103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
SB0133

 

Introduced 1/24/2023, by Sen. Linda Holmes

 

SYNOPSIS AS INTRODUCED:
 
30 ILCS 550/1  from Ch. 29, par. 15

    Amends the Public Construction Bond Act. Provides that a local governmental unit may not withhold retainage of more than 5% from any payment to a contractor who furnishes the bond or bond substitute required by the Act and that the contractor and its subcontractors may not withhold retainage of more than 5% from their subcontractors. Defines "local governmental unit". Effective Immediately.


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A BILL FOR

 

SB0133LRB103 03446 DTM 48452 b

1    AN ACT concerning finance.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Public Construction Bond Act is amended by
5changing Section 1 as follows:
 
6    (30 ILCS 550/1)  (from Ch. 29, par. 15)
7    (Text of Section before amendment by P.A. 102-968)
8    Sec. 1. Except as otherwise provided by this Act, all
9officials, boards, commissions, or agents of this State, or of
10any political subdivision thereof, in making contracts for
11public work of any kind costing over $50,000 to be performed
12for the State, or of any political subdivision thereof, shall
13require every contractor for the work to furnish, supply and
14deliver a bond to the State, or to the political subdivision
15thereof entering into the contract, as the case may be, with
16good and sufficient sureties. The surety on the bond shall be a
17company that is licensed by the Department of Insurance
18authorizing it to execute surety bonds and the company shall
19have a financial strength rating of at least A- as rated by
20A.M. Best Company, Inc., Moody's Investors Service, Standard &
21Poor's Corporation, or a similar rating agency. The amount of
22the bond shall be fixed by the officials, boards, commissions,
23commissioners or agents, and the bond, among other conditions,

 

 

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1shall be conditioned for the completion of the contract, for
2the payment of material, apparatus, fixtures, and machinery
3used in the work and for all labor performed in the work,
4whether by subcontractor or otherwise.
5    If the contract is for emergency repairs as provided in
6the Illinois Procurement Code, proof of payment for all labor,
7materials, apparatus, fixtures, and machinery may be furnished
8in lieu of the bond required by this Section.
9    Each such bond is deemed to contain the following
10provisions whether such provisions are inserted in such bond
11or not:
12    "The principal and sureties on this bond agree that all
13the undertakings, covenants, terms, conditions and agreements
14of the contract or contracts entered into between the
15principal and the State or any political subdivision thereof
16will be performed and fulfilled and to pay all persons, firms
17and corporations having contracts with the principal or with
18subcontractors, all just claims due them under the provisions
19of such contracts for labor performed or materials furnished
20in the performance of the contract on account of which this
21bond is given, when such claims are not satisfied out of the
22contract price of the contract on account of which this bond is
23given, after final settlement between the officer, board,
24commission or agent of the State or of any political
25subdivision thereof and the principal has been made.".
26    Each bond securing contracts between the Capital

 

 

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1Development Board or any board of a public institution of
2higher education and a contractor shall contain the following
3provisions, whether the provisions are inserted in the bond or
4not:
5    "Upon the default of the principal with respect to
6undertakings, covenants, terms, conditions, and agreements,
7the termination of the contractor's right to proceed with the
8work, and written notice of that default and termination by
9the State or any political subdivision to the surety
10("Notice"), the surety shall promptly remedy the default by
11taking one of the following actions:
12        (1) The surety shall complete the work pursuant to a
13    written takeover agreement, using a completing contractor
14    jointly selected by the surety and the State or any
15    political subdivision; or
16        (2) The surety shall pay a sum of money to the obligee,
17    up to the penal sum of the bond, that represents the
18    reasonable cost to complete the work that exceeds the
19    unpaid balance of the contract sum.
20    The surety shall respond to the Notice within 15 working
21days of receipt indicating the course of action that it
22intends to take or advising that it requires more time to
23investigate the default and select a course of action. If the
24surety requires more than 15 working days to investigate the
25default and select a course of action or if the surety elects
26to complete the work with a completing contractor that is not

 

 

