In Florida, a new bill was introduced relating to the states Data Center System. The new law which is named SB 1892 adjusts the State’s Data Center System and states that the data center is to enter into service agreements with its clientele. For main data centers that a state agency does not manage, the agreements may ask to provide a surety or a performance bond. SB 1892 was enacted on 06/10/2008.
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Florida Data Center System Performance Bonds
January 4, 2010 by Eric WeisbrotDiscuss: Comments (0)
Category: Commercial Bonds, Contract Bonds, Performance Bonds, Surety News
Tags: Data Center System, FL, Florida, Performance Bonds
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Florida Health Choices Performance Bonds
December 29, 2009 by Eric WeisbrotIntroduced on March 6th, 2008, SB 2534 is a new law regarding a health insurance program in the state of Florida. SB 2534 creates the Florida Health Choices, Inc. for a statewide reasonably priced health insurance program. The new law also allows Florida Health Choices, Inc. to ask for performance bonds for its vendor contracts. SB 2534 was enacted and effective on 05/21/2008. Discuss: Comments (1)
Category: Commercial Bonds, Contract Bonds, Performance Bonds, Surety News
Tags: bond requirements, FL, Florida, Florida Health Choices, legislation, Performance Bonds, surety bond
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California Telecommunications Public Utility Bond
August 12, 2009 by Lisa Grimsley
As of January 1, 2009, the Public Utilities Commission of California may require a performance bond as a precondition of getting certain certificates and permits for telecommunications companies. AB 2578 allows this, also stating that the bond has to be sufficient to allow the collection of restitution, penalties, and fines for enforcement actions taken against the company. Discuss: Comments (0)
Category: Performance Bonds, Surety News
Tags: bond requirements, legislation, performance bond, Performance Bonds, surety bond
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SBA Increases Surety Bond Program to $10 Million
July 28, 2009 by Michael WeisbrotThe SBA has increased their maximum bond amount for a second time this year. In February, we wrote an article on the stimulus bill which spoke of an increase from $2 to $5 million.
Technically, the ceiling is still at $5 million (see: SBA FAQ). The changes allow up to $10 million only when “the contracting officer certifies that the guarantee is in the best interests of the government”. However, most news agencies are reporting it as a flat increase.
The SBA surety program is quite paper intensive as is. Certainly, there will be more paperwork to show the contracting officer agrees that it is in the best interests of the government.One of the main differences in underwriting using the SBA program is how they calculate working capital. Under the SBA program a bank line of credit is considered working capital, which is not the case with normal surety underwriting. This allows contractors to qualify for bond lines that are larger than they could obtain through traditional avenues. Unfortunately, the credit crunch has caused banks to reduce or close line of credits previously available to contractors. Such changes to our financial system have had a direct impact on bond lines provided through the SBA program.
This leaves me to wonder, would there be more benefit in reviewing the current SBA procedures rather than increasing the maximum bond amount? Sure, it wouldn’t look as good in the news headlines, but it might have more of an impact with the contractors they are trying to assist.
Discuss: Comments (0)
Category: Contract Bonds, Surety News
Tags: Bid Bonds, legislation, performance bond, Performance Bonds, SBA, underwriting
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Stimulus Package Impact On Surety Bond Industry
February 18, 2009 by Michael WeisbrotThe Federal government’s stimulus package will no doubt impact the surety industry. Will it mean business as usual for contract bond agents or a boom like we have never seen before?
The sheer size of the bill is absolutely daunting to put it lightly. The bill includes roughly 130 billion in funds towards construction related projects. It is the largest infrastructure investment seen in this country for the last 50 years. Unfortunately, it is impossible to come up with an exact number for construction spending, as the bill allows some departments freedom to use the funds for non-construction related expenses (see: Revovery Bill).
Stimulus Package Details
The website www.recovery.gov is dedicated by the government to keep Americans in the loop on where funds are being spent; it is currently vague at best with a bar graph including some categories of where funds are to be spent. A link below the graph titled “learn more” shows us the same figues in a bubble chart. I doubt showing the same information in a different chart format will appease many.
In all fairness, the bill was just passed yesterday so it might be a bit early to expect detailed information on the www.recovery.gov site. However, I am sure people will begin to demand more details to be provided since this is suppose to be an attempt at transparency through the use of the web.
