The National Association of Surety Bond Producers is pushing a bill called the Security in Bonding Act that will require individual sureties that provide bonds on federal projects to use only assets that can easily be liquidated to quickly fund legitimate claims. It would also require that those assets be placed in the custody and control of the federal government until the project is completed.
Individual sureties are individuals – as opposed to companies – who offer to bind themselves on bonds. Individual sureties are acceptable from prime contractors on federal construction projects, provided the individual owns and pledges enough assets to cover the appropriate percentage of the value of the bid or contract. Neither the individual nor their assets have been federally vetted. Currently, individual sureties only have to pledge “acceptable assets” that can include stocks, bonds, and real property. There is little to no guidance for contracting officers to judge the liquidity or even value of the pledged assets, and the individual surety retains custody and control of those assets throughout the term of the project.
While the purpose of the Security in Bonding Act appears laudable, an editorial in a recent Engineering News Record (ENR) raises an interesting point. Before the Security in Bonding Act passes, there should be some evidence if the law is even necessary. In order to figure this out, we should know how much federal contracting is backed by individual sureties and whether there is a pattern of default with individual sureties.
It is far from clear whether the Senate will follow the House’s passage of the Security in Bonding Act. But, if you are using individual sureties, you may find them in scarce supply if the Act passes.