Small and Disadvantage Business (S/DBE) Contractor

Surety Bond Support Programs

S/DBE Program Goals

• Achieving small business participation in public sector construction projects

• Making this participation productive and successful

• Providing a foundation for the ongoing success of small contractors

• Enhanced local economic development

S/DBE Program Major Findings

• First, the real crisis is one of lack of business capacity and not necessarily one of bonding and contract financing.

• Second, bond waiver and bond guarantee programs do not greatly assist in increasing the long term participation or capacity of local small contractors

• Third, the most critical element for the success of local contractor support programs is the owner’s commitment and understanding of program objectives.

• Last, that local small companies fail to take advantage of outsourced business support services and current business software applications

Keys to a Successful S/DBE Program

• A knowledgeable and committed owner

• A receptive contractor community with a base level of capacity

• Bond and financing tools

• Competent local technical resources

• Direct connections to jobs

Types of S/DBE Programs

• Bond Wavier Programs

• Bond Referral Programs

• Bond Guarantee Programs

• Contractor Capacity Building Programs (Aon LCDP)

Bond Wavier Programs• Main Attribute

– Surety bonds are waived for projects below a certain amount ($250,000)

• Main Benefit– S/DBE do not have the surety bond as an obstacle to

participation– Least expensive program to implement

• Main Disadvantages– S/DBE tend to stay small and remain in the bond wavier

program– No surety bond tract record is achieved– No contract financing support

• Outcomes– Tends to keep the S/DBE contractor community underdeveloped

Bond Referral Programs (BRP)

• Main Attribute– Assistance in packaging surety bond applications and

shopping around the market • Main Benefit

– Contractors get bond application prepared• Main Disadvantages

– Still primarily a financial based underwriting process– Generally no contract financing support

• Outcome– Only assist contractors that meet standard market

underwriting criteria

Bond Guarantee Programs (BGP)• Main Attribute

– Owner establishes a fund for bond guarantee purposes

• Main Benefit– Provides somewhat easier access to surety bonding than

standard market

• Main Disadvantage– Owner financial exposed– Still primarily a financial based underwriting process– Generally no contract financing support

• Outcome– Generally supports only contractors on the bubble and does not

truly penetrate into the community

Contractor Capacity Building Programs (CCBP)

• Main Attribute– Designed for greater penetration into S/DBE market and to

assist in both technical and managerial development• Main Benefits

– Employs a technically based underwriting for both surety and contract financing

– Substantially reduces the traditional obstacles to obtaining surety bonding and contract financing for S/DSBE, while insuring that they can perform

• Main Disadvantage– Program Cost

• Outcome– Engender the creation of a new cadre/pool of prime capable

local SDBE

Aon CCBP Uniqueness

• Underwriting for surety bonds and contract financing technically based

• In-house authority for surety bonding and contract financing

• Program targeted to support local emerging small and disadvantaged firms

• Contractor Progress Monitoring

Aon CCBP Uniqueness

• Pre-qualification assessment to assure contractor capabilities

• All technically qualified participants receive surety bonding and working capital

• Program operation in a non-setaside, non-preference environment

Aon CCBP Methodology • Early analysis determines contractor

community technical capacity• Technical assessment provides qualified

contractors with surety bonding and contract financing

• Ongoing contractor performance monitoring reduces risks

• Feedback on the path to qualification, for firms lacking capacity

Aon CCBP Elements

• Outreach

• Qualification Assessment

• Surety Bonding and Contract Financing

• Technical Assistance Referral

• Contractor Progress Monitoring

Outreach

• Communications and marketing plan to encourage participation by small contractors

• Identification of available support services provided by locally based organizations

• Expansion of existing pool of local contractors eligible to bid on projects

Credit Underwriting “Qualification Assessment”

• As rigorous as traditional underwriting

• Contractor’s technical qualifications, experience and track record are the major criterion

• Tailored financial floor

• Recommendations provided regardless of approval level

In-house Bonding Authority

• Qualification Assessment assures technically qualified contractors

• Conducted by engineering/construction and financial professionals

• Extensive interview, references, credit check and contractor progress monitoring

• Rates that will keep bidders competitive

In-house Contract Financing Authority

• CCBP underwriting is used for contract financing and surety bonding

• “Feeder System” Local banks benefit from financial development of emerging businesses

• Financing terms matched to local market

Performance Monitoring

• Coordination of contractor performance information with construction management team

• Monitoring of schedules, performance, and compliance with CM directives

• Preparation of periodic and final reports on contractor progress and performance

Aon CCBP Achieves Results

• Achieve local participation goals in a non-set-aside, non-preference environment

• Enables additional small contractors participation by substantially reducing the traditional financial obstacles to surety bonding and contract financing

• Contributes lasting economic benefit to communities through creation of viable new businesses capable of keeping more construction dollars local

• Provide a new unique database of qualified local contractors

Aon CCBP Based on a Proven Program

• Experience with programs in Florida, Texas, Michigan, Maryland, Colorado, Ohio and Washington

• Over 500 contracts successfully completed with no losses or defaults

• Over $300M in bonding capacity and $40M in contract financing provided

• Over 100 new prime contractors created