Tuesday, March 3, 2009

Getting Bonded For Government Work

Smaller contractors wanting to participate in projects funded by the recently enacted economic stimulus legislation are going to encounter paperwork hurdles they may not have met before, in the form of the surety bonds required to bid on government work. Even builders wishing to do the sort of home weatherization work funded by the bill may be required to post performance and payment bonds before being permitted to proceed with construction.

Fortunately, part of the stimulus legislation itself was expansion of a program within the Small Business Administration providing government guarantees to enable contractors who may not have the capital to back surety bonds to get the bonding they need from approved insurers who are on the Treasury Department list of companies accepted as sureties on bid bonds, and performance and payment bonds, for federal and state government funded construction.

The expanded SBA guarantee program permits guarantees up to $5 million, rather than the former limit of $2 million, and SBA has discretion to go as high as $10 million if it chooses to do so. Paperwork requirements for participating sureties have also been loosened to encourage greater participation by the insurance industry. Right now these increases are temporary, in effect through September 30, 2010, but recommendations due in May of this year could result in the expanded program becoming permanent.

Contractors who have never bid on government work in the past due to the financial requirements of performance and payment bonds should investigate this expanded SBA program before making a decision to be left out of the stimulus bonanza for our industry. This program is even more important since the inclusion of so many construction projects in the funding which will likely pass Congress this week for the balance of fiscal 2009, despite Senator McCain's efforts yesterday to block the bill with an amendment offered on the Senate floor.

Senate Majority Leader Harry Reid, Senate Appropriations Chairman Daniel Inouye, and even Senate Appropriations Ranking Member Thad Cochran expect the omnibus appropriations legislation to pass the Senate on Thursday, so the House can approve any Senate changes Friday before the current continuing funding resolution expires.
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