Office of House Bill AnalysisS.B. 1268
By: Madla
State Affairs


When issuing a surety bond, a surety stands behind its principal
(contractor) and acts as a silent partner in representing to an owner that
prior to the bid the contractor is qualified to submit a responsible bid.
Being qualified by the surety through the pre qualification process means
that a contractor has the experience, organization, financial resources,
and fixed assets to complete the work according to the plans and
specifications at the price bid and within the allotted time.  Pre
qualification requires a relationship among a contractor, a surety bond
producer, and a surety company.  In this relationship, a contractor
provides the surety with confidential information regarding the financial
and operational condition of the firm and, in some cases, personal
financial information.   

Directed surety, also known as owner-controlled or owner-directed surety,
may interfere with these relationships.  Directed surety occurs when owners
designate a specific producer or surety company from which contractors must
obtain surety bonds for a specific project or series of projects.  Senate
Bill 1268 prohibits a governmental entity from engaging in direct surety
with respect to any public building or construction contract. 


It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 


Senate Bill 1268 amends the Government Code to prohibit a governmental
entity including the General Services Commission (GSC) from requiring the
contractor with respect to any public building or construction contract, to
procure any of the surety bonds specified in connection with such contract
or specified by any law from any particular insurance or surety company,
agent, or broker.  To the extent not prohibited by other law, GSC or other
agency are authorized to require a contractor or subcontractor to meet part
or all of the other insurance requirements for the project under the
negotiated arrangement.      

September 1, 2001.