SFAA Testifies in Opposition to Extending the Individual Surety Law in Maryland
Friday, February 7, 2014
Maryland SB 377 was heard yesterday in the Senate Education,
Health and Environmental Affairs Committee.
The limited authority that individual sureties have to issue bonds in
Maryland is due to sunset this September and SB 377 would extend the existing
law until September, 2019. Sam Carradine
testified for SFAA in opposition to the bill.
Carradine pointed out that the legislature in its wisdom had
included a sunset provision in the individual surety law so that it would be
revisited to determine if it was working as intended. Last year, the legislature required the
Maryland Insurance Administration (MIA) to conduct an extensive study of
corporate and individual sureties. Based
on the MIA report, Carradine told the Committee that all the evidence points to
the same conclusions that MIA reached in its MIA report, namely, the individual
surety market is unnecessary in Maryland, there have been fraudulent activities
in this market and the individual surety law should be allowed to expire this
year. The MIA report found that only six
bids were submitted with individual surety bonds and only two bonds were
written. In the same six-year period,
SFAA data shows that 15,000 bonds were written on contracts under $500,000 in
Maryland representing $4 billion in contract value. Given the fraud in the individual market,
Carradine told the committee that the law has harmed more contractors than it
has helped. That fraud is documented in
the MIA report and Maryland residents that were harmed appeared before the
Committee in previous hearings. The MIA
also report found that there are adequate programs in place to assist small
contractors in obtaining bonds. Carradine highlighted our member company
rapid response programs and our MCDP. A
copy of SFAA’s testimony is attached.
NASBP provided testimony through its local counsel that also noted the lack of
use of the individual surety program. In
2010, the legislature concluded that not enough time had gone by to evaluate
the program, but now the individual surety law has been around for six years
and has been fully evaluated by the MIA.
It is not helping small contractors. It had a good run, but now should sunset. The fiscal note to the bill states the
potential for fraud from individual sureties increases the risk to the State. NASBP also noted that the proponents that have
supported the bill in the past were not in attendance at this hearing.
The Alliance for Construction Excellence (ACE) also spoke against SB 377. They expressed concern that individual
sureties do not have claims adjusters and they increase the risk of nonpayment
to subcontractors. The subcontractors
have no control over the general contractor’s choice of sureties.
Senator Conway, the bill sponsor, said that individual sureties are just one
tool in the tool kit of minority contractors.
Bonding is a serious problem for them. She believes that
individual sureties may not have been utilized because they are not certified. She
also believed that the potential for fraud existed with corporate sureties. She contended that corporate sureties are just
trying to push individual sureties out of the market for reasons she does not
understand. It is expected that Senator Conway will call for a vote to
move SB 377 out of committee in the near future. She is the Committee Chair.
Senator Conway also recently
introduced SB 851, which is a bill to regulate individual sureties. The bill would require individual sureties to
register with MIA annually. In the
initial registration, individual sureties would have to disclose the types of
surety bonds they intend to write and the types of procurement projects,
contractors and subcontractors for which they intend to issue bonds, among
other things. Upon renewal, the
individual surety would have report the types and aggregate value of the
capital reserved for use as security on the bonds issued in the preceding year
and other financial information that MIA requires to evaluate the capacity of
the individual to secure surety bond.
The registration fee is $100 and the bill contains a 60 deemer clause
under which applications from individual sureties will be deemed approved if
MIA has not approved or rejected them within 60 days of receipt. A copy of SB 851 also is attached. SB 851 will be heard later this month in the
Senate Finance Committee.
View PDF version | View Statement in Opposition to Senate Bill 377 | View SB 851 (or visit Government Relations / General Info (Public))