No. 36020 (Change in Proposed Rule): Section R23-1-40. Acceptable Bid Security; Performance and Payment Bonds

DAR File No.: 36020
Filed: 06/14/2012 11:34:39 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

This rule establishes procedures for the procurement of construction by the Division of Facilities Construction and Management (DFCM). The reason for the change is to modify the minimum level of project size for bid security from $50,000 to $100,000. This is being proposed for the following reasons: 1) the level of bid security has not been adjusted in recent history, as construction values have escalated; 2) DFCM maintains sufficient contingency to deal with payment and performance issues on smaller projects; 3) DFCM employs contractor selection methods other than low bid, which insures that a qualified contractor is selected for all projects; 4) the frequency of DFCM making claim on a payment or performance bond on an under $100,000 project is statistically non-existent; 5) allowing the level change will permit efficiencies in the bidding method for projects up to $100,000 over the current process; 6) the new limit may only be suitable to DFCM and not to other state agencies; and 7) special circumstances have been provided in the rule for when the Division limit may be used by other state agencies that assure the proper selection process and agency financial capability.

Summary of the rule or change:

This rule establishes procedures for the procurement of construction by DFCM. The reason for the change is to modify the minimum level of project size for bid security from $50,000 to $100,000, while recognizing the new limit may only be suitable to DFCM and not to other state agencies. Special circumstances have been provided in the rule for when the DFCM limit may be used by other state agencies that assure the proper selection process and agency financial capability. (DAR NOTE: This change in proposed rule has been filed to make additional changes to a proposed amendment that was published in the April 15, 2012, issue of the Utah State Bulletin, on page 4. Underlining in the rule below indicates text that has been added since the publication of the proposed rule mentioned above; strike-out indicates text that has been deleted. You must view the change in proposed rule and the proposed amendment together to understand all of the changes that will be enforceable should the agency make this rule effective.)

State statutory or constitutional authorization for this rule:

• Section 63G-6-208

Anticipated cost or savings to:

the state budget:

This change will have no impact on the state budget, if anything there will be a cost savings. Cost for bonds that are no longer required for projects between $50,000 and $100,000 will no longer be passed on to the state.

local governments:

This rule does not apply to local government because DFCM is only authorized to regulate construction procurement for state government.

small businesses:

This rule change will save costs for small businesses. Costs for bonds that are no longer required for projects between $50,000 and $100,000 will no longer be passed onto the state.

persons other than small businesses, businesses, or local governmental entities:

This rule only results in savings to businesses dealing with the state because businesses will not need to use bonds. Bonds will not be required for many projects that are under $100,000.

Compliance costs for affected persons:

There are no added compliance costs, however there is savings for projects between $50,000 and $100,000.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule is being changed to reflect inflation and changed market conditions. While some local companies may lose some business, many small businesses and taxpayers will save money as bonds will not be required for payments between $50,000 and $100,000. Special circumstances have been provided in the rule for when the DFCM limit may be used by other state agencies that assure the proper selection process and agency financial capability.

Kimberly Hood, Executive Director

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Administrative Services
Facilities Construction and Management
Room 4110 STATE OFFICE BLDG
450 N STATE ST
SALT LAKE CITY, UT 84114-1201

Direct questions regarding this rule to:

• Priscilla Anderson at the above address, by phone at 801-538-9595, by FAX at 801-538-3378, or by Internet E-mail at [e-mail]
• Alan Bachman at the above address, by phone at 801-538-3105, by FAX at 801-538-3313, or by Internet E-mail at [e-mail]
• Cecilia Niederhauser at the above address, by phone at 801-538-3261, by FAX at 801-538-9694, or by Internet E-mail at [e-mail]
• Chiarina Gleed at the above address, by phone at 801-538-3240, by FAX at 801-538-3313, or by Internet E-mail at [e-mail]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

07/31/2012

This rule may become effective on:

08/07/2012

Authorized by:

D. Gregg Buxton, Director

RULE TEXT

R23. Administrative Services, Facilities Construction and Management.

R23-1. Procurement of Construction.

R23-1-40. Acceptable Bid Security; Performance and Payment Bonds.

(1) Application. [This section shall govern bonding and bid security requirements for the award of construction contracts by the Division in excess of $100,000; although the Division may require acceptable bid security and performance and payment bonds on smaller contracts. Bidding Documents shall state whether acceptable bid security, performance bonds or payment bonds are required.]The requirements for bid security and bonds under this Rule R23-1-40 shall apply as follows:

(a) For the Division, the award of construction contracts where the face amount of the contract is $100,000 or more.

(b) For other state agencies that are required to use the same or similar documents as the Division for their construction contracts, the award of construction contracts where the face amount of the contract is $50,000 or more, unless the Division Director, in writing, approves a $100,000 or more requirement similarly to the Division, based on:

(i) The Division Director's finding that the agency has a selection process for such contracts that are under $100,000, that ensures a responsible, financially solvent contractor is selected; and

(ii) that the agency has the financial capability to absorb the potential responsibility that can occur due to the lack of the bid security and bonding requirements for the contract under $100,000.

(c) At any time the Division or any other state agency can require acceptable bid security as well as performance and payment bonds on contracts that are for amounts below the standard requirements set forth above in this Rule.

(2) Acceptable Bid Security.

(a) Invitations for Bids and Requests For Proposals shall require the submission of acceptable bid security in an amount equal to at least five percent of the bid, at the time the bid is submitted. If a contractor fails to accompany its bid with acceptable bid security, the bid shall be deemed nonresponsive, unless this failure is found to be nonsubstantial as hereinafter provided.

(b) If acceptable bid security is not furnished, the bid shall be rejected as nonresponsive, unless the failure to comply is determined by the Director to be nonsubstantial. Failure to submit an acceptable bid security may be deemed nonsubstantial if:

(i)(A) the bid security is submitted on a form other than the Division's required bid bond form and the bid security meets all other requirements including being issued by a surety meeting the requirements of Subsection (5); and

(B) the contractor provides acceptable bid security by the close of business of the next succeeding business day after the Division notified the contractor of the defective bid security; or

(ii) only one bid is received.

(3) Payment and Performance Bonds. Payment and performance bonds in the amount of 100% of the contract price are required for all contracts in excess of [$100,000]$50,000. These bonds shall cover the procuring agencies and be delivered by the contractor to the Division at the same time the contract is executed. If a contractor fails to deliver the required bonds, the contractor's bid shall be found nonresponsive and its bid security shall be forfeited.

(4) Forms of Bonds. Bid Bonds, Payment Bonds and Performance Bonds must be from sureties meeting the requirements of Subsection (5) and must be on the exact bond forms most recently adopted by the Board and on file with the Division.

(5) Surety firm requirements. All surety firms must be authorized to do business in the State of Utah and be listed in the U.S. Department of the Treasury Circular 570, Companies Holding Certificates of Authority as Acceptable Securities on Federal Bonds and as Acceptable Reinsuring Companies for an amount not less than the amount of the bond to be issued. A co-surety may be utilized to satisfy this requirement.

(6) Waiver. The Director may waive the bonding requirement if the Director finds, in writing, that bonds cannot be reasonably obtained for the work involved.

 

KEY: contracts, public buildings, procurement

Date of Enactment or Last Substantive Amendment: 2012

Notice of Continuation: May 24, 2012

Authorizing, and Implemented or Interpreted Law: 63G-6-101 et seq.

 

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