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American Subcontractors Association (ASA) of Baltimore, a non-profit trade association, was established June 12, 1967 to address the business problems that affect subcontractors of all trades. We are a chapter of the American Subcontractors Association, which is headquartered in Alexandria, VA. Founded in 1966, the national association serves more than 5,000 member companies through a nationwide network of local and state chapters. It has succeeded in becoming the pinnacle of subcontracting organizations across the country.
Maryland Subcontractors Celebrate Legislative Victories on Individual Surety, Retainage, and Payment Assurances on P3 Projects
WHITE MARSH, Md. — Maryland construction subcontractors are celebrating three new laws that will improve their ability to do business.
On May 16, 2013, Maryland Gov. Martin O’Malley (D) signed a bill into law that addresses payment issues involving individual surety. On April 9, Gov. O’Malley also signed legislation into law that gives subcontractors clarity in the state law governing retainage and another that provides payment assurances for subcontractors working on projects funded through public-private partnerships (P3s).
The individual surety legislation (SB 599) requires the state to provide additional information to contractors on the types of securities accepted at the prime contract level, which include corporate surety bonds, bonds furnished by the state minority business agency, and individual surety bonds, as already permitted under state law. As originally introduced, SB 599 would have allowed individual entities to provide bonds at the subcontract level, but such language was removed, thus protecting subcontractor/supplier payment at the lower tiers.
Individual sureties are not required to be licensed in any state or to be approved by the U.S. Treasury, and while some individual sureties may be able to provide the liquid assets necessary to provide assurance, others cannot or do not.
“Payment bonds provided by individual sureties are essentially worthless, unless the pledged assets are real, adequate in amount, and readily available to meet the legitimate payment claims of the subcontractors and suppliers,” said ASA of Baltimore Chapter President Paul Koch, Curtis Engine & Equipment Inc., Baltimore, Md. “Subcontractors and suppliers should not be put in the position of finding out, in their hour of greatest need, that the assets pledged by an individual surety are illiquid, otherwise unavailable or simply insufficient to respond to their payment bond claims.”
The retainage legislation (SB 140) (Chapter 23) prohibits a state entity from retaining more than 5 percent on projects for which the prime contractor provides performance and payment bonds. The new 5 percent limitation also applies to retainage in subcontracts for state work, since state law already limits the amount that a prime contractor can retain from its subcontractors to no more than that retained by the government. ASA of Baltimore initiated the legislation and testified repeatedly in support of it.
“This new law will be a great financial benefit to constructors of all public buildings in Maryland, because it will increase the necessary cash flow to permit ongoing operations,” Koch said.
The P3 legislation (HB 560) (Chapter 5) requires the private partner and the prime contractor on a public-private partnership project to provide performance and payment bonds in accordance with the state’s Little Miller Act. Depending on how a construction project funded by both public and private sources is structured, the project may be exempt from both mechanic’s liens and payment bond requirements, leaving subcontractors and suppliers without adequate payment assurances.
“Lack of payment protections shifts very substantial risks to subcontractors and suppliers working on a P3 project,” Koch said. “If the risk is deemed too great, the most skilled and successful subcontractors and suppliers may have to forgo participation. The Maryland legislature has taken an important step to protect the payment rights of subcontractors and suppliers on construction projects financed by P3s.”
The three new laws will take effect on July 1, 2013.
ASA of Baltimore is a non-profit trade association established in 1967 to address the business problems that affect subcontractors of all construction trades.
If you would like more information about this topic or to schedule an interview, call Denise Lindross at 410-344-1470
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