The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 5592 November 15, 1979 PUBLIC CONTRACTS: Segmentation of contract to permit contractors with limited resources to provide bonds No performance or payment bond need be provided by a contractor for constructions, alterations or repairs of a public work project unless the contract exceeds $50,000.00. If a public works project may be constructed, altered or repaired in separate functional stages, a governmental unit may award separate contracts for each stage of the project. However, the governmental unit may not divide the contract into several segments solely for the purpose of permitting contractors with limited resources to meet the statutory bond requirements. A governmental unit which divides a public work project into several contracts must require the performance bonds and payment bonds to aggregate not less than 25% of the entire project and, in addition, each contract must comply with statutory bonding requirements. Honorable Matthew McNeely State Representative The Capitol Lansing, Michigan 48909 You have asked for my opinion as to whether a contract for the construction, alteration or repair of a public building or work or improvement may be divided into segments, thereby permitting qualified contractors with limited resources to provide performance bonds (1). 1963 PA 213, Sec. 1, MCLA 129.201 et seq; MSA 5.2321(1) et seq, provides that before any contract exceeding $50,000.00 for the construction, alteration or repair of any public building or work or improvement may be awarded by a governmental unit, the principal contractor shall furnish the governmental unit at his or her own cost a performance bond and a payment bond. 1963 PA 213, supra, Sec. 2, further provides: 'The performance bond shall be in an amount fixed by the governmental unit but not less than 25% of the contract amount, conditioned upon the faithful performance of the contract in accordance with the plans, specifications and terms thereof. The bond shall be solely for the protection of the governmental unit awarding the contract.' [Emphasis added] MCLA 129.202; MSA 5.2321(2) In 72 CJS Supp, Public Contracts, Sec. 41, pp 226-227, it is stated that: 'The purpose of statutes of this nature is to protect the public authority from loss and expense in connection with the contract. The statutes are remedial in their nature, and are to be liberally construed with a view to effectuating the legislative purpose.' If a public building or work or improvment may be constructed, altered or repaired in separate functional stages, a governmental unit may award separate contracts for each stage of the project. However, to construe 1963 PA 213, supra, to authorize a governmental unit to divide a public work project into several segments solely for the purpose of permitting contractors with limited resources to meet the statutory bond requirements would not effectuate the purpose of the Legislature. Therefore, before dividing a project into segments, public officers must consider whether the protection required by statute for the benefit of the governmental unit and claimants will be met. Finally, even though 1963 PA 213, supra, is applicable only to contracts exceeding $50,000.00, a governmental unit which divides a public work project into several contracts must require the performance bonds and payment bonds to aggregate not less than 25% of the entire project. This requirement is based upon the rule that the law does not permit that to be done by indirection which may not be done directly. Daley v City of Melvindale, 271 Mich 431; 260 NW 898 (1935). Thus, the sum of the bonds guaranteeing performance and payment must be equal to the amount that the bonds required by statute would be if the project had not been divided into several contracts and, in addition, each contract must comply with the statutory bonding requirements. Frank J. Kelley Attorney General (1)