Small and Disadvantage Business (S/DBE) Contractor Surety Bond Support Programs

1. Small and Disadvantage Business (S/DBE) Contractor Surety Bond Support Programs

2. S/DBE Program Goals • Achieving small business participation in public sector construction projects • Making this participation productive and successful • Providing a foundation for the ongoing success of small contractors • Enhanced local economic development

3. S/DBE Program Major Findings • First, the real crisis is one of lack of business capacity and not necessarily one of bonding and contract financing. • Second, bond waiver and bond guarantee programs do not greatly assist in increasing the long term participation or capacity of local small contractors • Third, the most critical element for the success of local contractor support programs is the owner’s commitment and understanding of program objectives. • Last, that local small companies fail to take advantage of outsourced business support services and current business software applications

4. Keys to a Successful S/DBE Program • A knowledgeable and committed owner • A receptive contractor community with a base level of capacity • Bond and financing tools • Competent local technical resources • Direct connections to jobs

5. Types of S/DBE Programs • Bond Wavier Programs • Bond Referral Programs • Bond Guarantee Programs • Contractor Capacity Building Programs (Aon LCDP)

6. Bond Wavier Programs • Main Attribute • Surety bonds are waived for projects below a certain amount ($250,000) • Main Benefit • S/DBE do not have the surety bond as an obstacle to participation • Least expensive program to implement • Main Disadvantages • S/DBE tend to stay small and remain in the bond wavier program • No surety bond tract record is achieved • No contract financing support • Outcomes • Tends to keep the S/DBE contractor community underdeveloped

7. Bond Referral Programs (BRP) • Main Attribute • Assistance in packaging surety bond applications and shopping around the market • Main Benefit • Contractors get bond application prepared • Main Disadvantages • Still primarily a financial based underwriting process • Generally no contract financing support • Outcome • Only assist contractors that meet standard market underwriting criteria

8. Bond Guarantee Programs (BGP) • Main Attribute • Owner establishes a fund for bond guarantee purposes • Main Benefit • Provides somewhat easier access to surety bonding than standard market • Main Disadvantage • Owner financial exposed • Still primarily a financial based underwriting process • Generally no contract financing support • Outcome • Generally supports only contractors on the bubble and does not truly penetrate into the community

9. Contractor Capacity Building Programs (CCBP) • Main Attribute • Designed for greater penetration into S/DBE market and to assist in both technical and managerial development • Main Benefits • Employs a technically based underwriting for both surety and contract financing • Substantially reduces the traditional obstacles to obtaining surety bonding and contract financing for S/DSBE, while insuring that they can perform • Main Disadvantage • Program Cost • Outcome • Engender the creation of a new cadre/pool of prime capable local SDBE

10. Aon CCBP Uniqueness • Underwriting for surety bonds and contract financing technically based • In-house authority for surety bonding and contract financing • Program targeted to support local emerging small and disadvantaged firms • Contractor Progress Monitoring

11. Aon CCBP Uniqueness • Pre-qualification assessment to assure contractor capabilities • All technically qualified participants receive surety bonding and working capital • Program operation in a non-setaside, non-preference environment

12. Aon CCBP Methodology • Early analysis determines contractor community technical capacity • Technical assessment provides qualified contractors with surety bonding and contract financing • Ongoing contractor performance monitoring reduces risks • Feedback on the path to qualification, for firms lacking capacity

13. Aon CCBP Elements • Outreach • Qualification Assessment • Surety Bonding and Contract Financing • Technical Assistance Referral • Contractor Progress Monitoring

14. Outreach • Communications and marketing plan to encourage participation by small contractors • Identification of available support services provided by locally based organizations • Expansion of existing pool of local contractors eligible to bid on projects

15. Credit Underwriting “Qualification Assessment” • As rigorous as traditional underwriting • Contractor’s technical qualifications, experience and track record are the major criterion • Tailored financial floor • Recommendations provided regardless of approval level

16. In-house Bonding Authority • Qualification Assessment assures technically qualified contractors • Conducted by engineering/construction and financial professionals • Extensive interview, references, credit check and contractor progress monitoring • Rates that will keep bidders competitive

17. In-house Contract Financing Authority • CCBP underwriting is used for contract financing and surety bonding • “Feeder System” Local banks benefit from financial development of emerging businesses • Financing terms matched to local market

18. Performance Monitoring • Coordination of contractor performance information with construction management team • Monitoring of schedules, performance, and compliance with CM directives • Preparation of periodic and final reports on contractor progress and performance

19. Aon CCBP Achieves Results • Achieve local participation goals in a non-set-aside, non-preference environment • Enables additional small contractors participation by substantially reducing the traditional financial obstacles to surety bonding and contract financing • Contributes lasting economic benefit to communities through creation of viable new businesses capable of keeping more construction dollars local • Provide a new unique database of qualified local contractors

20. Aon CCBP Based on a Proven Program • Experience with programs in Florida, Texas, Michigan, Maryland, Colorado, Ohio and Washington • Over 500 contracts successfully completed with no losses or defaults • Over $300M in bonding capacity and $40M in contract financing provided • Over 100 new prime contractors created