The House Judiciary Committee advanced a bill endorsed by the National Association of Credit Management (NACM) last week. The Security in Bonding Act (H.R. 776), which would require all sureties on federal construction projects to meet the same financial and actuarial requirements as "corporate sureties," will now be considered by the full House of Representatives after the Judiciary Committee reported the bill by a voice vote.
Upon its introduction by Rep. Richard Hanna (R-NY), H.R. 776 was referred to both the Judiciary Committee and the Small Business Committee. While action on the bill was deferred in the latter committee, the former body considered the legislation over the course of April, ultimately approving it for further consideration on the last day of the month.
"Current law allows prospective bidders to use individual sureties to obtain the bonds guaranteeing their performance. The law also permits individual sureties to support their bond with illiquid and risky collateral," said Judiciary Committee Chairman Bob Goodlatte (R-VA) after his committee's markup, referring to current surety policies on federal contracts as presently outlined under the Federal Acquisition Regulation (FAR). "As a result, there have been repeated instances where the federal government and subcontractors turn to individual sureties for a recovery only to find that the collateral simply does not exist. The Security in Bonding Act addresses this problem by requiring individual sureties to provide low-risk collateral to support their bonds."
NACM offered its support to H.R. 776 in March, citing the potential positive effect the bill could have on the extension of commercial credit to general contractors working on federal projects. "For our members, when extending credit to a general contractor, the presence of a bond from a so-called 'individual surety' can often be considered a financial red flag. This is because when a bond is posted via an individual surety, rather than a federally-assessed and approved corporate surety, it's often a sign that the general contractor could not meet certain underwriting requirements, and could therefore be in financial distress," said NACM, in a letter of support signed by Chairman Chris Myers and President Robin Schauseil, CAE. "This makes it harder for our members and their companies to provide the goods and services that are necessary to the project's completion, and limits the flow of commercial credit that drives the nation's economy."
"H.R. 776 is a vital piece of legislation that can broadly increase the flow of commercial credit in the construction industry, greatly enhance the cost effectiveness of the federal procurement process and contribute to small businesses' ability to grow and create jobs," the letter added.
In addition to continuing through the House, parts of H.R. 776 could also be included in the National Defense Authorization Act (NDAA), an omnibus bill Congress passes annually to detail the Department of Defense's budget while simultaneously enacting several other provisions. For more on this process, and more on NACM's positions on construction law, check out the upcoming June 2014 issue of Business Credit.
- Jacob Barron, CICP, NACM staff writer