT FOR BID SECURITY.--Bid security shall be required of bidders for construction contracts procured by competitive sealed bid when the price is estimated by the procurement officer to exceed twenty-five thousand dollars ($25,000). Bid security in an amount equal to at least five percent of the amount of the bid shall be [a bond provided by a surety company authorized to do business in this state, or the equivalent in cash, or otherwise supplied in a form satisfactory to the state agency or a local public body] provided pursuant to the provisions of Section 13-4-18.1 NMSA 1978."

     Section 2. Section 13-1-146.1 NMSA 1978 (being Laws 2003, Chapter 305, Section 1) is amended to read:

     "13-1-146.1. DIRECTED SURETYSHIP PROHIBITED--PENALTY.--

          A. Except to the extent necessary to ensure that

a surety company or personal surety meets the requirements of Subsection A of Section 13-4-18 NMSA 1978, an employee of the state or its political subdivisions, or a person acting or purporting to act on behalf of that employee, shall not require a bidder or an offeror in a procurement for a construction contract pursuant to the Procurement Code to make application or furnish financial data for a surety bond or other security or to obtain a surety bond or other security from a particular surety company, insurance company, broker, [or] agent or personal surety in connection with the bid or proposal.

          B. A person who violates Subsection A of this section is guilty of a misdemeanor and shall be sentenced in accordance with the provisions of Section 31-19-1 NMSA 1978."

     Section 3. Section 13-4-18 NMSA 1978 (being Laws 1987, Chapter 109, Section 1) is amended to read:

     "13-4-18. CONSTRUCTION CONTRACT PERFORMANCE AND PAYMENT BONDS OR OTHER SECURITY.--

          A. When a construction contract is awarded in excess of twenty-five thousand dollars ($25,000), the following bonds or security shall be delivered to the state agency or local public body and shall become binding on the parties upon the execution of the contract. If a contractor fails to deliver the required performance and payment bonds, the contractor's bid shall be rejected and its bid security shall be enforced to the extent of actual damages. Award of the contract shall be made pursuant to the Procurement Code in the following manner:

                (1) a performance bond or other security satisfactory to the state agency or local public body [executed by a surety company authorized to do business in this state and said surety to be approved in federal circular 570 as published by the United States treasury department or the state board of finance or the local governing authority] in an amount equal to one hundred percent of the price specified in the contract shall be provided pursuant to the provisions of Section 13-4-18.1 NMSA 1978; and

                (2) a payment bond or other security satisfactory to the state agency or local public body [executed by a surety company authorized to do business in this state and said surety to be approved in federal circular 570 as published by the United States treasury department or the state board of finance or the local governing authority] in an amount equal to one hundred percent of the price specified in the contract, for the protection of all persons supplying labor and material to the contractor or its subcontractors for the performance of the work provided for in the contract shall be provided pursuant to the provisions of Section 13-4-18.1 NMSA 1978.

          B. The state purchasing agent or the central purchasing office may reduce the amount of the performance bond or other security required prior to solicitation to not less than fifty percent of the contract price if it is determined to be less costly or more advantageous to the state agency or local public body to self-insure a part of the performance of the contractor.

          C. The state purchasing agent or the central purchasing office may reduce the amount of the payment bond or other security required prior to solicitation [of] to not less than fifty percent of the contract price if it is determined that it is in the best interest of the state agency or local public body to do so. Factors to be considered in order to make such a determination include, but are not limited to:

                (1) the value and number of subcontracts to be awarded by the contractor; and

                (2) the value of the contract.

          D. Nothing in this section shall be construed to limit the authority of the state agency or local public body to require a performance bond or other security in addition to those bonds or other security, or in circumstances other than specified in Subsection A of this section.

          E. For contracts under twenty-five thousand dollars ($25,000), the state agency or local public body may impose in its sole and complete discretion the requirements of Subsections A, B and C of this section."

