Small Business: Information on Participation in SBA's Bonding Activities
(Letter Report, 03/24/94, GAO/RCED-94-134).

The Small Business Administration's (SBA) Preferred Surety Bond
Guarantee Program allows approved insurance companies to issue
SBA-guaranteed surety bonds without SBA's prior approval of individual
bonds.  Surety bonds ensure that a contract will be completed, and
supplier and workers paid, should the contractor fail to perform the
contract.  The goal is to encourage large insurance companies to issue
SBA-guaranteed bonds and in turn increase the access the surety bonds by
small businesses owned and operated by minorities and disadvantaged
individuals.  GAO found that the program has boosted large insurance
company participation in SBA's bonding activities.  The impact on
minority firms is unclear, however.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-134
     TITLE:  Small Business: Information on Participation in SBA's 
             Bonding Activities
      DATE:  03/24/94
   SUBJECT:  Surety bonds
             Bid guarantees
             Small business assistance
             Small business contractors
             Small business contracts
             Minority contractors
             Program management
             Insurance companies
IDENTIFIER:  SBA Preferred Surety Bond Guarantee Program
             SBA Surety Bond Guarantee Program
             
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Cover
================================================================ COVER


Report to Congressional Committees

March 1994

SMALL BUSINESS - INFORMATION ON
PARTICIPATION IN SBA'S BONDING
ACTIVITIES

GAO/RCED-94-134

Participation in SBA's Bonding Activities


Abbreviations
=============================================================== ABBREV

  GAO - General Accounting Office
  PSB - preferred surety bond guarantee
  SBA - Small Business Administration
  SBG - surety bond guarantee

Letter
=============================================================== LETTER


B-242985

March 24, 1994

The Honorable Dale L.  Bumpers
Chairman
The Honorable Larry Pressler
Ranking Minority Member
Committee on Small Business
United States Senate

The Honorable John J.  LaFalce
Chairman
The Honorable Jan Meyers
Ranking Minority Member
Committee on Small Business
House of Representatives

The Small Business Administration's (SBA) Preferred Surety Bond
Guarantee (PSB) Program allows approved insurance companies to issue
SBA-guaranteed surety bonds without SBA's prior approval of
individual bonds.  Surety bonds ensure that a contract will be
completed, and suppliers and workers paid, should the contractor fail
to perform the contract.  The program is designed to encourage large
insurance companies (commonly referred to as standard sureties) to
issue SBA-guaranteed bonds and in turn increase the access to surety
bonds by small businesses owned and operated by minorities and other
disadvantaged individuals.  SBA also guarantees bonds under the
Surety Bond Guarantee (SBG) Program, established in 1971, which
requires SBA's approval of the bonds before issuance. 

The Congress initially authorized the PSB program as a pilot in 1988
and extended this authorization in 1990 until September 30, 1994. 
The 1990 legislation required GAO to report on whether, during fiscal
years 1991 through 1993, the PSB program (1) increased standard
sureties' participation in SBA's bonding activities (which occurs
under both the PSB and SBG programs) and (2) expanded minority-owned
businesses' access to SBA-guaranteed bonds.  In addressing the first
issue, we also agreed to provide information on SBA's losses on
guaranteed bonds, the types of entities (e.g., federal, state, and
local governments) requiring the bonds, and the number of bonds and
value of contracts guaranteed by SBA, along with the regional
distribution of these bonds. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The PSB program has increased standard sureties' participation in
SBA's bonding activities.  During fiscal years 1991 through 1993,
standard sureties in the PSB program accounted for about 9 percent of
the bonds and 13 percent of the contract dollars guaranteed by SBA. 
By comparison, during fiscal years 1987 through 1989, standard
sureties accounted for less than 1 percent of the bonds and the
contract dollars guaranteed.  In total, SBA guaranteed bonds on
contracts valued at $3.1 billion during fiscal years 1991 through
1993, with the PSB program accounting for $391 million of these
contract dollars. 

Three standard sureties, two of which are affiliated companies,
issued 85 percent of the bonds guaranteed under the PSB program.  One
of these three companies accounted for 65 percent of the bonds
guaranteed.  However, half of the 14 standard sureties approved for
the program as of March 1994 received approval during 1993,
suggesting a broadening of interest in the program. 

