Small contractors will be able to seek U.S. Small Business Administration-backed surety bonds for larger jobs from March 18, 2024. In a February 26 announcement, SBA said the general contract ceiling would rise from $6.5 million to $9 million. The ordinary federal-contract route will reach $14 million, up from $10 million, but amounts above $9 million require a federal contracting officer’s signed certification that the SBA guarantee is necessary. The new limits are not yet in effect. [S1][S2]

The Surety Bond Guarantee program addresses a barrier to bidding: small and emerging contractors may be unable to obtain the required bonds through regular commercial channels. SBA backs bonds issued by surety companies rather than lending the contract price to the contractor. Its final rule describes the guarantee as covering 80 to 90 percent of a surety’s loss if the contractor defaults. That percentage and the new dollar ceilings measure different things: one concerns the surety’s loss, the other the size of the underlying contract. [S2]

For a federal contract above $9 million under this route, the certification must identify the small business and the job. The amended rule calls for the business’s name, address and telephone number, the offer or contract number, a brief description, the estimated value and the anticipated award-determination date. Procurement related to a major disaster has a separate provision, which this amendment cross-references rather than rewrites. [S2]

The change catches up with prices. SBA says it has not adjusted these bonding limits since 2013, while Consumer Price Index inflation has exceeded 30 percent over that period. Raising the dollar ceiling therefore does not, by itself, show that a contractor can take on proportionately more work. It expands the range of contract values eligible for support, not a firm’s proven capacity to deliver. [S2]

SBA’s estimate of the opening is narrower than a forecast of new contracts won. Using federal construction awards from fiscal years 2021 and 2022, the agency estimates that raising the lower ceiling to $9 million would make up to about 150 to 155 additional small businesses a year eligible to apply for bonds on roughly 175 to 180 federal construction contracts. Those are estimates of eligibility to apply, not approvals or new awards. SBA says it lacks the data to estimate additional applicants for state, local-government and private-sector contracts. [S2]

Larger guarantees can also expose the program to larger losses. SBA’s analysis of claims from October 1, 2020 through March 31, 2023 found a positive relationship between contract size and net claims. The agency warns that higher limits could mean larger guaranteed contracts and higher losses, but says it cannot estimate the exact losses from the expansion because it lacks data on the additional nonfederal bonds. [S2]

Source documents

  1. SBA Announces Statutory Increases for Surety Bond Guarantee Programhttps://legacy.sba.gov/article/2024/02/26/sba-announces-statutory-increases-surety-bond-guarantee-program
  2. Federal Register: Small Business Size Standards and Surety Bond Limits—Adjustments for Inflation, 89 FR 11703https://www.govinfo.gov/content/pkg/FR-2024-02-15/html/2024-02776.htm