Bond Guarantees for Surety Companies

Published on AidPage by IDILOGIC on Jun 24, 2005

Administered by:

US Federal Government Agency (see all agencies)
Small Business Administration
CFDA #: 59.016

Purpose of this program:

To guarantee surety bonds issued by commercial surety companies for small contractors unable to obtain a bond without a guarantee. Guarantees are for up to 90 percent of the losses incurred and paid by participating sureties if certain conditions are met.

Possible uses and use restrictions...

Contracts of $1.250 million or less, where a surety bond is required but not available privately without an SBA guarantee. Guarantee is limited to bid, payment, and performance bonds (and ancillary bonds incidental to the performance of a specific contract). Guarantee is provided directly to the surety for a particular contract. Under the Prior Approval Program, sureties must apply for each guarantee on a case-by-case basis. Sureties participating in the Preferred Surety Bond (PSB) Program are empowered to issue, monitor and service bonds, subject to SBA's guarantee, without prior SBA approval. Guarantee covers up to 90 percent of surety's losses on that contract under the Prior Approval Program and up to 70 percent of surety's losses under the PSB program.

Who is eligible to apply...

Guarantees are limited to those surety companies holding certificates of authority from the Secretary of the Treasury as an acceptable surety for bonds on Federal contracts. Specific criteria apply to the Prior Approval and PSB Sureties.

Eligible Applicant Categories:
Eligible Functional Categories:
Credentials/Documentation

Application and supplement information.

Note:This is a brief description of the credentials or documentation required prior to, or along with, an application for assistance.

About this section:

This section indicates who can apply to the Federal government for assistance and the criteria the potential applicant must satisfy. For example, individuals may be eligible for research grants, and the criteria to be satisfied may be that they have a professional or scientific degree, 3 years of research experience, and be a citizen of the United States. Universities, medical schools, hospitals, or State and local governments may also be eligible. Where State governments are eligible, the type of State agency will be indicated (State welfare agency or State agency on aging) and the criteria that they must satisfy.

Certain federal programs (e.g., the Pell Grant program which provides grants to students) involve intermediate levels of application processing, i.e., applications are transmitted through colleges or universities that are neither the direct applicant nor the ultimate beneficiary. For these programs, the criteria that the intermediaries must satisfy are also indicated, along with intermediaries who are not eligible.

How to apply...

Application Procedure:

Small contractor must apply directly to a surety agent/broker for a surety bond. Surety agent/broker in turn acts for or contacts surety company to process the bond request. Under the Prior Approval Program, surety company deals directly with appropriate SBA Area Office regarding guarantee request. Area and district SBA offices also serve as contact points for program information purposes. PSB sureties deal directly with Headquarters.

Note: Each program will indicate whether applications are to be submitted to the Federal headquarters, regional or local office, or to a State or local government office.

Award Procedure:

Under the prior approval program, SBA notifies the surety company of SBA's approval of the requested guarantee and furnishes company with written authorization. Surety company (or agent/broker) notifies the bond applicant and issues bond. PSB sureties issue guaranteed bonds without SBA's prior approval and notify SBA on a monthly basis. Prior approval and PSB sureties remit 20 percent of their premium to SBA. Contractor pays fees of $6.00 per thousand dollars of contract value to SBA.

Note: Grant payments may be made by a letter of credit, advance by Treasury check, or reimbursement by Treasury check. Awards may be made by the headquarters office directly to the applicant, an agency field office, a regional office, or by an authorized county office. The assistance may pass through the initial applicant for further distribution by intermediate level applicants to groups or individuals in the private sector.

Deadlines and process...

Deadlines

None.

Note: When available, this section indicates the deadlines for applications to the funding agency which will be stated in terms of the date(s) or between what dates the application should be received. When not available, applicants should contact the funding agency for deadline information.

Range of Approval/Disapproval Time

Within short time if underwriting data complete, usually 1 to 5 days after receipt of application from surety company.

Preapplication Coordination

None. This program is excluded from coverage under E.O. 12372.

Note: This section indicates whether any prior coordination or approval is required with governmental or nongovernmental units prior to the submission of a formal application to the federal funding agency.

