By: West S.B. No. 381
A BILL TO BE ENTITLED
AN ACT
1-1 relating to the provision by the state of guarantees and
1-2 indemnification relating to surety bonds for historically
1-3 underutilized businesses; authorizing the issuance of bonds.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. The heading of Subchapter G, Chapter 481,
1-6 Government Code, is amended to read as follows:
1-7 SUBCHAPTER G. <SMALL BUSINESS> ASSISTANCE FOR HISTORICALLY
1-8 UNDERUTILIZED BUSINESSES AND SMALL BUSINESSES
1-9 SECTION 2. Section 481.101, Government Code, is amended to
1-10 read as follows:
1-11 Sec. 481.101. DEFINITIONS. In this subchapter:
1-12 (1) "Bid bond" means a bond conditioned on the bidder
1-13 on a contract entering into the contract, if the bidder receives
1-14 the award of the contract, and furnishing the prescribed payment
1-15 bond and performance bond.
1-16 (2) "Historically underutilized business" means:
1-17 (A) a corporation formed for the purpose of
1-18 making a profit in which at least 51 percent of all classes of the
1-19 shares of stock or other equitable securities is owned by one or
1-20 more persons who are socially disadvantaged because of their
1-21 identification as members of certain groups, including black
1-22 Americans, Hispanic Americans, women, Asian Pacific Americans, and
1-23 American Indians, who have suffered the effects of discriminatory
2-1 practices or similar insidious circumstances over which they have
2-2 no control. Those persons must have proportionate interest and
2-3 demonstrate active participation in the control, operation, and
2-4 management of the corporation's affairs;
2-5 (B) a sole proprietorship formed for the purpose
2-6 of making a profit that is 100 percent owned, operated, and
2-7 controlled by a person described by Paragraph (A);
2-8 (C) a partnership formed for the purpose of
2-9 making a profit in which 51 percent of the assets and interest in
2-10 the partnership is owned by one or more persons described by
2-11 Paragraph (A). Those persons must have proportionate interest and
2-12 demonstrate active participation in the control, operation, and
2-13 management of the partnership's affairs; or
2-14 (D) a joint venture in which each entity in the
2-15 joint venture is a historically underutilized business under this
2-16 subdivision<; or>
2-17 <(E) a supplier contract between a historically
2-18 underutilized business under this subdivision and a prime
2-19 contractor under which the historically underutilized business is
2-20 directly involved in the manufacture or distribution of the
2-21 supplies or materials or otherwise warehouses and ships the
2-22 supplies>.
2-23 (3) "Obligee" means:
2-24 (A) for a bid bond, the person requesting bids
2-25 for the performance of a contract; or
3-1 (B) for a payment bond or performance bond, the
3-2 person who has contracted with a principal for the completion of
3-3 the contract and to whom the obligation of the surety runs if the
3-4 principal breaches the conditions of the bond.
3-5 (4) <(2)> "Office" means the Office of Small Business
3-6 Assistance.
3-7 (5) "Payment bond" means a bond conditioned on the
3-8 payment by the principal of money to persons under contract with
3-9 the principal.
3-10 (6) "Performance bond" means a bond conditioned on the
3-11 completion by the principal of a contract according to its terms.
3-12 (7) "Prime contractor" means the person with whom the
3-13 obligee has contracted to perform the contract.
3-14 (8) "Principal" means, for a bid bond, a person
3-15 bidding for the award of a contract or, for a payment bond or
3-16 performance bond, the person primarily liable to complete a
3-17 contract for the obligee or to make payments to other persons in
3-18 respect of a contract, for whose performance of the person's
3-19 obligation the surety is bound under the terms of the bond. The
3-20 term includes a prime contractor or a subcontractor.
3-21 (9) <(3)> "Small business" means a corporation,
3-22 partnership, sole proprietorship, or other legal entity that:
3-23 (A) is formed for the purpose of making a
3-24 profit,<;>
3-25 <(B)> is independently owned and operated,<;>and
4-1 <(C)> has fewer than 100 employees or less than
4-2 $1 million in annual gross receipts; or
4-3 (B) otherwise qualifies as a small business
4-4 under the standards of the United States Small Business
4-5 Administration.
4-6 (10) "Subcontractor" means a person who has contracted
4-7 with a prime contractor or with another subcontractor to perform a
4-8 contract.
4-9 (11) "Surety" means the person who:
4-10 (A) under the terms of a bid bond, undertakes to
4-11 pay a sum of money to the obligee in the event that the principal
4-12 breaches the conditions of the bond;
4-13 (B) under the terms of a performance bond,
4-14 undertakes to incur the cost of fulfilling a contract in the event
4-15 that the principal breaches the contract;
4-16 (C) under the terms of a payment bond,
4-17 undertakes to pay all persons supplying labor and material in
4-18 carrying out the work provided for in the contract if the principal
4-19 fails to make prompt payment; or
4-20 (D) is an agent, independent agent, underwriter,
4-21 or any other company or individual empowered to act on behalf of
4-22 such a person.
