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.

E.On Climate & Renewables, the developer of two wind farms currently functioning near Watseka, IL, said they are cooperating with the State’s Attorney Jim Devine to figure out how to provide financial assurance that will see to the decommissioning of the wind turbines when the time comes. Devine stated that he would “highly doubt” E.On would agree to provide the $50,000 in cash escrow required for each turbine, which is outlined in a recently modified decommissioning plan. Devine also said that “at the very least (E.On) will be (paying) the $10,000 surety bond” for each turbine as required by the ordinance.

Obtaining surety bonds for the turbines seems to be a great option for E.On. Instead of placing millions in an escrow account which can’t be touched until the decommissioning is complete, which can be years, they have the option of obtaining bonds. The bonds would cost a fraction of the required $10,000 per turbine and they would guarantee that the decommissioning would be completed following all the rules regulations set by the state. Now if the job doesn’t go as planned, the surety company who wrote the bonds would step in and back the project financially.

Placing the money in escrow just ensures that if something does go wrong, E.On’s money is there to rectify the problem. With the 97 turbines in the Settler’s Trail Wind Farm and 17 in the Pioneer Trail Wind Farm, E.On would tie up working capital totaling roughly $5.7MM in escrow infefinitely; should they go the surety bond route, they would need about $1.14MM worth of surety bonds. Remember, E.On would only have to pay a percentage of the total bond amount, not the full $1.4MM.

It’s important that things get done correctly the first time around; surety bonds help achieve this. When bonds are in place, they guarantee the completion of the job at hand and compliance with regulations which is to the benefit of both Illinois and the environment.

The Security in Bonding Act of 2011 (HR 3534) was recently presented by U.S. Representative Richard Hanna (R-NY). The bill revises requirements concerning surety bonds backed by assets and is intended to deliver added protection to subcontractors and suppliers that work on federal construction projects. HR 3534 is co-sponsored by U.S. Representative Mick Mulvaney (R-SC), chairman of the Contracting and Workforce Subcommittee.

Some changes HR 3534 include:
• HR 3534 requires non-corporate sureties to pledge detailed and secure assets as required from others providing collateral to the federal government.
• HR 3534 requires the assets be held by a government entity to guarantee payments can be made in case they are needed.

HR 3534 will knot a loophole that lets shifty contractors use insufficient assets to obtain surety bonds from “individual” or non-corporate sureties. The shortage of regulation on “personal” or “individual” sureties has spouted multiple instances where the assets guaranteed to back the bond were phony or inadequate. This means contractors who aren’t qualified are still getting bonded for construction jobs and then many times end up defaulting on the work, potentially wasting taxpayer dollars. Bonding unqualified contractors puts many construction jobs and taxpayer dollars at risk. Hopefully this new bill will make it harder for contractors to engage in fraud in the future.

“The inability of government contracting officers to determine the real value of non-corporate surety bonds has caused significant harm to small businesses and taxpayers. This legislation will increase transparency and restore the faith of long-overlooked subcontractors and suppliers—who no longer have to fear they will not receive payments they are owed. The Security in Bonding Act will cut down on fraud and abuse in the non-corporate surety market, providing more certainty for the thousands of businesses that contract with the federal government”, said Mulvaney.