Performance and Payment Bonds – New Changes in California

Recent legislation in California will result in some changes to how public entities procure construction work.  Both new laws specifically address the need to provide surety bonds as part of the procurement process. Bonding is a great prequalification tool; a point not lost on the California Legislature.

Passed and signed into law,  California SB 328 authorizes a county to use a construction manager at-risk (CM at-risk) construction contracts for the erection, construction, alteration, repair, or improvement of any building owned or leased by the county when the project exceeds $1 million. The new law provides that the project could be let through the lowest responsible bidder method, or the project could be let through the best value method if the CM at-risk possesses or obtains sufficient bonding to cover the contract amount for construction services and risk and liability insurance as the county may require.

The new law provides that the payment or performance bond shall be written using a bond form developed by the county. For such projects, the new law provides that the retainage withheld by the county from the CM at-risk shall not exceed 5% if a performance and payment bond issued by an admitted surety insurer is required in the solicitation of bids.

California AB 401 also signed into law creates the Department of Transportation Design-Build Program. The new law authorizes the DOT and regional transportation authorities to enter into contracts for design build projects. In prequalifying for the projects, the design-build entity must provide evidence that it has the capacity to obtain all the required payment and performance bonds. When the contract is awarded, the design build entity must provide payment and performance bonds for the project in the form and in the amount that the transportation entity requires.

A California admitted surety must issue the bonds. In no case shall the amount of the payment bond be less than the amount of the performance bond. The bill applies to the California DOT and regional transportation authorities as well.