How SBA’s latest changes affect small contractors
Thursday, January 04, 2018
On Sept. 20, the U.S. Small Business Administration (SBA) put into effect two major changes to their Surety Bond Guarantee (SBG) Program, which were first announced in August. The primary goal of these changes is to increase the chances of winning government contracts for small-scale contractors.
SBA's Surety Bond Guarantee Program has been around since the early 1970s, and it aims to allow small construction businesses to bid for government projects (federal, state or local) that would otherwise be out of their reach. More precisely, the program provides aid to small construction companies in obtaining surety bonds (primarily bid bonds and performance bonds) that are required when competing for government projects (all projects over $150,000 under the provisions of the Miller Act).
Namely, certain projects tend to be out of reach for certain smaller companies since they do not meet the usual requirements for the required bonds. The reasons for not meeting the requirements include, but are not limited to: limited job sizes in the past, being in business for less than three years, certain smaller credit issues, recent financial losses or limited financial resources.
Of course, SBA still requires certain criteria to be met, but the program still has a beneficial net effect on the number of smaller construction companies that are allowed to compete for government projects.
The Surety and Fidelity Association of America summed it up best: "For more than 40 years, the Surety Bond Guarantee (SBG) program has helped small and emerging contractors who have the knowledge and skills necessary for success, but lack the combination of experience and financial strength, to obtain bonds through regular commercial channels."
The first of the major amendments to the SBG Program is in regard to the Prior Approval Program's Quick Bond Application option, commonly referred to as Plan A, under which contractors are able to get bond guarantees from SBA with fewer documents, speeding up the entire process.
Up until the new amendment, contractors were able to apply for a Plan A SBA bond guarantee only for projects of up to $250,000. This was raised to $400,000 with the new changes, allowing small contractors to bid for many more contracts.
The SBA also said they will do everything in their power to speed up the approval process, which would enable construction companies to be more agile when submitting their bids for projects.
The other part of the SBG Program that underwent major changes thanks to the new amendments is the Preferred Surety Bond Program (Plan B). Under this program, a number of sureties across the country were authorized by the SBA to issue and monitor surety bonds to SBG-eligible small contractors without SBA's approval.
The new changes are increasing the guarantee percentage in this program, from 70 percent to 90 percent for projects below $100,000 and for small contracting businesses owned by disadvantaged individuals, veterans, HUBZone companies and 8(a) companies. This change is envisioned to provide more security to sureties who issue the bonds, which should stimulate them into providing bonds to a larger number of small construction firms.
These are just two of the most impactful changes to the SBG Program and if you want to see the details, make sure to visit this page.
It should also be pointed out that The Surety and Fidelity Association of America and the National Association of Surety Bond Producers recommended these changes back in 2012 when they released a paper called "Revitalizing the SBA Bond Guarantee Program." Better late than never, as they say.
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