In many cases small businesses and federal construction jobs mix like water and oil; they avoid each other. The government seems to gravitate to larger contractors as they have relative ease getting bonded in standard surety markets. The small contractors avoid the government funded SBA (Small Business Administration) Bond Guarantee Program, which is in place to help bond them, because of how cumbersome the SBA program is when compared to standard surety. Something has got to give.
The SFAA testified a few weeks ago before the U.S. House Armed Forces Committee concerning the obstacles that small businesses face while attempting to do business with the Department of Defense (DOD). One of the witnesses that testified was SFAA President, Lynn Schubert. Representative Hanabusa (D-HI) said that one issue with bonding small contractors is that since many of them don’t have satisfactory capital, some bonding companies ask for collateral for the bond such as homes and other personal assets; many contractors aren’t willing to do this. This is the reason the SBA Bond Program was put in to place; to aid smaller contractors and to offer bonding opportunities that otherwise wouldn’t exist. Once again, the SFAA asked for support to remedy the SBA Program during the hearing.
Many small contractors and surety companies alike don’t work with the SBA Bond Program simply because it’s cumbersome. The way in which the SBA Program operates is fundamentally flawed and must be revamped. The expenses of running the SBA Bond Program are more than double the amount of revenue brought in by the program; the difficult processes and amount of red tape steers sureties and contractors away from the program regularly.
Hopefully the SFAA’s concerns are taken seriously considering this isn’t the first time they have voiced them. The amount of money being lost and the lack of involvement of contractors make it obvious that changes must be made to the SBA Bond Program. The efficiency of the program needs improvements and until that happens we will continue to see smaller contractors unable to work on DOD and other federal jobs.