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F I S C A L I M P A C T R E P O R T

SPONSOR Taylor

ORIGINAL DATE

LAST UPDATED

1/29/07

HB

SHORT TITLE

Alternative Methods of Providing Security for

Contractors and Subcontractors

SB 436

ANALYST Propst

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB 13

SOURCES OF INFORMATION

LFC Files

Responses Received From

General Services Department (GSD)

SUMMARY

Synopsis of Bill

Related to Public Works; Providing for Alternative Methods of Providing Security for

Contractors and Subcontractors

Senate Bill 436 would allow contractors and subcontractors to provide a personal surety or

another form of surety that is satisfactory to the obligee instead of a performance and payment

bond for public works projects under the Procurement Code.

FISCAL IMPLICATIONS

GSD notes that the value of assets used in a personal surety may fluctuate and therefore fall

below the required bond limit for the project. In that case, the agency might be responsible for

the difference.

Senate Bill 436 – Page

2

SIGNIFICANT ISSUES

The General Services Department notes the following:

•

Performance and payment bonds

assure that the project will be completed in a timely

manner and guarantees against defects. With bonds, a bonding company is responsible to

verify the claim and make reimbursements as well as complete any unfinished work.

•

A personal surety

is a surety from a third party that pledges assets such as cash,

certificates of deposit, irrevocable trust receipt, US securities, stocks, bonds, real property

and irrevocable letters of credit. With a personal surety, an agency may have to wait to

complete the project until the pledged assets are liquidated. An agency might have to:

1.

verify the claims and reimburse laborers or material suppliers if the awarded

contractor failed to pay and

2.

find and pay another contractor to finish if the awarded contractor did not

complete the project.

•

The value of the assets used in a personal surety fluctuates and may fall below the

required bond limit for the project.

ADMINISTRATIVE IMPLICATIONS

Rules may need to be promulgated stating the required

terms and conditions of a personal surety

or other form of surety that is satisfactory to the obligee.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to SB 13

TECHNICAL ISSUES

GSD notes that, “other security" satisfactory to the obligee may require further clarification

.

WEP/nt