The impact on minority firms is unclear.  Firms designated as
minority-owned accounted for 18 percent of all SBA- guaranteed bonds
issued during fiscal years 1991 through 1993, compared to 15 percent
during fiscal years 1987 through 1989.  However, the large number of
firms whose minority or nonminority status is unknown, particularly
in the 1987 through 1989 period, creates uncertainty about what the
true extent of minority firms' participation has been and whether
such participation has increased. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Bonding is a three-party agreement whereby the surety guarantees the
owner or agency issuing a contract that the contractor or
subcontractor will perform the contract.  There are three types of
surety bonds--bid, performance, and payment.  A bid bond ensures that
the bidder will not withdraw its bid within the time period specified
for acceptance and, if its bid is accepted, will enter into a written
contract and will furnish any additional bonds required.  A
performance bond ensures that if the contractor or subcontractor does
not complete the work, the surety will either pay to complete it or
pay up to 100 percent of the penal amount of the contract.  A payment
bond guarantees that subcontractors, suppliers, and employees will be
paid for the work performed and/or materials provided under a
contract. 

Most surety bonds apply to construction contracts.  Federal law
requires performance and payment bonds on federal construction
contracts over $25,000.  Most states and many local governments also
require contractors to obtain bonding.  Contractors may, in turn,
require firms they subcontract with to obtain bonding.  According to
1987 census data (the latest available), minority-owned firms
constitute about 7 percent of all firms in the construction industry. 

Under the PSB and SBG programs,\1 SBA, by guaranteeing part of the
bond, assumes a portion of the surety's liability in the event the
contractor or subcontractor defaults on the contract.  Under both
programs, SBA guarantees bonds for construction and other contracts
of up to $1.25 million.  Under the PSB program, SBA can guarantee up
to 70 percent of the loss on contracts.  Under the SBG program, SBA
can guarantee up to 80 percent of the loss.  However, under the SBG
program, the guarantee can be up to 90 percent of the loss on
contracts (1) with a value of $100,000 or less or (2) awarded to
small businesses owned and controlled by socially and economically
disadvantaged individuals. 

Initially, most of the surety bonds guaranteed by SBA were
underwritten and issued by standard sureties.  Standard sureties also
handle most of the bonds not guaranteed by SBA and provide other
services such as property and casualty insurance.  There are also
specialty sureties, which devote most of their business to
SBA-guaranteed bonds, but also issue bonds outside SBA's program to
smaller firms. 

In the mid-1980s, SBA faced two problems.  First, standard sureties
were leaving the SBG program because, among other things, they were
required to submit each bond application to SBA for review and
approval.  Second, small businesses, especially those owned and
operated by minorities, reported difficulty in obtaining surety
bonds.  To encourage standard sureties to again issue SBA-guaranteed
bonds and, at the same time, expand the opportunities for
minority-owned businesses to obtain these bonds, the Congress passed
the Small Business Administration Reauthorization and Amendments Act
of 1988, establishing the PSB program on a pilot basis.  The PSB
program differs from the SBG program in that under this pilot,
standard sureties whose surety bond underwriting, administration, and
claims procedures are approved by SBA are allowed to issue, monitor,
and service guaranteed surety bonds without SBA's prior approval. 
(See app.  I for additional details on the PSB program's
requirements.)

The 1988 legislation establishing the PSB program also required GAO
to report to the Congress on the program's progress.  Because the
first bonds were not guaranteed under the PSB program until fiscal
year 1991, our 1991 report\2 discussed the status of the program and
provided information on SBA's surety bonding activities under the SBG
program for fiscal years 1987 through 1989, which could be used as
baseline data for future analyses.  In November 1990, the Congress
passed the Small Business Administration Reauthorization and
Amendments Act of 1990, extending the PSB program until September 30,
1994, and mandating GAO to report on it. 


--------------------
\1 Within the surety industry, the SBG program is commonly referred
to as the "prior approval" program, while the PSB program, being
SBA's second bond program, is often referred to as the "plan B"
program. 

\2 Small Business:  Information on and Improvements Needed to Surety
Bond Guarantee Programs (GAO/RCED-91-99, Apr.  23, 1991). 


   STANDARD SURETIES'
   PARTICIPATION HAS INCREASED
------------------------------------------------------------ Letter :3

Standard sureties' participation in SBA's bonding activities has
increased.  Standard sureties in the PSB program accounted for 9
percent of all bonds and 13 percent of the contract dollars
guaranteed by SBA during fiscal years 1991 through 1993.  In
contrast, standard sureties accounted for less than 1 percent of both
the bonds and contract dollars guaranteed by SBA during fiscal years
1987 through 1989.  In fiscal year 1993 alone, standard sureties in
the PSB program accounted for 15 percent of the bonds and 20 percent
of the contract dollars guaranteed by SBA. 

