Opinion Number ( 2002 )

Dear Mr. Jackson:

Pursuant to a resolution of the Bossier Parish Police Jury, you have requested the opinion of this office on the following issue:

Under Louisiana law, can a political subdivision of the state require an A-rated performance bond and/or payment bond for publicly financed construction contracts? If so, does a lower than A-rated bond company which is wholly owned or domiciled in Louisiana affect your opinion?

La.R.S. 38:2219A(1) provides:

A.(1)(a) Any surety bond written for a public works project shall be written by a surety or insurance company currently on the U.S. Department of the Treasury Financial Management Service list of approved bonding companies which is published annually in the Federal Register, or by a Louisiana domiciled insurance company with at least an A-rating in the latest printing of the A.M. Best's Key Rating Guide to write individual bonds up to ten percent of policyholders' surplus as shown in the A.M. Best's Key Rating Guide, or by an insurance company that is either domiciled in Louisiana or owned by Louisiana residents and is licensed to write surety bonds.

(b) For any public works project, no surety or insurance company shall write a bond which is in excess of the amount indicated as approved by the U.S. Department of the Treasury Financial Management Service list or by a Louisiana domiciled insurance company with an A-rating by A.M. Best up to a limit of ten percent of policyholders' surplus as shown by A.M. Best; companies authorized by this Paragraph who are not on the treasury list shall not write a bond when the penalty exceeds fifteen percent of its capital and surplus, such capital and surplus being the amount by which the company's assets exceed its liabilities as reflected by the most recent financial statements filed by the company with the Department of Insurance.

(c) In addition, any surety bond written for a public works project shall be written by a surety or insurance company that is currently licensed to do business in the state of Louisiana.

This statutory provision sets forth qualification requirements for sureties who may write bonds for Louisiana public works projects. There are three specific criteria which may be used to determine if the surety meets statutory requirements. The public entity seeking bids may choose to use any one of these three standards for the issuer of the bid, performance and payment bonds required by law: a.) a surety which is on the U.S. Treasury Department list for bonds of the amount required; b.) a surety which is a Louisiana domiciled company with an A-rating by A.M. Best for an amount not in excess of ten percent of policyholders' surplus as shown by Best; or c.) a surety which is an insurance company that is either domiciled in Louisiana or owned by Louisiana residents and is licensed to write surety bonds. The last of these options includes the possibility that the company might be less than A-rated by Best.

The public entity may exercise its best judgment as trustee of public funds as to which of these three standards will result in the greatest assurance that the public work will be completed as planned and that no public funds will be misapplied. It is essential that your initial procurement documents set forth which standard must be met so that potential bidders will know from the outset what quality of surety they will be required to produce when contract documents are formalized.

R.S. 38:2218C sets forth the identical criteria for sureties who will write bid bonds. The same choices and notice requirements apply to public entities when calling for bid bonds.

I trust that this answers your inquiry. Please let us know if we may be of further assistance to you in this matter.

Very Truly Yours,

RICHARD P. IEYOUB Attorney General

BY: _____________________________ GLENN R. DUCOTE Assistant Attorney General

RPI/GRD/sfj

Date Released: July 8, 2002