The Honorable Sam Graves
United States House Committee on Small Business
2361 Rayburn House Office Building (RHOB)
Washington, D.C. 20515
Dear Chairman Graves:
The National Association of Credit Management (NACM) has represented the interests of the nation's business trade creditors for more than a century. Since its formation in the late 19th century, advocating for the legislative needs of these businesses, who supply the lifeblood of the American business economy in the form of commercial credit, has been a cornerstone of NACM's mission. In this capacity, acting directly on behalf of our construction industry members, we write you today to offer our support to H.R. 776, the Security in Bonding Act, scheduled for markup in your Committee this week.
Commercial credit, collections and financial risk management professionals that work in the construction industry for subcontractors and materials suppliers comprise more than 50% of NACM's membership. These individuals manage the complex process of extending credit to other companies while navigating the numerous rules and requirements that govern how work is performed on, or materials are supplied to, a public or private project. Payment on these projects is often secured through the use of liens, bonds and Uniform Commercial Code (UCC) filings.
For our members, when extending credit to a general contractor, the presence of a bond from a so-called "individual surety" can often be considered a financial red flag. This is because when a bond is posted via an individual surety, rather than a federally-assessed and approved corporate surety, it's often a sign that the general contractor could not meet certain underwriting requirements, and could therefore be in financial distress. This makes it harder for our members and their companies to provide the goods and services that are necessary to the project's completion, and limits the flow of commercial credit that drives the nation's economy.
The Security in Bonding Act would go a long way toward enabling subcontractors and materials suppliers to extend more credit to all general contractors, because it would remove the negative stigma that's often attached to individual sureties by requiring that all sureties meet the federal government's actuarial guidelines and financial requirements. Subcontractors and materials suppliers would be able to sell with greater confidence and on more favorable terms to general contractors, safe in the knowledge that the bond securing their investment is backed up by sufficient assets. Furthermore, the bill would give smaller companies the security they need to enter the market and the federal procurement process, free from the concern that payment for work performed will never arrive due to an individual surety's inadequate bond pledge.
H.R. 776 is a vital piece of legislation that can broadly increase the flow of commercial credit in the construction industry, greatly enhance the cost effectiveness of the federal procurement process and contribute to small businesses' ability to grow and create jobs. NACM strongly endorses the bill, and looks forward to working with lawmakers in the future to enact common sense legislation that benefits every company that participates in the nation's construction industry.
Thank you for your time and consideration.
Robin Schauseil, CAE
President and CEO