Small Business:

Individual Sureties Used to Support Federal Construction Contract Bonds

RCED-90-28FS: Published: Oct 3, 1989. Publicly Released: Oct 3, 1989.

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Pursuant to a legislative requirement, GAO provided information about: (1) small businesses' use of individual sureties for construction contracts; (2) the amount of losses resulting from use of individual sureties; and (3) GAO bid protest decisions involving the use of individual sureties.

GAO found that: (1) the Department of the Treasury reviewed and approved companies issuing corporate sureties, but did not approve individual sureties; (2) federal agencies did not routinely collect data on small businesses' use of individual sureties; (3) the Department of Veterans Affairs awarded 38 of its 865 fiscal year 1988 small business construction contracts to firms using individual sureties, while the General Services Administration awarded 27 of its 635 construction contracts to small businesses using individual sureties; (4) a private firm reported supplying individual sureties to support over $400 million in government construction contracts over 3 years, while another firm reported providing individual sureties for bonds amounting to $56.8 million in 1988; (5) 15 federal agencies reported a total of 45 investigations during June and July 1988 into fraudulent activity involving individual sureties; (6) losses and problems resulting from contractors' use of individual sureties involved staff time and expense for investigations or for reawarding contracts when sureties were not acceptable, project start delays, contractor reimbursement for worthless bonds, payments to other contractors for finishing defaulted contracts, and nonpayment of subcontractors and material suppliers; and (7) GAO protest decisions involving individual sureties have increased from 6 in 1987 to 23 in the first 6 months of 1989 and most commonly involved the surety's duty to disclose all outstanding bond obligations and the surety's financial ability to satisfy bond obligations.

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