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1prepared to commence performance within 15 working days after
2receipt of Notice, and if the State or any political
3subdivision determines it is in the best interest of the State
4to maintain the progress of the work, the State or any
5political subdivision may continue to work until the
6completing contractor is prepared to commence performance.
7Unless otherwise agreed to by the procuring agency, in no case
8may the surety take longer than 30 working days to advise the
9State or political subdivision on the course of action it
10intends to take. The surety shall be liable for reasonable
11costs incurred by the State or any political subdivision to
12maintain the progress to the extent the costs exceed the
13unpaid balance of the contract sum, subject to the penal sum of
14the bond.".
15    The surety bond required by this Section may be acquired
16from the company, agent or broker of the contractor's choice.
17The bond and sureties shall be subject to the right of
18reasonable approval or disapproval, including suspension, by
19the State or political subdivision thereof concerned. In the
20case of State construction contracts, a contractor shall not
21be required to post a cash bond or letter of credit in addition
22to or as a substitute for the surety bond required by this
23Section.
24    When other than motor fuel tax funds, federal-aid funds,
25or other funds received from the State are used, a political
26subdivision may allow the contractor to provide a

 

 

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1non-diminishing irrevocable bank letter of credit, in lieu of
2the bond required by this Section, on contracts under $100,000
3to comply with the requirements of this Section. Any such bank
4letter of credit shall contain all provisions required for
5bonds by this Section.
6    For the purposes of this Section, the terms "material",
7"labor", "apparatus", "fixtures", and "machinery" include
8those rented items that are on the construction site and those
9rented tools that are used or consumed on the construction
10site in the performance of the contract on account of which the
11bond is given.
12(Source: P.A. 101-65, eff. 1-1-20.)
 
13    (Text of Section after amendment by P.A. 102-968)
14    Sec. 1. Except as otherwise provided by this Act, all
15officials, boards, commissions, or agents of this State, or of
16any political subdivision thereof, in making contracts for
17public work of any kind costing over $50,000 to be performed
18for the State, or of any political subdivision thereof, shall
19require every contractor for the work to furnish, supply and
20deliver a bond to the State, or to the political subdivision
21thereof entering into the contract, as the case may be, with
22good and sufficient sureties. The surety on the bond shall be a
23company that is licensed by the Department of Insurance
24authorizing it to execute surety bonds and the company shall
25have a financial strength rating of at least A- as rated by

 

 

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1A.M. Best Company, Inc., Moody's Investors Service, Standard &
2Poor's Corporation, or a similar rating agency. The amount of
3the bond shall be fixed by the officials, boards, commissions,
4commissioners or agents, and the bond, among other conditions,
5shall be conditioned for the completion of the contract, for
6the payment of material, apparatus, fixtures, and machinery
7used in the work and for all labor performed in the work,
8whether by subcontractor or otherwise.
9    If the contract is for emergency repairs as provided in
10the Illinois Procurement Code, proof of payment for all labor,
11materials, apparatus, fixtures, and machinery may be furnished
12in lieu of the bond required by this Section.
13    Each such bond is deemed to contain the following
14provisions whether such provisions are inserted in such bond
15or not:
16    "The principal and sureties on this bond agree that all
17the undertakings, covenants, terms, conditions and agreements
18of the contract or contracts entered into between the
19principal and the State or any political subdivision thereof
20will be performed and fulfilled and to pay all persons, firms
21and corporations having contracts with the principal or with
22subcontractors, all just claims due them under the provisions
23of such contracts for labor performed or materials furnished
24in the performance of the contract on account of which this
25bond is given, when such claims are not satisfied out of the
26contract price of the contract on account of which this bond is

 

 

