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STS, ASA, Industry Awaits Response of Protest Against Texas Municipality's Bond Waiver Plan
Officials from the City of Kilgore, TX have gone quiet since opposition came in from the construction industry to their plan to waive bond requirements on a baseball complex. Chris Ring, of NACM’s Secured Transaction Services, said the plan to reduce costs by skirting obligations of a surety bond on such projects is about accountability and providing some kind of path toward payment when a problem arises.
“In Texas, once the general contract price exceeds ,000, the general contractor is required to post a payment bond as non-payment relief for subcontractors and material suppliers. However, public agencies and general contractors can ask that the requirement for the payment bond be waived,” Ring said. “When the waiver is granted, downstream subcontractors and suppliers have no relief in the event of non-payment. Just because a payment bond should be in place for a public project, doesn’t mean that it will be placed. It’s critical that material supplier and subcontractors ask for and obtain copies of payment bonds, to assure they exist.”
Stop Payment Notice Rights Weakened by Cal Court of Appeals?
Also in California, criticism is mounting regarding a state Court of Appeals decision that could decrease contractors Stop Payment Notice rights on public projects. The American Subcontractors Association (ASA) noted in a September letter to the California Supreme Court that the decision in Golden State Boring & Pipe Jacking, Inc. v. Safeco Insurance Company, et al infers that a contractor would be required to serve a Stop Payment Notice when completing its portion of the work and again by completion or acceptance of the project by a public entity. ASA noted "a Stop Payment Notice is only effective if the public entity is still holding funds dedicated to the project."
California Law Affecting Retainage Requires More Detail, Explanation
October 24, 2014
California Gov. Jerry Brown has approved state legislation focused on retainage that could have an adverse effect on contractors and subcontractors. By signing AB 1705 into law, California now requires that bid documents include details explaining the basis for finding a project to be "substantially complex," which allows a public agency to retain more than 5%, as well as the actual retention amount. The mandate also requires that any finding that a project is substantially complex must be backed up with a description of the specific project and why it is a unique project that is not "regularly, customarily or routinely performed by the agency or licensed contractors," according to state documents.Read more...