Surety firm pledges bonds for minority-owned firms

Real Estate Weekly, Feb 10, 1993

A surety insurance company has joined with an innovative public/private partnership to announce a new program to help minority-owned and other small contractors obtain bonding for construction projects in New York and New Jersey.

AMWEST, the 13th largest surety company in the U.S., has agreed to a commitment of an estimated $25-50 million in bonds to qualified members of The Regional Alliance for Small Contractors, a public/private partnership formed to help "grow" minority and women-owned contractors. Public partners include the Port Authority of New York and New Jersey, New York State Urban Development Corporation, New Jersey Transit and 10 other public agencies, while private partners include major construction companies, such as Lehrer McGovern Bovis, Morse Diesel International and O'Brien-Kreitzberg & Associates.

AMWEST, the nation's largest specialty surety company for small contractors, will offer streamlined application procedures, special underwriting criteria, written explanations for turndowns and local approval authority from its New York office with at least one full-- time staff member assigned to Regional Alliance members in order to achieve the highest possible approval rate on applications.

Specifically, there will be no minimum net worth or working capital requirements, although both should be positive. Whenever possible collateral requirements will be eliminated by use of Small Business Administration (SBA) or New York Job Development Authority (JDA) bond guarantee programs.

The cost to Regional Alliance members will be AMWEST's standard fee, about 2 percent of the contract price (for example, $10,000 on a $500,000 job) payable at the issuance of the bond. This fee is usually passed through to the owner of the project within a month of starting work. When a bond guarantee is required, the contractor will pay a small additional fee to the SBA or JDA. With few exceptions, all public agencies in New York and New Jersey require a bond in order to protect the public interest if the contractor defaults.

The Regional Alliance set up a task force after its survey of small contractors identified bonding as their number-one problem. The task force led by Robert Peckar of Peckar and Abramson and Vince Arcuri of Morse Diesel International developed guidelines for the program. AMWEST is the first surety to respond with a commitment.