One surety, Fidelity and Deposit Company of Maryland, accounted for
much of the activity under the PSB program during fiscal years 1991
through 1993.  As shown in table 1, this surety issued 65 percent of
the bonds guaranteed.  According to Fidelity and Deposit officials,
the company was well positioned to take advantage of the program
because it concentrated on small and medium- sized contractors; as a
result, it aggressively marketed the program to its broker network. 
Two other affiliated sureties--United States Fidelity and Guaranty
Company, and Fidelity and Guaranty Insurance Company--accounted for
20 percent of the bonds guaranteed under the program. 



                                     Table 1
                     
                      Standard Sureties Participating in PSB
                                     Program

                                                                      Percentage
                                                       Percentage             of
                                                               of       contract
                                                            bonds        dollars
                                            Date of        issued     guaranteed
                                              SBA's   in FY 1991-             in
Standard surety  Parent company            approval          93\a   FY 1991-93\b
---------------  --------------------  ------------  ------------  -------------
Fidelity and     Fidelity & Deposit        May 1990          65.0           66.3
 Deposit          Group
 Company of
 Maryland
Fidelity and     United States            Mar. 1991          20.1           17.1
 Guaranty         Fidelity and
 Insurance        Guaranty Group
 Company\c

 United States
 Fidelity and
 Guaranty
 Company\c
The Standard     Aetna Life and           June 1990           7.8           11.2
 Fire Insurance   Casualty Company
 Company          Group
Continental      CNA Insurance            Nov. 1992           5.0            3.6
 Casualty         Companies
 Company
First National   SAFECO Insurance         Nov. 1992           1.9            1.6
 Insurance        Companies
 Company of
 America
SAFECO           SAFECO Insurance         Nov. 1992             0              0
 Insurance        Companies
 Company of
 America

American         CNA Insurance            Feb. 1993           0.2            0.1
 Casualty         Companies
 Company of
 Reading,
 Pennsylvania
Farmington       Aetna Life and           Mar. 1993           0.2            0.1
 Casualty         Casualty Company
 Company          Group
Fireman's        Continental              Jan. 1993             0              0
 Insurance        Insurance Companies
 Company of
 Newark, New
 Jersey
The St. Paul     The St. Paul             Aug. 1993             0              0
 Guardian         Companies,
 Insurance        Incorporated
 Company
The Explorer     ICW Group of San         Dec. 1993            \d             \d
 Insurance        Diego, California
 Company
The Insurance    ICW Group of San         Dec. 1993            \d             \d
 Company of the   Diego, California
 West
Great American   American Financial       Dec. 1993            \d             \d
 Insurance        Insurance Group of
 Company          Cincinnati, Ohio
================================================================================
Total                                                     100.0\e          100.0
--------------------------------------------------------------------------------
\a The total number of bonds issued was 1,995. 

\b The total value of the contracts guaranteed was $391 million. 

\c These two sureties are covered by one SBA agreement and guarantee
authority.  SBA's information system does not distinguish which
surety issued the bonds. 

\d The surety was not approved for the program until fiscal year
1994. 

\e Column does not add to 100.0 because of rounding. 

Source:  SBA Office of Surety Guarantees. 

Fidelity and Deposit was the first surety approved for the PSB
program.  As of March 1994, 14 sureties have been approved, 7 of them
in 1993. 

At the time the PSB program was enacted, concern was expressed that
it would simply shift firms from the SBG program to the PSB program. 
This does not appear to be the case.  Nearly 88 percent of the
contractors receiving bonding under the PSB program had not, in the
recent past, received an SBA-guaranteed bond.\3 Surety officials
indicated that the large number of new firms in the PSB program
reflects high turnover in the industry and differences in the
marketing network that standard and specialty sureties rely on. 
Standard sureties generally sell bonds through independent brokers
that work with multiple sureties, submitting bonds to the sureties
for underwriting.  Specialty sureties sell bonds through managing
general agents that have underwriting authority and normally work
exclusively with one surety. 

