Government Bond Program Bleeding Taxpayer Money

Once again amendments have been presented concerning the government run SBA Surety Bond Guarantee Program (SBA Program). Senator Ben Cardin’s (D-MD) staff has been cooperating with SFAA and NASBP in the final stab of the year to enact the Senator’s amendments concerning small contractors. Some wonder whether these changes are moving the program in the right direction.

The proposed modifications boost the maximum contract amount bonded under the SBA Program from $2 million to $5 million and would also provide the SBA Administrator discretion to establish the liabilities of its Bond Program when claims arise; this would allow SBA bonded contractors to either do larger jobs or a larger volume of jobs as well as provide increased bond lines (similar to a line of credit). These provisions were incorporated in the 2009 economic stimulus package (ARRA) but expired on September 30, 2010.

The amendments have been integrated in to numerous bills in the Senate this year including the final tax extenders package that President Obama signed into law but they didn’t make the final draft. While changes must be made to the SBA Program due to its laborious procedures, these amendments may not be the steps that should be taken. Smaller sized contractors are in support of these changes which would end up providing more/larger jobs but it’s also risking tax payer’s money having them work on larger jobs where they have little to no experience. Should a claim arise, the SBA would have to pay the claims for the incomplete jobs.

The SBA Program is difficult to deal with as is and needs an overhaul when it comes to procedure. Most surety companies don’t want to work with the SBA because it is a mismanaged program which limits the surety market quite a bit. When working with the SBA Program you are often required to send four or five copies of the same contract to several departments. Additionally, nothing can be photocopied being everything must be in blue ink which will cause agents to fill out the same form several times; just a couple examples of the cumbersome process. Although success has come from the program giving smaller contractors more opportunities, you can look at it as tax dollars being thrown out the window for the simple fact that the SBA Program is usually avoided. For the agents that do work with the SBA, it’s mostly because the program is a niche market for the wrong reasons being there is so much red tape involved.
SBA Table

Above is a table showing the SBA’s total revenue and liabilities; from 2005 to 2009 the total administrative costs of running the program outweighed the total revenue brought in and this is projected to continue through to 2011. This shows why changes in efficiency and operation need be made to the program.

In the end, these amendments have a risky nature giving more flexibility to smaller contractors that may not have the ability to handle the work load. Given, changes need to be made to the SBA Program they should be more focused on the procedure and efficiency of operation. Money is being misused because we have this government run SBA Program in place but is sparsely being utilized by contractors and sureties alike because of the procedures they have in place. While these amendments are trying to change some of the rules, it’s not necessarily in the right direction. Until the efficiency of the program improves, we will see the same pattern of sureties and contractors avoiding this program that was established to provide more working opportunities.

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.

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