Small Business

Federal law requires contractors to provide surety bonds on all federal construction contracts worth more than $25,000. Surety bonds guarantee that should a bonded contractor default, a construction project will be completed and the contractor's employees and material suppliers will be paid. Most state and local governments and some private sector lenders also require construction firms to be bonded. Some small construction firms argue that surety companies' decisions to approve or deny bonds can seem arbitrary and can impede the growth of small firms, especially those owned by women and minorities. Because limited data exist on this issue, GAO surveyed a random sample of 12,000 construction firms, of which about 98 percent were small enough to qualify for Small Business Administration programs. GAO focused on the (1) firms' overall rate of obtaining bonds; (2) characteristics of the small firms that did bonded work; (3) recent experiences of these firms in obtaining bonds; and (4) characteristics of those firms that did not perform bonded work, including their reasons for not doing such work. The first volume (GAO/RCED-95-173FS) discusses the survey results in detail. The second volume (GAO/RCED-95-173S) provides detailed statistics on the experiences of small construction firms.

GAO noted that: (1) the random sample included 12,000 construction companies; (2) the firms that did not answer the survey were generally smaller, worked in special trade areas, and were less likely to have financial records on file with Dun & Bradstreet; (3) survey results could not be generalized to the firms that were no longer in business, too new or too young, or worked primarily as general contractors for builders or developers of single-family homes; (4) its statistical estimates contained sampling errors because it was not able to collect data on all firms; (5) 43 percent of the firms that responded to the survey had obtained surety bonds at one time; and (6) the statistical differences between minority-owned and nonminority-owned firms, plus or minus the sampling errors, yielded a range that included zero.