Losses under the PSB program have been lower than those experienced
under the SBG program.  For bonds issued under the PSB program during
fiscal years 1991 through 1993, SBA paid out about $1.1 million in
losses, for an overall loss rate of 0.43 percent.\4 By comparison,
under the SBG program during this same period, SBA paid out $18.8
million, for an overall loss rate of 0.87 percent.  SBA officials
believe that the lower loss rate for the PSB program reflects the
sureties' reluctance, with a 70-percent guarantee, to underwrite the
riskier bonds.  Surety officials also explained that they concentrate
on firms with growth potential. 

The PSB program guaranteed bonds primarily for contracts awarded by
public sector entities.  As shown in figure 1, local government
contracts accounted for the largest share of the total contract
dollars.  Federal contracts accounted for a much smaller share,
although it should be noted that under some federal programs, such as
Transportation's federally assisted highway program, contracts are
awarded by state and local governments.  Private sector contracts
accounted for 18 percent of the bonds and 24 percent of the contract
dollars guaranteed. 

   Figure 1:  Entities Awarding
   Contracts With Guarantees Under
   the PSB Program, Fiscal Years
   1991 Through 1993

   (See figure in printed
   edition.)

\a Public entities other than federal, state, or local governments,
such as school districts or sewer districts. 

This pattern does not differ substantially from that of the SBG
program.  Local governments accounted for the largest share of the
contract dollars guaranteed under this program (28 percent), followed
by the federal government (22 percent), private industry (21
percent), state governments (11 percent), and special districts (10
percent). 

Despite the growth in standard sureties' participation in SBA's
bonding activities, the overall number of bonds guaranteed declined
sharply.  For fiscal years 1987 through 1989, SBA guaranteed a total
of 33,408 bonds on contracts valued at $3.9 billion.  For fiscal
years 1991 through 1993, SBA guaranteed 21,517 bonds on contracts
valued at about $3.1 billion, a 36-percent decrease in the number of
bonds and a 21-percent decrease in the contract dollars guaranteed.\5
SBA and surety officials attributed this decline to the downturn in
the economy that sharply affected the construction industry.  In
addition to reducing contract spending, this downturn has led larger
contractors to compete for smaller contracts.  Officials also pointed
to the growth in the number of sureties willing to bond small
contractors without a government guarantee. 


--------------------
\3 SBA provided data that we used to compare the firms receiving
bonding under the PSB program to those firms that had received bonds
under the SBG program since 1988. 

\4 Normally, SBA calculates the loss rate for a fiscal year by taking
the dollars paid in losses during the year (regardless of the bond
issuance date) as a percentage of SBA's share of the bonds guaranteed
during that year.  However, in order to compare the PSB program's and
SBG program's loss rates, we asked SBA to compute loss rates based
solely on the bonds issued during fiscal years 1991 through 1993. 

\5 SBA guaranteed 1,995 bonds on contracts valued at $391 million
under the PSB program and 19,522 bonds on contracts valued at $2.7
billion under the SBG program.  See app.  II for data on the regional
distribution of these bonds. 


   DATA ON MINORITY PARTICIPATION
   ARE INCONCLUSIVE
------------------------------------------------------------ Letter :4

During fiscal years 1991 through 1993, SBA guaranteed at least 3,876
bonds for minority-owned firms--293 bonds under the PSB program and
3,583 bonds under the SBG program.  As shown in figure 2, this
represented 18 percent of the bonds (and 21 percent of the contract
dollars) guaranteed by SBA.  In addition to the firms designated as
minority-owned, there were 1,087 firms classified as "undetermined";
that is, their minority or nonminority status was unknown.  (See app. 
III for additional details.)

   Figure 2:  Percentage of
   SBA-Guaranteed Bonds Issued to
   Minority-Owned Firms, Fiscal
   Years 1991 Through 1993

   (See figure in printed
   edition.)

Figure 3 compares the proportion of bonds issued to minority-owned
firms during fiscal years 1991 through 1993 with the proportion
issued to minority-owned firms during fiscal years 1987 through 1989. 
Although the minimum percentage going to minority-owned firms
increased from 15 to 18 percent, the number of firms whose status as
a minority or nonminority business was undetermined leads to
ambiguity in the data.  For fiscal years 1987 through 1989, 10
percent of all bonds went to firms whose status was unknown.  As a
result, the proportion of bonds going to minority-owned firms could
have ranged from 15 to 25 percent during that period.  Thus, the
proportion of bonds going to minority-owned firms could have been as
high as 25 percent in the base period (fiscal years 1987 through
1989) and as low as 18 percent during fiscal years 1991 through 1993. 
SBA and surety officials believe that most of the firms whose status
was undetermined were nonminority businesses.  The officials cite the
higher guarantee rate for minorities in the SBG program and
heightened public concern over minorities' access to bonding as
incentives for identifying those firms that are minority-owned. 

