Small contractors get bonded for government work by applying through a surety agent for bid, performance, and payment bonds. When they cannot qualify on the open market, the SBA Surety Bond Guarantee backs bonds up to $9 million, and up to $14 million on federal contracts, by guaranteeing the surety against most losses.
Small contractors get bonded for government work by applying through a surety agent for bid, performance, and payment bonds. When they cannot qualify on the open market, the SBA Surety Bond Guarantee backs bonds up to $9 million, and up to $14 million on federal contracts, by guaranteeing the surety against most losses.
Small contractors get bonded for government work by applying through a surety agent for bid, performance, and payment bonds. When they cannot qualify on the open market, the SBA Surety Bond Guarantee backs bonds up to $9 million, and up to $14 million on federal contracts, by guaranteeing the surety against most losses.
This AIGovBid guide covers trades & construction for small business government contractors and explains the next steps contractors should take.
A small contractor gets bonded by applying through a licensed surety agent, who submits the company's financial statements, work history, and credit for underwriting by a surety company. If the contractor cannot qualify on the open market, the SBA Surety Bond Guarantee program backs the bond, guaranteeing the surety against most of any loss so it can issue bonds to firms that would otherwise be declined.
The SBA Surety Bond Guarantee program is a federal program in which the SBA guarantees bid, performance, payment, and ancillary bonds issued by participating surety companies to small businesses. The SBA reimburses the surety for 80 to 90 percent of losses, which lowers the surety's risk and lets small contractors who cannot get bonded conventionally obtain bonds up to $9 million, and up to $14 million on federal contracts.
The premium for a contract performance or payment bond typically runs about 1 to 3 percent of the contract amount, depending on the contractor's financial strength and the project size. Bid bonds usually carry little or no separate premium. Under the SBA guarantee program, the small business also pays the SBA a fee of 0.6 percent of the contract price on performance and payment bond guarantees, while bid bond guarantees carry no SBA fee.
A bid bond guarantees that if you win the award you will enter the contract at your bid price. A performance bond guarantees you will complete the work according to the contract terms. A payment bond guarantees you will pay your subcontractors, laborers, and suppliers. On most federal construction over $150,000 the Miller Act requires both performance and payment bonds.
Under the Miller Act, a performance bond and a payment bond are required on federal construction contracts exceeding $150,000. For federal construction between $35,000 and $150,000, the contracting officer must require payment protection, which may take the form of a payment bond. Many state, local, and commercial owners also require bonds, and solicitations state the exact bonding requirement.
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