1-1 By: West S.B. No. 381
1-2 (In the Senate - Filed January 30, 1995; January 31, 1995,
1-3 read first time and referred to Committee on State Affairs;
1-4 March 3, 1995, reported favorably by the following vote: Yeas 8,
1-5 Nays 5; March 3, 1995, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to the provision by the state of guarantees and
1-9 indemnification relating to surety bonds for historically
1-10 underutilized businesses; authorizing the issuance of bonds.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. The heading of Subchapter G, Chapter 481,
1-13 Government Code, is amended to read as follows:
1-14 SUBCHAPTER G. <SMALL BUSINESS> ASSISTANCE FOR HISTORICALLY
1-15 UNDERUTILIZED BUSINESSES AND SMALL BUSINESSES
1-16 SECTION 2. Section 481.101, Government Code, is amended to
1-17 read as follows:
1-18 Sec. 481.101. DEFINITIONS. In this subchapter:
1-19 (1) "Bid bond" means a bond conditioned on the bidder
1-20 on a contract entering into the contract, if the bidder receives
1-21 the award of the contract, and furnishing the prescribed payment
1-22 bond and performance bond.
1-23 (2) "Historically underutilized business" means:
1-24 (A) a corporation formed for the purpose of
1-25 making a profit in which at least 51 percent of all classes of the
1-26 shares of stock or other equitable securities is owned by one or
1-27 more persons who are socially disadvantaged because of their
1-28 identification as members of certain groups, including black
1-29 Americans, Hispanic Americans, women, Asian Pacific Americans, and
1-30 American Indians, who have suffered the effects of discriminatory
1-31 practices or similar insidious circumstances over which they have
1-32 no control. Those persons must have proportionate interest and
1-33 demonstrate active participation in the control, operation, and
1-34 management of the corporation's affairs;
1-35 (B) a sole proprietorship formed for the purpose
1-36 of making a profit that is 100 percent owned, operated, and
1-37 controlled by a person described by Paragraph (A);
1-38 (C) a partnership formed for the purpose of
1-39 making a profit in which 51 percent of the assets and interest in
1-40 the partnership is owned by one or more persons described by
1-41 Paragraph (A). Those persons must have proportionate interest and
1-42 demonstrate active participation in the control, operation, and
1-43 management of the partnership's affairs; or
1-44 (D) a joint venture in which each entity in the
1-45 joint venture is a historically underutilized business under this
1-46 subdivision<; or>
1-47 <(E) a supplier contract between a historically
1-48 underutilized business under this subdivision and a prime
1-49 contractor under which the historically underutilized business is
1-50 directly involved in the manufacture or distribution of the
1-51 supplies or materials or otherwise warehouses and ships the
1-52 supplies>.
1-53 (3) "Obligee" means:
1-54 (A) for a bid bond, the person requesting bids
1-55 for the performance of a contract; or
1-56 (B) for a payment bond or performance bond, the
1-57 person who has contracted with a principal for the completion of
1-58 the contract and to whom the obligation of the surety runs if the
1-59 principal breaches the conditions of the bond.
1-60 (4) <(2)> "Office" means the Office of Small Business
1-61 Assistance.
1-62 (5) "Payment bond" means a bond conditioned on the
1-63 payment by the principal of money to persons under contract with
1-64 the principal.
1-65 (6) "Performance bond" means a bond conditioned on the
1-66 completion by the principal of a contract according to its terms.
1-67 (7) "Prime contractor" means the person with whom the
1-68 obligee has contracted to perform the contract.
2-1 (8) "Principal" means, for a bid bond, a person
2-2 bidding for the award of a contract, or, for a payment bond or
2-3 performance bond, the person primarily liable to complete a
2-4 contract for the obligee or to make payments to other persons in
2-5 respect of a contract, for whose performance of the person's
2-6 obligation the surety is bound under the terms of the bond. The
2-7 term includes a prime contractor or a subcontractor.
2-8 (9) <(3)> "Small business" means a corporation,
2-9 partnership, sole proprietorship, or other legal entity that:
2-10 (A) is formed for the purpose of making a
2-11 profit,<;>
2-12 <(B)> is independently owned and operated,<;>
2-13 and
2-14 <(C)> has fewer than 100 employees or less than
2-15 $1 million in annual gross receipts; or
2-16 (B) otherwise qualifies as a small business
2-17 under the standards of the United States Small Business
2-18 Administration.
2-19 (10) "Subcontractor" means a person who has contracted
2-20 with a prime contractor or with another subcontractor to perform a
2-21 contract.