   Figure 3:  Percentage of
   SBA-Guaranteed Bonds Issued to
   Minority-Owned Firms, Fiscal
   Years 1987 Through 1989, 1991
   Through 1993

   (See figure in printed
   edition.)

During fiscal years 1991 through 1993, the number of firms whose
minority/nonminority status was undetermined dropped to 5 percent,
down from 10 percent during fiscal years 1987 through 1989. 
Beginning in 1991, in response to a recommendation in our 1991
report, SBA took action designed to address the problem of
undetermined status.  In July 1991, SBA issued interim procedures
instructing that when an application does not contain a minority
classification code, SBA regional offices are to attempt to determine
the firm's classification by actions such as contacting the surety or
the firm directly.  SBA regional offices were also directed to
document their attempts to identify the minority/nonminority
classification and, if needed, to justify an undetermined
classification in the firm's file. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

The PSB program has facilitated standard sureties' increased
participation in SBA's bonding activities.  While a large share of
the bonding activities is accounted for by three sureties, a number
of sureties have received approval for the program over the past
year, suggesting a broadening of interest in the program.  The PSB
program has experienced a lower loss rate than the SBG program. 

The impact of the program on minority-owned firms is unclear.  While
firms classified as minority-owned firms received a higher share of
SBA-guaranteed bonds during fiscal years 1991 through 1993 than was
the case during fiscal years 1987 through 1989, the number of firms
whose minority/nonminority status was unknown creates uncertainty as
to the true extent of minorities' use of SBA-guaranteed bonds. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :6

We conducted our review from June 1993 through February 1994 in
accordance with generally accepted government auditing standards. 
Our analysis of SBA's bonding activities for fiscal years 1991
through 1993 relied on data contained in SBA's management information
system.  Our assessment of the reliability of data in this system,
which disclosed several weaknesses, is contained in our 1991 report. 
(See app.  IV.) We also relied on our 1991 report for data on bonding
activities during fiscal years 1987 through 1989.  As in our 1991
report, the analysis for this report covers only performance and
payment bonds.  To understand the significance and implications of
these data, we interviewed SBA and surety association officials.  We
also talked with the sureties accounting for much of the bonding
activity, as well as large sureties that were not participating in
the program.  We also reviewed legislation, regulations, and
procedures pertaining to SBA's guarantee programs.  Prior GAO reports
on surety bonding are identified in appendix IV. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We discussed the report with SBA's Assistant Administrator for Surety
Guarantees, who generally agreed with the facts presented.  We
incorporated SBA's suggested revisions where appropriate.  However,
as agreed, we did not obtain written agency comments on this report. 


---------------------------------------------------------- Letter :7.1

As agreed with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
provide copies of the report to the Administrator, SBA, and the
Director, Office of Management and Budget.  We also will make copies
available to others upon request. 

Please contact me on (202) 512-7631 if you or your staff have any
questions about this report.  Major contributors to this report are
listed in appendix V. 

Judy A.  England-Joseph
Director, Housing and Community
 Development Issues


THE PREFERRED SURETY BOND
GUARANTEE PROGRAM'S REQUIREMENTS
=========================================================== Appendix I

The Small Business Administration's (SBA) regulations require that to
be eligible to participate in the Preferred Surety Bond Guarantee
(PSB) Program, a surety must be listed on the U.S.  Treasury
Department's list of companies that are eligible to issue bonds for
federal procurement contracts and must have an underwriting authority
of at least $1.25 million.  The surety must then be deemed eligible
by SBA to participate specifically in the PSB program.  In
determining if a surety is eligible, SBA requires, among other
things, (1) an agreement that the surety will not charge small
businesses more than the advisory premiums set by the Surety
Association of America,\6 (2) a determination that premium income
from contract bonds guaranteed by any government agency--federal,
state, or local--does not exceed one-quarter of the surety's total
income from contract bond premiums, (3) an assurance that
underwriting authority for SBA-guaranteed bonds will be limited to
employees of the surety company, and (4) an assurance that final
settlement authority for claims under the PSB program will be
restricted to employees of the surety's permanent claims department
who are satisfactory to SBA. 

