Many minority-, woman-owned, and small businesses view surety bonding as a barrier to contract opportunities in the government sector. The reasons for this viewpoint generally fall into three distinct categories: First, some believe that the process for being approved for bonding has historically been discriminatory toward diverse firms owned by minorities and women. Second, others believe that surety bonding is just a form of insurance for the government agency that has no direct connection to a company’s ability to successfully complete a contract, and therefore favors large firms that have more financial strength. Third, that bonding is often used as an administrative barrier to keep new firms from competing with established firms in the industry.
While all of these viewpoints may have their merits, the truth remains that construction industry firms that can attain surety bonding are in a much better position to succeed in the long-term, which is the primary goal of being in business. The Institute’s South Atlantic Small Business Transportation Resource Center (SA-SBTRC) recently completed a four-week training program to educate firms on the benefits of becoming a bondable company and the steps necessary to successfully complete the bonding process. The SA-SBTRC hosted the Bonding Education Program on the campus of Central Piedmont Community College in Downtown Charlotte.
The Bonding Education Program is sponsored by the U.S. Department of Transportation in partnership with the Surety and Fidelity Association of America. The goal of the program is to educate firms on the process of becoming bondable and to provide hands-on assistance to help firms complete the process. The recent program in Charlotte had 23 participating firms that were interested in contracting opportunities on the upcoming I-77 Express Lanes project recently started in the northwestern part of the Greater Charlotte Metropolitan Area.
The BEP program discussed three major benefits to firms that are able to secure a surety bond: The first benefit is becoming more marketable to government entities and large prime contractors. BEP program facilitators discussed current industry standards that require bonding on public works contracts; and how many surety companies require prime contractors to get a surety bond from major subcontractors as a condition of their bonding arrangement.
The second benefit is that the process of completing the surety bonding underwriting process provides a business an objective review and analysis of the company’s financial condition and operating success. Since the surety company only makes money when it provides bonding to a company with a sound financial structure, the bonding agent is motivated to provide feedback and information to help a company increase its bonding capacity in the future. This feedback not only helps the surety company sell bonding services, it also helps the company understand how to improve its financial strength.
Third, having a bonding relationship provides ongoing counseling and support to a growing company. Since a bonding agent has a vested interest in growing a firm’s ability to perform larger projects requiring larger bond amounts, the agent becomes a trusted advisor to a company to provide advice, support, and information to a company to help them succeed.
Surety bonding is more than a necessary evil for firms that wish to succeed in government contracting; it is a reality of doing business. So while there are both historical challenges and administrative burdens involved with the process, it is well worth the effort for firms that make the effort to be become a bondable company. The result of completing the process is a more marketable and financially stable firm, which is a distinct advantage in the construction industry. For more information about the SA-SBTRC, visit The Institute online at www.TheInstituteNC.org.