Small business contractors and manufacturers can overcome the challenges they face in winning government contracts by using the U.S. Small Business Administration’s (SBA) Surety Bond Guarantee (SBG) program. Through this program, the SBA helps small businesses obtain required bonds on federal, state, local and commercial construction projects, and on service and supply contracts and subcontracts.
The SBA guarantees bonds on contracts up to $2 million for small businesses that otherwise could not obtain bonds through standard channels.
The Office of Surety Guarantees (OSG) implemented its new electronic bond application system in September 2007. The web-based system enables surety companies, surety producers, surety agents and small businesses to submit surety bond guarantee applications to the SBA electronically. In conjunction with the E-app system, OSG revised the program application forms to streamline and consolidate the information collected, group similar information together and eliminate the need to collect the same information multiple times.
Together, these improvements have cut application cycle time, reduced the paperwork burden and made the application process more customer-oriented.
Program Eligibility Requirements
In addition to meeting the surety’s bonding qualifications, a contractor must qualify as a small business concern, as defined by the SBA. For federal contracts, a company must meet the small business size standards of the North American Industry Classification code the federal contracting officer specified for that procurement. The small business size standards for heavy and civil construction are $31 million in average annual receipts (except dredging, which is $18 million). If the contract is for a specialty trade, the size standard is $13 million. Size standards for providing services range as high as $32 million in annual receipts.
For all other prime contracts and subcontracts for construction or service, such as commercial, state and local, a contractor qualifies for surety bond assistance from the SBA if its annual receipts do not exceed the $6.5 million standard. In every case, an individual contract cannot exceed $2 million and must require bonds.
SBA widened eligibility for small business concerns performing construction or service contracts or subcontracts to $2 million in the presidentially declared disaster areas resulting from hurricanes Katrina, Rita and Wilma.
For those contracts, a contractor is eligible for SBG assistance if it meets the small business size standard for the primary industry in which the company, together with its affiliates, is engaged, or the $6.5 million size standard set forth in §121.301(d)(1), whichever is higher. This applies regardless if it is a prime contract or subcontract, or with whom a company contracts.
As a separate development, the Food, Conservation, and Energy Act of 2008 recently was enacted. The act increases the bond guarantee the SBA can issue. For any procurement related to a major disaster, the SBA now can provide a surety guarantee on a contract up to $5 million. According to the act, the SBA administrator may prescribe the terms and conditions for such guarantees.
Additionally, at the request of the head of any federal agency other than the SBA involved in reconstruction efforts, the SBA administrator may guarantee bonds up to $10 million (compared to the current SBG limit of $2 million).
How to Apply
A contractor chooses a professional surety bond producer that represents an SBA surety participant. A bond producer, also called an agent or broker, is an individual with power-of-attorney to issue bonds on behalf of a surety. The contractor fills out the surety application and the required SBA forms, providing the producer with the required credit, capacity and character information. The producer then decides whether the SBA guarantee is needed.
Costs
The cost to a contractor for a surety bond is called the bond premium. The SBA charges fees to both the contractor and the surety company. Rates are published periodically in the Federal Register. The SBA does not charge the contractor a fee for a bid-bond guarantee.
In addition to the premium charged by the surety, the SBA currently charges the contractor $7.29 per thousand dollars of the contract amount for the guarantee, and charges the surety 26 percent of the premium the surety collects from the contractor. All contractor and surety fees collected by the SBA are deposited in the SBG Revolving Fund at the U.S. Department of the Treasury and are used to pay claims.
For more information about the SBG program, visit www.sba.gov/osg or contact the SBA Surety Bond Guarantee Area Offices in Denver at (303) 844-2607, ext. 261, or in Seattle at (206) 553-0961.
![]()
Friday, September 3, 2010