Once a surety is deemed eligible to participate in the PSB program,
it signs a PSB agreement with SBA.  Included in the agreement are
restrictions placed upon the surety that include prohibitions against
(1) participating in SBA's Surety Bond Guarantee (SBG) program while
it is participating in the PSB program--affiliates of the surety are
also prohibited from participating in the SBG program--and (2)
reducing its liability on a guaranteed bond through any type of
agreement.  The PSB agreement also specifies the standard surety's
responsibilities, including (1) electronically transferring
information to SBA within 10 business days of a bond's issuance and
(2) obtaining job status reports from the owner or agency issuing the
contract. 

The surety is required to share with SBA the premium paid by the
contractor.  The surety retains 80 percent of the premium, and SBA
receives the remaining 20 percent.  In addition to its portion of the
premium, SBA also receives from the contractor a fee of $6 per
thousand dollars of the contract or bond amount. 

SBA can guarantee a bond for a construction or other contract of up
to $1.25 million if (1) the bond is required to obtain the contract,
(2) the firm requesting the bond had average annual gross receipts
that did not exceed $3.5 million during the preceding 3 years, and
(3) the firm is unable to obtain a bond without the SBA guarantee. 

SBA sets a limit on the dollar amount of surety bond guarantees that
the surety may have outstanding at any one time.  This limit is based
on the surety's anticipated bonding activity and can be adjusted at
any time.  As of September 30, 1993, the maximum authority granted to
standard sureties in the PSB program ranged from a low of $1 million
to a high of $115 million. 


--------------------
\6 Because the Surety Association of America no longer sets advisory
premium rates, SBA currently limits sureties to the rates in the last
premium schedule set by the association.  SBA plans to modify its
regulation concerning premium rates. 


REGIONAL DISTRIBUTION OF
SBA-GUARANTEED BONDS, FISCAL YEARS
1991 THROUGH 1993
========================================================== Appendix II


                                                    Contract            All SBA-
                                             Bonds   dollars            guarante
SBA                                          under     under  All SBA-        ed
regional   States and territories              PSB       PSB  guarante  contract
office     included in region              program   program  ed bonds   dollars
---------  ------------------------------  -------  --------  --------  --------
Boston     Massachusetts, Maine, New          10.6       6.7       9.0       5.7
            Hampshire, Connecticut,
            Vermont, Rhode Island
New York   New York, New Jersey, Puerto        2.0       0.7       1.2       0.8
            Rico, Virgin Islands
Philadelp  Maryland, West Virginia,            5.9       2.8       4.7       4.0
 hia        Pennsylvania, Virginia,
            District of Columbia,
            Delaware
Atlanta    Alabama, North Carolina, South     24.9      16.4      26.9      20.1
            Carolina, Georgia,
            Mississippi, Florida,
            Kentucky, Tennessee
Chicago    Illinois, Ohio, Minnesota,         19.1      21.0      13.9      15.0
            Indiana, Wisconsin, Michigan
Dallas     Texas, New Mexico, Arkanasas,      15.8      15.2      21.5      16.6
            Louisiana, Oklahoma
Kansas     Iowa, Kansas, Nebraska,            13.1      15.7      12.8      12.9
 City       Missouri
Denver     Colorado, Utah, North Dakota,       2.5      13.3       2.8      17.3
            South Dakota, Montana,
            Wyoming
San        California, Nevada, Arizona,        4.2       4.4       4.3       4.2
 Francisco  Hawaii, Gaum
Seattle    Washington, Alaska, Idaho,          1.9       3.9       3.0       3.4
            Oregon
================================================================================
Total\a                                      100.0     100.0     100.0     100.0
--------------------------------------------------------------------------------
\a Percentages sometimes do not add to 100 percent because of
rounding. 


DISTRIBUTION OF SBA-GUARANTEED
BONDS AMONG MINORITY AND
NONMINORITY FIRMS, FISCAL YEARS
1991 THROUGH 1993
========================================================= Appendix III



                          Numb  Percenta            Percenta            Percenta
Ownership of firm           er        ge    Number        ge    Number        ge
------------------------  ----  --------  --------  --------  --------  --------
Black                       90       4.5     1,620       8.3     1,710       7.9
Puerto Rican                10       0.5        84       0.4        94       0.4
Indian                      57       2.9       430       2.2       487       2.3
Hispanic                    82       4.1       878       4.5       960       4.5
Asian                       46       2.3       530       2.7       576       2.7
Eskimo                       4       0.2        10       0.1        14       0.1
Multigroup                   4       0.2        31       0.2        35       0.2
================================================================================
Subtotal                   293      14.7     3,583      18.4     3,876      18.0
Nonminority               1,67      84.2    14,875      76.2    16,554      76.9
                             9
Undetermined                23       1.2     1,064       5.5     1,087       5.1
================================================================================
Total\a                   1,99     100.0    19,522     100.0    21,517     100.0
                             5
--------------------------------------------------------------------------------
\a Percentages sometimes do not add to 100 percent because of
rounding. 


