On September 4, 2018, the Small Business Administration (“SBA”) announced that it was reducing the surety bond guarantee fee under its Surety Bond Guarantee program.
Government construction contracts require the prime contractor to post payment and performance bonds. Obtaining these bonds can be a challenge for some small businesses when the small business lacks the financial strength or experience to meet the surety’s qualification requirements. The Surety Bond Guarantee program assists small businesses in obtaining these bonds by guaranteeing to reimburse the surety up to 90% of the loss if the small business defaults under the bonds. As a result of this guarantee, many sureties are more willing to issue bonds to small businesses. According to SBA, there currently are 34 participating sureties and over 350 active agents in the Surety Bond Guarantee program.
In exchange for issuing the guarantee, SBA charges the small business a fee. For the last 12 years, SBA has charged the small business a fee of 0.729% of the contract amount. Effective October 1, 2018, the contractor fee will decrease to 0.600% of the contract amount. The decrease will be effective for guaranteed bonds approved during Fiscal Year 2019 (October 1, 2018 – September 30, 2019). In addition, SBA is reducing the surety fee from 26% to 20% of the bond premium charged to the small business.
According to Peter C. Gibbs, Acting Director of the Office of Surety Guarantees, “Reducing the SBG program fees will not only directly help small businesses, but also will incentivize surety companies and their agents to increase support for small businesses in the marketplace.”