ASA UT Opposes HB 508!

ASA UT strongly opposes HB 508 S3, specifically the proposed amendment to Section 63G-6a-1103 that introduces subsection 5.

This new subsection would give the Division of Facilities Construction and Management (DFCM) an exemption from long-standing statutory bond protections, including performance and payment bonds. Subsection 5(b) removes the requirement for DFCM to obtain performance or payment bonds for construction contracts. While subsection 5(c) allows DFCM to “may require” bonds if they deem it necessary, it fails to clarify when or how such a determination will be made.

Mandatory performance and payment bonds are vital in public procurement because they provide essential protection to taxpayers, subcontractors, and suppliers. They ensure that construction companies are qualified to perform, and in the event of contractor default, they transfer the financial risk from taxpayers to the surety company. These bonds typically cover up to 200% of the contract amount, providing invaluable protection.

For subcontractors and suppliers, the payment bond is crucial as it offers an alternative to mechanics’ lien rights on public property. Without this protection, small, local businesses are at risk of not receiving payment if the contractor defaults.

Subsection 5 also raises concerns about whether existing statutory protections, such as Utah Code Section 14-1-19, would still apply, further complicating the issue. This sudden policy change should not be rushed. A recent Ernst & Young study for the Surety & Fidelity Association of America found that bond requirements reduce overall project costs and minimize defaults. Unbonded projects experience ten times more defaults, resulting in 85% higher costs and delayed completion. Additionally, projects with bonds have 3.2% lower contractor pricing.

For these reasons, ASA strongly urges you to reject HB 508 S3 unless subsection 5 is removed entirely.