Maroney stated, “We view the enactment of this historic measure as necessary and positive steps toward improving the SBA Bond Guarantee Program.”

The legislation amends the “Small Business Investment Act of 1958” in several important ways. First, the legislation increases the maximum contract size eligible for a guarantee under the SBA Bond Guarantee Program from $2 million to $5 million. The legislation offers the Administrator of the Program the flexibility of increasing the bond amount up to $10 million if the contracting officer of a federal agency certifies that such a guarantee is necessary. This may help to ensure that the Program can accommodate a greater number of federal contracts for small business contractors. Further, the legislation adjusts the size standards for small businesses under the federal guidelines so that more businesses would qualify.

Another significant change made by the legislation is vesting the Administrator of the SBA Bond Guarantee Program with discretion to pay all or a portion of a claim even if a surety company has violated certain Program requirements. Currently, violations require the complete denial of the guarantee to the surety, even though the SBA has suffered little or no prejudice or loss as a result of the violations. This “all or nothing” policy has left surety companies reluctant to participate in the Program, because of the uncertainty of the bond guarantees.

Further, the legislation prohibits the SBA from denying liability for bonds made or executed in the prior approval Program based upon material information that was provided as part of the guaranty application.

Finally, the legislation requires the Administrator of the SBA to conduct a study of the current funding structure of the Surety Bond Program and to report back to Congress no later than 180 days after the date of the enactment to assess whether, the Program’s current funding framework and Program fees are inhibiting the Program’s growth, and whether surety companies and small business concerns could benefit from an alternative funding structure. However, the changes to the SBA Bond Guarantee Program sunset on September 30, 2010. Click here to view the section of the Act that addresses the SBA surety bonds.

John Hughes, President of Construction Bonds, Inc., an agency which works closely with the SBA Program, said “these reforms could re-open the market to those seasoned-but-small contractors who have seen their bank line of credit shrink or disappear.” Hughes believes that sureties are being more conservative in their underwriting. “Therefore, the changes to the SBA Guarantee Program could re-admit contractors who might otherwise be declined,” he said.

Hughes indicated that the part of the new legislation that addresses the SBA’s increased capacity will encourage only participating sureties; the part of the legislation that makes the guarantees to sureties more certain will help increase the number of participants in the Program. “Increasing the number of surety company participants is vital,” he said. These changes to the SBA Program make this legislation very positive, because they could ultimately increase the number of smaller contractors getting bonds. “If small-business set-aside contracts are awarded appropriately to real small businesses, this part of the Stimulus Package will indeed stimulate bonded construction work,” Hughes said.

Weeks prior to the passage of the Economic Stimulus Package, NASBP, The Surety & Fidelity Association of America (SFAA), the American Insurance Association (AIA), and their respective members worked feverishly with Senate and House staffers to craft language for the enhancement of the SBA Bond Guarantee Program. NASBP will seek to make permanent the beneficial changes to the SBA Bond Guarantee Program and will continue to pursue its legislative agenda for 2009 that includes advocating for reforms to better the business conditions of construction contractors and to educate elected and appointed officials of the federal government about the value of the surety bond product.