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Coalition for Contracting Fairness

Coalition for Contracting Fairness

Helping to promote equal access to bonding and regulatory fairness.

Karen Barbour, Founder, who serves as Executive Vice President and Stella May Miller, who accepted the position of President, collaborate on legislative fairness ideas to help Minority Business Entities (MBE) and Small/Local Businesses (SLB) servicing the construction industry spend less of their money fighting for their constitutional rights and legal remedies.

The Coalition was formed in 2013 to garner support from the MBE and SLB Contracting Community to fund the Subcontractors Equal Access to Bonding Act. Gil Genn lobbyist and President of Capitol Hill Strategic Advocates (link) for the Coalition was able to secure Delegate Kirill Reznik (Dem, District 39) as the bills’ Chief Sponsor for House Bill 585 and Senator Joan Carter-Conway (Dem, District 43) as Chief Sponsor for companion bill, SB 599.

Often subcontractors are required to post bonds for their work under contract to the prime contractor. However, MBE and SLB Contractors often are supported by surety companies that are small, too, in comparison to the Top 10 sureties industry wide. Also, sureties who embrace small businesses tend to partner with the SBA Bond Guaranty Program for MBEs or SLBs that lack the necessary liquidity and net worth for a standard approval. Such sureties (not of the Top 10) tend to have financial ratings (such as AmBest) of A- (excellent) or better. However, few of these sureties have the net worth or capital surplus that large primes often require of their subcontractor’s surety. In addition to setting capital surplus limits, some large primes would often limit the pool of acceptable sureties by capping the sureties’ underwriting limitations. For example, if ABC Surety was approved and authorized to issue bonds up to $5 million, certain primes’ risk management divisions would internally cap their limitations to $2 million. And, if ABC Surety was partnering with the SBA Bond Program (to support non-federal projects up to 6.5 million and federal projects up to $10 million), it negated the program’s ability to help small business.

Contractors upset and confused over their bond rejection and being told to "find another surety or your contract will be cancelled" created hardship for bonding agencies, as well. The Coalition’s members wanted fair treatment. The State of Maryland’s procurement regulations only required a prime to provide a surety bond from a surety company authorized to transact business by the MIA on the condition the surety bond provided by the prime does not exceed the surety company’s underwriting limitation.

The legislation passed its first time in session with only one dissenting vote! According the Fiscal and Policy Note: “This bill prevents prime contractors who require subcontractors to provide bid, performance, or payment security on specified State procurements from imposing more stringent bonding requirements than the State imposes on prime contractors. The new law took effect on July 1, 2013.

In 2015, after four years of research, the Coalition presented to its members, The Change Order Fairness Act. Gil Genn was again at our side, and like the prior bill, he aptly named the bill and secured a draft copy with the help of Delegate Dan Morhaim (Dem-District 11). As a board member of AGC of MD, Karen requested support from the AGC’s President/CEO Champe McCullough and its board. AGC of MD agreed to support and worked tirelessly to win support of other key contract trade associations and joined with the Coalition and Genn to win support and compromise from State procurement agencies. The bill passed both chambers but SB 708, sponsored by Senator Conway amended the study group component of the bill. With few minutes remaining before sine die, HB 119, sponsored by Delegate Morhaim could not be amended in time. In 2016, the legislation was re-introduced with AGC of MD taking lead. HB 403 and SB 826 again had AGC of MD support and due to Champe’s art of negotiation, the bill navigated successfully through new disdain by SHA. A few non-substantive amendments later, and the bills passed unanimously taking effect on July 1, 2016. As stated in the Fiscal and Policy Note:

“This bill prohibits a State procurement unit from requiring a prime contractor on a State construction contract to begin work on a change order until a written change order is issued that specifies whether the work is to proceed, in compliance with the terms of the contract, on an agreed-to-price, force account, construction change order directive, or time and materials basis. Similarly, a prime contractor cannot force a subcontractor to begin work unless the same conditions are met…The Secretary of General Services must convene a stakeholder workgroup to develop recommendations on specified issues related to State construction contracts.”

The Coalition, AGC of MD and others are members of the workgroup. Overall the State cannot default a prime contractor or assess liquidated damages if the prime contractor and state cannot agree on price. These same provisions flow down to subcontractors. The subcontractors are to receive a copy of the approved change order from the State within five days of its receipt. If the subcontractor does not receive such confirmation, then the change order is not a state directed change order and may be subject to recovery through a claim submitted by the prime to the State.

At present, no new ideas for legislation are pending. The Coalition is excited about the opportunity to contribute to the success of the Stakeholder Workgroup.

Passed Legislation

HB0585 – Subcontractor Equal Access to Bonding Act of 2013

Prohibiting a prime contractor from requiring specified bonding from a subcontractor on specified procurement contracts that is more stringent than specified bonding requirements for prime contractors on specified procurement contracts under a specified circumstance; requiring a contractor to accept specified bonding from a subcontractor under specified circumstances; etc.

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ii. HB0403 – Change Orders (State Procurement Change Order Fairness Act)

Prohibiting a unit from requiring a prime contractor and a prime contractor from requiring a subcontractor to begin change order work under a contract until the procurement officer for the unit issues a written change order; providing that written acceptance letters for a State Highway Administration or Maryland Aviation Administration procurement contract for construction have the same force and effect as change orders until the specified units issue written change orders; etc.

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