THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY THOMAS, WHEATLEY, MYERS, PAYTON, YOUNGBLOOD, COHEN AND FABRIZIO, JANUARY 10, 2012

REFERRED TO COMMITTEE ON STATE GOVERNMENT, JANUARY 10, 2012  

AN ACT

Providing for the establishment of the Surety Bond Guarantee

Program; imposing duties on the Department of Community and

Economic Development; establishing the Surety Bond Guarantee

Fund; providing for contracts eligible for guarantee and for

participation by disadvantaged businesses; and making an

appropriation.

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.

"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:

(1)  have been deprived of the opportunity to develop and

maintain a competitive position in the economy because of

social disadvantages; or

(2)  are veterans, including service-disabled veterans.

"Fund."  The Surety Bond Guarantee Fund established in

section 4.

"Program."  The Surety Bond Guarantee Fund Program

established in section 3.

"Secretary."  The Secretary of Community and Economic

Development of the Commonwealth.

"Service-disabled veteran."  A veteran who possesses either

an adjudication letter from the United States Veterans

Administration establishing a service-connected disability

rating or a disability determination from the United States

Department of Defense.

"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.

"Veteran."  An individual who:

(1)  Served in the active United States military in any

of the four current branches and all previous branches,

including a reserve component or the National Guard.

(2)  Was released or discharged from active military

service under conditions other than dishonorable.

(3)  Possesses a certificate of release or discharge from

active duty.

Section 3.  Establishment of program.

The Surety Bond Guarantee Fund Program is established, to the

extent funds are appropriated specifically for the purposes of

this act, 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)  Fund established.--There is established the Surety Bond

Guarantee Fund 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

payments from the fund under the program shall not exceed the

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

Section 5.  Contract eligible for guarantee.

(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 Association of America'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

department.

(4)  The bond meets any other requirements established by

the department.

(b)  Required provision; notice of cancellation.--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. Cancellation of the bond

shall not invalidate the bond regarding the period of time it

was in effect.

Section 6.  Disadvantaged business participation.

(a)  Application process.--A disadvantaged business shall

apply to participate in the program by filing an application

with the department. 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. The department shall notify the applicant in

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

its final decision.

(b)  Investigation.--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. 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 of General Services.

(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

secure bonding under normal market conditions.

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

directors, principals or agents has not committed or been

convicted of any of the activities set forth in section 7.

(8)  The applicant and the applicant's business meets any

other program requirements that establish criteria for

eligibility that the department shall adopt by regulation,

guideline or statement of policy within 180 days of the

effective date of this act.

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

under a provision of this act and by the Department of

General Services under 62 Pa.C.S. (relating to procurement).

(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 or any regulation,

order or statement of policy issued by the Department of

General Services under 62 Pa.C.S.

(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)  Has had the certification as a disadvantaged

business issued by the Department of General Services

revoked.

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

fraud order.

(10)  Demonstrated negligence or incompetence in

performing an act for which the applicant is required to hold

a license under any law of this Commonwealth.

(11)  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.

(12)  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.

(13)  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, in consultation

with the Department of General Services, 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.--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. The

department shall promptly advise the disadvantaged business of

any deficiencies identified during an inspection. 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.

(a)  Adoption of 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.

(b)  Department of General Services.--The department shall

consult with the Department of General Services to carry out the

provisions of this chapter. The Department of General Services

shall provide any technical or staff assistance as may be from

time to time required to assist the department in carrying out

the provisions of this chapter.

Section 10.  Publication of notice.

The secretary shall, upon the effective date of an act making

an appropriation under section 3 to the department, submit for

publication in the Pennsylvania Bulletin notice thereof.

Section 11.  Effective date.

This act shall take effect as follows:

(1)   The following provisions shall take effect

immediately:

(i)  This section.

(ii)  Section 10.

(2)  The remainder of this act shall take effect upon

publication of the notice under section 10.