WASHINGTON–The Small Business Administration would allow surety companies greater flexibility in setting rates for construction bonds required by minority contractors, under regulations proposed by the agency.
Other changes suggested by the surety bond industry and included in the proposal are reduced frequency of audits and a provision that the agency would guarantee 90 percent of the bond written for a small business owned by a veteran.
The Surety Bond Guaranty Program is designed to help minority contractors bidding on public works contracts.
Industry response to the SBA's proposal unveiled last month has been positive. The Surety & Fidelity Association of America (SFAA), National Association of Surety Bond Producers (NASBP) and American Insurance Association (AIA) in a joint announcement praised the proposal.
The organizations said the changes will make participation in the surety bond program for minority contractors more attractive to surety companies.
Under the proposal, published for a 30-day comment period, sureties would be allowed to charge current state rates rather than rates set nearly 20 years ago, in 1987.
"Allowing sureties to charge applicable state law rates should go a long way to encourage participation and get more sureties and producers back into the program," the AIA said.
"We're very pleased with the working relationship we've had with the SBA in order to help the SBA revitalize the program," the SFAA added.
The proposal also calls for a reduction in the number of audits required of Preferred Surety Bond (PSB) sureties to every three years, compared to the current requirement for an annual audit.
"The annual audit proved to be very time-consuming and a drain on resources. This streamlines the procedures for sureties making a decision to write a bond through the program" SFAA officials said.
The proposal would also allow sureties to participate in both the Prior Approval and Preferred Surety Plans through corporate affiliates, rather than being forced to choose between the two plans for all bonds guaranteed through the program.
"For sureties and bond agents, the SBA program had evolved over time into a program that was not economical for sureties to participate in," the associations stated.
"These proposed rules, when implemented, should change that perception and make more surety bonds available to those small contractors who otherwise would be left out of the bidding process for construction contracts," according to an official of the NASBP.
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