4-23 (12) "Surety bond fund" means the Texas historically
4-24 underutilized business surety bond fund.
4-25 SECTION 3. Subchapter G, Chapter 481, Government Code, is
5-1 amended by adding Section 481.1011 to read as follows:
5-2 Sec. 481.1011. EXCLUSION AS HISTORICALLY UNDERUTILIZED
5-3 BUSINESS. A business is not a historically underutilized business
5-4 if an owner of the business has a personal net worth of more than
5-5 $750,000, unless the office determines that the person has
5-6 demonstrated that the person is a socially disadvantaged individual
5-7 described by Section 481.101(2)(A). For the purposes of this
5-8 section, "personal net worth" has the meaning assigned by the
5-9 regulations of the United States Small Business Administration in
5-10 13 C.F.R. Section 124.106.
5-11 SECTION 4. Subsection (b), Section 481.103, Government Code,
5-12 is amended to read as follows:
5-13 (b) The department may provide community-based services to
5-14 carry out its duties under this chapter, including the creation of
5-15 a pilot program to evaluate the merits of locating full-time
5-16 personnel outside the Austin headquarters. This pilot program will
5-17 give first preference to serving economically distressed areas,
5-18 rural areas, or historically underutilized <disadvantaged>
5-19 businesses or assisting development of specific industries. The
5-20 department may require areas served by these personnel to provide
5-21 in-kind or cash contributions as necessary to support these
5-22 personnel. A report will be submitted to the legislature
5-23 describing the effectiveness of this method for delivering services
5-24 from the department to address specific economic needs.
5-25 SECTION 5. Subchapter G, Chapter 481, Government Code, is
6-1 amended by adding Sections 481.118, 481.119, 481.120, 481.1201,
6-2 481.1202, 481.1203, and 481.1204 to read as follows:
6-3 Sec. 481.118. Texas Historically Underutilized Business
6-4 Surety Bond Fund. (a) The Texas historically underutilized
6-5 business surety bond fund is a revolving fund in the state
6-6 treasury. The surety bond fund consists of money appropriated to
6-7 the department, proceeds of general obligation bonds issued to
6-8 provide surety bonds under this subchapter, bonding fees, other
6-9 amounts received by the state from the guarantee program under this
6-10 subchapter, and money acquired from federal grants or other sources
6-11 and required by resolution of the policy board to be deposited in
6-12 the surety bond fund. The surety bond fund contains a program
6-13 account, an interest and sinking account, and other accounts that
6-14 the policy board authorizes to be created and maintained. Money in
6-15 the surety bond fund is available for use by the office for the
6-16 surety bond program provided by this subchapter.
6-17 (b) Money in the program account, minus the costs of
6-18 issuance of general obligation bonds to provide surety bonds under
6-19 this subchapter and necessary costs of administering the surety
6-20 bond fund, may be used only to provide guarantees and
6-21 indemnification under Sections 481.119 through 481.1203.
6-22 Sec. 481.119. GUARANTEE OF SURETY. (a) The office may
6-23 guarantee and enter into commitments to guarantee a surety against
6-24 loss resulting from breach of the terms of a bid bond, payment
6-25 bond, or performance bond by a historically underutilized business
7-1 that is the principal on a contract if the amount of the contract
7-2 is $1,250,000 or less. The terms of a guarantee or commitment may
7-3 vary from surety to surety based on the office's experience with a
7-4 particular surety. The office may authorize a surety without
7-5 further approval to issue, monitor, and service a bond subject to a
7-6 guarantee.
7-7 (b) A guarantee may not be issued unless:
7-8 (1) the person to be the principal under the bond is a
7-9 historically underutilized business;
7-10 (2) the bond is required by the person to bid on a
7-11 contract or to serve as a prime contractor or subcontractor on a
7-12 contract;
7-13 (3) the person is not able to obtain the bond on
7-14 reasonable terms without the guarantee;
7-15 (4) there is a reasonable expectation that the
7-16 principal will perform the contract; and
7-17 (5) the terms of the bond are reasonable considering
7-18 the risks involved and the extent of the surety's participation.
7-19 (c) A payment made under a guarantee may not exceed 90
7-20 percent of the loss involved.
