Surety bonds help businesses grow on contract success
Because of the protection surety bonds provide, the Miller Act requires surety bonds on all federally funded construction projects in excess of $150,000. Today, virtually all states have their own statutes and now almost every public construction project across the country requires surety bonds.
The SBA’s Surety Bond Guarantee Program can help small-business contractors and manufacturers overcome challenges they face in winning government contracts and private-sector contracts, and in the process help them get that next bond and contract, and in turn grow their business and create jobs.
The idea behind surety bonding is simple and direct. It is a guarantee that a third person will perform a contract according to its terms.
When a government entity awards a construction project to the lowest bidder, it knows that the surety bond company stands behind the contractor’s promise to complete the job according to the owner’s specifications and terms of the contract. Often, however, small businesses may not be able to obtain bonds through regular commercial channels.
With the SBA’s Surety Bond Guarantee Program, the SBA guarantees surety companies against a percentage of the losses sustained as a result of a contractor’s default on a guaranteed bid, payment or performance bond, making them more willing to issue bonds for smaller, newer companies. The SBA can guarantee bid, payment and performance bonds for construction, service, manufacturing and supply contracts up to $6.5 million for eligible small contractors. Bond guarantee consideration between $6.5 million and up to $10 million is also available if a contracting officer of a federal agency certifies such a guarantee is necessary.
The overall SBA program consists of the Prior Approval Program and the Preferred Surety Bond Program. Under the Prior Approval Program, the SBA provides sureties an 80 percent or 90 percent guarantee to issue bonds on behalf of small businesses, and the surety must obtain SBA’s prior approval for each bond. SBA guarantees 90 percent for bonds on contracts up to $100,000, and on bonds for socially and economically disadvantaged contractors. Certified HUBZone contractors are eligible for the 90 percent guarantee under the Prior Approval Program. More information on the HUBZone Empowerment Contracting Program is available at www.sba.gov/hubzone.
Under the Preferred Surety Bond Program, selected sureties receive a 70 percent bond guarantee and are authorized to issue, service and monitor bonds without the SBA’s prior approval.
Using the SBA’s Surety Bond Guarantee Program can open up more business opportunities for small businesses. It could pave the way to obtaining a federal, state, county, municipal or private-sector contract.
For more complete information on the Surety Bond Guarantee program, go to www.sba.gov/osg for a list of area office contacts and SBA offices near your business or call 800-U ASK SBA.
Calvin Goings is regional administrator with the U.S. Small Business Administration’s Seattle office. For more information, call the Seattle District Office at 206-553-7310.