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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))

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