The Budget Bill has been Amended to Permit Waiver of Payment and Performance Bonds from Minority Contractors Working on Public Projects

The State of Ohio by law has to approve the new Budget by July 1. The House of Representatives passed its version of the Budget bill and sent it to the Senate for approval. Senator Shirley Smith from Cleveland inserted an amendment to eliminate payment and performance bonds for some minority contractors on public work. The Senate version was approved as Amended HB 1 and sent back to the House for concurrence. View the Senate version of Am.HB 1 here http://www.legislature.state.oh.us/BillText128/128_HB_1_PS_N.html

While well-meaning, the amendment, designed to help disadvantaged minority contractors could very well change the face of construction in Ohio for the worse AND keep all minority contractors from getting competitive bids from subcontractors and suppliers.

This amendment includes provisions to allow the Director of Development to waive the protections of bonding for the first five public projects that a minority contractor is awarded—state or local. Upon the successful completion of a $25,000 construction project without bonding, the contractor can obtain a $50,000 contract without providing the bonds required by law. The third contract, at $100,000, doubles the amount from the second project that can be obtained without bonding. The fourth contract triples the amount of work that can be done without bonding to $300,000, and the fifth public project doubles that amount to permit a $600,000 project to go forward without the protections for workers and state taxpayers that bonding provides. These “protections” will be offered to those who have the least financial ability to successfully complete a construction project.

In addition to providing for the waiver of a bond, to “protect” subcontractors and suppliers, the amendment also increases the amount of Retainage from an effective rate of 4% on a public project to as high as 15% (the actual amendment provides that for projects over $50,000 the Retainage will be 15%, for those contracts values at $50,000 or less, it will be 12%). While the intent is to have more money withheld to protect those doing business with the contractor, the reality is that it will eliminate the cash flow which is the life blood of every construction company from those who need it the most, the disadvantaged business that can’t qualify for a bond.

When this money is taken away, it will cause the contractor to hold more of the money that should have been paid to you, hurting your cash flow, making you file more liens earlier and file more law suits faster, just to protect the money that is rightfully yours. Forget about your other standard protection, the bond claim, because it will be eliminated, with no guarantee that you will be paid, at all.

Committee meetings within the House of Representatives are happening this week. You need to act now to help stop this change by contacting your Representative to tell them how badly this amendment will hurt your business and construction in Ohio at a time when we can least afford it. Find your Representative Here http://www.house.state.oh.us/

Tell them that every Ohioan should be afraid of this amendment. The goal of the amendment is to assure that minority contractors can be more competitive with their pricing because they are not required to protect either the public authority (you and me as taxpayers) or their subcontractors and suppliers (you again) by paying for the same payment and performance bonds that responsible contractors must pay for, but the result will likely be just the opposite.

It may be that the prudent subcontractor or supplier selling to a minority contractor may not offer the same prices that they do to other contractors or may not bid to them at all. This could even hurt the good, well capitalized minority contractors because you won’t be able to tell whether they are posting a bond or not. Will you condition your bid on only being effective if the contractor is posting a payment bond?

What about a supplier selling to a subcontractor? Will you condition your bid on their only bidding to contractors supplying a bond? You won’t know until it is too late because your customer may be bidding to contractors who have posted bonds and those who haven’t. Your price may be the same, but your risk will be dramatically different. This, together with a pay-if-paid clause in your contract, could spell you never being paid.

When these contractors without bonds and higher retainage can’t pay their bills because there is no cash flow, are they going to stop taking a pay check or are they going to stop paying the things that don’t hurt right now: withholding taxes; union fringes; and payments to subcontractors and suppliers?

There are alternatives, look at the Federal process. There is no Retainage, but when the bonding minimums were raised, the Federal Government had to put other security measures in place to assure that those actually doing the work to improve the public’s buildings would be paid for their work. If Ohio is going to take away your rights to be paid by the company that hired you, to be fair, they should be taking the risk of non-payment, NOT YOU. The government is trying to hand out a benefit when the only person taking the risk is you. This will hinder construction business in Ohio and raise prices for everyone.

No one wins here.

We have a legislative process to fully vet ideas, have reasonable and thoughtful debate over the issues, not to have such a major change to the way we do business hidden in another piece of legislation that has to be passed. If they want to offer another incentive to disadvantaged businesses, then do it, but do it in a process that permits everyone to make a reasonable decision based on open discussion and debate, not just pass it because the budget has to be passed.

Call or email your representative today. Get this amendment stopped before it is too late. Find your Representative Here http://www.house.state.oh.us/