A new state-sponsored program seeks to give small construction companies greater access to major construction projects by helping them obtain bid, payment and performance bonds.
The Bonding Assistance Program, as it is called, is a joint initiative of Louisiana Economic Development, the Louisiana Public Facilities Authority and the Louisiana Surety Association. Contractors that are certified clients of LED’s Small and Emerging Business Development Program will be eligible for the program, which was made possible by a low-interest loan from the LPFA.
“Small businesses play a big role in Louisiana’s economy, but many that do good work face hurdles that are beyond their control,” Gov. John Bel Edwards says in a release announcing the program. “If we can make it easier to put smaller, local, minority-owned, and women-owned businesses to work, our communities and our state will benefit. This program will remove one hurdle for qualified small businesses that hope to grow and thrive.”
Strengthening the small business sector by expanding opportunities for small businesses to participate in the state’s economy has been one of Edwards’ economic development priorities. Construction is big business, but newer and smaller subcontractors often find it hard to work for prime contractors on substantial projects because they lack bonding capacity.
For companies that qualify for the program, the state can guarantee the first 25% of contract value, up to $100,000, to limit a surety company’s risk in providing a bond. The program covers bid bonds, which guarantee that a contractor will enter into a contract if awarded a bid; performance bonds, which guarantee that a contractor will perform the work as specified by the contract; and payment bonds, which guarantee that a contractor will pay for services and materials.
LED does not get involved in underwriting any bonds. It remains for a surety company to make decisions on whether to issue bonds based on standard underwriting criteria. LED’s role under program guidelines is to offset a surety company’s risk in providing bonds to smaller companies that might otherwise have trouble obtaining bonds due to their size or limited portfolio.
LPFA is providing the seed money for the program to allow LED to guarantee bond applications for qualifying businesses. When jobs are complete and the funds are released by financial institutions, LED will return the money to the pool for reuse with other qualifying companies.
Get more information about the Bonding Assistance Program, and about LED’s Small and Emerging Business Development Program.
