Security in Bonding Act of 2012

Madam Speaker, I rise in support of H.R. 3534, the Security in Bonding Act, and I yield myself such time as I may consume.

H.R. 3534 will strengthen the protection that surety bonds are intended to provide by requiring individual sureties to use low-risk cash assets, such as United States bonds, as collateral. At the same time, H.R. 3534 will require the Government Accountability Office to assess the impact of these enhanced collateral requirements on the availability of surety bonds for emerging businesses, and particularly for disadvantaged business enterprises, seeking to be prime contractors on Federal projects.

When the Federal Government enters into a contract, the American taxpayer, as well as those who subcontract with the contractor, should be protected. That is why, under current law, any Federal construction contract valued at $150,000 or more requires a surety bond as a condition of the contract being awarded. The bond will pay the government and downstream contractors in the event that the contractor fails to perform the contract.

Bonds issued by so-called ``corporate'' sureties, which have been vetted and preapproved by the Treasury Department, provide financial assurance to taxpayers and contractors in the event that a contractor fails to perform. On the other hand, bonds issued by individual sureties have not been so vetted and are not subject to strong collateral requirements.

Accordingly, I support H.R. 3534 for several reasons.

To begin with, any entity that provides a surety bond should be held to strong underwriting standards. For instance, we know very well what happens when industries, particularly those involving financing, are not closely regulated. Consider mortgage lenders, for example. In a vacuum of regulation, unscrupulous and predatory lenders engaged in practices that hurt not just their borrowers, but ultimately jeopardized the Nation's economy and the financial well-being of all Americans. Measures such as H.R. 3534 are intended to mandate more reliable collateral standards, which is a commendable goal. Such strengthened requirements should help to ensure that American taxpayers are not made to pay for the consequences of undercollateralized bonds.

In addition, this bill will protect so-called ``downstream'' subcontractors and suppliers who very much depend on the economic vitality and performance of the general contractor and its surety. Many such downstream subcontractors and suppliers are small businesses owned by members of historically disadvantaged groups, including racial minorities, women, and the disabled. Ensuring that unnecessarily heightened risk is avoided for minority-owned businesses is key to their economic survival as well as to our Nation's fiscal health. According to the Commerce Department, these businesses are an ``integral part of local, national, and global business communities.'' Measures such as H.R. 3534 that strengthen collateral requirements lessen the incidence of poor underwriting practices and undersecured surety bonds.

Finally, H.R. 3534, as amended in committee, will help to ensure that it does not result in too much of a good thing. Particularly during these difficult economic times, our role in Congress should not be to construct unnecessary or overly burdensome hurdles to those who want to enter into a particular business or industry.

To the extent that heightened collateral requirements might dissuade individual sureties from providing bonds on Federal projects, there is a risk that new businesses may have a more difficult time bidding on Federal projects. We need to ensure that these businesses continue to be vital contributors to our Nation's economy, not only as subcontractors, but also as prime contractors. This is why there was bipartisan agreement in committee to add language requiring the GAO to, among other things, assess the impact that the enactment of H.R. 3534 may

have on disadvantaged business enterprises' ability to successfully bid on Federal contracts. This analysis will help us monitor whether H.R. 3534 has any unintended consequences in this regard.

I thank Chairman Smith for his willingness to work with us to reach a mutually agreeable result. I also commend the bill's sponsor, Representative Richard Hanna, as well as Representative Jared Polis, the lead Democratic cosponsor, for their leadership on this important matter.

I reserve the balance of my time.

Mr. Speaker, I have no further requests for time, so I will yield back the balance of my time.

Madam Speaker, I move to suspend the rules and pass the bill (H.R. 3534) to amend title 31, United States Code, to revise requirements related to assets pledged by a surety, and for other purposes, as amended.

Madam Speaker, I ask unanimous consent that all Members may have 5 legislative days to revise and extend their remarks and include extraneous materials on H.R. 3534, as amended, currently under consideration.

Madam Speaker, I yield 5 minutes to the gentleman from New York (Mr. Hanna), who is the sponsor of this legislation.

Mr. Speaker, I yield 2 minutes to the gentleman from South Carolina (Mr. Mulvaney) who is an original cosponsor of this legislation.

