Monday, January 27, 2014

Legislation Would Require Public Agencies to Accept Retainage Bonds

A newly introduced bill to the Washington State Legislature would eliminate the current flexibility of public agencies in deciding whether to accept a retainage bond on public works projects.  The legislation would also appear to eliminate the ability of a public agency to establish financial stability ratings for a surety providing Payment and Performance bonds on public works projects.

Current law:  Under the current requirements of RCW 60.28.011, a public body must accept a bond in lieu of withholding retainage:
  • Meet agency standards:  Provided the bonding company meets standards established by the public body, the bond must be accept.
  • Good cause refusal to accept:  The retainage bond must be accepted by the public agency, unless they "can demonstrate good cause for refusing to accept" the bond.
Proposed legislation:  Senate Bill 6110 would eliminate any discretion on the part of a public body in whether to accept a retainage bond.  
  • Elimination of local standards:  The current requirement that the bonding company must meet "standards established by the public body" would be deleted, eliminating a public agency's ability to require a specific financial stability rating for the surety.  
  • Elimination of "good cause" refusal to accept:  The current flexibility to refuse to accept a retainage bond for "good cause" (a phrase that has always been subject to some interpretation) would be deleted and replaced with a requirement to comply with RCW 48.28.010 (which would also be amended by this bill).
  • RCW 48.28.010:  Here's what this law states with the underlined language reflecting the proposed addition as part of SB 6110.  
"Whenever by law or by rule of any court, public official, or public body, any surety bond, recognizance, obligation, stipulation or undertaking is required or is permitted to be given, any such bond, recognizance, obligation, stipulation, or undertaking which is otherwise proper and the conditions of which are guaranteed by an authorized surety insurer, or by any unauthorized surety insurer as a surplus line pursuant to chapter 48.15 RCW of this code, shall be approved and accepted and shall be deemed to fulfill all requirements as to number of sureties, residence or status of sureties, and other similar requirements, and no justification by such surety shall be necessary.  This section applies to any and all surety bonds executed, filed, posted, furnished, or otherwise given as security pursuant to any statute of this state or any law or ordinance of any public body."
Mike Purdy's Public Contracting Blog
© 2014 by Michael E. Purdy Associates, LLC

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