THE GENERAL ASSEMBLY OF PENNSYLVANIA

SENATE BILL

INTRODUCED BY PIPPY, TOMLINSON, FONTANA, FARNESE, SOLOBAY, SCHWANK, BLAKE, MENSCH, BREWSTER, COSTA, LEACH, KITCHEN, FERLO, HUGHES AND BROWNE, APRIL 25, 2011

SENATOR MCILHINNEY, STATE GOVERNMENT, AS AMENDED, OCTOBER 25, 2011   

AN ACT

Providing for the establishment of the Surety Bond Guarantee

Fund Program; imposing duties on the Department of Community

and Economic Development; and establishing the Surety Bond

Guarantee Fund.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  Short title.

This act shall be known and may be cited as the Surety Bond

Guarantee Fund Program Act.

Section 2.  Definitions.

The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Applicant."  A disadvantaged business as defined in this

act.

"Department."  The Department of Community and Economic

Development of the Commonwealth.

"Disadvantaged business."  A small business which is owned or

controlled by a majority of persons, not limited to members of

minority groups, who have been deprived of the opportunity to

develop and maintain a competitive position in the economy

because of social disadvantages.

"Fund."  The Surety Bond Guarantee Fund established in this

act.

"Program."  The Surety Bond Guarantee Fund Program

established in this act.

"Secretary."  The Secretary of Community and Economic

Development of the Commonwealth.

"Small business."  A business in the United States which is

independently owned, is not dominant in its field of operation

and employs 250 or fewer employees.

"Surety bond."  A guarantee in which the surety guarantees

that the contractor or principal in the bond will perform the

obligation stated in the bond. The term shall include the

following types of bonds:

(1)  Bid bonds that guarantee the bidder will enter into

a contract and furnish the required payment and performance

bonds.

(2)  Payment bonds that guarantee payment from the

contractor to parties who furnish labor, materials, equipment

and supplies.

(3)  Performance bonds that guarantee the contractor will

fulfill the contract in accordance with terms and conditions.

(4)  Ancillary bonds which may be incidental and

essential to the performance of the contract.

Section 3.  Establishment of program.

The Surety Bond Guarantee Fund Program is established in the

department. The purpose of the program is to assist

disadvantaged businesses to competitively bid for governmental

contracts.

Section 4.  Surety Bond Guarantee Fund.

(a)  Establishment.--The Surety Bond Guarantee Fund is

established within the State Treasury for the purpose of

assisting disadvantaged businesses to competitively bid for

certain Commonwealth contracts.

(b)  Fund administration.--The fund shall be administered by

the department. All moneys in the fund shall be used to finance

guarantees to bonding companies against percentages of losses

sustained as a result of defaults by qualified disadvantaged

businesses on a contract or project.

(c)  Payments from fund.--Surety bond guarantees made with

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payments from the fund under the program shall not exceed the

sum of $1,000,000 for any one disadvantaged business.

(c)  Authority of the fund to issue guarantee.--Any guarantee

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or agreement to indemnify the surety shall not exceed 80% of the

loss incurred and paid by the surety on any qualified contract.

Section 5.  Contract and bonds eligible for guarantee.

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(a)  Eligibility.--A bond guaranteeing the performance of a

contract shall be qualified and eligible for a surety bond

guarantee under the program if:

(1)  The bond is listed in the contract bonds section of

the Surety and Fidelity Association of America's, or its

successor's, "Manual of Rules, Procedures and

Classifications."

(2)  The bond is required by the contract, invitation for

bid or request for proposal.

(3)  The bond is executed by a surety company that is

acceptable to the Treasury Department and qualified by the

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department.

(4)  The bond meets any other requirements established by

the department.

(b)  Required provision; notice of cancellation.--

(1)  No bond shall qualify or be eligible for a guarantee

under the program unless it contains a provision affirming

that the bond shall not be canceled for any cause unless

notice of intention to cancel is given to the department at

least 30 days before the day upon which cancellation shall

take effect.

(2)  Cancellation of the bond shall not invalidate the

bond regarding the period of time it was in effect. licensed

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and in good standing with the Insurance Department.

(b)  Eligibility of contracts.--No surety bond guarantee

under the program may be issued unless:

(1)  The person who would be the principal on the bond

has been found eligible under section 6(c).

(2)  The total amount of the contract at the time of

execution of the bond is less than $1,000,000.

Section 6.  Disadvantaged business participation.

(a)  Application process.--

(1)  A disadvantaged business may apply to participate in

the program by filing an application with the department.

(2)  The department shall review the application to

determine if the applicant is eligible to participate in the

program within 30 days of receipt of the completed

application. The department may extend the review period for

an additional 30 days if it determines that additional time

is needed to complete the review process.

(3)  The department shall notify the applicant in writing

of the extended period, including the date it will reach its

final decision.

(b)  Investigation.--

(1)  Upon receipt of a completed application, the

department may conduct an investigation of the applicant,

including an investigation of its owners, officers,

directors, principals or agents, in order to determine

whether the applicant is eligible to participate in the

program.

