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

SPONSOR

Larranaga

ORIGINAL DATE

LAST UPDATED

1/22/08

1/28/08 HB 173

SHORT TITLE

Public Works Subcontractor Bonding

SB

ANALYST C. Sanchez

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY08

FY09

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Public Education (PED)

Public School Facilities Authority (PSFA)

Energy Minerals and Natural Resources (EMNRD)

SUMMARY

Synopsis of Bill

House Bill 173 also repeals Section 13-1-148.1 NMSA 1978, which is for bonding of

subcontractors. This bill repeals the section that states that a subcontractor shall provide a

performance and payment bond on a public works building project if the subcontractor’s contract

is $125,000 or more.

FISCAL IMPLICATIONS

According to the Public Education Department By repealing section 13-1-148.1 NMSA 1978,

the competition would no longer be limited to subcontractors who submit a payment and

performance bond. The cost of school construction projects could decrease significantly. The

costs of sub-contractors having to provide a performance and payment bond increases bid prices.

Requiring this type of bonding also limits the amount of sub-contractors bidding for public

works projects. Many sub-contractors are under-capitalized and financially cannot pay for these

types of bonds, which have been problematic for getting sub-contractors to work on small rural

projects. This requirement has limited competition extensively since its inception and caused a

reduction in the number of qualified applicants.

House Bill 173 – Page

2

SIGNIFICANT ISSUES

Currently, projects are already bonded up to the entire amount of the project by the general

contractor and to require additional bonding of the subcontractors overlaps with this bonded

amount. Additionally, repealing of the subcontractor bonding law may eliminate confusion as to

which bond to pursue a claim against, the general contractor’s or the subcontractor’s. It will

restore the clear delineation of roles and responsibilities between the general contractor and its

bonding agent.

OTHER SUBSTANTIVE ISSUES

Contractors are currently required to provide a performance bond on all construction projects

which protect them from poor performance of a sub-contractor. Many agencies argue that this

requirement does not provide any additional protection. Requiring subcontractor bonding may

not guarantee performance or quality.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

The subcontractor bonding requirement will remain in effect.

CS/mt