Beginning next week, it will be easier for small contractors to obtain the surety bonding needed to compete for government and public utility contracts.
Under a program announced yesterday by Gov. William Donald Schaefer, Maryland becomes the second state in the country to offer direct surety bonding to small contractors that cannot obtain the insurance-like backing from private sources. Ohio launched a similar program several years ago.
Surety bonds are a form of insurance which guarantees the performance of a contract, such as the construction of a building.
"Bonding for small companies has been a serious problem," Mr. Schaefer said at a news conference. "Hopefully, this action will help small businesses to grow."
The state program, which will be administered by the Maryland Small Business Development Financing Authority (MSBDFA), would allow the state agency to issue bid, performance and payment bonds up to $250,000 for government and public utility work.
To qualify for the program, contractors must first be rejected by a private industry standard surety bonding company and a specialty or collateral bonding company that takes on more risky projects, explained Timothy L. Smoot, deputy director of MSBDFA.
Mr. Smoot said the program was designed to help "the smaller contractors, especially the minority contractors, that don't have the working capital, equipment or equity" necessary to obtain bonding.
While Mr. Smoot could not say how many Maryland companies might need state assistance, he estimated that there were thousands of contractors across the country that fall short of meeting the industry's standard underwriting criteria.
Mr. Smoot said he expects companies applying for the state program to range from individual contractors with sales of as little as $50,000 a year to businesses grossing $6 million to $8 million annually.
Mark L. Wasserman, secretary of the Department of Economic and Employment Development, said the program would not be competing with private surety firms. He called the program "a significant new boost by state government for small and minority business in Maryland."