Bonding
Surety Bond Guarantee (SBG) Program The Small Business Administration (SBA) has a Surety Bond Guarantee (SBG) Program which was developed to provide small and minority contractors with contracting opportunities for which they would not otherwise bid. The Office of Surety Guarantees administers the SBG program through a private-public partnership between the federal government and the surety industry. SBA guarantees bid, performance, payment and ancillary bonds issued by surety companies for construction, service and supply contracts and reimburses the sureties a percentage of the losses sustained if the contractor defaults. SBA's guarantee provides the incentive necessary for sureties to issue bonds to contractors who could not otherwise compete in the contracting industry. The SBG Program consists of the Prior Approval program and the Preferred Surety Bond (PSB) Program. The Prior Approval program guarantees up to 90 percent of a surety's loss. Participants must obtain SBA's approval for each bond guarantee issued. Under the PSB program, sureties receive a 70 percent guarantee and are empowered to issue service and monitor bonds without SBA's prior approval. Each of these programs targets a different segment of the contracting community and both are necessary to reach all small business clientele. The surety bond guarantee programs are a major factor in the surety reinsurance and contracting industries and are recognized as a primary stabilizing influence by those industries. For more information on the Surety Bond Program, visit the US SBA web site at: www.sba.gov What's a Surety Bond A surety bond is a three-party instrument between a surety, the contractor and the project owner. The agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is unable to successfully perform the contract, the surety assumes the contractor's responsibilities and ensures that the project is completed. Below are the four types of contract bonds that may be covered by an SBA guarantee: 1. Bid - Bond which guarantees that the bidder on a contract will enter into the contract and furnish the required payment and performance bonds. 2. Payment - Bond which guarantees payment from the contractor of money to persons who furnish labor, materials equipment and/or supplies for use in the performance of the contract. 3. Performance - Bond which guarantees that the contractor will perform the contract in accordance with its terms. 4. Ancillary - Bonds which are incidental and essential to the performance of the contract. SBA’s Role The SBA Office of Surety Guarantees (OSG) administers the SBG Program as a public-private partnership between the federal government and the surety industry. The SBG program consists of the Prior Approval (Plan A) and the Preferred Surety Bond Program (PSB or Plan B) program. Eligibility In addition to the surety’s bonding qualifications, SBA’s eligibility requirements for applying for an SBA bond guarantee are: * The contract must be $2 million or less; * The contractor’s business must be independently owned and operated and qualify as a small business under federal regulations; * For federal prime contracts, your company must meet the small business size standard for the North American Industry Classification System (NAICS) Code that the federal contracting officer specified for that procurement. The small business size standard for heavy and civil construction is $31 million in average annual receipts (except dredging, which is $18 million). If the contract is for one of the specialty trades, the size standard is $13 million. Size standards for providing services range as high as $32.5 million in annual receipts. For all other prime contracts and subcontracts for construction, service or supply (e.g., commercial, state and local) you qualify for surety bond assistance from the SBA if your annual receipts do not exceed the $6.5 million standard. In every case, an individual contract cannot exceed $2 million and must require bonds. The SBA Guarantee SBA reimburses a participating surety (within specified limits) for the losses incurred as a result of a contractor's default on a guaranteed bid bond, payment bond, performance bond or any bond that is ancillary with such a bond. How to Apply The SBA does not directly bond the contractor. The contractor chooses a bonding agent who represents an SBA surety participant. The contractor completes the surety application and the required SBG forms, providing the agent with the required credit, capacity and character information. The agent then underwrites the application and decides whether to execute with or without an SBA guarantee. Click on Area Office Contacts, locate your state, and contact that office. Area Office Contacts