     Section 4. A new Section 13-4-18.1 NMSA 1978 is enacted to read:

     "13-4-18.1. [NEW MATERIAL] FORMS OF SECURITY.--

          A. Bid security required by Section 13-1-146 NMSA 1978, performance security or payment security required by Section 13-4-18 NMSA 1978 and security required of subcontractors pursuant to Section 13-1-148.1 or 13-4-37 NMSA 1978 shall be:

                (1) a bond executed by a surety company authorized to do business in the state;

                (2) a bond executed by a personal surety if:

                     (a) the contractor or subcontractor has been denied corporate surety credit;

                     (b) the personal surety is an individual who: 1) is a resident of New Mexico; 2) owns real property in New Mexico; 3) is not an officer of the court or an attorney licensed in New Mexico; 4) is not an owner or employee of the contractor or subcontractor; and 5) is not related by blood or marriage within the third degree to an owner or employee of the contractor or subcontractor;

                     (c) the personal surety attaches an affidavit of individual surety on a form prepared by the United States general services agency; and

                     (d) the personal surety pledges one or more of the classes of assets specified in Subsection B of this section and in an amount equal to or greater than the aggregate amount of the required security, provided that the assets shall be pledged only for the intended security and may not be pledged for any other security or contract in or outside New Mexico until the asset is released by the obligee; or

                (3) another form of security that is satisfactory to the obligee.

          B. Assets pledged by a personal surety pursuant to Subparagraph (d) of Paragraph (2) of Subsection A of this section may be:

                (1) cash or certificates of deposit;

                (2) cash equivalents held with a federally insured financial institution, or other assets, that are evidenced by a security interest, including an irrevocable trust receipt, which security interest:

                     (a) is issued by the financial institution or by an independent trustee in the name of the obligee;

                     (b) is issued in accordance with the provisions of Article 9 of the Uniform Commercial Code;

                     (c) contains a payout clause in the event that default cannot be remedied; and

                     (d) identifies the solicitation or contract for which the security interest is provided;

                (3) United States government securities at market value;

                (4) stocks and bonds that are:

                     (a) actively traded on a national United States security exchange;

                     (b) accompanied by certificates issued in the name of the personal surety; and

                     (c) pledged at ninety percent of their low price over the last fifty-two weeks, as reflected at the time of submission of the bond;

                (5) real property located in New Mexico:

                     (a) that is owned by the personal surety in fee simple or with co-tenants that all agree to act jointly; and

                     (b) the pledge of which is evidenced by a mortgage or deed of trust, if satisfactory to the obligee: 1) on which the face amount does not exceed seventy-five percent of the personal surety's equity interest in the property; and 2) which shall be recorded by the obligee in the office of the county clerk in which the real property is located; or

                (6) irrevocable letters of credit that:

                     (a) are issued by a federally insured financial institution in the name of the obligee;

                     (b) identify the obligee and the solicitation or contract for which the irrevocable letter of credit is provided; and

                     (c) contain a payout clause if default cannot be remedied.

          C. As used in this section, "obligee" means:

                (1) the state or the local public body; or

                (2) if the security is provided on behalf of a subcontractor, "obligee" means the contractor."

     Section 5. Section 13-4-37 NMSA 1978 (being Laws 1988, Chapter 18, Section 7, as amended) is amended to read:

     "13-4-37. BOND REQUIREMENTS.--

          A. It is the responsibility of each subcontractor submitting a bid to a contractor to be prepared to submit a faithful performance and payment bond or other security if so requested by the contractor.

          B. In the event any subcontractor submitting a bid to a contractor does not, upon the request of the contractor and at the expense of the contractor at the established charge or premium therefor, furnish to the contractor a bond [issued by a corporate surety authorized to do business in New Mexico in accordance with the New Mexico Insurance Code and listed in the United States treasury department circular 570 wherein] or other security pursuant to the provisions of Section 13-4-18.1 NMSA 1978 in which the contractor is named the obligee, guaranteeing prompt and faithful performance of the subcontract and the payment of all claims for labor and materials furnished or used in and about the work to be done and performed under the subcontract, the contractor may reject the bid and make a substitution of another subcontractor subject to the provisions of Section 13-4-36 NMSA 1978. Such bond or other security may be required at the expense of the subcontractor only if the contractor in [his] written or published request for subcontract bids:

                (1) specifies that the expense for the bond or other security shall be borne by the subcontractor; and

                (2) clearly specifies the amount and requirements of the bond or other security."

     Section 6. A new section of the New Mexico Insurance Code is enacted to read:

     "[NEW MATERIAL] EXEMPTION FROM AUTHORITY REQUIREMENT--PERSONAL SURETIES.--A certificate of authority shall not be required of a personal surety who only transacts insurance by providing personal surety bonds for public works projects pursuant to Section 13-4-18.1 NMSA 1978."

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