When it comes to the construction industry, it’s vital to have professional and experienced contractors working on any job site. Contractors have to meet certain criteria in order to place government jobs which are very important to the success of a project. Congress is pushing to terminate the surety bonding requirements that are deemed “discriminatory” to smaller contractors which in fact protect the American public.
Congress is in support of legislation titled “Prohibition on Excessive or Discriminatory Bonding Requirements” included in Section 715 (g) of S. 223 which would remove “unreasonable” hurdles for small contractors trying to obtain construction contracts on airport related projects. The law would require the Federal Aviation Administration to launch a program to ban the so called unfair bonding requirements. An attempt to help smaller contractors gain more access to federal jobs is a noble one, but the requirements in place are there for a good reason and Congress seems to be misled when stating they are “excessive, unreasonable or discriminatory bonding requirements”.
Currently Congress requires contractors to obtain a payment and performance bond for 100% of the contract price for federal construction projects over $150,000 and “payment security” for all contracts between $35,000 and $150,000. Surety bonds are one of the options that fulfill the payment security requirement. The contract bonds guarantee completion of federal construction projects while also ensuring that the subcontractors and workers on the job will get paid.
When a surety backs a contractor with a bond that can’t complete or walks away from a project, the full amount of the surety bond is there to finish the job per the contract. Without a surety bond, there would be no way for subcontractors and workers involved in the project to get paid and complete the job; in a case like this the only way to finish the job is to take money out of the taxpayer’s pocket. When a contractor applies for a bond, surety companies base their decisions on individual responsibility and capability. Sureties have a thoughtful and thorough prequalification procedure to make sure a contractor can handle the project and fulfill the contract by researching their personal credit, business financials and experience. With all of the surety companies out there with different bonding requirements, contractors have many options available to find one that works for them. Surety companies build sound relationships with contractors so they can gain experience and obtain larger contracts. The surety isn’t the villain here being they have motivation to provide bonds to as many contractors as possible in spite of the group they may fall in to; one may ask, where do the “discriminatory” bond requirements come in?
Even if contractors can’t get bonded with all of the different sureties handy, there are government programs established to specifically help small contractors obtain work like the U.S. Small Business Administration (SBA) and educational programs (The Bonding Education Program) set up by the U.S. Department of Transportation (DOT) that can be utilized. The Bonding Education Program (BEP) is there to offer bonding education and procedural assistance to small businesses competing for transportation-related contracts. The SBA aids small contractors by providing bond guarantees to the surety companies writing the bonds. The reason a program like the SBA exists is so small contractors have a shot at targeting public jobs while expanding their construction project horizons. Although the SBA program needs a bit of a revival when it comes to their procedure, The National Association of Surety Bond Producers (NASBP) and The Surety & Fidelity Association of America (SFAA) are working alongside the SBA to make improvements in order to get more involvement from sureties and contractors alike.
The proposed program that Congress has in mind with the intention of helping small contractors with bonding seems to be redundant; with the SBA and bond education programs already in place it would be a waste of time and money to create a new program that could otherwise be used to advance and improve the government bond programs already in place.
In short, bonding is not a discriminatory vehicle put in place, but rather a process to ensure that good qualified contractors get public work. These contractors are getting paid with your tax money. Wouldn’t you sleep better knowing that the taxes you pay that allow public construction projects to happen is actually getting completed; or deregulate a well working system so that less qualified contractors can get the work, potentially fail, and without safeguards – wasting away your hard earned tax money. Sounds like a no brainer to me.