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1given, after final settlement between the officer, board,
2commission or agent of the State or of any political
3subdivision thereof and the principal has been made.".
4    Each bond securing contracts between the Capital
5Development Board or any board of a public institution of
6higher education and a contractor shall contain the following
7provisions, whether the provisions are inserted in the bond or
8not:
9    "Upon the default of the principal with respect to
10undertakings, covenants, terms, conditions, and agreements,
11the termination of the contractor's right to proceed with the
12work, and written notice of that default and termination by
13the State or any political subdivision to the surety
14("Notice"), the surety shall promptly remedy the default by
15taking one of the following actions:
16        (1) The surety shall complete the work pursuant to a
17    written takeover agreement, using a completing contractor
18    jointly selected by the surety and the State or any
19    political subdivision; or
20        (2) The surety shall pay a sum of money to the obligee,
21    up to the penal sum of the bond, that represents the
22    reasonable cost to complete the work that exceeds the
23    unpaid balance of the contract sum.
24    The surety shall respond to the Notice within 15 working
25days of receipt indicating the course of action that it
26intends to take or advising that it requires more time to

 

 

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1investigate the default and select a course of action. If the
2surety requires more than 15 working days to investigate the
3default and select a course of action or if the surety elects
4to complete the work with a completing contractor that is not
5prepared to commence performance within 15 working days after
6receipt of Notice, and if the State or any political
7subdivision determines it is in the best interest of the State
8to maintain the progress of the work, the State or any
9political subdivision may continue to work until the
10completing contractor is prepared to commence performance.
11Unless otherwise agreed to by the procuring agency, in no case
12may the surety take longer than 30 working days to advise the
13State or political subdivision on the course of action it
14intends to take. The surety shall be liable for reasonable
15costs incurred by the State or any political subdivision to
16maintain the progress to the extent the costs exceed the
17unpaid balance of the contract sum, subject to the penal sum of
18the bond.".
19    The surety bond required by this Section may be acquired
20from the company, agent or broker of the contractor's choice.
21The bond and sureties shall be subject to the right of
22reasonable approval or disapproval, including suspension, by
23the State or political subdivision thereof concerned. Except
24as otherwise provided in this Section, in the case of State
25construction contracts, a contractor shall not be required to
26post a cash bond or letter of credit in addition to or as a

 

 

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1substitute for the surety bond required by this Section.
2    A local governmental unit may not withhold retainage of
3more than 5% from any payment to a contractor who furnishes the
4bond or bond substitute required by this Act, and the
5contractor and its subcontractors may not withhold retainage
6of more than 5% from their subcontractors.
7    When other than motor fuel tax funds, federal-aid funds,
8or other funds received from the State are used, a political
9subdivision may allow the contractor to provide a
10non-diminishing irrevocable bank letter of credit, in lieu of
11the bond required by this Section, on contracts under $100,000
12to comply with the requirements of this Section. Any such bank
13letter of credit shall contain all provisions required for
14bonds by this Section.
15    In order to reduce barriers to entry for diverse and small
16businesses, the Department of Transportation may implement a
175-year pilot program to allow a contractor to provide a
18non-diminishing irrevocable bank letter of credit in lieu of
19the bond required by this Section on contracts under $500,000.
20Projects selected by the Department of Transportation for this
21pilot program must be classified by the Department as low-risk
22scope of work contracts. The Department shall adopt rules to
23define the criteria for pilot project selection and
24implementation of the pilot program.
25    In For the purposes of this Section: , the terms
26"material"

 

 

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1    "Local governmental unit" has the meaning ascribed to it
2in Section 2 of the Local Government Prompt Payment Act.
3    "Material", "labor", "apparatus", "fixtures", and
4"machinery" include those rented items that are on the
5construction site and those rented tools that are used or
6consumed on the construction site in the performance of the
7contract on account of which the bond is given.
8(Source: P.A. 101-65, eff. 1-1-20; 102-968, eff. 1-1-23.)
 
9    Section 95. No acceleration or delay. Where this Act makes
10changes in a statute that is represented in this Act by text
11that is not yet or no longer in effect (for example, a Section
12represented by multiple versions), the use of that text does
13not accelerate or delay the taking effect of (i) the changes
14made by this Act or (ii) provisions derived from any other
15Public Act.
 
16    Section 99. Effective date. This Act takes effect upon
17becoming law.