Small Business: Access to Surety Bonds

Pursuant to a legislative requirement, GAO discussed the use of surety bonds by small construction firms, focusing on the: (1) percentage of firms that obtained bonds; (2) reasons that bonds were denied; (3) conditions some firms had to meet to obtain surety bonds; and (4) changes in requirements for surety bonds on federal construction contracts. GAO noted that: (1) about 23 percent of the firms surveyed had obtained surety bonds; (2) 77 percent of the firms did not obtain bonds because they were not required to do so, the bonding requirements were too burdensome, the financial commitment was too high, or they believed that they would not qualify; (3) one in five firms that obtained a bond between 1990 and 1993 had also been denied a bond during those years, usually because of the firm's financial status or the firm had not performed the kind of work called for in the contract; (4) minority and women-owned businesses had a lower rate of obtaining bonds and often had to provide additional information to obtain them; and (5) new legislation increased the minimum value of federal construction contracts that require surety bonds and could eliminate the need for bonding for many firms.