Congress Tightens Surety Asset Rules

November 19, 2015

The defense authorization also expands SBA-backed surety bonds

Tucked into the defense authorization passed by Congress Monday are little-noticed amendments that should eliminate much of the fraud that has characterized individual surety bonds and expand the Small Business Administration’s flexibility in backing bonds for small contractors.

The surety measure tightens up the rules for using individual sureties on federal projects by requiring the assets backing the bonds to be real and deposited into an account that is in the care of the federal government.

The measure also expands the SBA’s ability to back bonds under its guarantee program, from 70% to 90% of the loss paid by a participating surety, on a contract amount up to $6.5 million.

The amendments are contained in Section 874 of the National Defense Authorization Act, which President Obama is expected to sign. Major industry associations, including the Surety & Fidelity Association of America and the National Association of Surety Bond Producers, backed the measures.

NASBP, which has battled individual sureties in court and in legislatures, views the passage as a major victory for the association and the industry.

“We are confident now our five years of toil to curb individual surety abuses on federal construction contracts are paying off,” said Mark McCallum, NASBP’s chief executive.

Rep. Richard Hanna (R), a former contractor whose district is in central New York State, was a key sponsor.

ENR’s investigations of individual sureties in 2013 revealed extensive use of deceptive assets.

Original Source: https://www.enr.com/articles/37939-congress-tightens-surety-asset-rules-with-eye-on-individual-surety-fraud

Richard Korman

November 12, 2015