Leveraging Influence: Small Business Bonds: Duties of Contractor

Small Business Bonds: Duties of Contractor

Contractors should apply for a specific bond with an agent or surety company of their choice, providing background, credit and financial information required by the surety company and the SBA.

The contractor must complete the following forms, which are available from participating agents (a list of agents is available from your local SBA district office)

SBA Form 994: Application for Surety Bond Guarantee Assistance

SBA Form 912: Statement of Personal History (on first application and once every two calendar years thereafter)

SBA Form 994F: Schedule of Uncompleted Work on Hand (required initially and then at least quarterly)

SBA Form 1624: Certification Regarding Debarment, Suspension, Ineligibility and Voluntary Exclusion Lower Tier Covered Transactions

SBA Form 1261: Statement of Laws and Executive Orders

Duties of Surety Company 
After the contractor completes the forms and furnishes the surety company with sufficient underwriting information, the surety company processes and underwrites the application in the same manner as any other contract bond application. The surety company decides whether to:

Execute the bond without the SBA's guarantee;

Execute the bond only with the SBA's guarantee; or

Decline the bond even with the SBA's guarantee.

If the surety company determines an SBA guarantee is required in order to provide the bond, it completes an SBA Form 994B: Underwriting Review and the SBA Form 990: Guarantee Agreement. If the guarantee is given under the Prior Approval program, these forms - and supporting documents - are submitted along with the Forms 994, 912, 994F, 1624 and 1261 to the appropriate SBA/SBG Area Office. If the guarantee is given under the PSB program, the forms are collected by the surety.

Duties of the SBA 
Under the Prior Approval program the SBA determines an applicant's ability to complete the contract based on the information, documentation and underwriting rationale provided by the surety company. If the review establishes performance capacity, and all other aspects of the application are approved, an authorized SBA official signs a guarantee agreement and returns it to the surety company. If the review fails to establish performance capacity, the SBA seeks clarification from the surety underwriter. If performance capacity cannot be reasonably assured, the SBA rejects the application.

Cost of an SBA Guaranteed Bond
 
The SBA charges fees to both the contractor and the surety company, as described in the most recent edition of 13 CFR 115 :

SBA does not charge contractors an application or bid bond guarantee fee. If SBA guarantees a final bond, the contractor must pay a guarantee fee equal to a certain percentage of the contract amount. The percentage is determined by SBA and is published in notices in the Federal Register from time to time.

When the bond is issued, the small business pays the surety company's bond premium. This charge cannot exceed the level approved by the appropriate state regulatory body.

The surety company pays the SBA a guarantee fee on each guaranteed bond (other than a bid bond) in the ordinary course of business. The fee is a certain percentage of the bond premium, determined by SBA and is published in notices in the Federal Register from time to time. 

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