PRIOR GAO REPORTS ON SBA'S SURETY
BOND PROGRAMS
========================================================== Appendix IV

Surety Bond Waiver Program (GAO/NSIAD-93-255R, Aug.  24, 1993). 

This report, mandated by the conference report on the National
Defense Authorization Act for Fiscal Years 1992 and 1993 (P.L. 
102-190), reviewed the implementation of a test program that allowed
the Department of Defense to award construction contracts to small
and disadvantaged businesses without requiring the submission of
performance and payment surety bonds.  We found that (1) SBA and the
Defense Department used their waiver authority to exempt only 9
contracts between fiscal year 1992 and June 30, 1993, despite the
test program's congressional goal that 30 contracts per year be
awarded with the exemptions; (2) Army officials did not follow
regulations and procedures when using the waiver authority; and (3)
Defense Department officials did not believe the waivers were
necessary. 

Small Business:  Use of the Surety Bond Waiver Has Been Limited
(GAO/RCED-92-166, July 7, 1992). 

This report provided information on SBA's Surety Bond Waiver Program,
including its implementation and impact on SBA's 8(a) program, which
is designed to assist small businesses owned and controlled by
socially and economically disadvantaged individuals.  This report,
covering fiscal years 1989 through 1991, was required by the
conference report on the National Defense Authorization Act of 1990
and 1991. 

We found that (1) the use of surety bond waivers was limited by
legislation requiring SBA to select 8(a) program participants
recommended by the procuring agencies; (2) the Defense Department did
not meet its congressional goal for issuing contracts with surety
bond waivers for fiscal years 1990 and 1991; (3) delays in revisions
of Federal Acquisition Regulations may have resulted in fewer
opportunities for using these waivers for Defense Department
contracts; (4) the potential use of the waivers could not be
determined because SBA and Defense Department field offices did not
collect the data needed; (5) SBA had not provided to the responsible
field staff training on issuing waivers; and (6) SBA conducted
limited relevant outreach efforts. 

Construction Contracts:  Individual Sureties Had No Defaults on
Fiscal Year 1991 Contracts (GAO/GGD-92-69, Apr.  1, 1992). 

The Treasury, Postal Service, and General Government Appropriations
Act of 1991 required GAO to assess contractors' use of individual
sureties to meet bonding requirements on federal contracts and the
related default rate.  (An individual surety is a person, as
distinguished from a business entity, who is liable for the amount of
the bond obligation.) For fiscal year 1991, we found that (1)
contractors used individual sureties for about 1 percent of the
federal construction contracts requiring bonding; (2) individual
sureties bonded about 2 percent of such contracts that were awarded
to minority firms; (3) none of the prime contractors defaulted on
federal construction contracts that had been bonded by individual
sureties; and (4) it was too early to determine the effects of
February 1990 changes to the Federal Acquisition Regulations intended
to curtail abuses by individual sureties. 

Small Business:  Information on and Improvements Needed to Surety
Bond Guarantee Programs (GAO/RCED-91-99, Apr.  23, 1991). 

In response to a request by the Chairmen, Senate and House Committees
on Small Business, and requirements of the Small Business
Administration Reauthorization and Amendments Act of 1988, we
provided information, for fiscal years 1987 through 1989, on (1)
SBA's SBG program and (2) the status of SBA's pilot PSB program. 
Regarding the SBG program, we found that 33,408 bonds were awarded
with SBA guarantees.  We calculated that (1) local governments'
contracts had the largest percentage of bonds, (2) minority firms
received about 15 percent of the bonds, and (3) standard sureties
accounted for less than 1 percent of SBA guaranteed bonds.  In
assessing the reliability of SBA's data base, we found weaknesses
involving (1) guidance to field staff on procedures to follow when
minority codes are missing, (2) documentation instructions for
entries made to the data base, (3) procedures to be used for
verifying entries into the data base, and (4) instructions for
categorizing the types of entities issuing contracts that require
bond guarantees.  We recommended that SBA address these weaknesses in
a planned update of the surety bond standard operating procedures. 
As of mid-January 1994, SBA had not issued these procedures but had
issued interim procedures regarding actions to be taken to identify
missing minority codes.  Regarding the PSB program, we found that as
of February 1991, over 2 years after legislation authorizing the
pilot program, only two sureties were approved for the program and
only one had issued SBA-guaranteed bonds. 

