STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5173

April 12, 1977

COUNTY BOARD OF COMMISSIONERS:

Refusal to accept surety bond of a particular surety company

A county board of commissioners is without authority to require a surety company authorized to do business in the state to settle all casualty claims on other surety bonds as a condition precedent to writing surety bonds on public construction projects of the county.

Mr. William S. Bovill

Saginaw County Civil Counsel

3434 Davenport Avenue

Saginaw, Michigan 48602

You have requested my opinion on the following question:

1963 PA 213; MCLA 129.201 et seq; MSA 5.2321(1) et seq, provides the procedure for bonding contractors for public works of governmental units. 1963 PA 213, Sec. 1, supra, as amended by 1972 PA 351, requires that before any contract exceeding $50,000.00 for the construction, alteration or repair of any public building or public work or improvement of the state or its subdivisions is awarded, the proposed contractor shall furnish at his own cost to the governmental unit a performance bond and a payment bond which shall become binding upon award of the contract to the said contractor.

The amount of the performance bond shall be fixed by the governmental unit but shall be not less than 25 percent of the contract amount, conditioned upon the faithful performance of the contract in accordance with plans, specifications and terms thereof. 1963 PA 213, Sec. 2, supra. This section expressly specifies that the bond shall be solely for the protection of the governmental unit awarding the contract.

In 1963 PA 213, Sec. 3, supra, the legislature has required the proposed contractor to also furnish a payment bond in an amount fixed by the governmental unit but not less than 25 percent of the contract amount, solely for the protection of claimants, as defined in Sec. 6, supplying labor or materials in the prosecution of the public work provided for in the contract.

1963 PA 213, Sec. 4, supra, requires that bonds executed by a surety company be furnished only by a surety company authorized to do business in the state. The bond shall be filed in the office of the governmental unit awarding the contract in accordance with 1963 PA 213, Sec. 4, supra. In 1963 PA 213, Sec. 6, the legislature has defined the term 'claimant' as furnishing labor, materials or both and sets forth the procedures for enforcement of any claims in 1963 PA 213, Sec. 7, supra.

From these provisions it is abundantly clear that the contractor shall select the surety company authorized to do business in the state who shall execute the performance bond and the payment bond required by this statute. Indeed, the legislature has specifically denied any authority to the governmental unit to require that bonds be furnished by a particular surety company or bank or through a particular agent or broker or through a bank, company, agent or broker in any particular locality as set forth in 1963 PA 213, Sec. 1, supra.

It is noted that surety companies are regulated pursuant to 1895 PA 266; MCLA 550.101 et seq; MSA 24.241 et seq. They are also subject to the jurisdiction of the Department of Insurance and applicable provisions of 1956 PA 218, the Insurance Code of 1956; MCLA 500.100 et seq; MSA 24.1100 et seq, as required in Sec. 120 thereof. The legislature has conferred no authority upon a board of county commissioners to regulate surety companies. See 2 OAG 1957-1958, No 3139, p 191 (July 12, 1958).

Therefore, it is my opinion that a board of county commissioners is without authority to require a surety company authorized to do business in this state to settle all casualty claims on other surety bonds issued by it on public works contracts in the county as a condition precedent to writing surety bonds on public construction projects of the county. The legislature may, of course, grant this authority to county boards of commissioners and I suggest that this be brought to its attention for consideration.

Frank J. Kelley