ASA Opposes Bond Threshold Increase in Illinois
On March 10, 2023, ASA sent a letter to the Illinois Senate Executive Committee opposing SB157, which seeks to amend Section 1 (30 ILCS 550/1) of the Public Construction Bond Act, Illinois’ Little Miller Act, by raising the current bond threshold from $50,000 to $5,000,000. Also, the legislation creates a "self-insured risk pool" to pay claims or damages arising under a public works construction contract valued at $5,000,000 or less because of a contractor's failure. SB157 elevates the Illinois’ bond threshold to the highest in the Nation, which is 35 times greater than the federal threshold ($150,000) as required by the Miller Act (40 U.S.C. §§ 3131 et seq;) and applicable regulations. In addition, Illinois’ bond threshold will become an outlier to the thresholds of neighboring states, such as Indiana ($200,000), Iowa ($25,000), (Michigan ($50,000), Minnesota ($175,000), Missouri ($50,000) and Wisconsin ($148,000/local/$369,000/state projects), if this bill is enacted.
Increasing bond thresholds may allow small and emerging contractors to bid on public construction projects, but the committee must consider the inherent risks they place on the construction industry, along with state and local jurisdictions bearing the burden of rebidding work and paying excess completion costs. Additionally, this could be problematic on projects with tight budgets or schedules. A contractor’s ability to obtain bonding reflects his or her capability to perform a contract. Higher bond thresholds potentially allow more contractors who are incapable of obtaining bonding and who have not been through the surety’s comprehensive vetting process to bid on and be awarded large public contracts for which no payment and performance bond would be required. This exposes public entities to greater risk, gambles with taxpayers’ money, and burdens subcontractors with the possibility of nonpayment.
As for advancing small and emerging contractors, increasing bond thresholds does not necessarily mean that these contractors would obtain more public construction business. Instead, it could result in financially unstable contractors who could not obtain bonding and who were not prequalified by a surety bidding on and winning public construction jobs. Those small and emerging contractors acting as subcontractors on those projects would not have the protection of a payment bond should something go wrong with the general contractor. Finally, over time, raising bond thresholds harms small and emerging contractors and suppliers by substantially increasing their risk of nonpayment if they are operating as subcontractors, and by raising the difficulty of qualifying for their first bonds.