7-21 Sec. 481.120. INDEMNIFICATION. (a) In connection with the
7-22 issuance of a guarantee under Section 481.119, the office may agree
7-23 to indemnify a surety against a loss the surety incurs in avoiding
7-24 or attempting to avoid a breach of the terms of the bond. The
7-25 office must authorize the specific expenditure to be indemnified
8-1 before the expenditure is made and after the office determines that
8-2 the breach is imminent and the amount of the proposed expenditure
8-3 is reasonable.
8-4 (b) The amount of the indemnification may not exceed 90
8-5 percent of the amount of the expenditure indemnified.
8-6 Sec. 481.1201. EXCEPTIONS TO PAYMENT. The office is not
8-7 required to pay any amount under a guarantee under Section 481.119
8-8 or an agreement under Section 481.120 if the surety:
8-9 (1) obtained the guarantee or agreement or applied for
8-10 reimbursement by fraud or material misrepresentation;
8-11 (2) has breached a material term of the guarantee or
8-12 agreement; or
8-13 (3) has violated a rule adopted under Section
8-14 481.1203.
8-15 Sec. 481.1202. REPORTS; AUDIT. (a) A participating surety
8-16 shall make reports to the office at the times and in the form the
8-17 office requires.
8-18 (b) The office at any reasonable time may audit any material
8-19 in the hands of a surety relevant to a guarantee under Section
8-20 481.119 or an agreement under Section 481.120. The office must
8-21 conduct the audit at the surety's offices.
8-22 Sec. 481.1203. RULES. The policy board shall adopt
8-23 necessary rules to carry out the guarantee program created by this
8-24 subchapter. The rules may prescribe reasonable fees to be paid by
8-25 a principal or surety participating in the program.
9-1 Sec. 481.1204. SURETY BOND FUND: GENERAL OBLIGATION BONDS.
9-2 (a) The policy board may issue up to $50 million of general
9-3 obligation bonds and may use the proceeds to provide surety bonds
9-4 under this subchapter. The policy board shall deposit the proceeds
9-5 of the general obligation bonds in the surety bond fund and apply
9-6 them in accordance with the resolutions authorizing those bonds.
9-7 The surety bond fund and any accounts established in the fund shall
9-8 be held in trust by the state treasurer for and on behalf of the
9-9 office and the owners of the general obligation bonds issued in
9-10 accordance with this section and may be used only as provided by
9-11 this section. Pending use, the treasurer may invest and reinvest
9-12 money in the surety bond fund in investments authorized by law for
9-13 state funds that the treasurer, consistent with the policy board's
9-14 resolutions authorizing the general obligation bonds, considers
9-15 appropriate. Payment for the provision of a surety bond provided
9-16 under this subchapter shall be deposited first in the interest and
9-17 sinking account as prescribed by the policy board's resolutions
9-18 authorizing general obligation bonds under this subchapter and
9-19 second in any reserve account established by the policy board until
9-20 that account is fully funded as prescribed by the policy board's
9-21 resolutions. If during the time any general obligation bonds are
9-22 payable from the interest and sinking account the policy board
9-23 determines that there will not be sufficient money in the interest
9-24 and sinking account during the following fiscal year to pay the
9-25 principal of or interest on the general obligation bonds or both
10-1 the principal and interest that are to come due during the
10-2 following fiscal year, the comptroller shall transfer to the fund
10-3 the first money coming into the state treasury not otherwise
10-4 appropriated by the constitution in an amount sufficient to pay the
10-5 obligations.
10-6 (b) The general obligation bonds may be issued from time to
10-7 time in one or more series or issues, in bearer, registered, or any
10-8 other form, which may include registered uncertificated obligations
10-9 not represented by written instruments and commonly known as
10-10 book-entry obligations, the registration of ownership and transfer
10-11 of which shall be provided for by the policy board under a system
10-12 of books and records maintained by the office or by an agent
10-13 appointed by the policy board in a resolution providing for
10-14 issuance of its general obligation bonds. General obligation bonds
10-15 may mature serially or otherwise not more than 40 years from their
10-16 date. General obligation bonds may bear no interest or may bear
10-17 interest at any rate or rates, fixed, variable, floating, or
10-18 otherwise, determined by the policy board or determined pursuant to
10-19 any contractual arrangements approved by the policy board, not to
10-20 exceed the maximum net effective interest rate allowed by Chapter
10-21 3, Acts of the 61st Legislature, Regular Session, 1969 (Article
10-22 717k-2, Vernon's Texas Civil Statutes). Interest on the general
10-23 obligation bonds may be payable at any time, and the rate of
10-24 interest on the general obligation bonds may be adjusted at any
10-25 time determined by the policy board pursuant to the resolutions
11-1 authorizing the bonds or determined pursuant to any contractual
11-2 arrangement approved by the policy board. In connection with the
11-3 issuance of its general obligation bonds, the policy board may
11-4 exercise the powers granted to the governing body of an issuer in
11-5 connection with the issuance of obligations under Chapter 656, Acts
11-6 of the 68th Legislature, Regular Session, 1983 (Article 717q,
11-7 Vernon's Texas Civil Statutes), to the extent not inconsistent with
11-8 this section. The general obligation bonds may be issued in the
11-9 form and denominations and executed in the manner and under the
11-10 terms, conditions, and details determined by the policy board in
11-11 the resolution authorizing their issuance. If any officer whose
11-12 manual or facsimile signature appears on the general obligation
11-13 bonds ceases to be an officer, the signature remains valid and
11-14 sufficient for all purposes as if the officer had remained in
11-15 office.
