An Analysis of Small Business Administration's Surety Bond Guarantee Program

Abstract

This paper reviews the performance of the Surety Bond Guarantee Program of the Small Business Administration in terms of its impact on small and minority contractors, Federal, state and local government construction costs, employment, and the cost to the taxpayer. With a formalized model, it identifies conditions under which sureties have an incentive to use the program to bond conventionally bondable contractors, and demonstrates how SBA can alter variables within its control to remove these conditions, taking into account the trade-off between discouraging bondable and encouraging unbondable contractors’ participation in the program.