HBA-BSM S.B. 1268 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1268 By: Madla State Affairs 5/8/2001 Committee Report (Amended) BACKGROUND AND PURPOSE 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. RULEMAKING AUTHORITY 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. ANALYSIS 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. EFFECTIVE DATE September 1, 2001. EXPLANATION OF AMENDMENTS Committee Amendment No. 1 prohibits a governmental entity from requiring a contractor for any public building or other construction contract to obtain a surety bond from any specific insurance or surety company, agent, or broker. The amendment requires the General Services Commission to negotiate with a specific insurance or surety company, agent, or broker to establish a surety program for the benefit of small businesses and historically underutilized businesses.