2-22 (11) "Surety" means the person who:
2-23 (A) under the terms of a bid bond, undertakes to
2-24 pay a sum of money to the obligee in the event that the principal
2-25 breaches the conditions of the bond;
2-26 (B) under the terms of a performance bond,
2-27 undertakes to incur the cost of fulfilling a contract in the event
2-28 that the principal breaches the contract;
2-29 (C) under the terms of a payment bond,
2-30 undertakes to pay all persons supplying labor and material in
2-31 carrying out the work provided for in the contract if the principal
2-32 fails to make prompt payment; or
2-33 (D) is an agent, independent agent, underwriter,
2-34 or any other company or individual empowered to act on behalf of
2-35 such a person.
2-36 (12) "Surety bond fund" means the Texas historically
2-37 underutilized business surety bond fund.
2-38 SECTION 3. Subchapter G, Chapter 481, Government Code, is
2-39 amended by adding Section 481.1011 to read as follows:
2-40 Sec. 481.1011. EXCLUSION AS HISTORICALLY UNDERUTILIZED
2-41 BUSINESS. A business is not a historically underutilized business
2-42 if an owner of the business has a personal net worth of more than
2-43 $750,000, unless the office determines that the person has
2-44 demonstrated that the person is a socially disadvantaged individual
2-45 described by Section 481.101(2)(A). For the purposes of this
2-46 section, "personal net worth" has the meaning assigned by the
2-47 regulations of the United States Small Business Administration in
2-48 13 C.F.R. Section 124.106.
2-49 SECTION 4. Subsection (b), Section 481.103, Government Code,
2-50 is amended to read as follows:
2-51 (b) The department may provide community-based services to
2-52 carry out its duties under this chapter, including the creation of
2-53 a pilot program to evaluate the merits of locating full-time
2-54 personnel outside the Austin headquarters. This pilot program will
2-55 give first preference to serving economically distressed areas,
2-56 rural areas, or historically underutilized <disadvantaged>
2-57 businesses or assisting development of specific industries. The
2-58 department may require areas served by these personnel to provide
2-59 in-kind or cash contributions as necessary to support these
2-60 personnel. A report will be submitted to the legislature
2-61 describing the effectiveness of this method for delivering services
2-62 from the department to address specific economic needs.
2-63 SECTION 5. Subchapter G, Chapter 481, Government Code, is
2-64 amended by adding Sections 481.118, 481.119, 481.120, 481.1201,
2-65 481.1202, 481.1203, and 481.1204 to read as follows:
2-66 Sec. 481.118. Texas Historically Underutilized Business
2-67 Surety Bond Fund. (a) The Texas historically underutilized
2-68 business surety bond fund is a revolving fund in the state
2-69 treasury. The surety bond fund consists of money appropriated to
2-70 the department, proceeds of general obligation bonds issued to
3-1 provide surety bonds under this subchapter, bonding fees, other
3-2 amounts received by the state from the guarantee program under this
3-3 subchapter, and money acquired from federal grants or other sources
3-4 and required by resolution of the policy board to be deposited in
3-5 the surety bond fund. The surety bond fund contains a program
3-6 account, an interest and sinking account, and other accounts that
3-7 the policy board authorizes to be created and maintained. Money in
3-8 the surety bond fund is available for use by the office for the
3-9 surety bond program provided by this subchapter.
3-10 (b) Money in the program account, minus the costs of
3-11 issuance of general obligation bonds to provide surety bonds under
3-12 this subchapter and necessary costs of administering the surety
3-13 bond fund, may be used only to provide guarantees and
3-14 indemnification under Sections 481.119 through 481.1203.
3-15 Sec. 481.119. GUARANTEE OF SURETY. (a) The office may
3-16 guarantee and enter into commitments to guarantee a surety against
3-17 loss resulting from breach of the terms of a bid bond, payment
3-18 bond, or performance bond by a historically underutilized business
3-19 that is the principal on a contract if the amount of the contract
3-20 is $1,250,000 or less. The terms of a guarantee or commitment may
3-21 vary from surety to surety based on the office's experience with a
3-22 particular surety. The office may authorize a surety without
3-23 further approval to issue, monitor, and service a bond subject to a
3-24 guarantee.
3-25 (b) A guarantee may not be issued unless:
3-26 (1) the person to be the principal under the bond is a
3-27 historically underutilized business;
3-28 (2) the bond is required by the person to bid on a
3-29 contract or to serve as a prime contractor or subcontractor on a
3-30 contract;
3-31 (3) the person is not able to obtain the bond on
3-32 reasonable terms without the guarantee;
3-33 (4) there is a reasonable expectation that the
3-34 principal will perform the contract; and
3-35 (5) the terms of the bond are reasonable considering
3-36 the risks involved and the extent of the surety's participation.
3-37 (c) A payment made under a guarantee may not exceed 90
3-38 percent of the loss involved.
