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U.S House Judiciary Committee Passes H.R. 3534

Wednesday, March 21, 2012  

U.S House Judiciary Committee Passes H.R. 3534 to Strengthen Rules for Collateral Allowed from Individual Sureties

H.R. 3534, the Security in Bonding Act of 2011, which is legislation that SFAA and NASBP believe is necessary to address problems experienced by the federal government with individual sureties, was amended and passed out of the House Judiciary Committee yesterday, March 20, 2012. The basic requirements of the bill as drafted and introduced remain in the amended version that was marked up in committee today. H.R. 3534 provides that if a surety bond is accepted under a law or regulation from a surety not subject to regulation by the U.S. Department of the Treasury and the bond is based on a pledge of assets, the assets pledged must consist of "eligible obligations,” and the assets must be submitted to the government official required to approve or accept the bond. The bill also would require the government official to place the pledged assets in a depository approved by the Secretary of the Treasury, which currently is the Federal Reserve Bank of St. Louis.

There was one amendment offered and adopted in Committee. The first section of the amendment removed a provision in H.R. 3534 that would have permitted federal contracting officers to require a bond from a corporate surety when letting a contract. There was concern that this would allow contracting officers to essentially never allow individual surety bonds, possibly impacting small and emerging contractors.

The second part of the amendment calls for the Comptroller General of the United States to conduct a study of the following: 1) the consequences to the federal government, subcontractors, and suppliers in all instances during the ten-year period prior to enactment of this Act in which a surety bond proposed or issued by a surety on a federal project was either rejected by the contracting officer or accepted and later found to have been backed by insufficient collateral or to be otherwise deficient or with respect to which the surety did not perform; and 2) the percentages of all federal contracts that were awarded to small disadvantaged businesses as prime contractors in the two-year period before enactment of this bill to the two-year period following enactment and an assessment of the impact of the Act on such percentages.

The study proposal came from Democrats on the Committee, and SFAA and NASBP worked with the House staff to develop a study proposal that was consistent with the purpose of the bill.

The report would become due three years after enactment of H.R. 3534. The report must be given to the House Judiciary and the Senate Homeland Security and Government Affairs Committees.

The attendance at yesterday's Judiciary Committee mark up was light for H.R 3534, which was the first bill on the agenda. The Committee Chair, Ranking Minority Member of the full Committee, and the Chair and Ranking Minority Member of the Subcommittee in which H.R. 3534 was heard all spoke in favor of the purpose of the bill and the amendments. The Republicans iterated that the bill equalizes the requirements for providing security to the federal government by requiring that any party pledge low risk collateral to the federal government to secure their obligations. The Democrats agreed that good underwriting should be required in bonds from individual sureties and noted the problems that have resulted from poor underwriting in student loans and mortgages. The Democrats also noted, however, that disadvantaged business enterprise are often small businesses that might be adversely impacted by the bill, and therefore, a study of both prior problems with individual sureties and the impact of the Act on small businesses was warranted. In the statements made at today's mark up, several Members noted the cooperation and interchange of ideas on this bill across the "podium.” With a little good natured ribbing from the Democrats that the Republicans were sponsoring and supporting a pro-regulation bill, handled very well by Representative Coble (R-NC), H.R. 3534 passed by a voice vote.

At this point, we believe that H.R. 3534 will pass the House. SFAA and NASBP currently are working on a strategy for the bill in the Senate.

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