Since bids are based in part on insurance costs, safety conscious contractors have a distinct competitive advantage due to lower premiums. Under wrap-up this advantage is eliminated thus reducing the incentive for contractors to maintain a good safety record which will ultimately impact the owner's cost in the long run. Specially tailored coverages, double coverage, and lack of coverage will all lead to increased costs. Lastly, the bill also provides for the wrapping of surety bonding as well. The bill fails to properly delineate the fundamental difference between surety and insurance.
Insurance is risk-sharing, surety is a form of credit.
A surety underwriter investigates the contractor to assure himself that the contractor has the ability to satisfactorily perform the obligations being bonded. Thus, in addition to serving as a guarantee to the owner, a bond is also an instrument of pre-qualification whereby the bonding company states to the owner that the contractor has been examined and found to be qualified to complete the contract. This bill places the State in the position of obtaining such bonds for those who may not normally be bondable.