Small contractors may see expanded bonding opportunities as they pursue work under the American Recovery and Reinvestment Act of 2009. The measure temporarily increases guarantees in the Small Business Administration bond program and offers more enticing conditions for sureties to work with the program.
The stimulus boosts SBA guarantee limits from $2 million to $5 million and gives SBA contracting agents authority to hike the limit up to $10 million. The changes are effective only through Sept. 30, 2010. The legislation also adds $15 million to SBA’s surety-bond revolving fund.
The measure also allows larger construction firms to qualify for SBA guarantees. Surety & Fidelity Association of America President Lynn Schubert says SBA had “essentially a one-size-fits-all approach” for construction, limiting the program to firms with no more than $7 million in annual revenue. The stimulus effectively raises the limit to $14 million for specialty contractors and $33.5 million for general building contractors.
Lawmakers say the bond provisions will help small companies gain access to an additional $6.5 billion of federal contracts and help retain or create nearly 61,000 jobs. Surety company participation in the program has dwindled over the past decade partly because under current law, any violation by a surety would result in SBA denying an entire guarantee to that surety, says Mark McCallum, National Association of Surety Bond Producers’ general counsel and director of government relations. “That [violation] could include a technical violation like a late fee,” he says. “That would be tantamount to the entire guarantee being denied. That’s a strong disincentive to a surety.”
The stimulus gives SBA the discretion to pay part or all of a claim in the case of a violation, which McCallum predicts will make the program more attractive to sureties. The measure provides an additional $20 million in 2009 for the U.S. Dept. of Transportation’s Minority Resource Center to provide further bonding help to disadvantaged businesses.
Bond-guarantee limit increased from $2 million to $5 million until Sept. 30, 2010. The limit can be increased to $10 million at SBA’s discretion.
$15 million added to SBA bond program’s revolving fund.
$20 million added for the U.S. Dept. of Transportation Minority Resource Center.
SBA has discretion to pay a claim in whole or in part that could otherwise be denied under the conditions set forth in the current law.
|SOURCE: SURETY & FIDELITY ASSOCIATION OF AMERICA|
The surety provisions are temporary, but many could become permanent. The stimulus requires a study of the program’s funding framework and fees. A report that could recommend permanent changes is due in mid-May.
Marco Giamberardino, senior director of the Associated General Contractors’ federal and heavy construction division, says the changes are positive. “There has not been a great incentive for [sureties] to participate in the SBA program,” he says. “Particularly with the tightening credit market, any change is helpful at this point.”