Mr. Speaker, I yield back the balance of my time as well.

Mr. Speaker, today the House continues its effort to restore the financial security of our country with consideration of H.R. 3534, the Security in Bonding Act of 2011. I thank Mr. Hanna for his sponsorship of this bill and Mr. Gowdy and Mr. Polis, both members of the Judiciary Committee, for their support as well.

This bill protects the federal government from financial loss as it improves the effectiveness of surety bonds contractors must post when they perform construction projects for the United States.

Also, this bill protects small business subcontractors and enhances the financial security of the United States.

The bill amends federal acquisition law to requre individual sureties to post only low-risk collateral to back up their bonds. If the prime contractor defaults, the government and subcontractors will have recourse to real, stable, valuable assets to make them whole.

The Miller Act, enacted in 1935, requires a contractor to obtain surety bonds in favor of the government when the contractor undertakes a construction job worth more than $150,000. These surety bonds protect not only the United States but also subcontractors whom the prime contractor hires.

Unlike in the private sector, subcontractors on federal projects have no mechanic's lien rights; surety bonds are their sole protection.

A bid bond assures the federal contracting officer that the contractor bids in good faith and will complete the job if it is the winning bidder.

Similarly, a performance bond guarantees the United States that the contractor will not walk away from the job even if, for instance, the contractor found a more lucrative opportunity elsewhere.

The Federal Acquisition Regulation (FAR) currently allows a contractor to obtain a surety bond through a corporate surety or an individual surety. Alternatively, a contractor may deposit low-risk collateral, like T-bills or other cash equivalents, with the government to cover the project cost.

Corporate surety companies are regulated by the Treasury Department, which requires the sureties to be sufficiently funded in an amount over the risk of default on the bonds they underwrite. But individual sureties are not approved by the Treasury, and they may pledge collateral whose value may fluctuate. For example, the FAR allows an individual surety to pledge stocks and bonds or real property.

The lax collateral requirements for individual sureties have seriously harmed subcontractors and the federal government.

At a hearing on this bill in the Courts, Commerical and Administrative Law Subcommittee, the President of a minority-owned construction company in Colorado, testified that they lost $100,000 because the prime contractor's individual surety bond was backed by valueless assets.

The federal government cannot afford to be left in the lurch because an individual surety bond proved to be worthless. American taxpayers deserve a government that acts carefully and with fiscal responsibility when it spends their money on construction projects.

I urge my colleagues to support this bill.

Madam Speaker, I introduced H.R. 3534 with my colleague, Mr. Mulvaney from South Carolina, to address an issue in the construction industry I know all too well: surety bonding.

Bonding is not something most people think about, but it was a daily reality in my business. The concept is simple. Contractors on a Federal construction project are required to post assets prior to entering a contract to prove that they are capable of paying their subcontractors and downstream paying their suppliers for work. It indicates that a contractor is capable of successfully completing a project and is supposed to protect taxpayers and small businesses downstream in the event of failure or nonpayment.

The business of bonding is predicted on a zero failure rate. The assets pledged to back a project must be real, easily convertible to cash, and held by the contracting officer for the duration of the project--and most are. Unfortunately, a loophole in these laws has been exploited. It has resulted in a number of cases where assets pledged to back a bond issued by an individual surety have been insufficient or illusory. This has left small businesses and taxpayers without sufficient payment remedies, and in the case of one Colorado woman, nearly put her out of business.

A single stock or private residence, which is subject to huge changes in value or may have an existing first mortgage, are quite simply not acceptable assets to back multimillion-dollar projects. Madam Speaker, the Security in Bonding Act will remedy this problem by requiring individual sureties to pledge solely those assets described in contracting laws as ``eligible obligations.'' Further, it would require them to be placed in custody of the Federal Government just as they would using a corporate surety or posting an asset in lieu of corporate surety. This loophole is putting small businesses and workers and the taxpayer at risk. It is time to close this loophole and restore the integrity of the bonding process.

H.R. 3534 would ensure that if an individual surety bond is furnished for a Federal construction project, that small businesses and subcontractors providing goods and services on that contract will not need to worry about the integrity of their payment revenue. This bill provides the surety that small businesses need and subcontractors and citizens deserve from the Federal Government. Without it, good jobs and our limited taxpayer dollars will continue to be at risk.

