Senate Bill 193 updates outdated coverage and patches legal loopholes

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With the signing of Senate Bill 193 by Governor Parnell in July of 2014, Alaskan bond amounts increased significantly when the law took effect on January 1. This new law addresses a series of long-standing issues in the Alaskan contractor industry.

This comes in the midst of some of the largest increases in construction contractor surety bond amounts in decades. Legislators around the country are realizing that bond amounts set by law in the 1970s and 1980s have become totally insufficient for covering the expenses of aggrieved parties, and changes are now being made quickly both on the state and national levels.

What Did Senate Bill 193 Change?
The bill made six key changes to Alaska state law regarding construction contractor bonds.

  1. The general contractor bond amount increased from $10,000 to $25,000.
  2. If you are a general contractor who only works with private residences (meaning you have a residential contractor endorsement under AS 08.18.025), then your bond amount increased from $10,000 to $20,000. This is an entirely new category created by Senate Bill 193, and should be beneficial for residential contractors who work on much smaller projects on average.
  3. Bond amounts for specialty contractors (which includes mechanical contractors and home inspectors) the bond amount increased from $5,000 to $10,000.
  4. Good news for small contractors—if you work on only one project, which is not part of a larger project, and has a combined cost of less than $10,000 (including labor and materials), then your bond amount is still $5,000.
  5. If your project has a combined cost of less than $2,500 (for example, two kids painting a house for some extra cash), you’re not considered a contractor and have no need to get bonded.
  6. Finally, the new law increased the bonding options for Alaska contractors. Now, instead of obtaining a surety bond, contractors can file a cash or other security deposit directly with the relevant Commissioner.

What Brought About This Change?
Too many contractors were using loopholes in the previous system to avoid being bonded. These included abusing the $10,000 minimum project cost for bonding requirements, which was designed for small handymen and non-professionals working on single projects.

Larger projects were being broken up into smaller ones designed to fall under this threshold by contractors wanting to avoid bonding. As state Senator Micciche put it, “Unfortunately, some unscrupulous contractors would use this loophole to do work and the public had no recourse when the work was shoddy or incomplete.”

In addition, with bond amounts at only $5,000 to $10,000, any aggrieved party who sought redress would likely not be compensated with enough money to cover the relevant expenses. This clearly defeats the entire purpose of the bond requirement. So, in response to these problems, this law made some long overdue changes.

How Does It Affect You?
Though it may seem counterintuitive to see a bond amount increase as good, it should actually help the industry in the long run. Adjusting to the new bond amounts is taking some effort and is more costly, but there are real benefits to be had. For contractors, these requirements are pushing out companies which perform shoddy work or abuse legal loopholes out of business. This should improve the industry and the public’s perception of contractor work in general.

Of course, many are worried about covering an extra $10,000 to $15,000 with their bond. Fortunately, surety bond agencies today offer affordable solutions. Some may see the new option of making a cash deposit with the Alaska State Commissioner as a welcome new choice. However, paying a small premium for a surety bond should ultimately be the easiest way to fulfill the new bonding requirement.

The Takeaway
It’s hard to argue that this update to Alaska law regarding contractor bonding hasn't been long overdue. While there are some temporary growing pains, it should be helpful for the entire industry going forward. All-in-all, contractors should be excited to work in Alaska with fewer legal loopholes, abusive contractors and unhappy customers.