Surety Bond Groups Hail SBA’s Small Contractor Rule Changes

October 11, 2006

The Small Business Administration recently took what the surety bond industry believes is an important step to reinvigorate the government’s Surety Bond Guarantee Program. SBA is proposing rules intended to make participation in the program more attractive to sureties for the benefit of small contractors needing access to surety bonds to bid on public construction projects, according to a group of surety and insurance trade associations.

Among the proposed rules, which come in response to requests by sureties and bond producers to streamline administration of the program, sureties would be allowed to charge current state rates rather than rates set nearly 20 years ago in 1987.

“Allowing sureties to charge applicable state law rates should go a long way to encourage participation and get more sureties and producers back into the program,” noted the American Insurance Association.

“We’re very pleased with the working relationship we’ve had with the SBA in order to help the SBA revitalize the Program,” the Surety and Fidelity Association said.

“When contractors are required to get a bond, the Surety Bond Guarantee program provides an important and needed means for small and emerging contractors without a surety bond history to gain access to the bond market. The SBA is taking significant steps to assure that there will be enough sureties and bond agents actively participating in the program to respond to the needs of these contractors.”

Included in the proposed rules is a reduction in the number of audits required of Preferred Surety Bond (PSB) sureties to every three years, from the current annual requirement. “The annual audit proved to be very time-consuming and a drain on resources. This streamlines the procedures for sureties making a decision to write a bond through the program,” according to the Surety and Fidelity Association.

Other proposed rules include a program guarantee to pay 90 percent of a surety’s loss on bonds guaranteed through the prior approval plans written for a small business owned and controlled by a veteran, and allowing sureties to participate in both the prior approval and preferred surety plans through corporate affiliates, rather than being forced to choose between the two plans for all bonds guaranteed through the SBA program.

“For sureties and bond agents, the SBA program had evolved over time into a program that was not economical for sureties to participate in,” the associations said in a joint statement. “The SBA is moving to turn it around.”

“These proposed rules, when implemented, should change that perception and make more surety bonds available to those small contractors who otherwise would be left out of the bidding process for construction contracts,” said the National Association of Surety Bond Producers.

The proposed SBA Surety Bond Guarantee Program rule can be viewed at:

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