In 2021, President Joe Biden signed the Bipartisan Infrastructure Investment and Jobs Act, which authorized an additional $1.2 trillion in federal construction projects. It also reauthorizes and funds the U.S. Department of Transportation’s existing Disadvantaged Business Enterprise program, which sets federally required DBE participation goals.
In addition to many state-mandated DBE programs, the opportunities for DBE contractors have exploded. However, both federal- and state-funded projects generally require that the contractor provide a surety bond to qualify for the work. Historically, DBE contractors have been left out of this government work due to the inability to secure a surety bond both as a primary contractor or subcontractor.
A surety bond guarantee program
In 1971, the Small Business Administration created a surety bond guarantee program that provides reinsurance to surety bond companies willing to underwrite the DBE and emerging contractors who typically are ignored by most surety companies. This program provides an 80-90% reinsurance guarantee in return for a small portion of the premium.
Despite its benefits it is a vastly underutilized program. Currently, there are only 40 insurance companies that participate in the program. Thirty of these companies are “prior approval” partners, which require them to submit each bond for approval to the SBA prior to issuing the bond. The remaining 10 companies are considered “preferred” as they do not need to submit the bonds prior to underwriting and issuance.
While the focus is on small emerging contractors, the SBA will provide reinsurance on surety bonds up to $9 million and if it’s a federal contract the limit increases to $14 million. Additionally, underwriting requirements are more flexible than the standard surety market. The SBA will cover bonds up to twice the highest previous bond limit coupled with much lower working capital requirements, thus providing an opportunity for DBE and emerging contractors to expand their opportunities.
An opportunity for independent agents
Despite the underwriting success of this program—the SBA consistently has made a profit providing bond guarantees—it is woefully underutilized by insurance agents.
In 2024, the SBA issued surety bonds to only 2,000 contractors. For insurance agents who provide property/casualty coverage for small contractors or those agents with the large prime contractors who have trouble finding qualified bondable subcontractors, this program can provide the needed surety bond.
For more information, see the list of SBA partner insurance companies.
John Tomassi
John Tomassi is president of Open Coast Surety Bonds, a specialty insurance agency specializing in surety bonds below $400,000. He is a past president of PIA New York.
