Officials from the City of Kilgore, TX have gone quiet since a raft of opposition was voiced by the construction industry in response to their plan to waive bond requirements on a baseball complex. Chris Ring, of NACM’s Secured Transaction Services, said the plan to reduce costs by skirting obligations of a surety bond on such projects is about accountability and providing some kind of path toward payment when a problem arises.
“In Texas, once the general contract price exceeds $25,000, the general contractor is required to post a payment bond as non-payment relief for subcontractors and material suppliers—However, public agencies and general contractors can ask that the requirement for the payment bond be waived,” Ring said. “When the waiver is granted, downstream subcontractors and suppliers have no relief in the event of non-payment. Just because a payment bond should be in place for a public project, doesn’t mean that it will be placed. It’s critical that material supplier and subcontractors ask for and obtain copies of payment bonds, to assure they exist.”
In response to reports of the planned surety bond waiver, the American Subcontractors Association wrote to Kilgore City Council members and construction officials urging the city "to require the prime contractor to provide a 100% payment bond, as required by Texas law."
The following was noted in an ASA news release: ASA told the city that "without a payment bond, subcontractors and suppliers will encounter a dangerous void in essential payment protections for work performed." The high risk inherent in the absence of reliable payment protection can "only reasonably be expected to increase costs for the overall construction project being undertaken, as subcontractors and suppliers seek to accommodate the increased risk or even completely deter bidding by the most skilled subcontractors and suppliers, whose resources can be directed at projects for which payment protections are available."
ASA Chief Advocacy Officer E. Colette Nelson noted that Kilgore is a prime example that public entities around the country are increasingly waiving or considering waiving surety bonds. She emphasized the need for ASA and its chapters to intervene at every level of government that is considering waiving payment assurances. In addition, she reminded subcontractors on public work to confirm that the prime contractor has provided a payment bond, to obtain a copy of that bond and to assure that it complies with the all of the notice and claims procedures.