The National Association of Surety Bond Producers, a trade association of surety brokers, is claiming a major victory in its campaign against surety fraud after Maryland lawmakers failed to renew a 2006 state law that partly opened the door to the use of individual surety on state projects. The lawmakers' inaction followed a state agency review that found the law produced no benefit in helping small contractors win work.
The statute had been set to sunset once before, but state legislators extended it in 2009. When Maryland sunsets the law on Sept. 30 of this year, Alaska will be the only state left that allows individual surety on state public works.
Created by federal regulations for small contractors as an alternative to more risk-averse corporate sureties, individual sureties are people willing to provide payment and performance bonds—guarantees made in exchange for a premium, based on a small percentage of the contract—to small firms that would otherwise fail to qualify for public works. The sureties have been plagued by fraud.
One individual surety, Edmund C. Scarborough, pushed for passage of the Maryland law. "I wrote it," he claimed in a deposition for an unrelated lawsuit. Lawmakers wishing to help small and minority-owned contractors also got behind the measure.
Since 2006, according to a Maryland Insurance Administration report issued in November, only two contractors in the state were awarded work secured by individual surety. In that period, 14 states have sanctioned 12 individual sureties 26 times for operating without authorization, the agency reported. NASBP lobbied heavily to stop bills that would have renewed the Maryland law, which never emerged from committee. The association favors expanding aid to help these contractors to qualify for a Treasury-listed surety.
"This law has failed in its essential business," said Mark McCallum, NASBP's CEO. "It's not needed, and, worse than that, the law allows a loophole where an unregulated person can come in and victimize small, emerging businesses."