The gold standard for bidding on public projects since the 1800’s has been surety bonds. The Miller Act requires prime contractors on most Federal contracts to post bonds that guarantee the job will be performed and all financial obligations are paid. This helps the taxpayers in several ways. First of all, the taxpayers won’t pay twice for the same project. Second, this practice opens competition for all contractors qualified to handle projects of this scope and size.
Because surety is considered an insurance product, it is regulated at the state level for state and local projects. States have adopted these “Little Miller Acts” into their statutes.
As of January 1, 2014, Wisconsin has modified their statutes when it comes to public bidding. The delivery method has gone from a multiple prime system to a single prime system. Previously, a contractor could bid on any project as long as they could provide a bond in the amount of the contract by a surety acceptable by the state. Wisconsin’s new state statutes have expanded their pre-qualification to look beyond surety coverage and consider “necessary equipment, organization capacity and technical competence” needed to take on a prospective contract.
Many contractors have received pre-qualifications on amounts much less than what they are bondable for. The Associated General Contractors of Wisconsin and Surety Association of Wisconsin are trying to hold an audience with the state to see what exactly goes into the pre-qualifications. We have worked with Department of Transportations that pre-qualify their contractors and can explain how they calculate the pre-qualification amount. This helps the contractor to understand how to improve their pre-qualification. Wisconsin’s Department of Administration (DOA) has yet to meet with these associations.
Representative Dean Kaufert, R-Neenah, met with Wisconsin’s DOA Secretary Mike Huebsch on February 11 with questions he had on the new pre-qualification method. When asked about his meeting with the state, Huebsch expressed doubts about the trustworthiness of sureties as his explanation of the additional pre-qualifications. “Just because someone has the ability to go to some place in California and get a surety bond for $1 million doesn’t mean we should believe they can do a job for $1 million,” Kaufert said. “That makes sense.”
Corporate sureties stand behind their bonds by paying out losses and completing construction projects when something happens to a contractor. Whether an agent or an underwriter is from California doesn’t determine if they aren’t qualified. W Additionally, the contractors that have pre-qualifications less than their bondability amount are from local Wisconsin agents.
Unfortunately, there will be limited bidders on DOA projects and Wisconsin taxpayers may see projects go for higher amounts than normal. The surety industry has been perfecting their underwriting for over one hundred years. Now in Wisconsin, surety bonds are no longer the gold standard.