SBA Institutes Changes in Surety-Bond Guarantee Program
Actions have support from industry organizations
The Small Business Administration has made changes in its surety bond guaranty program that industry officials say will benefit small construction firms.
The changes, which take effect on Sept. 20, have the support of industry organizations (and can be viewed in the Federal Register here.) The new provisions include an increase in the maximum percentage of losses incurred that SBA will guarantee under its preferred security bond program, to 90% from 70%.
The 90% level applies to losses incurred on contracts of $100,000 or less, or if the surety bond is issued to certain categories of small disadvantaged businesses.
The change equalizes the maximum guarantee level for SBA’s preferred bond program with the level for the agency's prior-approval bond program, says Mark McCallum, National Association of Surety Bond Producers chief executive officer.
McCallum say the new percentage level “will stimulate greater participation of surety companies in the programs.” He adds, “That, in turn, gives greater opportunities to small and emerging contractors, who might not otherwise qualify for a surety credit in the standard market.”
SBA's surety guarantees to other small companies will be 80%.
Lenore Marema, the Surety & Fidelity Association’s vice president for government affairs, said via email that increasing the SBA guarantee level “significantly benefits small, emerging and minority contractors, with no added cost to the government or the taxpayers.”
In another change, SBA is increasing the contract-value threshold for its streamlined “quick bond” application for surety credit, to $400,000 from $250,000.
Marema said the higher quick-bond contract level “also will facilitate easier access for the smallest businesses to bond guarantees as they grow beyond the existing $250,000 maximum under prior regulations, better enabling their transition to larger contracts.”
McCallum notes that SBA also raised the dollar threshold at which a surety must notify the agency of a change order on a contract that has an SBA-guaranteed surety bond. The new standard requires notification for change orders of $500,000, up from the previous $100,000. McCallum says the change is in line with current industry practices.
The SBA program is important, says McCallum. “Surety bonds are a prequalification mechanism,” he says. “Our members see it as another avenue to put small businesses on the right path to being overall successful construction businesses.”
SBA provides guarantees for bid, payment and performance bonds for public- and privare-sector contracts values at up to $6.5 million, or up to $10 million with a federal contracting official's certification.
According to an SBA financial report, the agency had a balance for guaranteed surety bonds guaranteed of $5.7 billion in fiscal year 2016.