Following the construction industry and related legal topics in the United States.

Tuesday, July 25, 2006

NC House Bill Will Impact Bonding for Government Construction

As noted by the North Carolina School Boards Association ("NCSBA") in its Legislative Update for July 21, 2006, "HB 2793 Additional Surety for Public Construction was re-referred from the House Appropriations Committee to the House Judiciary II Committee on Thursday. This bill authorizes the use of individual sureties and qualified financial institutions, in the form of an irrevocable letter of credit, for performance and payment bonds for large State or local government construction projects. Under current law, only surety companies can execute these bonds. NCSBA is strongly opposed to this bill as it is problematic for public owners." For the full text of the bill see here.

While I understand the reservation expressed, I wonder if NCSBA understands how much the surety industry has contracted and how limited surety capacity is- especially at the high-end/large project level. Partial bonding is often all that is presently available on the large cap job from the traditional market. As well, many would contend that with the limited surety capacity and the industry's efforts to recoup the significant losses suffered from the last several years, through increased asset collateralization requirements and increased premium, many smaller constructors simply cannot get the bonding they once could.

While the present draft of the legislation may not be all that one might wish, the status quo for meeting bonding requirements for public projects is not either.

-John Springer


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