On November 30, 2015, President Barack Obama signed the 2015 National Defense Authorization Act (NDAA) into law. The NDAA included two very important provisions for the surety industry. The first provision increased the SBA guarantee from 70% up to 90% in the preferred surety program. The second requires individual sureties to pledge known and reliable assets equal to 100% of the bond—a true game changer in the surety industry. Since the passing of the bill, individual surety usage has been greatly reduced nationwide.
As the President for the Surety Association of Wisconsin, I was invited to attend the Surety and Fidelity Association of America’s Congressional Action Day on May 6, 2015. While there I was able to lobby for the very surety provisions that were soon to be passed by the President. To give you some background as to what makes these provisions so significant, let me first explain the role of SBA guaranteed bonds and individual sureties in the surety industry.
SBA Guaranteed Bonds
SBA guaranteed bonds help contractors that don’t qualify for bonding in the standard market to obtain bonding from an SBA appointed corporate surety and agent. From my own personal experiences, this helps more bonds to be approved. However, not a significant amount as sureties still underwrite based on a 0% loss ratio.
The SBA guarantee increase is soon to be implemented by surety companies. This will greatly reduce the paperwork required by our office in order to provide guarantees on the surety bonds for our SBA contractors.
The Miller Act gives rights to both corporate and individual sureties to provide bonds on Federal projects. Whereas corporate sureties were rated by AM Best and audited by the Federal Government’s T Listing, individual sureties have been unregulated.
Unfortunately, individual sureties have been issuing bonds on behalf of contractors to the Federal government and other owners with little to no assets backing the bonds. Often times, individual sureties claimed their assets were mineral rights in land they owned. After a little digging, you’d find these assets were worthless. When these projects fail, the individual sureties do not complete the projects or pay suppliers and subcontractors that are owed money.
Lobbying For Surety
Before heading to Washington D.C., I learned that both of Wisconsin’s Senators sat on the Senate Homeland Security and Governmental Affairs Committee (HSGAC), which has jurisdiction over the Construction Coalition procurement legislation. Therefore, it was important to have a Wisconsin delegate meet with the offices of committee chair, Senator Ron Johnson and minority member, Senator Tammy Baldwin.
After arriving, I met with the SFAA Government Affairs Committee and was paired with Larry LeClaire, lobbyist for the National Association of Surety Bond Producers, for the meetings with the Senators. Our goal for the meetings was to garner support and inform the offices of the surety provisions in the NDAA. As a surety bond producer, I am experienced in the art of explaining surety because most people don’t know what it is.
Mr. LeClaire and myself entered the first meeting with Dahlia Melendez from Senator Baldwin’s staff in the Hart Senate Office Building. Being my first time lobbying, I didn’t exactly know what to expect. So, I did what I do best and explained surety, what we were trying to accomplish and asked for their support. Next came the questions I knew nothing about. Such as, “What is the associated cost?” and “Which Senators are sponsoring it?”
Later I found out the cost was $500,000 for the SBA guarantee and no cost for the requirement of the individual sureties to provide legitimate assets for collateral. Both of which are insignificant amounts in the grand scheme. Ms. Melendez thought these provisions were too different and should be included in different bills. Honestly, I would have been surprised if she had favorably proposed the surety provisions to Senator Baldwin or HSGAC.
The Meetings Continue
Our next meeting was with HSGAC chair, Senator Ron Johnson’s office in the Dirksen Senate Office Building. Patrick Bailey, Sean Casey and Rebecca Nuzzi met with us. All participants were positively engaged in our meeting and were very interested in my personal experiences. They understood this was not only good for the surety industry but for the taxpayers and obligees as well.
After a successful meeting, I made a dash to my last meeting with Representative Paul Ryan’s office in the Longworth House Office Building. When I say dash I mean this literally. Picture me running across Capitol Hill in a dark suit, new shoes and a briefcase on a humid 90 degree day.
Additionally I met with Lauren Schroeder at Representative Paul Ryan’s office and informed her of the provisions in hopes of receiving their office’s support. Even though the house previously passed these provisions, I believe it’s always good to touch as many people as possible when there is the opportunity.
Over the course of the day the SFAA members met with 20-30 members of congress to support the surety provisions. The next day we learned that a Senator openly pledged support in one of the other meetings! The SFAA knew this was a big step and would probably be included in the NDAA. However, the bill still needed to be signed by President Obama, which at the time we didn’t believe was an ardent supporter of the individual surety clause. Over 10 years, there must have been thousands of meetings to pass these bills, so this was all very exciting news!
Subsequently, the NDAA was signed into law. These long overdue provisions provide greater security on public construction projects and now allows more agencies to help their SBA contractors bid on more projects.