The Engineering News Record posted an article on 2/13/09 entitled, The Stimulus Bill Compromise, Sector by Sector. They did a better job at breaking out the spending, specifically what applies to the surety industry. According to ENR, the major categories are appropriated as follows:
Transportation – $49.3 Billion
- Highways: $27.5 billion
- Transit: $8.4 billion
- New discretionary grant program: $1.5 billion for highways, transit, rail, seaports, other projects. U.S. Dept. of Transportation would choose which projects would be funded
- Airport Improvement Program construction grants: $1.1 billion
- Rail: $9.3 billion, including allocations for Amtrak and high-speed rail
- Port, transit, rail security: $300 million
- DHS/Transportation Security Administration, procure, install airport explosives-detection, baggage-scanning equipment, $1 billion
- Coast Guard, bridge alterations $142 million
- Coast Guard, acquisition, construction, improvements $98 million
ENERGY – $30.62 Billion
- Electricity grid, including “Smart Grid” activities: $11 billion
- Home weatherization assistance: $5 billion
- Energy efficiency and conservation grants: $6.3 billion
- Renewable-energy loan guarantees: $6 billion
- Carbon capture and sequestration demonstration projects, $1.52 billion
- Clean Coal Power Initiative, round III $800 million
WATER AND ENVIRONMENT – $20.1 Billion
- DOE environmental cleanup: $6 billion
- EPA Clean Water and Drinking Water funds: $6 billion
- EPA cleanup, including Superfund: $1.2 billion
- Agriculture Dept., rural water and waste disposal facilities: $1.28 billion appropriations, to support $3.8 billion in loans and grants
- Corps of Engineers civil works: $4.6 billion
- Bureau of Reclamation: $1 billion
BUILDINGS – $13.365 Billion
- GSA federal buildings, energy-efficiency upgrades: $4.5 billion
- Border stations, ports of entry: $300 million
- Facilities on federal and tribal lands:$3.1 billion
- Fire stations (federal grants): $210 million
- GSA new Dept. of Homeland Security headquarters, $450 million
- GSA U.S. Courthouses, other federal buildings, $300 million
- Agriculture Dept. bldgs/facilities $ 200 million
- Agriculture Dept. rural facilities $130 million (supports $1.234 billion in loans)
- NIST construction $360 million
- NOAA procurement, acquisition and construction $430 million
- NASA construction (hurricane damage repairs) $50 million
- National Science Foundation academic facilities modernization $200 million
- NSF major research equipment and facilities construction $400 million
- DHS consolidation $200 million
- DHS ports of entry $420 million
- Smithsonian facilities, $25 million
- National Institutes of Health, grants for construction, renovation of non-NIH research facilities, $1 billion
- NIH buildings and facilities (construction, renovation) $500 million
- Social Security Administration, National Computer Center replacement, $500 million
- State Dept. Capital Investment Fund, $90 million
SCHOOLS – Unknown
Roughly $39.5 billion out of the $53.6 billion total for the State Fiscal Stabilization Fund is set aside for local school districts. These funds allow for school modernization, but a precise amount for construction purposes is undecided at this time.
HOUSING/HUD $9.6 Billion
- HUD Public Housing Capital Fund: $4 billion
- HUD redevelopment of abandoned and foreclosed homes: $2 billion
- HUD energy retrofits, “green” projects in HUD-assisted housing projects: $250 million
- HUD Community Development Block Grants (housing, services, infrastructure): $1 billion
- HOME investment partnerships program $2,250
- Lead paint abatement $100
Defense & Veterans – $7.78 Billion
- VA: $1.25 billion for hospital and other medical facility construction and upgrades
- DOD: $4.240 billion for “facilities sustainment, restoration and modernization,” includes energy-efficiency improvements, plus repair and modernization of DOD buildings, including medical facilities.
- DOD: $2.33 billion for facilities projects, including housing, hospitals, child-care centers, other military “quality of life” projects.
OTHER – $100 Million
- Security, border fencing, infrastructure, technology $100 million
Below you will find a chart that breaks out the details of spending towards construction. The size of the chart speaks to the size of the bill, as we could not fit the graphic properly on the blog. Please click here for a full sized version of the chart.
Bull Or Bear Surety Market?
All of this government spending must lead to a large surge in surety premium, right? Of course, but will it offset the slump seen due to the current economic conditions? John Welch, President of CNA stated the following during CNA’s 2008 4th qtr. earnings call on 2/6/09:
“The infrastructure part of the stimulus package from best I could tell looks to be anywhere $70 to $80, $90 billion, which is good and it’s great and we need it, but it still is relatively a small part of the overall construction spending in a full year.”
Does this mean that an expert such as Mr. Welch is bearish on a surety premium boom? Think again…In the same CNA meeting Mr. Welch stated:
“Our production was supported by the continued spending on public construction offset to some degree by the drop off in the private market. While there are strains on public construction spending, talk of a government stimulus package including public infrastructure spending give us some encouragement going forward.”
In other words, we are going to need to wait to see how this all plays out.
SBA Changes
The SBA announced today that they will receive $730 million from the bill. What does this mean for the surety industry? How about a raise on the maximum allowable contract amount for the SBA Surety Bond Program from $2 million to $5 million, a 250% increase. In special circumstances, the SBA can now even consider contracts up to $10 million, or a 500% increase! The additional funds will also be used to expand the program further.
Conclusion
The economy has seen better days. Every day on the news we all hear about more layoffs from industry to inudstry. Hopefully the stimulus bill is the begining of our road to recovery.
As one might guess, there is no clear answer on how the surety industry will weather this recession. Even the experts cannot predict what is going to happen, as this is uncharted territory for our industry and the country as a whole.
Personally, I am an optimist and see the surety industry getting through this crisis better than most other industries. This is something we will all have to watch as it unfolds.
Are you bullish or bearish on the surety industry? Leave a comment below!
Discuss: Comments (4)
Category: Bid Bonds, Contract Bonds, General Bonding, Performance Bonds
Tags: Bid Bonds, Performance Bonds, stimulus package, surety industry
