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Industry Fights Legislation to Eliminate Bid Penalty Cap

Mon March 14, 2005 - Southeast Edition
Bill Caton



By Bill Caton

CEG CORRESPONDENT

Industry coalitions have worked to stop a bill in the Alabama Legislature that could have threatened the existence of many roadbuilding contractors in the state.

The regular legislative session started at the beginning of February and bills were introduced early that would have eliminated the $10,000 cap on bid bond penalties, instead setting at 5 percent the penalty for turning a job back to the state.

“They want to remove that cap,” said Alvin Bresler, an agent with J. Smith Lanier in Birmingham. “Five percent of a $5 million job is $250,000. A lot of contractors don’t have that kind of money. In that case, the state sues the bonding company for the penalty and then the bonding company will have to try to get reimbursed from the contractor. That could put some contractors out of business.

“People understand going out of business on a big job that you mess up, but they don’t understand going out of business on a job you never get.”

Bresler pointed out that while DOT jobs vary wildly in size, anything more than $200,000 would exceed the current $10,000 cap.

Chris Williams, director of governmental relations for the Alabama AGC, said for now the bills are stopped in the legislature, but industry groups continue to closely monitor them.

“If those two bills pass, within six months nobody will want to write a bond for DOT work in Alabama,” Williams said.

He said that, as written, the bills would apply to all public works, such as schools. Under current law those jobs have no bid bond penalty provisions.

“We have amendments ready so that if these bills begin to move we can at least make them apply only to DOT contracts,” Williams said.

Bresler said the insurance industry is working to insert language into the bill that would let a contractor out of a bid with no penalty if the contractor can prove he had a mathematical mistake.

“The DOT has a real concern,” he said. “This past year some contractors would bid work and then couldn’t get a bond and the jobs were turned back to the state. They have to begin the entire process again. It becomes a time problem. It’s a long process. Job start dates can get pushed back five months or more.

“The DOT was trying to keep out these bids and save time.” CEG