Performance bonds- Fed Cracks Down an Sham 8a Contractors

Since 2006, Surety1 has provided more than $250million worth of of performance and payment bonds for contractors that have the 8a designation, offered by the U.S. Small Business Administration.  Because of this expertise, we are often asked by non-8a contractors about “partnering” with an 8a firm to secure work.  We have always recommend to our customers that any partnership needs to be in full compliance with the regulations of the SBA or we want nothing to do with it. Most of the inquiries end up going no where.

The justice department will aggressiveness seek to prosecute individuals and firms that do not abide by the rules concerning 8a contractors.  Shell companies are not to be tolerated.  Case in point, two executives at Arlington, VA based companies just pleaded guilty major government fraud before the U.S. District Court for the Eastern District of Virginia.  The two pleaded guilty after being accused by the justice department of obtaining more than $31mm in federal contracts meant for disadvantaged small businesses (like SBA 8a) .   Read the article here 

The federal government set up the 8a program to assist disadvantaged small businesses obtain work with the federal government   Under the miller act of 1932, all Federally Funded construction projects require surety bonds. Many disadvantaged small businesses may lack the financial resources to qualify for bonding and as such, may seek out the assistance of a construction company that is not a disadvantaged small business (8a).  There is nothing wrong or illegal about an upfront, mutually beneficial relationship like this.  What has happened in the past, however, is the  non 8a contractor “takes control” of the projects, the accounting, and the management of the 8a qualified firm.

This action defeats the purpose of the entire 8a program and may subject the non-8a contractor to a similar fate as the above mentioned individuals.  Furthermore, both contractors could be banned from all federal work.