3-39 Sec. 481.120. INDEMNIFICATION. (a) In connection with the
3-40 issuance of a guarantee under Section 481.119, the office may agree
3-41 to indemnify a surety against a loss the surety incurs in avoiding
3-42 or attempting to avoid a breach of the terms of the bond. The
3-43 office must authorize the specific expenditure to be indemnified
3-44 before the expenditure is made and after the office determines that
3-45 the breach is imminent and the amount of the proposed expenditure
3-46 is reasonable.
3-47 (b) The amount of the indemnification may not exceed 90
3-48 percent of the amount of the expenditure indemnified.
3-49 Sec. 481.1201. EXCEPTIONS TO PAYMENT. The office is not
3-50 required to pay any amount under a guarantee under Section 481.119
3-51 or an agreement under Section 481.120 if the surety:
3-52 (1) obtained the guarantee or agreement or applied for
3-53 reimbursement by fraud or material misrepresentation;
3-54 (2) has breached a material term of the guarantee or
3-55 agreement; or
3-56 (3) has violated a rule adopted under Section
3-57 481.1203.
3-58 Sec. 481.1202. REPORTS; AUDIT. (a) A participating surety
3-59 shall make reports to the office at the times and in the form the
3-60 office requires.
3-61 (b) The office at any reasonable time may audit any material
3-62 in the hands of a surety relevant to a guarantee under Section
3-63 481.119 or an agreement under Section 481.120. The office must
3-64 conduct the audit at the surety's offices.
3-65 Sec. 481.1203. RULES. The policy board shall adopt
3-66 necessary rules to carry out the guarantee program created by this
3-67 subchapter. The rules may prescribe reasonable fees to be paid by
3-68 a principal or surety participating in the program.
3-69 Sec. 481.1204. SURETY BOND FUND: GENERAL OBLIGATION BONDS.
3-70 (a) The policy board may issue up to $50 million of general
4-1 obligation bonds and may use the proceeds to provide surety bonds
4-2 under this subchapter. The policy board shall deposit the proceeds
4-3 of the general obligation bonds in the surety bond fund and apply
4-4 them in accordance with the resolutions authorizing those bonds.
4-5 The surety bond fund and any accounts established in the fund shall
4-6 be held in trust by the state treasurer for and on behalf of the
4-7 office and the owners of the general obligation bonds issued in
4-8 accordance with this section and may be used only as provided by
4-9 this section. Pending use, the treasurer may invest and reinvest
4-10 money in the surety bond fund in investments authorized by law for
4-11 state funds that the treasurer, consistent with the policy board's
4-12 resolutions authorizing the general obligation bonds, considers
4-13 appropriate. Payment for the provision of a surety bond provided
4-14 under this subchapter shall be deposited first in the interest and
4-15 sinking account as prescribed by the policy board's resolutions
4-16 authorizing general obligation bonds under this subchapter and
4-17 second in any reserve account established by the policy board until
4-18 that account is fully funded as prescribed by the policy board's
4-19 resolutions. If during the time any general obligation bonds are
4-20 payable from the interest and sinking account the policy board
4-21 determines that there will not be sufficient money in the interest
4-22 and sinking account during the following fiscal year to pay the
4-23 principal of or interest on the general obligation bonds or both
4-24 the principal and interest that are to come due during the
4-25 following fiscal year, the comptroller shall transfer to the fund
4-26 the first money coming into the state treasury not otherwise
4-27 appropriated by the constitution in an amount sufficient to pay the
4-28 obligations.
4-29 (b) The general obligation bonds may be issued from time to
4-30 time in one or more series or issues, in bearer, registered, or any
4-31 other form, which may include registered uncertificated obligations
4-32 not represented by written instruments and commonly known as
4-33 book-entry obligations, the registration of ownership and transfer
4-34 of which shall be provided for by the policy board under a system
4-35 of books and records maintained by the office or by an agent
4-36 appointed by the policy board in a resolution providing for
4-37 issuance of its general obligation bonds. General obligation bonds
4-38 may mature serially or otherwise not more than 40 years from their
4-39 date. General obligation bonds may bear no interest or may bear
4-40 interest at any rate or rates, fixed, variable, floating, or
4-41 otherwise, determined by the policy board or determined pursuant to
4-42 any contractual arrangements approved by the policy board, not to
4-43 exceed the maximum net effective interest rate allowed by Chapter
4-44 3, Acts of the 61st Legislature, Regular Session, 1969 (Article
4-45 717k-2, Vernon's Texas Civil Statutes). Interest on the general
4-46 obligation bonds may be payable at any time, and the rate of
4-47 interest on the general obligation bonds may be adjusted at any
4-48 time determined by the policy board pursuant to the resolutions
4-49 authorizing the bonds or determined pursuant to any contractual
4-50 arrangement approved by the policy board. In connection with the
4-51 issuance of its general obligation bonds, the policy board may
4-52 exercise the powers granted to the governing body of an issuer in
4-53 connection with the issuance of obligations under Chapter 656, Acts
4-54 of the 68th Legislature, Regular Session, 1983 (Article 717q,
4-55 Vernon's Texas Civil Statutes), to the extent not inconsistent with
4-56 this section. The general obligation bonds may be issued in the
4-57 form and denominations and executed in the manner and under the
4-58 terms, conditions, and details determined by the policy board in
4-59 the resolution authorizing their issuance. If any officer whose
4-60 manual or facsimile signature appears on the general obligation
4-61 bonds ceases to be an officer, the signature remains valid and
4-62 sufficient for all purposes as if the officer had remained in
4-63 office.
