Article Date: 03/08/2013

CEO of Surety Bond Producers Group Comments on How the 'Security in Bonding' Bill May Fare the Second Time Around

By Steve Rizer


Why should the recently re-introduced Security in Bonding bill (H.R. 776) fare any better than its predecessor (H.R. 3534), which failed to make it all the way through the last Congress? In an interview with ConstructionPro Week (CPW), National Association of Surety Bond Producers (NASBP) Chief Executive Officer Mark McCallum offered the following answer to this question as well as other comments about the new bill, the goal of which is to strengthen the bonding process, remove opportunities for fraud and abuse, and help ensure that subcontractors and suppliers providing services to the federal government will be paid for their work:


“What’s important to note is that [H.R. 3534, which was introduced about halfway into the last congressional session], actually passed through the U.S. House of Representatives. So, it went before the House Judiciary Committee, passed out of committee, was put on the consent calendar in the House, passed through the House, and then went to the Senate. So, it has a history of success in Congress, and it made it halfway [to full congressional passage], which is a lot more than [what] you can say for a lot of bills last Congress. So, I think that actually gives us reason for optimism that now -- as people become more familiar with the issue and we have a new cycle and we’re starting at the beginning of that cycle -- there could be a good chance that it [will] pass.”


The federal government allows contractors to provide bonds from individuals who secure their obligations under the bond with a pledge of assets. NASBP believes that the bill, which House Small Business Committee Chairman Sam Graves (R-Mo.) has cosponsored, would close a loophole that allows unscrupulous businesses to offer inadequate assets to back a bond. A lack of oversight on non-corporate sureties has resulted in several documented cases where assets pledged to back the bond have been illusory or insufficient, according to the association.


H.R. 776, which Rep. Richard Hanna (R-N.Y.) introduced last month, would require non-corporate sureties to pledge specific and secure assets as required from others providing collateral to the federal government. Those assets would be held by a government entity to ensure that payments can be made in the event they are needed. The legislation allows the federal government to ensure payment of subcontractors and suppliers. A new provision would raise the guarantee on the U.S. Small Business Administration’s Surety Bond Guarantee program from 70 percent to 90 percent. This change would help more small businesses get bonding at no extra cost to the government because the program charges fees for participation and has successfully functioned running a surplus, according to the association. The bill was referred to the House Judiciary and Small Business committees.


McCallum emphasized the importance of educating members of Congress about these issues to maximize the chances of the proposed reforms becoming law. “Individual surety is not a household issue. Most people aren’t familiar with surety bonds to begin with…. When you talk about an issue dealing with an unregulated market and why that might be bad for consumers and taxpayers and subcontractors and suppliers, it takes a lot [of] education…. [NASBP and] a lot of … other associations that support the legislation have had an opportunity in the prior Congress to start that education process, so I think we feel optimistic that there are good chances for [H.R. 776] to move and potentially to even become enacted into law.”


But will Congress be too consumed with other issues -- such as those involving the federal budget, gun control, and marijuana reform -- to approve the Security in Bonding proposal either in the form of stand-alone bill or as part of a larger legislative package?


In response to this question, Lynn Schubert, president of The Surety & Fidelity Association of America, told CPW, “Even when there are so many differences within Congress, when you have an issue [such as the one addressed in H.R. 776] that is bipartisan and makes common sense, representatives are happy to reach across the aisle and do something positive for good government.”


When asked what percentage chance H.R. 776 has of becoming law, McCallum responded, “What’s interesting [is that] once [a bill] goes through committee, there are various services out there that will assign it a percentage [chance of passing.] I think when [H.R. 3534] made it into the Senate, I think it was … 20-some percent. I’m not going to offer a percent” for what H.R. 776’s chances are of becoming law.



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