Surety Bond Legislation to Watch in 2017: Part 2

surety bond legislation

Along with the multitude of school-choice related surety bond legislation introduced this session, several states have proposed adjusting various contractor bond requirements. As in Part 1 of this series, these bills have not yet been passed but are awaiting review by their state legislatures. The Insider will cover bills that pass in more depth.

Arizona

Senate Bill 1020 would lower required license surety bond amounts for some Arizona contractors if passed. Commercial contractors’ license bond amounts are based on the estimated annual value of their work. Listed are the surety bond changes SB 1020 would mandate:

  • More than $10 million estimated annual value of work—minimum $50,000 bond, new maximum bond of $70,000 reduced from $100,000
  • Between $5 million and $10 million estimated annual value of work—minimum $35,000 bond, new maximum bond of $50,000, reduced from $70,000
  • Between $1 million and $5 million estimated annual value of work—minimum $15,000 bond, new maximum bond of $40,000, reduced from $50,000
  • Between $500,000 and $1 million estimated annual value of work—minimum $10,000 bond, new maximum bond of $15,000, reduced from $25,000
  • Between $150,000 and $500,000 estimated annual value of work—minimum $5,000 bond, new maximum bond of $10,000, reduced from $15,000
  • Less than $150,000 estimated annual value of work—$3,000 surety bond required, reduced from $5,000

Arizona specialty commercial contractors perform commercial construction work requiring the use of specialized skills, trades or crafts. Their surety bond amounts are also determined based on the annual estimated value of work they do. With SB 1020, they would change as follows:

  • More than $10 million estimated annual value of work—minimum bond amount deleted, new maximum bond of $40,000, reduced from $50,000
  • Between $5 million and $10 million estimated annual value of work—minimum bond amount deleted, new maximum bond of $27,500, reduced from $37,500
  • Between $1 million and $5 million estimated annual value of work—minimum bond amount deleted, new maximum bond of $15,000, reduced from $25,000
  • Between $500,000 and $1 million estimated annual value of work—minimum bond amount deleted, new maximum bond of $10,000, reduced from $17,500
  • Between $150,000 and $500,000 estimated annual value of work—minimum bond amount deleted, new maximum bond of $5,000, reduced from $7,500
  • Less than $150,000 estimated annual value of work—$1,500 surety bond required, reduced from $2,500

If a general commercial contractor also performs specialty commercial contracting work, their bond must be equal to the sum of the two bonds under each license—for example, a general and specialty commercial contractor who does more than $10 million of construction work per year could post a $110,000 surety bond (assuming the purchase of the maximum bonds).

Specialty residential contractors’ maximum bond amount would also decrease from $7,500 to $5,000, though the minimum $1,000 bond would not change.

These contractors are licensed by the Arizona Registrar of Contractors and can find their industry’s laws in the Arizona Revised Statutes Title 32, Chapter 10.

Hawaii

Hawaii House Bill 964 would require a surety bond of specialty and general contractors. Under current law, the bond is only an option that the Contractors License Board may require of contractors. The bonds required would not be less than $5,000.

The surety bond is in place to protect the wages of the contractor’s employees and to protect clients from financial loss. HB 964 would expand the protection of wages to subcontractors of the contractor. If enacted, the bill would take effect with its passage.

Oregon

Oregon’s House Bill 2296 would affect water well constructors, increasing their surety bond amount. They are required to be licensed by the Water Resources Department. HB 2296 would increase their required surety bond from $10,000 to $20,000; constructors also have the option of filing an irrevocable letter of credit with the Department.

Oregon property owners who want to construct, alter, abandon or convert a well on their property and who are not licensed water well constructors must post a surety bond and obtain a permit. HB 2296 would increase that bond and the price of the permit. The surety bond would increase from $5,000 to $10,000, and the permit fee would increase from $25 to $500.

Virginia

Virginia Senate Bill 1113 would introduce a surety bond option for Class A and B contractors’ proof of financial responsibility when applying for a license. Contractors are licensed by the state’s Board for Contractors, and A or B license classifications set different limits on the sizes of projects or contracts contractors can perform. Class A licensees have no monetary restrictions; Class B licensees are restricted to projects or contracts that are less than $120,000, and cannot perform more than $750,000 in total projects and contracts in twelve months.

SB 1113 would allow these types of contractors to furnish a $50,000 surety bond as proof of their financial stability. Contractors would also have the option to provide the Board with a financial statement or a balance sheet reviewed by a CPA.

Another Virginia bill, House Bill 1542, would affect home service contract providers, shifting the oversight of their licensing from the State Corporation Commission to the Department of Agriculture and Consumer Services. When providers register, they would be required to post a $10,000 surety bond. The Department would periodically evaluate and adjust bond amounts based on the amount of unexpired home service contracts the provider has issued:

  • $50,001 to $300,000 in unexpired contracts—$40,000 surety bond
  • $300,001 to $750,000 in unexpired contracts—$65,000 surety bond
  • $750,001 or more in unexpired contracts—$90,000 surety bond

If enacted, HB 1542 would take effect on January 1, 2018.

Washington

Under current law, contractors who enter into public improvement contracts must provide the public body (state, county, city, town, etc.) with a contract retainage of no more than 5%. This means that 5% of what the contractor earns are retained by the public body until the completion of the project. Contractors can submit a surety bond for the amount of this retainage.

If enacted, Washington House Bill 1538 would require prime contractors in public improvement contracts to provide the surety bonds to the public body for any of their subcontractors, if requested. The subcontractor, however, must pay the contractor the portion of their bond premium and provide the contractor with a like bond.

HB 1538 has a companion bill in the Senate, SB 5222.

Almost all of the proposed legislation here is not covered in its full scope; several bills introduce many new mandates or amend the law more extensively. Stay tuned and subscribe to the Surety Bond Insider to keep up with these bills as or if they become law.

If you’re ready to purchase a surety bond, choose your state from the map and get in touch with a surety expert.

About the Author

Melanie Baravik
Melanie is a senior at the University of Missouri - Columbia studying English with an emphasis in creative writing. She is a member of the marketing department and outreach team for SuretyBonds.com, a leading provider of online bonding for clients nationwide.