[Congressional Record Volume 143, Number 130 (Thursday, September 25, 1997)]
[Extensions of Remarks]
[Pages E1863-E1864]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 THE EQUAL SURETY BOND OPPORTUNITY ACT

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                       HON. ELEANOR HOLMES NORTON

                      of the district of columbia

                    in the house of representatives

                      Thursday, September 25, 1997

  Ms. NORTON. Mr. Speaker, today I am pleased to introduce the Equal 
Surety Bond Opportunity Act [ESBOA]. The ESBOA will help qualified 
women and minority-owned businesses to compete in the contracting 
business by helping them obtain adequate surety bonding. In addition, 
the ESBOA is directed against barriers that many qualified small and 
emerging construction firms encounter in obtaining surety bonding. I 
have introduced this bill before. I do so again because it is a 
commonsense way to eliminate a serious form of discrimination without 
an additional enforcing bureaucracy.
  A surety bond is issued by insurers for the purpose of guaranteeing 
that should a bonded contractor default, a construction project will be 
completed and the contractor's employees and material suppliers will be 
paid. Surety bonding is mandatory for competing for all Federal 
construction work in excess of $25,000, all federally assisted 
construction projects in excess of $100,000, and most State and local 
public construction. However, surety bonding requirements are not 
restricted to government contracting. Increasingly, private 
construction contracts also require surety bonding. As surety bonding 
has become a widespread requirement, the inability to obtain surety 
bonding can cripple a construction firm, especially a small or a new 
one.
  In 1992, Congress acknowledged the importance of this issue when it 
enacted the Small Business Credit Crunch Relief Act and included 
legislation to study the problem of discrimination in the surety 
bonding field, Public Law 102-366, that I had introduced. The survey 
provision required the General Accounting Office [GAO] to conduct a 
comprehensive survey of business firms, especially those owned by women 
and minorities, to determine their experiences in obtaining surety 
bonding from corporate surety firms.
  The GAO completed the requested survey in June 1995. The survey found 
that of the 12,000 small construction firms surveyed, 77 percent had 
never obtained bonds. In addition, minority- and women-owned firms were 
more likely to be asked for certain types of financial documentation. 
Further, minority-owned firms were also more likely to be asked to 
provide collateral and to meet additional conditions not required by 
others.
  The ESBOA bill I am introducing today is modeled on the Equal Credit 
Opportunity Act

[[Page E1864]]

of 1968, which prohibited discrimination in credit practices. The ESBOA 
requires the contractor to notify the applicant of the action taken on 
his or her application within 20 days of receipt of a completed bond 
application. If the applicant is denied bonding, the surety would also 
be required, upon request, to provide a written statement of specific 
reasons for each denied request. Furthermore, the bill would provide 
civil liability in the form of damages and appropriate equitable relief 
should a surety company fail to comply with this notice requirement.
  This legislation would help all contractors to have a better 
understanding of the reasons behind the denial of their bond 
applications. Furthermore, the importance of civil penalties cannot be 
understated for minority applicants who currently have no recourse when 
they suspect that the denial of surety bonding was based on 
considerations such as gender, race, or religion.
  The disclosure of pertinent information to rejected applicants is an 
equitable principle familiar throughout the Federal acquisition 
process. This is the case when a small business is turned down for a 
government contract and has the opportunity to demand a negative pre-
award survey. With this information, the business can contest the award 
or use the information to be better prepared for the next award 
competition. The more a business knows about what is wrong with its 
proposal, the greater the likelihood that the next time the business 
will submit a better and more competitive proposal.
  According to the National Association of Minority Contractors [NAMC], 
many minority contractors reported being turned down for a bond without 
an explanation. When explanations are not proffered, a perception of 
discrimination in the surety industry is created. This perception 
drives minority contractors to obtain sureties outside the mainstream, 
often at significant additional expense and fewer protections, placing 
themselves, their subcontractors, and the government at greater risk.
  Civil penalties in this bill are necessary to compel surety bond 
companies to provide accurate and nondiscriminatory reasons for denial 
of surety bonding. This bill will provide the applicant with the 
necessary civil remedy should the surety bonding company refuse to 
provide this important information. In addition to providing essential 
information for future bond applications, a clear response will 
identify whether surety bonding companies are discriminatory or using 
fallacious criteria in making these decisions.
  This legislation will create an environment in which small business 
firms, particularly those owned and controlled by minorities and women, 
can successfully obtain adequate surety bonding. This legislation will 
enable us to ferret out continuing biases in the industry. I urge my 
colleagues to support this bill and help abolish the artificial 
impediments to the development and survival of emerging small 
businesses.

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