IIAV to Appeal to Governor to Clean Up HB 1951

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While continuing to express dismay over the passage of administration sponsored legislation that attempts to put the state in the surety business, the Independent Insurance Agents of Virginia announced that they would appeal to Governor McDonnell to at least amend the bill and fix some of its obvious problems.

"I was frankly appalled that this was an idea from the McDonnell administration," stated IIAV Chairman of the Board Robert Yergey. "I don’t understand how they can suggest that being in the liquor business is not a core responsibility of the state and yet introduce legislation that puts them directly in the insurance business."

House Bill 1951 raises the minimum contract amount required for bid, performance or payment bonds from $100,000 to $500,000 for non-transportation related state construction projects. Administration officials testifying in support of the legislation indicated that they would still require contracting amounts to include the cost of bonds, but that these monies would be set aside in case of contractor default.

In debating the bill in the Senate General Laws Committee and on the floor of the Senate, several senators expressed dismay at the legislative proposal, asking with what authority the funds would be collected in the first place and upon what authority they could be disbursed. They noted that there was no language in HB 1951 which would allow for the collection of extra funds – much less how they could be disbursed. Following debate, one senator described the proposal as the establishment of a "slush fund."

"While we lost on the merits of the bill, we need to convince the administration that it has major deficiencies that need to be addressed prior to enactment," noted Bob Bradshaw, IIAV President & CEO. "Clearly they need regulatory authority on the collection and disbursement of funds and they need provisions in the bill for subcontractors to become whole in the case of general contractor default. For obvious reasons, they can’t sue the state and that’s a major hole in the legislation."

Arguments in favor of the legislation included:

• The state needs to do more to encourage competition in the small contracts areas. However, given the state of the economy, larger companies are bidding on the small contracts to make sure that their employees stay busy. Changing the bond requirements doesn’t guarantee the awards will go to small contractors.
• The state needs to help women and minority-owned businesses that thus far have had difficulty in obtaining bonds. Of course, there’s a reason some firms have difficulty obtaining bonds and that’s what the surety business is all about. Not particularly sure that it’s the government’s responsibility to conduct social engineering.
• UVA, Virginia Tech and William & Mary each have higher bond limits and "none of them has experienced problems." However, proponents of the legislation could not tell legislators what percentage of construction contracts at these universities are held by small businesses, much less women or minority-owned businesses. It was projected that the new threshold would apply to more than 4,200 state construction projects in the coming year.
• It was misrepresented that the new threshold would still place Virginia as having one of the lowest in the country. This was factually incorrect.
• It was misrepresented that bonds were not required on Federal projects. In fact, the Miller Act requires bonds on Federal construction projects over $100,000.
• It was misrepresented that the state would "pre-qualify" contractors for each project and this would be redundant to what the surety does. However, the two are completely separate and distinct processes.
• It was misrepresented that not requiring bonds, the cost of which is born by the state, would help to reduce contract costs for state projects. It was then argued that the bond cost would still be required and those monies would be placed in a fund to be used in the case of contractor default. You can’t have it both ways and, as stated, the fund anticipated was not authorized in the specific language of the legislation.

IIAV will also be encouraging the governor to look into and consider participating with the Surety & Fidelity Association of America in a public/private partnership designed to help small businesses in the bond process. A similar partnership in New York state has been highly successful.

Following adjournment of the legislature, individuals and organizations are regularly contacting the governor asking him to sign, amend or veto legislation. He must act on all legislation submitted to him prior to April 6, which is commonly called the Veto Session in which the legislature acts on administrative action.