Breaking the cycle: Obtaining surety bonds

Imagine this scenario:

A great potential construction project that’s right up your alley just came online. It supports your demographic, contributes to society, comes with an enjoyable team to work alongside, is financially stable, and it’s a project you not only would excel at, it’s your specialty. Just like the master builders in “The Lego Movie,” you might actually feel like singing “Everything is Awesome” every morning.

Travois Design & Construction Services assists tribes in both the design and construction phases of LIHTC projects. We get especially excited when Native contractors and sub-contractors win the work of building our clients’ projects. Creating jobs on reservations is one enormous benefit of the Low Income Housing Tax Credit program, and it’s a win-win when Native construction companies are involved.

Over the years, we have noticed one commonality among tribal contractors across the country — the difficulty they have in obtaining bonding.

These requirements can make it too difficult for many Native owned contractors to even apply. These stipulations limit opportunities to not only provide work for the very people this housing should benefit, but it can also decrease the selection pool from which housing authorities can pull from, thereby further weakening value, lowering the potential for competitive bidding and requiring clients to look at potential contractors who may not actually be the best fit for their projects.

The Small Business Administration runs the Surety Bond Guarantee Program, but not many Native American contractors have used it.

This article in the Federal Reserve Bank of Minneapolis “CommunityDividend” publication further explains the issue.

Many federally-funded, Native American construction contracts are required to give preference to those companies that are tribally-owned. However, these contractors and sub-contractors run into a “chicken or the egg” problem that many small, newer or disadvantaged firms often face. How can they gain the track record and the financial history to obtain the surety bond coverage that’s required to even be eligible to submit for these projects when they can’t get the experience and build their financial portfolio without these projects in the first place?

The U.S. Small Business Administration (SBA) has tried to assist in breaking the cycle through the Surety Bond Guarantee Program. Although the program was highly successful 40 years ago, various factors from cost to paperwork and underwriting decreased participation in the program. The SBA has now implemented the E-App System, which allows much of the paperwork to be completed and submitted online. They maintain a list of approved surety companies, which can also be accessed online, and it attempts to streamline the process in a way that will actually benefit the very companies that these projects may be perfect for.

For more information and eligibility requirements, visit the SBA’s website.