(2)  If the investigation finds and the department

determines that an applicant is not eligible to participate

in the program, it shall notify the applicant in writing that

the applicant will not be approved for program participation.

The notification of ineligibility shall include the reason

the application was not approved and that the applicant has

the right to appeal the department's determination to the

secretary within 30 days of the date of the notice.

(c)  Criteria for determining eligibility.--An applicant

shall be deemed eligible to participate in the program if the

department determines that an applicant meets all of the

following qualifications:

(1)  The applicant is a disadvantaged business certified

by the department Department of General Services.

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(2)  The applicant's business is in the construction or

building trade industry.

(3)  The applicant has been actively operating its

business for at least one year prior to the application date.

(4)  The applicant has the experience and financial

fitness appropriate to a qualified contract.

(5)  The applicant has agreed to subcontract no more than

75% of the work to be performed under a qualified contract.

(6)  The applicant has demonstrated an inability to

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secure bonding under normal market conditions.

(6)  The applicant who would be the principal on the bond

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is unable to obtain the bond on reasonable terms and

conditions without a guarantee.

(7)  There is a reasonable expectation that the principal

will perform the covenants and conditions of the contract

with respect to which the bond is required and the terms and

conditions of the bond are reasonable in the light of the

risks involved and the extent of the surety's participate.

(7) (8)  The applicant or one of its owners, officers,

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directors, principals or agents has not committed or been

convicted of any of the activities set forth specified in

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section 7.

(8) (9)  The business meets any other program

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requirements that establish criteria for eligibility that the

department shall adopt by regulation within 180 days of the

effective date of this section.

Section 7.  Criteria for denying program participation.

The department may not approve or may deny an application for

program participation if it determines that the applicant or one

of its owners, officers, directors, principals or agents

committed or has been convicted of the following:

(1)  Made a material misstatement in the application or

any other document required to be submitted by the department

or under a provision of this act.

(2)  Failed to comply with or violated any provision of

this act or any regulation, order or statement of policy

issued by the department under this act.

(3)  Engaged in unfair or unethical conduct in connection

with the construction or building trade industry or in

violation of 62 Pa.C.S. Ch. 23 (relating to ethics in public

contracting).

(4)  Does not possess the financial fitness, character,

reputation, integrity and general fitness sufficient to

warrant reasonable belief that the applicant's business will

be conducted lawfully, honestly and in the public interest.

(5)  Notwithstanding any other provision of law to the

contrary, been convicted of or pleaded guilty or nolo

contendere to a crime of moral turpitude or to an offense

graded as a felony.

(6)  Been enjoined by a court of competent jurisdiction

from engaging in the construction or building trade industry.

(7)  Has had a license issued by the department or any

other Federal, state or local agency denied, not renewed,

suspended or revoked.

(8)  Became the subject of a United States Postal Service

fraud order.

(9)  Demonstrated negligence or incompetence in

performing an act for which the applicant is required to hold

a license under an act enacted by this Commonwealth.

(10)  Has an outstanding debt to the Federal Government,

the Commonwealth or any Federal or Commonwealth agency or a

political subdivision of the Commonwealth or agency of a

political subdivision.

(11)  Became insolvent at any time prior to the

application date, meaning that the liabilities of the

applicant exceeded the assets of the applicant or that the

applicant could not meet the obligations of the applicant as

they matured or was in such financial condition that the

applicant could not continue in business without jeopardizing

the health, safety and welfare of its customers.

(12)  At any time prior to application, has failed to

disburse payments to subcontractors in a timely manner as

agreed to under a contract for any reason other than the

owner's failure to make the agreed-to payments to the

applicant or because such disbursement would constitute a

violation of applicable law or an order issued by a court or

administrative body of competent jurisdiction.

Section 8.  Duties of department.

(a)  Technical assistance.--The department shall provide

technical assistance to enable disadvantaged businesses to

competitively bid on State and other governmental contracts.

Technical assistance shall include, but not be limited to,

assisting disadvantaged businesses in responding to bid

requests, strengthening financial condition and addressing other

concerns raised or likely to be raised by a bonding company.

(b)  Monitoring program.--

(1)  The department shall establish a monitoring program

to monitor the activities of disadvantaged businesses

participating in the program. The monitoring program shall

include inspections of projects approved for bond guarantees

to minimize the risk of calls on the fund.

(2)  The department shall promptly advise the

disadvantaged business of any deficiencies identified during

an inspection.

(3)  In the event the deficiencies noted in the report

are not promptly addressed by the disadvantaged business to

the satisfaction of the department, the department may give

the disadvantaged business a reasonable period to correct the

deficiencies or may report such deficiencies to the issuing

bond company.

Section 9.  Regulations.

The department shall administer and enforce the provisions of

this act and shall adopt and promulgate regulations, guidelines

or policy statements necessary to carry out the provisions of

this act.

Section 10.  Effective date.

This act shall take effect immediately.