Small Business:  Individual Sureties Used to Support Federal
Construction Contract Bonds (GAO/RCED-90-28FS, Oct.  3, 1989). 

As required by the conference report on the Small Business
Administration Reauthorization and Amendments Act of 1988, we
provided information about (1) small businesses' use of individual
sureties for construction contracts and the types of losses on the
bonds these sureties issued and (2) GAO's bid protest decisions
involving individual sureties.  We found that (1) aggregate data did
not exist on either the use of individual sureties or the losses on
the bonds they issued because federal agencies contracting for much
of the government's construction and the associations representing
construction contractors did not routinely collect such data.  We
also found that the number of GAO's bid protest decisions had
increased from 6 in calendar year 1987 to 23 in the first 6 months of
calendar year 1989. 

Surety Bond Guarantee Program:  Small Business Administration's
Actions on Prior Program Recommendations (GAO/RCED-86-183BR, Sept. 
18, 1986). 

In response to an October 17, 1985, request from the Chairmen and
other Members of the Senate and House Committees on Small Business,
we reviewed SBA's implementation of previous recommendations by us
and SBA's Inspector General to improve the management of the SBG
program, including SBA's underwriting and claims processes and
automated program information system.  We found that SBA had
implemented recommendations relating to issuing new underwriting
guidelines and had developed a procedure to calculate a loss ratio
for the program comparable to the procedure used in the private
sector.  We also found that SBA was in the process of developing an
automated management information system.  According to SBA officials,
other recommendations were not being implemented because, among other
reasons, actions the agency had already taken were similar to those
recommended. 

SBA's Progress in Implementing the Public Law 95-507 Subcontracting
and Surety Bond Waiver Provisions Has Been Limited (GAO/CED-81-151,
Sept.  18, 1981). 

As required by Public Law 95-507 (Oct.  24, 1978), we reviewed
actions taken by SBA and the Presidential Advisory Committee to
promote subcontracting as a means of developing small and small
disadvantaged businesses, and SBA's implementation of the surety bond
waiver provision of the law.  We found that the Presidential Advisory
Committee focused on federal subcontracting rather than
subcontracting by the private sector, though P.L.  95-507 intended to
promote the latter, and that SBA's actions were limited to agreements
with four corporations that resulted in only two subcontracts.  We
also found that SBA had not implemented the surety bond waiver
provision of P.L.  95-507. 

Status Report on Small and Small Minority Business Subcontracting and
Waiver of Surety Bonding for 8(a) Firms (GAO/CED-80-130, Aug.  20,
1980). 

Public Law 95-507 required GAO to review SBA's actions encouraging
large businesses to subcontract with small and small minority firms. 
We found that SBA's implementation of the program was impeded by
delays in creating a presidentially appointed committee, which was to
assist SBA in this task; a lack of specific functions and goals for
the committee; and the committee's focus on federal contracting. 
There was also a delay in implementing the surety bond waiver
provision because proposed rules and regulations were not published
and because there was confusion over which SBA Associate
Administrator had responsibility for administering the provision. 

Surety Bond Guarantee Program:  Significant Changes Are Needed in Its
Management (GAO/CED-80-34, Dec.  27, 1979). 

At the request of the Chairman, Senate Select Committee on Small
Business, we reviewed SBA's SBG program.  We found that SBA's
management of the program was unsatisfactory for the following
reasons.  First, bond guarantees were often based on unreliable
underwriting data and superficial reviews.  Second, SBA and the
surety companies made little effort to minimize losses resulting from
contract defaults.  Third, the program did not graduate a significant
number of contractors into the private surety bonding market. 
Finally, SBA was not providing managerial assistance to contractors
bonded under the program. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Jacquelyn L.  Williams-Bridgers, Associate Director
Karen S.  Zuckerstein, Assistant Director
James R.  Yeager, Assistant Director
Stanley P.  Ritchick Jr., Assignment Manager
Donald J.  Sangirardi, Evaluator-in-Charge
Karen E.  Bracey, Technical Adviser
John H.  Skeen, III, Managing Editor

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