A new bill was recently introduced and ultimately passed in the State of Utah. HB 508 was signed by the Governor on March 26, 2026, and could have lasting impacts on the Utah construction market. The bill addresses the Utah Division of Facilities Construction Management’s (DFCM) current procedures, most notably, its requirement for contractors to furnish bid, performance, and payment bonds on all construction contracts awarded by the agency. The bill now leaves this decision to the DFCM’s discretion on whether or not they will require bid, performance, and payment bonds of the contractors pursuing and/or selected to execute their contracts.
The bill was introduced as a cost-saving measure for the State. The DFCM’s 2025 construction budget was nearly $250 million. At an average 1% bond rate, the DFCM sees an opportunity to spend $2.5 million less by way of not requiring bonds of their contractors.
Starting with the Miller Act in the early 1900s, as a protection to taxpayers, the act mandates the federal government require performance and payment bonds of their contractors on construction contracts more than $150,000. Like the federal government, both state and local governments have employed “Little Miler Acts” mirroring the federal Miller Act. The bonds provide the state and contractors protection in two ways:
- Performance Bonds guarantee execution of the construction contract to the project owner.
- Payment Bonds guarantee payment to all subcontractors and suppliers working for the bonded contractor.
Bid Bonds ensure bids, or construction proposals, from the contractors pursuing contracts have been underwritten and should the contractor be awarded the contract, they have the wherewithal to provide performance and payment bonds on the respective contract.
The removal of the bond requirements recklessly opens the state up to massive exposures. If a project is not bonded, the state is self-insuring against contractor default. Moreover, The state is also removing a subcontractor’s sole payment protection on public works projects by removing the payment bond.
There is no path to payment protection in the absence of a payment bond as it is not possible/unlawful to place liens on public works projects. This could lead to increased construction costs as subcontractors could begin pricing in the potential payment risk associated with the lack of a payment bond.
The legislation does not remove the bond requirement altogether, the DFCM has the discretion to require bonds on its projects. However, it does open the door for the DFCM to waive bond requirements where it sees fit.
All contractors looking to work for the DFCM, as prime or subcontractors, should be diligent in their approach on these projects: We recommend they first determine whether a bond is required, develop a plan to approach the winning the contract, and consult with their surety advisors to appropriately weigh the risks.
As of the date of this writing this is an isolated occurrence. Several construction associations, contractors, and surety bond advocacy groups have spoken out against this bill and fear the repercussions that could echo through the construction community. Moreover, the potential risks to the taxpayer are severe and stand to eliminate any premium savings. These concerns are only aggravated when you remove the requirement of bonding of your contractors, thus opening the door to unqualified contractors who otherwise have no business submitting on work for which they are not qualified.
We would be more than happy to discuss any concerns you may have.
For further construction and risk management resources, contact INSURICA today.
This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
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