AIA Praises Veto of Maryland Bill Involving Surety Bonds

May 24, 2005

The American Insurance Association (AIA) on Tuesday praised Maryland Gov. Robert Ehrlich (R) for vetoing legislation that would have reportedly set bad public policy for the state.

SB 324 would have exposed the state of Maryland to a greater likelihood of loss on public works projects by raising the state’s threshold for when surety bonds are required (from $100,000 to $200,000) to the second highest level in the country. Signing the bill into law would have reportedly hurt small and emerging contractors and suppliers, and exposed the state to a greater chance of loss with no recourse.

“Members of AIA write most of the surety bonds for public and private projects in the state of Maryland,” stated Taylor Cosby, AIA vice president, Mid-Atlantic region. “It is important for small and emerging contractors to have the opportunity to compete for these types of projects, and doubling the threshold on when a payment and performance bond is required on a public construction project will not accomplish that goal. In fact, SB 324 ran counter to this objective by encouraging small contractors to potentially overextend their resources.”

A surety is traditionally defined as someone who contracts to answer for the debt or default of another. The purpose of a performance bond is to guarantee that, if the contractor does not complete the project in accordance with the plans and specifications in a timely manner, the surety will, absent any defenses, step in and secure completion of the contract.

Contractors who don’t qualify for performance or payment bonds required on public construction contracts often want the bond threshold to be raised, which is what SB 324 would have done, thereby waiving bonding requirements on more contracts.

“It is AIA’s experience that the best way for small contractors to grow and be successful is to develop a strong working relationship with a surety,” continued Cosby. “Gov. Ehrlich recognized that the state of Maryland already has programs in place to provide guaranty bonds for small and emerging contractors, and private programs are available through the Surety Association of America.”

“While the purported goal of SB 324 was laudable, its approach was flawed,” explained Cosby. “AIA has pledged to work with the bill’s sponsor, Sen. Joan Carter Conway (D), to craft legislation next year that will accomplish the sponsor’s objective while continuing to protect the state of Maryland and its citizens.”

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