SB 175
Department of Legislative Services
Maryland General Assembly
2021 Session
FISCAL AND POLICY NOTE
Third Reader
Senate Bill 175 (Senator Ellis)
Education, Health, and Environmental Affairs Health and Government Operations
Procurement - Performance and Payment Security - Requirements and
Limitations
This bill specifies that the State or other public bodies may not require a contractor to
provide payment or performance security on specified contracts until the time of contract
ratification. It further specifies that the Board of Public Works (BPW) may not require a
prospective contractor on an energy performance contract (EPC) to provide a guarantee of
projected energy savings before an EPC is ratified.
Fiscal Summary
State Effect: None. The bill either reflects current practice or, in some cases, is procedural
in nature with no material effect on governmental finances.
Local Effect: None. The bill generally reflects current practice.
Small Business Effect: None.
Analysis
Bill Summary: With respect to payment and performance security, the bill applies to the
following types of contracts:
State contracts for construction, construction-related services, services, or supplies
valued at $100,000 or less that require payment of security under federal law or
other federal requirements;
construction contracts by the State or any other public body valued at more than
$100,000;
State contracts for supplies, services, or construction-related services valued at more
than $100,000 and the procurement officer determines that circumstances warrant
payment of security; and
construction contracts by a public body (other than the State or a unit of State
government) with a value that exceeds $50,000 but not $100,000, under specified
circumstances.
Current Law:
For purposes of contract security, a “public body” is defined as:
the State;
a county, municipal corporation, or other political subdivision;
a public instrumentality; or
any governmental unit authorized to award a contract.
Bid, Payment, and Performance Security
Depending on the size and type of a procurement contract, there are three types of security
that the State must or may require under current law:
bid security protects the State against a bidder withdrawing a bid before a contract
is awarded or refusing to sign a contract if the bid is awarded;
performance security guarantees the performance of a contract by a contractor; and
payment security guarantees that a contractor will pay all of its suppliers and
subcontractors for labor and materials, leaving the project free of any liens.
Current law does not specify when in the contracting process payment or performance
security must be provided; bid security must be provided at the time of bid submission (and
is not affected by the bill).
In general, performance and payment bonds may not be required for procurements valued
at $100,000 or less, unless required by federal law or a condition of federal assistance.
Bid, performance, and payment security are all required on construction contracts valued
at more than $100,000 or if federal law or a condition of federal assistance requires
security. The amount of the performance security is determined by the procurement officer.
The amount of payment security must be at least 50% of the total amount payable under
the contract.
SB 175/ Page 2
For contracts other than for construction exceeding $100,000 in cost, a procurement officer
may require performance and payment security.
Energy Performance Contracts
State law defines an “EPC” as an agreement for the provision of energy services, including
electricity, heating, ventilation, cooling, steam, or hot water, in which a person agrees to
design, install, finance, maintain, or manage energy systems or equipment to improve the
energy efficiency of a building or facility in exchange for a portion of the energy savings.
Primary procurement units in the State are authorized to enter into EPCs with a duration of
no more than 15 years, subject to the approval and control of BPW.
Before approving an EPC, BPW must ensure that projected annual energy savings under
the contract will exceed the projected annual payments under the contract. It must also
determine, based on a review by the Maryland Energy Administration, whether the
proposed energy technology is appropriate for the time period covered by the contract.
BPW may require prospective contractors to furnish appropriate guarantees to ensure that
projected savings are realized. Statute does not specify when contractors must provide
these guarantees, but the Department of General Services advises that it usually occurs well
after a contract is ratified.
Additional Information
Prior Introductions: None.
Designated Cross File: None.
Information Source(s): Baltimore City; Montgomery and Worcester counties; City of
Laurel; Maryland Municipal League; Department of General Services; Board of Public
Works; Maryland Department of Transportation; Maryland Energy Administration;
Department of Legislative Services
Fiscal Note History: First Reader - February 2, 2021
rh/ljm Third Reader - February 19, 2021
Analysis by: Michael C. Rubenstein Direct Inquiries to:
(410) 946-5510
(301) 970-5510
SB 175/ Page 3
Statutes affected: Text - First - Procurement - Performance and Payment Security - Requirements and Limitations: 12-301 State Finance and Procurement, 13-216 State Finance and Procurement, 17-103 State Finance and Procurement
Text - Third - Procurement - Performance and Payment Security - Requirements and Limitations: 12-301 State Finance and Procurement, 13-216 State Finance and Procurement, 17-103 State Finance and Procurement