Questionable Bonding Provisions

Over the last several years we have seen an increase in onerous bond provisions that are inserted into bid packages presumably to “protect” the public entity at the expense of the surety and the contractor.

The most common provision is the clearly illegal attempt to require a bidder’s surety to have a certain bond rating to qualify for the contract beyond “California admitted.” However, we have also seen efforts to require the surety to act as “co-guarantor” of manufactured products used on the job and specific language that gives just a few days for the surety to respond to a claim. Another particularly onerous provision we have seen is one that makes the surety liable for damages, even when the public agency is at fault. These are just a few examples of various provisions that have been brought to our attention.

In those instances, we have sent the local agencies letters, copies of the law, and legal opinions as appropriate in an effort to get these provisions removed. Below we have posted some of the relevant documents as a reference for members and public agencies.

Bond Rating Criteria

This section is dedicated specifically to the largest problem, which are the attempts to mandate a bond rating beyond “California admitted.”

In 1992 legislation was passed that prohibits local public entities from requiring a surety from meeting any bond rating standard other than being California Admitted. The Legislation was AB 2872 (Polanco), Chapter 997 of 1992. Specifically, the bill added section 995.670 to the California Code of Civil Procedure.

However, since the enactment of this legislation there has been some confusion and a lack of understanding as to the exact requirements of the law. In order to facilitate understanding and to prevent this confusion, the California Surety Federation has compiled a series of documents that fully explain the law. Below are a series of links to those documents. We have also included copies of letters sent to particular local public entities that have attempted to use a rating criteria other that being California admitted.

Relevant Documents

· California Code of Civil Procedure Section 995.675

· California Legislative Counsel’s opinion regarding the application of Section 995.675 to local public entities.

· California Legislative Counsel's opinion regarding application of section 995.675 to charter cities.

· Letter from Assemblymember Polanco explaining the purpose of the legislation.

· American Contractors Indemnity Company v. City of San Diego

Letters to Public Agencies

Bakersfield City School District

Metropolitan Water District of Southern California

Ramona Municipal Water District

City of Perris

City and County of San Francisco

Yucaipa Valley Water District

West Valley Sanitation District

City of Lancaster

Miscellaneous Bonding Provision Letters

This section includes letters that we have sent to public agencies that have used various other provisions that are objectionable.

Travis Unified School District

Anaheim City School District

Orange County Department of Education

Lodi Unified School District

Chabot-Las Positas Community College District

Port of Los Angeles