1 Helping Contractors Grow 2 Program Mission The Small Business Administration (SBG) Program was...

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Helping Contractors Grow

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Program MissionThe Small Business Administration (SBG) The Small Business Administration (SBG) Program was created in 1971 to assist small, Program was created in 1971 to assist small, emerging, and disadvantaged contractors emerging, and disadvantaged contractors obtain bonds that were otherwise obtain bonds that were otherwise unavailable to them.unavailable to them.

The Office of Surety Guarantees’ mission is The Office of Surety Guarantees’ mission is to provide greater access to contract to provide greater access to contract opportunities for those contractors, by opportunities for those contractors, by giving surety companies an incentive giving surety companies an incentive (guarantee) to provide the necessary (guarantee) to provide the necessary bonding.bonding.

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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.

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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.

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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).

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A three party written agreement.

What Is A Surety Bond?

Surety(guarantor)

Contractor(principal)

Project owner(obligee)

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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.

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Four Major Contract Surety BondsFrequently Required

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Guarantees the bidder will enter into the contract and

furnish the required performance and payment

bonds.

1) Bid Bond

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2) Performance Bond

Guarantees the contractor willperform the contract according

its terms.

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3) Payment Bond

Guarantees payment from the contractor to parties who furnish equipment, supplies, labor, and

material.

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4) Ancillary Bond

Bonds that are incidental and essential to the performance

of the contract.

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SBA OSG Bond Programs

Prior Approval Program

Preferred Surety Bond Program

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Prior Approval Program or Prior Approval Program or Plan APlan A

Administered through 4 SBA Area Administered through 4 SBA Area OfficesOffices

Provides an 80 or 90% bond Provides an 80 or 90% bond guaranteeguarantee

Less experienced emerging SBSLess experienced emerging SBS

Specialty Surety CompaniesSpecialty Surety Companies

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Preferred Surety Bond Program Preferred Surety Bond Program or PSB or PSB

Administered by SBA HQAdministered by SBA HQ

Provides 70% bond guaranteeProvides 70% bond guarantee

More mature SBsMore mature SBs

Standard Market Insurance Standard Market Insurance CompaniesCompanies

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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.

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SBA guarantees bonds written by any surety

company that has been approved toparticipate, 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..

How Can SBA Help A ContractorObtain Bonding?

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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.

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Eligibility Requirements ForThe Surety Bond Guarantee Programs (cont.)

Contract must require bonds.

The contract cannot exceed $2 million.

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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

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Steps To Obtain Bonding

A Contractor Must:

Find a participating agent.

Provide the agent with his credit, capacity, and character information.

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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.

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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.

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What Information Will An Agent Require from the Contractor?

Most companies will (at a minimum) require the following:

An organizational chartBusiness planCurrent financial statements

(prepared by an accountant or CPA)Financial statements for the last three yearsResumes of key peopleRecord of contract performanceStatus of work in process

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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.

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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.

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AREA OFFICE 1 (Serving Regions 1, 2, 3, & 5)Philadelphia, PA

Daniel Sossaman, Supervisor 215-580-2703Dmitri Matishen, SBG Specialist 215-580-2720Keturah 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.

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Frank Hagan, Supervisor (404) 331-0100, ext. 701Margaret Johnson, SBG Specialist (404) 331-0100, ext. 702Lillian 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.

AREA OFFICE 2 (serving Regions 4 and 6) Atlanta, GA

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Darryl Bellamy, Supervisor (303) 844-0531, Ext. 261Walter Lee, SBG Specialist (303) 844-5231, Ext. 254Beryl Williams, SBG Specialist (303) 844-5231, Ext. 243Deborah Williams, SBG Technician (303) 844-5231, Ext. 256

GEOGRAPHIC TERRITORY

Colorado, Iowa, Kansas, Missouri, Montana, Nebraska,North Dakota, South Dakota, Utah, and Wyoming.

AREA OFFICE 3 (serving Regions 7 and 8)Denver, CO

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Tom Ewbank, Supervisor (206) 553-0961William Schelly, SBG Specialist (206) 553-2746

GEOGRAPHIC TERRITORY

Alaska, Arizona, California, Guam, Hawaii, Idaho, Oregon, Nevada, and Washington.

AREA OFFICE 4 (serving Regions 9 and 10) Seattle, Washington