Kilgore's Conundrum: Should We Spend for Surety Guarantees?
A change of heart about whether to require surety guarantees on a small project shows how one small east Texas city weighed the costs and benefits — and may reflect similar decisions about surety made every day around the country.
The city of Kilgore, population roughly 13,000, is a community of oil and industrial workers. It bills itself as the city of stars, referring to the stars that top sixty oil derricks throughout the city and are lighted during the holiday season.
Baseball is an important community activity and diversion — Kilgore has a minor league team, the East Texas Pump Jacks, which plays at Driller Park — and the city has worked for over a year to make a proposed six-field Little League baseball complex a reality. The biggest obstacle: none of the bids received in July for designing and building the complex fit within their $1.5-million budget for the project.
In August, the city council passed a controversial solution that council members expected would cut project costs: it voted to waive the state project bonding requirements.
According to city council minutes, the plan would allow smaller contractors without “bonding capacity” to bid, and the city would purchase materials and accept liability for payment of vendors and contractors.
In meeting minutes, city attorney Robert Schleier states that there are no penalties in the law for waiving the bonding requirement. The motion passed, four to one.
The decision brought a lot of attention. In a September post to the Sanderford & Carroll, PC, blog, attorney Brian Carroll writes that moving forward without a bond on the project would be dangerous for subcontractors.
if a subcontractor went unpaid, he wrote, and brought a lawsuit against the city, it would likely be dismissed without consideration of the merits because the city would retain sovereign immunity, meaning it cannot be found to have committed a legal wrong.
In an email interview this month, Carroll added that municipalities in Texas have seldom waived bonding requirements for projects.
It simply isn’t worth the savings: “The cost of the bond… is 1-3% of the total project. However, that is more than offset by the risk of a financially or technically unqualified bidder receiving the contract,” he wrote. “Most subs will avoid bidding or will mark up their bids to account for the risk.”
City manager Scott Sellers says that Kilgore was considering waiving the requirement to cut costs, but that “it appears that we will not be pursuing that option.”
Kilgore city officials declined to answer additional questions about what caused the change of mind.
Industry groups had criticized the decision. Among them were the National Association of Credit Management and the American Subcontractors Association, which called the decision “not only illegal but penny wise and pound foolish.”
The city has already awarded contracts for lighting the fields and a retaining wall, for a combined $555,709. The most recent bids for the site preparation work, design, and construction, rejected in July, added up to more than $3 million, the Kilgore News Herald reports. In the meantime, the city is considering other ways to reduce the project costs.
