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Helping Contractors Grow

Surety Bond Guarantee (SBG) Program. Helping Contractors Grow. Program Mission. The Small Business Administration (SBG) Program was created in 1971 to assist small, emerging, and disadvantaged contractors obtain bonds that were otherwise unavailable to them.

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Helping Contractors Grow

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  1. Surety Bond Guarantee (SBG) Program Helping Contractors Grow

  2. Program Mission The Small Business Administration (SBG) Program was created in 1971 to assist small, emerging, and disadvantaged contractors obtain bonds that were otherwise unavailable to them. The Office of Surety Guarantees’ mission is to provide greater access to contract opportunities for those contractors, by giving surety companies an incentive (guarantee) to provide the necessary bonding.

  3. Importance of the SBG Program • Increase opportunities for small and emerging businesses to obtain contracts by providing access to bonding. • Especially important to small minority and businesses located in underserved areas. • Enables small business owners to sustain and grow their businesses by competing in contracting marketplace. • Creates jobs. • Will provide access to bonding for small contractors participating in Gulf States reconstruction.

  4. What is a Surety Company • Most large property and casualty insurance companies have surety departments. • SBA guarantees bonds written by approved surety listed in the U.S. Treasury’s Circular 570. • “Surety” includes an agent, independent agent, underwriter, or other company or individual empowered to act on behalf of the Surety.

  5. What is Suretyship? Suretyship is a contractual relationship whereby one party (a surety), agrees to answer for the debt, default, or miscarriage of another (contractor).

  6. What Is A Surety Bond? • A three party written agreement. Surety (guarantor) Project owner (obligee) Contractor (principal)

  7. What Is An SBA Surety Guarantee? • It is an agreement between a surety and the SBA. • SBA agrees to assume a predetermined percentage of loss in the event the contractor breaches the terms of the contract. • A guarantee strengthens a small contractor’s ability to compete within the free enterprise system.

  8. Four Major Contract Surety BondsFrequently Required

  9. 1) Bid Bond Guarantees the bidder will enter into the contract and furnish the required performance and payment bonds.

  10. 2) Performance Bond Guarantees the contractor willperform the contract according its terms.

  11. 3) Payment Bond Guarantees payment from the contractor to parties who furnish equipment, supplies, labor, and material.

  12. 4) Ancillary Bond Bonds that are incidental and essential to the performance of the contract.

  13. SBA OSG Bond Programs • Prior Approval Program • Preferred Surety Bond Program

  14. Prior Approval Program or Plan A • Administered through 4 SBA Area Offices • Provides an 80 or 90% bond guarantee • Less experienced emerging SBS • Specialty Surety Companies

  15. Preferred Surety Bond Program or PSB • Administered by SBA HQ • Provides 70% bond guarantee • More mature SBs • Standard Market Insurance Companies

  16. WHO NEEDS A BOND? The Miller Act requires prime contractors bidding on federal projects valued at $100,000 or more to post a surety bond. • Almost all public construction projects and some services contracts require bonding. • Many states, counties and municipalities observe laws similar to the Miller Act., sometimes referred to as “little miller acts.” Likewise, many private sector projects and subcontracts require surety bonds.

  17. How Can SBA Help A Contractor Obtain Bonding? SBA guarantees bonds written by any surety company that has been approved to participate, and is listed in the U.S. Treasury’s Circular 570. Through two separate guarantee programs, SBA can provide a surety a 70, 80, or 90% bond guarantee on behalf of a small business.

  18. Eligibility RequirementsFor The Surety Bond Guarantee Programs • The applicant must be a small business. • Average annual receipts for the past 3 years cannot exceed $6.5 million. • Manufacturing firms where the employees do not exceed between 500-1,000. • $6 million size standard waived on 8(a) contracts only.

  19. Eligibility Requirements ForThe Surety Bond Guarantee Programs (cont.) • Contract must require bonds. • The contract cannot exceed $2 million.

  20. Bond Guarantee Pathway Plan A: Prior Approval • Contractor applies to bond agency • Bond agency submits application to Area Office • Area Office reviews & notifies bond agency • Bond agency issues bond to contractor Plan B: Preferred Surety Bond Program • Contractor applies to bond agency • Bond agency/surety company notifies SBA • Bond agency issues bond to contractor

  21. Steps To Obtain Bonding • A Contractor Must: • Find a participating agent. • Provide the agent with his credit, capacity, and character information.

  22. A Surety Bond Agent: • Evaluates the contractor’s information and decides if the SBA guarantee is needed. • Issues the bond, or requests SBA’s guarantee.

  23. How Does A Contractor Find A Surety Agent? • SBA cannot recommend a specific surety or agent, but does provide a listing of agents doing business in your area. • The agent listing will be provided to you after this training session.

  24. What Information Will An Agent Require from the Contractor? • Most companies will (at a minimum) require the following: • An organizational chart • Business plan • Current financial statements(prepared by an accountant or CPA) • Financial statements for the last three years • Resumes of key people • Record of contract performance • Status of work in process

  25. What Costs Are Involved? • Surety Charges: • The contractor between 2 and 3 percent of the contract price. • SBA Fees: • Does not charge for an application or bid bond guarantee. • SBA charges the Surety 26% of the premium that the surety charges the contractor. • SBA charges the contractor $.729 per every $1,000 of the contract amount.

  26. On the Horizon • Electronic Processing: • Underwriting application and claim reimbursement requests will be submitted electronically via the Internet. • A 50% decrease in processing time expected. • Implementation planned this fiscal year.

  27. AREA OFFICE 1 (Serving Regions 1, 2, 3, & 5)Philadelphia, PA Daniel Sossaman, Supervisor 215-580-2703 Dmitri Matishen, SBG Specialist 215-580-2720 Keturah Burrell, SBG Specialist 215-580-2719 GEOGRAPHIC TERRITORY Connecticut, Delaware, Illinois, Indiana, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Puerto Rico, Rhode Island, U.S. Virgin Islands, Vermont, Virginia, West Virginia, and Wisconsin.

  28. AREA OFFICE 2 (serving Regions 4 and 6) • Atlanta, GA Frank Hagan, Supervisor (404) 331-0100, ext. 701 Margaret Johnson, SBG Specialist (404) 331-0100, ext. 702 Lillian Martin, SBG Specialist (404) 331-0100, ext. 703 GEOGRAPHIC TERRITORY Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee and Texas.

  29. AREA OFFICE 3 (serving Regions 7 and 8) Denver, CO Darryl Bellamy, Supervisor (303) 844-0531, Ext. 261 Walter Lee, SBG Specialist (303) 844-5231, Ext. 254 Beryl Williams, SBG Specialist (303) 844-5231, Ext. 243 Deborah Williams, SBG Technician (303) 844-5231, Ext. 256 GEOGRAPHIC TERRITORY Colorado, Iowa, Kansas, Missouri, Montana, Nebraska, North Dakota, South Dakota, Utah, and Wyoming.

  30. AREA OFFICE 4 (serving Regions 9 and 10) Seattle, Washington Tom Ewbank, Supervisor (206) 553-0961 William Schelly, SBG Specialist (206) 553-2746 GEOGRAPHIC TERRITORY Alaska, Arizona, California, Guam, Hawaii, Idaho, Oregon, Nevada, and Washington.

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