Fairfax County is changing its procedures so that it can ban what it calls "uncooperative" surety companies from doing business in the county.
In addition, the Board of Supervisors will ask the county staff to study the possibility of screening surety companies before allowing them to operate in Fairfax.
A surety bond basically is a three-party agreement in which a surety company guarantees the performance of a client to a third party. For example, if a developer were erecting a major office building in Fairfax, the surety company would guarantee to the county that the building would be constructed to specifications and that materials and labor would be paid for.
The board recently adopted procedures for debarring "any persons, company, association or other legal entity otherwise qualified to act as a surety for any performance bond" by a majority vote of the board's bonding committee.
The changes were designed to bring uniformity and consistency to procedures, according to the county staff.
The debarment procedures were recommended in January 1984 in a Price-Waterhouse study of the county's overall bonding procedures.
"Fairfax has implemented a procedure to disbar sureties which they find unsatisfactory. If they don't like the way you handle a claim, they will disbar you," explained David E. Lynch, manager of the surety department of the Travelers Cos., a nationwide insurance network.
Lynch, who represents the Surety Underwriters Association in Washington, asked the Board of Supervisors to delay enacting debarment proceedings until a study of setting up a list of approved surety companies could be completed.
Lynch said there is a "strong need for Fairfax to prequalify surety bonding companies. There is a perception in the community that Fairfax wants to get its own way. Disbarment is overkill."
He said existing state laws allow the county to take complaints to the state insurance commissioner if surety operations do not measure up.
Lynch said debarment would cause problems for some small builders, who have more trouble getting bonds than larger developers.
Board Chairman Jack Herrity said the surety bonding question is an issue that is suffering from "paralysis by analysis." Herrity agreed to go along with a study such as the one Lynch suggested so long as the board implemented debarment processes.
"We can do both, but the taxpayers have suffered enough," Herrity said in a reference to builders who walk out on developments, leaving the county and taxpayers to bear the costs of finishing public facilities such as sewers or streets.
Lynch suggested that as a guide in preparing its list, Fairfax County could use the annual list issued by the Treasury naming surety companies allowed to do business with the federal government.
"That list is 10 pages long in The Federal Register," Lynch said.
The recent changes to allow debarment come in the wake of an ongoing controversy over what is and is not bondable under provisions of new state laws enacted by the Virginia General Assembly, which go into effect July 1.
Fairfax officials are embroiled in a dispute with the Northern Virginia Builders Association over the bonding of private roads. Projects containing private roads are facing major delays within the Department of Environmental Management, which is the county office responsible for handling site applications from preliminary plans to final site approvals as well as building permits and on-site inspections during construction.
Lynch said his organization does not care what developers bond. "It is a concern of the developers," he asserted. "If you bond private streets and 'tot lots,' it is up to the developer. The surety companies just write the total amount."
"Most of our business in Fairfax is writing performance bonds for major contractors," he said. Surety bonds are only a small part of the insurance operations of companies such as Travelers, he said.
In a letter to members of the Board of Supervisors, Lynch said Virginia has "specific statutes regarding unfair claims settlement practices. This statute allows you many of the remedies which you seek under the debarment regulation," Lynch said.
Sally Kahn, a former longtime Fairfax County staff member, asked the board to approve the debarment mechanism. She said she advocated the procedure long before the Price-Waterhouse study was completed.