By: Robert E. Little, Jr.
Individual sureties are natural persons – as opposed to corporations and limited liability companies – who offer to bind themselves on bid, performance, and payment bonds. Individual sureties are acceptable from prime contractors on federal construction projects, provided the individual owns and pledges sufficient assets to cover the appropriate percentage of the value of the bid or contract. However, they are not eligible for listing on the Department of Treasury’s list of approved corporate sureties. This means that neither they nor their assets have been federally vetted.
Attendees of the Bonding Basics segment of the 5th Annual National Veterans Small Business Conference and Expo, where I was a panelist representing the Naval Facilities Engineering Command (NAVFAC), were treated to a discussion about individual sureties. Although some attendees may have left the conference with the impression that individual sureties are a simple last resort for firms that cannot obtain bonding through corporate sureties or with the assistance of the U.S. Small Business Administration’s (SBA) Surety Bond Guarantee Program, individual sureties are not so simple. There have been many occasions where contractors have lost out on federal government contracting opportunities because they did not understand the significance of establishing the acceptability and value of the asset or assets pledged by an individual surety.
During my 17 years as senior counsel at NAVFAC headquarters, I observed that the Navy’s experience with individual sureties’ pledged assets mirrored that of the Federal Highway Administration (FHA) in the 2009 case Tip Top Construction, Inc. v. U.S. I saw pledges of everything from non-existent bank stock and untradeable securities to “corporate reinsurance debentures” printed on very nice-looking paper.