In closing, I would like to extend a personal thanks to Chairman Lamar Smith for his leadership in advancing this legislation and for allowing me to join him during the committee's proceedings.

Madam Speaker, I urge my colleagues to support this legislation.

Mr. Speaker, today, Representative Mike Simpson and I reintroduced the bipartisan Geothermal Production Expansion Act, a companion to S.1149, introduced by Senators Wyden, Crapo, Risch and Merkley. Our bill will ensure that geothermal resources that are near federal lands are developed, creating American jobs in rural areas. I thank my colleagues for their leadership and working together on this important bill.

As we work to develop American energy resources and become more energy independent, it is extremely important that we remove barriers to the production of domestic, clean, renewable resources that have been discovered and can be financed in the private market. This legislation will help remove a significant barrier to deploying geothermal energy and creating the accompanying jobs.

Currently, proven geothermal developers are not producing clean, reliable geothermal electricity, despite specific valid geothermal discoveries in the west that adjoin federal lands. The Geothermal Production Expansion Act would ensure that if a developer has made the upfront investments to discover and validate a geothermal resource that is adjacent to federal lands, there will be reasonable certainty that they will be able to secure a lease for a small parcel of the adjoining land necessary to develop and produce geothermal energy. Taxpayers would be compensated for the fair market value of the lease, and would receive increased royalties for the increased geothermal production.

Already under EPACT 2005 amendments, the Bureau of Land Management (BLM) is allowed to issue three different non-competitive leases for geothermal resources. Our legislation simply creates a fourth category whereby the BLM may issue a non-competitive geothermal lease for only these qualified companies who hold legal rights to develop geothermal leases on certain adjoining lands.

This legislation would spur immediate economic development in rural areas and ensure that developers who have invested substantial capital and made high risk investments can secure and develop geothermal discoveries. It will also add renewable, domestically produced energy resources to the American electricity supply. In the 111th Congress, the House Natural Resources committee held a hearing on the Geothermal Production Expansion Act, and I offered and passed this legislation as an amendment to the Consolidated Land, Energy, and Aquatic Resources Act of 2010 (H.R. 3534), but unfortunately did not reach the floor of the U.S. House of Representatives. I urge Congress to pass this bill into law this year.

I thank the gentleman from Texas.

This is not, Mr. Speaker, the most glamorous thing we're going to do in this 112th Congress. If you stop to think about it, there are not that many people who are aware of, let alone care about, what kind of security is offered on surety bonds.

I can assure you, it is important to some people. It really is. If you are the person who is entering into that contract, who is counting on somebody doing that work, the quality of that security in that surety bond is of the utmost importance to you. And as you heard the gentleman from New York (Mr. Hanna) mention, in certain cases, it could be a matter of life or death for your business. So I am proud to be the sponsor of this bill.

But that is not why I rise today, Mr. Speaker. I rise today to bring to light the fact that we are actually doing something on a bipartisan basis to help the country. We get a lot of criticism back home--I know we both do, the Republicans and the Democrats--for not being able to come together to fix things. And, yes, we do struggle, perhaps, to fix the big things, and maybe rightly so. We are unlikely to solve the issue of taxes versus spending here today, but it's nice to know that we're still able to get together from time to time on the small things.

Face it. It used to be, before this bill, that you could take marketable coal as collateral on a surety bond. That's outrageous. With this bill, we'll fix those types of things and actually make it safer to do business on a government contract. Again, is it the big things that stand between our country and its current lack of prosperity? Absolutely not. But it does make business better in the United States of America.

That's why I congratulate the gentleman from Texas (Mr. Smith) and the ranking member, Mr. Conyers. I also thank the gentleman from Missouri (Mr. Graves) and gentlelady from New York (Ms. Velazquez) from the Small Business Committee who also took a look at this bill and also passed it on a bipartisan basis.

So with that, Mr. Speaker, I thank the gentleman. I thank my colleagues from across the aisle for actually coming together today to try to do something to help the Nation advance. And with that, I encourage everyone to support this bill.