Appeals

None.

Note: In some cases, there are no provisions for appeal. Where applicable, this section discusses appeal procedures or allowable rework time for resubmission of applications to be processed by the funding agency. Appeal procedures vary with individual programs and are either listed in this section or applicants are referred to appeal procedures documented in the relevant Code of Federal Regulations (CFR).

Renewals

Not applicable.

Note: In some instances, renewal procedures may be the same as for the application procedure, e.g., for projects of a non-continuing nature renewals will be treated as new, competing applications; for projects of an ongoing nature, renewals may be given annually.

Who can benefit...

A small contractor whose gross receipts have been not more than $5,000,000 as averaged for the last 3 fiscal years; a manufacturer whose number of employees does not exceed the small business standards specified in Small Business Size Regulations, Part 13 Code of Federal Regulations, Section 121.601 (13 CFR 121.601).

Beneficiaries
About this section:

This section lists the ultimate beneficiaries of a program, the criteria they must satisfy and who specifically is not eligible. The applicant and beneficiary will generally be the same for programs that provide assistance directly from a Federal agency. However, financial assistance that passes through State or local governments will have different applicants and beneficiaries since the assistance is transmitted to private sector beneficiaries who are not obligated to request or apply for the assistance.

What types of assistance...

Insurance

Financial assistance provided to assure reimbursement for losses sustained under specified conditions. Coverage may be provided directly by the Federal government or through private carriers and may or may not involve the payment of premiums.

How much financial aid...

Range and Average of Financial Assistance

Size range of contracts awarded and bonded, $475 to $1,250,000. Average Contract: $177,602. Average Guarantee: $132,741.

Note: This section lists the representative range (smallest to largest) of the amount of financial assistance available. These figures are based upon funds awarded in the past fiscal year and the current fiscal year to date. Also indicated is an approximate average amount of awards which were made in the past and current fiscal years.

Obligations

(Guaranteed Surety Bonds) FY 02 $426,068,372; FY 03 est $1,672,000,000; and FY 04 est $1,672,000,000.

Note: The dollar amounts listed in this section represent obligations for the past fiscal year (PY), estimates for the current fiscal year (CY), and estimates for the budget fiscal year (BY) as reported by the Federal agencies. Obligations for non-financial assistance programs indicate the administrative expenses involved in the operation of a program.

Account Identification

73-4156-0-3-376.

Note: Note: This 11-digit budget account identification code represents the account which funds a particular program. This code should be consistent with the code given for the program area as specified in Appendix III of the Budget of the United States Government.

Examples of funded projects...

Not applicable.

About this section

This section indicates the different types of projects which have been funded in the past. Only projects funded under Project Grants or Direct Payments for Specified Use should be listed here. The examples give potential applicants an idea of the types of projects that may be accepted for funding. The agency should list at least five examples of the most recently funded projects.

Program accomplishments...

In fiscal year 2001, 10,445 bid bond applications were approved and 2,399 final bond guarantees were issued.

Criteria for selecting proposals...

Not applicable.

Assistance considerations...

Length and Time Phasing of Assistance

Guarantee runs to termination of bond (usually completion of contract).

Formula and Matching Requirements

Not applicable.

Note:
A formula may be based on population, per capita income, and other statistical factors. Applicants are informed whether there are any matching requirements to be met when participating in the cost of a project. In general, the matching share represents that portion of the project costs not borne by the Federal government. Attachment F of OMB Circular No. A-102 (Office of Management and Budget) sets forth the criteria and procedures for the evaluation of matching share requirements which may be cash or in-kind contributions made by State and local governments or other agencies, institutions, private organizations, or individuals to satisfy matching requirements of Federal grants or loans.

Cash contributions represent the grantees' cash outlay, including the outlay of money contributed to the grantee by other public agencies, institutions, private organizations, or individuals. When authorized by Federal regulation, Federal funds received from other grants may be considered as the grantees' cash contribution.