4-64 (c) All general obligation bonds issued by the policy board
4-65 under this section are subject to review and approval by the
4-66 attorney general in the same manner and with the same effect as is
4-67 provided by Chapter 656, Acts of the 68th Legislature, Regular
4-68 Session, 1983 (Article 717q, Vernon's Texas Civil Statutes).
4-69 (d) The general obligation bonds are a legal and authorized
4-70 investment for a bank, trust company, savings and loan association,
5-1 insurance company, fiduciary, trustee, or guardian or a sinking
5-2 fund of a municipality, county, school district, or political
5-3 subdivision of the state. The general obligation bonds may secure
5-4 deposits of public funds of the state or a municipality, county,
5-5 school district, or another political corporation or subdivision of
5-6 the state. The policy board may issue bonds to refund all or part
5-7 of its outstanding general obligation bonds, including accrued but
5-8 unpaid interest. The general obligation bonds, a transaction
5-9 relating to those bonds, or a profit made in the sale of those
5-10 bonds is exempt from taxation by the state, an agency or
5-11 subdivision of the state, a municipality, or a special district.
5-12 SECTION 6. Subsection (b), Section 481.160, Government Code,
5-13 is amended to read as follows:
5-14 (b) The annual report must include for that fiscal year:
5-15 (1) the number of employers receiving grants under the
5-16 program;
5-17 (2) the total amount of grants awarded;
5-18 (3) the value, expressed in dollars and as a
5-19 percentage of total training expenditures, of matching
5-20 contributions made by employers;
5-21 (4) the number of small businesses, as defined by
5-22 Section 481.101(9) <481.101(3)>, that receive grants under the
5-23 program and the total amount of the grants awarded to those
5-24 businesses;
5-25 (5) the number of businesses located in enterprise
5-26 zones, as that term is defined by Chapter 2303 <the Texas
5-27 Enterprise Zone Act (Article 5190.7, Vernon's Texas Civil
5-28 Statutes)>, that receive grants under the program and the total
5-29 amount of the grants awarded to those businesses;
5-30 (6) the geographical distribution of employers
5-31 receiving grants under the program;
5-32 (7) the total number of jobs created, enhanced, or
5-33 retained under the program, reported by region of the state and by
5-34 occupation;
5-35 (8) the wage levels of trainees entering or returning
5-36 to the work force, broken down by current employees undergoing
5-37 retraining and new hires, at three months, one year, and three
5-38 years after the conclusion of their training;
5-39 (9) the number and percentage of participating
5-40 employers that provide workers' compensation insurance coverage and
5-41 the number and percentage of employees covered;
5-42 (10) the number and percentage of participating
5-43 employers that offer health care insurance coverage and the number
5-44 and percentage of employees covered;
5-45 (11) the number and percentage of women employers and
5-46 minority employers receiving grants under the program and the total
5-47 amount of the grants awarded, broken out by group;
5-48 (12) the number and percentage of women, minority
5-49 group members, and disabled individuals participating as trainees
5-50 in training projects, broken out by group; and
5-51 (13) the number and percentage of women private
5-52 providers and private providers who are minority group members
5-53 utilized by employers in training projects, broken out by group.
5-54 SECTION 7. The policy board of the Texas Department of
5-55 Commerce may not issue more than $25 million of bonds under Section
5-56 481.1204, Government Code, as added by this Act, during the state
5-57 fiscal biennium beginning September 1, 1995.
5-58 SECTION 8. This Act takes effect on the date on which the
5-59 constitutional amendment proposed by the 74th Legislature relating
5-60 to the provision by the state of guarantees and indemnification
5-61 relating to surety bonds for historically underutilized business
5-62 takes effect. If that proposed constitutional amendment is not
5-63 approved by the voters, this Act has no effect.
5-64 SECTION 9. The importance of this legislation and the
5-65 crowded condition of the calendars in both houses create an
5-66 emergency and an imperative public necessity that the
5-67 constitutional rule requiring bills to be read on three several
5-68 days in each house be suspended, and this rule is hereby suspended.
5-69 * * * * *