11-16 (c) All general obligation bonds issued by the policy board
11-17 under this section are subject to review and approval by the
11-18 attorney general in the same manner and with the same effect as is
11-19 provided by Chapter 656, Acts of the 68th Legislature, Regular
11-20 Session, 1983 (Article 717q, Vernon's Texas Civil Statutes).
11-21 (d) The general obligation bonds are a legal and authorized
11-22 investment for a bank, trust company, savings and loan association,
11-23 insurance company, fiduciary, trustee, or guardian or a sinking
11-24 fund of a municipality, county, school district, or political
11-25 subdivision of the state. The general obligation bonds may secure
12-1 deposits of public funds of the state or a municipality, county,
12-2 school district, or another political corporation or subdivision of
12-3 the state. The policy board may issue bonds to refund all or part
12-4 of its outstanding general obligation bonds, including accrued but
12-5 unpaid interest. The general obligation bonds, a transaction
12-6 relating to those bonds, or a profit made in the sale of those
12-7 bonds is exempt from taxation by the state, an agency or
12-8 subdivision of the state, a municipality, or a special district.
12-9 SECTION 6. Subsection (b), Section 481.160, Government Code,
12-10 is amended to read as follows:
12-11 (b) The annual report must include for that fiscal year:
12-12 (1) the number of employers receiving grants under the
12-13 program;
12-14 (2) the total amount of grants awarded;
12-15 (3) the value, expressed in dollars and as a
12-16 percentage of total training expenditures, of matching
12-17 contributions made by employers;
12-18 (4) the number of small businesses, as defined by
12-19 Section 481.101(9) <481.101(3)>, that receive grants under the
12-20 program and the total amount of the grants awarded to those
12-21 businesses;
12-22 (5) the number of businesses located in enterprise
12-23 zones, as that term is defined by Chapter 2303 <the Texas
12-24 Enterprise Zone Act (Article 5190.7, Vernon's Texas Civil
12-25 Statutes)>, that receive grants under the program and the total
13-1 amount of the grants awarded to those businesses;
13-2 (6) the geographical distribution of employers
13-3 receiving grants under the program;
13-4 (7) the total number of jobs created, enhanced, or
13-5 retained under the program, reported by region of the state and by
13-6 occupation;
13-7 (8) the wage levels of trainees entering or returning
13-8 to the work force, broken down by current employees undergoing
13-9 retraining and new hires, at three months, one year, and three
13-10 years after the conclusion of their training;
13-11 (9) the number and percentage of participating
13-12 employers that provide workers' compensation insurance coverage and
13-13 the number and percentage of employees covered;
13-14 (10) the number and percentage of participating
13-15 employers that offer health care insurance coverage and the number
13-16 and percentage of employees covered;
13-17 (11) the number and percentage of women employers and
13-18 minority employers receiving grants under the program and the total
13-19 amount of the grants awarded, broken out by group;
13-20 (12) the number and percentage of women, minority
13-21 group members, and disabled individuals participating as trainees
13-22 in training projects, broken out by group; and
13-23 (13) the number and percentage of women private
13-24 providers and private providers who are minority group members
13-25 utilized by employers in training projects, broken out by group.
14-1 SECTION 7. The policy board of the Texas Department of
14-2 Commerce may not issue more than $25 million of bonds under Section
14-3 481.1204, Government Code, as added by this Act, during the state
14-4 fiscal biennium beginning September 1, 1995.
14-5 SECTION 8. This Act takes effect on the date on which the
14-6 constitutional amendment proposed by the 74th Legislature relating
14-7 to the provision by the state of guarantees and indemnification
14-8 relating to surety bonds for historically underutilized business
14-9 takes effect. If that proposed constitutional amendment is not
14-10 approved by the voters, this Act has no effect.
14-11 SECTION 9. The importance of this legislation and the
14-12 crowded condition of the calendars in both houses create an
14-13 emergency and an imperative public necessity that the
14-14 constitutional rule requiring bills to be read on three several
14-15 days in each house be suspended, and this rule is hereby suspended.