Individual Surety Bond Control Awaits President’s Signature

Subcontractors and suppliers on federal construction projects are closer to having their payments protected. Legislation that sets minimum standards for individual surety bonds currently awaits President Barack Obama’s signature.

Obama, who vetoed an earlier version of the bill due to a dispute over funding, is expected to sign the revised legislation.

Section 874 of S. 1356, the National Defense Authorization Act for Fiscal Year 2016, stipulates what assets are acceptable and requires that the individual surety deposits those assets with the federal government. The federal Miller Act requires a prime contractor on federal construction to provide performance and payment bonds on contracts more than $150,000. “Most such bonds are provided by corporate sureties, which are required to submit detailed financial information to the U.S. Department of Treasury, which verifies that information and monitors the performance of the sureties,” the American Subcontractors Association (ASA) said in a weekly news bulletin. “However, the Federal Acquisition Regulation also allows the use of individual sureties, which are not as heavily regulated.”

An individual surety pledges to make good on the contract if the prime contractor fails to perform or fails to pay its subcontractors or suppliers. “These new requirements, when enacted and implemented, will improve payment assurances for subcontractors and suppliers on federal construction,” said ASA Chief Advocacy Officer E. Colette Nelson.

The law is expected to take effect one year after enactment so that the Federal Acquisition Regulatory Council and the U.S. Small Business Administration time to develop and publish a regulation. “ASA will participate in the rulemaking process,” the association said.

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