Purpose: To provide guidance to State agencies regarding the use of bid, performance, and payment security in procurement contracts.
Background: This Advisory provides guidance concerning when it is appropriate to require bid, performance, or payment security on State contracts. Overly stringent requirements for bid, performance or payment bonds may limit participation by small and minority businesses and increase contract costs for the State.
Bid, performance, and payment security is required only for construction contracts expected to exceed $100,000. State procurement regulations authorize - but do not require - bid security for non-construction contracts expected to exceed $50,000. State procurement regulations authorize - but do not require - performance and payment security on non-construction procurement contracts if the contract is expected to exceed $100,000. COMAR 21.06.07.01. (See Security Guidelines for a full description). Acceptable security includes bid, performance, and payment bonds; irrevocable letters of credit; certified checks; and cashier’s checks and bonds provided by an individual surety (see Board Advisory 2006-4 Individual Surety Bonds).
Determination: In considering whether to require security in any particular solicitation, the procurement officer should consider:
A procurement officer who requires security on a procurement that is not required by State or federal law or regulation to have security must make a written determination that explains why the Procurement Officer has decided to require it. The determination should include complete discussion of the factors above.
All acceptable security listed in COMAR 21.06.07.01 should be permitted if the procurement officer requires bid, performance, or payment security. Procurement officers are encouraged to work with the Office of the Attorney General to develop specific guidelines for each category of acceptable security.
Before excluding acceptable forms of security in a solicitation, the procurement officer should consider:
If a solicitation excludes any category of security, the procurement officer must make a written determination including a discussion of the factors above.
Notice of services provided by the Maryland Small Business Development Financing Authority (see below) must be placed in any solicitation that requires bid, performance, or payment security. Suggested solicitation language is included as Suggested Language.
Format of the Bond - Although the Office of the Attorney General specifies the form of the bond, the procurement agency is responsible for maximizing competition for all State procurements. To that end, the procurement agencies must make every effort to minimize the number of otherwise responsive/responsible bidders who are ineligible for contact award because of defects or omissions in the bond. The procurement agencies should notify sureties throughout the State concerning:
The procurement agency should also stress the importance of completeness and accuracy of the bond forms to all prospective bidders/offerors.
MSBDFA Bonding Assistance: Small businesses may qualify for assistance in obtaining bid, performance and payment bonds through MSBDFA. MSBDFA directly issues bid, performance, or payment bonds up to $5 million. MSBDFA may also guarantee up to 90% of a surety's losses resulting from a contractor's breach of a bid, performance, or payment bond (up to a maximum of $1,350,000). Bonds issued directly by the MSBDFA Surety Bond Program remain in effect for the term of the contract. Bond guarantees remain in effect for the term of the bond.
To be eligible for MSBDFA bonding assistance, an applicant must:
Applicants must apply for MSBDFA assistance through their respective bonding agents.
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