In-kind contributions represent the value of noncash contributions provided by the grantee, other public agencies and institutions, private organizations or individuals. In-kind contributions may consist of charges for real property and equipment, and value of goods and services directly benefiting and specifically identifiable to the grant program. When authorized by Federal legislation, property purchased with Federal funds may be considered as grantees' in-kind contribution.

Maintenance of effort (MOE) is a requirement contained in certain legislation, regulations, or administrative policies stating that a grantee must maintain a specified level of financial effort in a specific area in order to receive Federal grant funds, and that the Federal grant funds may be used only to supplement, not supplant, the level of grantee funds.

Post assistance requirements...

Reports

Monthly, Internal SBA Reports, SBA, as requested, sends to participating sureties and other interested parties a summary report on program activity.

Note: This section indicates whether program reports, expenditure reports, cash reports or performance monitoring are required by the Federal funding agency, and specifies at what time intervals (monthly, annually, etc.) this must be accomplished.

Audits

SBA has the right to audit its accounts with any participating surety. Each participating PSB surety must be audited annually.

Note: This section discusses audits required by the Federal agency. The procedures and requirements for State and local governments and nonprofit entities are set forth in OMB Circular No. A-133. These requirements pertain to awards made within the respective State's fiscal year - not the Federal fiscal year, as some State and local governments may use the calendar year or other variation of time span designated as the fiscal year period, rather than that commonly known as the Federal fiscal year (from October 1st through September 30th).

Records

SBA Headquarters maintains records on contractors in default and/or claim status (including recoveries on paid claims) as furnished by sureties. SBA Headquarters and each SBA Area Office has information about SBA guaranteed contractors in that Area with SBA guaranteed bonds.

Note: This section indicates the record retention requirements and the type of records the Federal agency may require. Not included are the normally imposed requirements of the General Accounting Office. For programs falling under the purview of OMB Circular No. A-102, record retention is set forth in Attachment C. For other programs, record retention is governed by the funding agency's requirements.

Regulations...

Authorization

Small Business Investment Act of 1958, Title IV, Part B, Sections 410 and 411, as amended, 15 U.S.C. 687 b and c, 15 U.S.C. 694 a and b; Inspector General Act of 1978, 5 U.S.C. Appendix I, Public Law 100-590, Title II; Public Law 101-574, Section 216.

Note: This section lists the legal authority upon which a program is based (acts, amendments to acts, Public Law numbers, titles, sections, Statute Codes, citations to the U.S. Code, Executive Orders, Presidential Reorganization Plans, and Memoranda from an agency head).

Regulations, Guidelines, And Literature

13 CFR 115.

Contact information...

Web Sites
Regional Or Local Office

Applicants must contact a local agent or broker of surety bonds. General program particulars may be obtained from SBA Area Offices listed in Additional Contact Information - FMR Help.

Note: This section lists the agency contact person, address and telephone number of the Federal Regional or Local Office(s) to be contacted for detailed information regarding a program such as: (1) current availability of funds and the likelihood of receiving assistance within a given period; (2) pre-application and application forms required; (3) whether a pre-application conference is recommended; (4) assistance available in preparation of applications; (5) whether funding decisions are made at the headquarters, regional or local level; (6) application renewal procedures (including continuations and supplementals) or appeal procedures for rejected applications; and (7) recently published program guidelines and material. However, for most federal programs, this section will instruct the reader to consult the so-called Appendix IV of the Catalog due to the large volume of Regional and Local Office Contacts for most agencies. This information is provided in Additional Contact Information (see below).

Headquarters Office

Associate Administrator, Office of Surety Guarantees, Small Business Administration, 409 3rd Street, SW., Washington, DC 20416. Contact: Robert J. Moffitt. Telephone: (202) 205- 6540.

Note: This section lists names and addresses of the office at the headquarters level with direct operational responsibility for managing a program. A telephone number is provided in cases where a Regional or Local Office is not normally able to answer detailed inquiries concerning a program. Also listed are the name(s) and telephone number(s) of the information contact person(s) who can provide additional program information to applicants.

Additional Contact Information (Appendix IV)

Due to the large volume of regional and local office contacts for most agencies, full contact information is also provided separately here in a PDF format: