Article Date: 10/31/2014

In New Rulemaking, Treasury Department Responds to American Subcontractors Association’s Concerns about Federal Surety Bond Policy

By Steve Rizer


It took three years, but the Treasury Department has responded to some concerns the American Subcontractors Association (ASA) raised about the agency’s planned rulemaking relating to surety companies that do business with the United States. The department offered its reply earlier this month when it issued a final rule to clarify the circumstances in which a federal agency’s bond-approving official can decline to accept a bond underwritten by a Treasury-certified surety.


Here is how the interchange unfolded:


In comments submitted in 2011, ASA Executive Vice President E. Colette Nelson recommended that Section 223.17(b)(3) of the U.S. Department of Treasury’s (DoT) proposed amendment to 31 Code of Federal Regulations (CFR) Part 223 “be strengthened” by establishing a specific time requirement for disclosure of an agency’s decision not to accept bonds underwritten by a certified  surety. “Construction contractors devote significant resources to the preparation of bids for federal construction projects. A contractor and its surety agent must know well before the project bid date [her emphasis] whether a surety that the contractor intends to rely on to provide the bid, performance, and payment bonds in support of its bid will be accepted by the federal agency.”


Specifically, Nelson recommended that “a federal agency’s bond-approving official provide notice to the public within five days after the official gives advanced written notice to the  surety of the intention of the agency to decline bonds underwritten by the surety. Such public notice should be put in the Federal Register and posted as an online supplement to Treasury Circular 570. This public notice and availability will provide contractors the information they need to prepare responsible and responsive bids, with the assistance of their surety agents.”


DoT formally responded to ASA’s concerns Oct. 16, when it amended 31 CFR Part 223 to expressly provide that an agency may decline to accept a bond underwritten by a Treasury-certified surety "for cause," provided the agency satisfies the requirements specified in the final rule. In responding to ASA’s recommendations about 223.17(b)(3), the agency stated in the Federal Register, “Section 223.17(b)(4), as provided in the final rule, encourages agencies ‘to use best efforts to ensure that persons conducting business with the agency are aware that bonds underwritten by the particular certified company will not be accepted.’ We believe each agency is in the best position to determine how this information should be provided to principals who may be seeking to do business with the agency. We do not believe it is appropriate to publish this information in Department Circular 570, as the surety will still be certified by Treasury to write bonds for any other agency.”


The ConstructionPro Network member version of this article includes a transcript of ConstructionPro Week's interview with Surety and Fidelity Association of America Corporate Counsel Robert Duke about the new rulemaking.



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