House Subcommittee Conducts Oversight Hearing on Contracting Issues
Wednesday, May 29, 2013
Contracting and Work Force Subcommittee of the House Small Business Committee
conducted an oversight hearing on the contracting issues that the Committee
wants to address this year: H.R. 776 individual surety; 90% bond guarantees for
the preferred bond guarantee program of the Small Business Administration
(SBA), elimination of reverse auctions for construction projects, credit for
subcontracting goals for contacts in lower tiers and current agency design
build regulations that make it prohibitive for small contractors to bid because
of the cost of bid and proposal packages.
776 is the individual surety legislation that passed the House last year, but
stalled in the Senate. The bill would require individual sureties that pledge
assets for contractors in lieu of a corporate surety bond to pledge assets that
readily identifiable, easy to verify and readily convertible into cash and to
put such assets under the control of the contracting officer. This is what the
contractor would be required to do if the contractor pledged its own assets in
lieu of a bond. The bill that has been reintroduced this year also would
increase the maximum bond guarantee in the SBA’s preferred surety program from
70% to 90%.
McCallum of NASBP testified at the Subcommittee hearing. NASBP told the
Subcommittee that H.R. 776 would protect of small contractors who are the most
hurt when assets backing a payment bond do not exist or are insufficient. NASBP
also stated that it is not clear if and how often federal contracting officers
receive specific training to understand and to perform the needed tasks of
examination concerning individual sureties. In addition, the witness for the
Army Corps of Engineers stated that individual surety bonds are an
administrative burden and expense. The Corps said that individual sureties
bonds were provided far less frequently than corporate surety bonds and that
the Corps has rejected most of them. The Corps written testimony stated that
small contractors are particularly vulnerable to individual sureties because
the surety industry is highly concentrated, with much of the market controlled
by a dozen sureties.
main concern expressed about the 90% SBA bond guarantee was whether it was
going to cost the SBA more and how the SBA would manage the greater exposure.
The SBA testimony made it clear that SBA could absorb any additional cost
within its current funding. The SBA noted that the default rate was low and
that there was little difference between the default ratios of the preferred
and prior approval plans and that the default rates were relatively low. SBA
stated that the premium volume has shrunk in the preferred surety program. Half
of the bond program’s premium volume used to come from the preferred program,
and that now is down to 14%. In response to questions, NASBP stated that the
increase in the bond guarantee to 90% would encourage more sureties to
participate in that program.
H.R. 776 was referred to both the House
Judiciary and Small Business Committee. Judiciary has legislative jurisdiction
over the individual surety provisions and Small Business has jurisdiction over
the SBA bond guarantees. This bill likely would not pass as a standalone bill.
Rather it needs to be incorporated into another piece of moving legislation.
The consent of both committees will be needed to move the bill in the House
regardless of the vehicle.
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