SBA proposes higher surety bond guarantees

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Published: May 7,2010

Tags: disasters, SBA, small businesses

WASHINGTON — The U.S. Small Business Administration (SBA) has proposed changes, including higher surety bond guarantee limits, that will help construction and service sector firms secure larger contracts for work in areas impacted by disasters.

The proposed changes include:

• For a non-federal contract or order up to $5 million, a bond guarantee may be issued if the products will be manufactured or the services are performed in the disaster area.

• For a federal contract or order up to $5 million, the performance site can be outside the disaster area if the contract or order will directly assist the disaster recovery efforts.

• For a federal contract or order, the amount of the guarantee can be as much as $10 million at the request of the head of an agency that is involved in reconstruction efforts.

The proposed changes are related to the Small Business Disaster Response and Loan Improvements Act of 2008, which increases the eligible amount for contracts or orders related to a major disaster area. These proposals build on increases to surety bond guarantees made possible under the American Recovery and Reinvestment Act of 2009. The major disaster areas are identified on the Federal Emergency Management Agency web site.

Generally, the increased amounts would apply during the 12 months following the disaster declaration, unless SBA provides for an extension related to a particular disaster.

In addition to the disaster related proposals, the Proposed Rule clarifies SBA’s position that it does not cover any costs related to insurance or indemnification requirements that may be contained in the bonded contract. It specifically excludes from the losses covered by SBA any costs that arise from the principal’s failure to secure and maintain insurance that result from any claims or judgments that exceed the amount of insurance coverage, and that arise from an agreement by the principal to indemnify the contractor or any other persons.

SBA partners with the surety industry to help small businesses that would otherwise be unable to obtain bonding in the traditional commercial marketplace. Under the partnership, SBA provides a guarantee to the participating surety company of between 70 and 90 percent of the bond amount. Through its Surety Bond Guarantee program, SBA also helps owners by guaranteeing bid, payment and performance bonds to protect the project owner against financial loss if a contractor defaults or fails to perform.

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