But while we are on the subject of bonding, let me try to just clear that up.

The performance bond essentially is supposed to do three things. It is supposed to qualify a contractor so that he is seen as being capable of doing a job. Second, it is supposed to provide the owner or the sponsor with a guarantee that the job will be done within the time that is established. Therefore, the owner will not incur extra expenses. And, third, it is supposed to indemnify the owner so that he will not have to pay in case something goes wrong.

Now, the position of the bonding companies relative to minorities, not only in Chicago but across the country, is one where there is not the proper interpretation of the minority contractor's condition.

For example, it is recommended that, as counsel indicated, his net equity, or what his net worth is, determines sometimes the net amount of the bond he can receive. Oftentimes we have to evaluate, in the small minority contractor's shop, what is in fact equity or assets. It is not always the case of cash on hand or accounts receivable; oftentimes land, trusts, equipment, all kinds of other shop items that are in fact cash in essence have to be interpreted as being something in his behalf.

I think there also has to be the question really how serious are the surety companies as it relates to the minority contractors. That is to say, it is the cycling kind of process much like the whole question of "bad housing-poor education-no jobs" kind of thing is for black people.

The question is that the bonding companies say, "We will bond you if you have the experience in the similar kind of job."

You cannot have that experience unless you attain a contract and do it. You cannot obtain a contract and do it unless you have a bond. Mr. KLUCZYNSKI. Yes.

Mr. KING. So it is an endless circle. There is legislation pending. I think Senator Bayh or someone is sponsoring some bill. There is legislation aimed at trying to help the minority contractor, but we are not concerned with limiting or frustrating the intent of protection for the owner, but there are some cases-I can cite an instance in Chicago, particularly, where we had a black contractor who had built several single dwelling homes that did not exceed $50,000 in cost. And he was recognized as being a valued contractor in this area.

We tried to hook him into a half million dollar job, which included in essence 22 single dwelling homes, but it was in a complex, therefore, it was a half a million dollar job instead of twenty $25,000 jobs.

Through the assistance, the funding that we have in the association, we got him working capital to start with. We had technical assistance from some white contractors in the city that were sensitive to the problem.

The bonding company refused to give the man the bond for $500,000, because they said he had never done a job of this size before and because he did not have enough money to approach a $500,000 job in terms of assets.

Well, we got him the job anyway, simply because we prayed upon the prime contractor to waive the bond. But I think we would be remiss in our duties as representatives of the minority contracting commu nity not to let this committee know that there are some things going

on around the country, legislation that is being considered, sugges tions as far as the SBA becoming a prime contractor under 8(a). There is some support.

And there is one other area, I think, that is important, and that is the relationship between the Office of Federal Contract Compliance and the growth of the minority contractor. All of you are aware of the conditions we had here in Chicago and around the country relative to the closing down of job sites to heighten the contention of nonwhite versus white involvement in the building trades.

Well, what has happened is that the white construction community or the construction community at large has begun now to take notice of the black contractor simply because he seems to be the only and quickest vehicle for getting minority representation into the construction activity.

Because the unions, as you know, are no speed merchants in terms of bringing minorities into the industry.

So Secretaries Fletcher and Will, in Washington, in the Office of Federal Contracts Compliance, are doing a tremendous job in trying to make their offices aware that we are minority contractors, we are here and anxious to do work. It is unfortunate they have such a limited resources and staff that they can only do small jobs in our behalf. But I think that the problems of the minority contractor, even as it relates to the problem of crime, is worth mentioning to the committee.

Last year we had 400 or 500 of the so-called gang members involved in the peaceful demonstration regarding construction jobs. I would no more try to support a gang member who has committed some kind of a crime any more than the previous representative of the police department would try to defend some brutal harassment of some individual officer going on in the minority community. But what I am saying is that there is a relationship that we as small black businessmen have to crime reduction and that is that we can provide people with jobs based on their willingness to work.

As we have been doing for many years, we can train minority people to work if they have the willingness to get up at 7 o'clock in the morning and come out. And there are hundreds and hundreds in this city that want to do this.

I think we have an important contribution to make as small businessmen in the community, and in the area of bonding, the area of nondiscrimination in hiring as far as the unions are concerned. If these were looked at seriously with the fervor that I am sure you gentlemen have, I am sure that we can solve several of the problems that are confronting us.

Mr. KLUCZYNSKI. A good presentation.

Are there any further comments?

Mr. GUICE. I just want to thank the committee for allowing us to come forward and talk a little about the problems of the minority contractors.

Mr. KLUCZYNSKI. Mr. Button?

Mr. BUTTON. Thank you, Mr. Chairman.

I just want to congratulate Mr. Guice and his associates, not merely for the information they brought to us today, but the effort you are making, and I hope very successfully.

In connection with the comments that our chairman made a while back, the usefulness of the information that you brought to us today, I want to say that it appears to be perhaps a little remote to you to think of what is going to happen to that kind of data and information and insight that you have given us here in a courtroom, but I assure you that this subcommittee and our chairman in my experience takes all these matters very seriously, and so you have been a tremendous help in, I think, advancing the legislative process and its approach to the kind of problems that you reflect here.

And again, I want to thank you for bringing them to us.

Mr. GUICE. Thank you.

Mr. KLUCZYNSKI. Thank you, gentlemen. Happy to have you here. The Committee will recess now until 2:30.

(Whereupon, at 12:30 p.m., the subcommittee recessed, to reconvene at 2:30 p.m., the same day.)

AFTERNOON SESSION

Mr. KLUCZYNSKI. The committee will come to order. There will be no smoking, please, in the courtroom, the Federal court.

The Small Business Committee of the House of Representatives will resume hearing. Ours is the Subcommittee on Urban Affairs and these are hearings on the "Impact of Crime, Crime Insurance, and Surety Bonds on Small Business in Urban Areas."

The first witness this afternoon will be James Cooke of the Seaway National Bank of Chicago, on surety bonds.

Mr. Cooke, please just have a seat. Do you have a prepared statement, Mr. Cooke?

Mr. COOKE. No; I don't.

Mr. KLUCZYNSKI. OK, you speak right off the cuff. You go ahead.

STATEMENT OF JAMES COOKE, SEAWAY NATIONAL BANK OF

CHICAGO

Mr. COOKE. My name is James A. Cooke. I am from the Seaway National Bank of Chicago. We are located at 87th and Cottage Grove. Mr. KLUCZYNSKI. Where?

Mr. COOKE. 87th and Cottage Grove. We service that area.

We participate or we lend to contractors and subcontractors on short-term loans, anticipating repayment from the payout-the final payout on the contract. We also loan to contractors on long-term loans, and have often used the Small Business Administration program to guarantee a portion of that loan.

Our problem is probably more in getting information, accounting information and so forth, from the contractor rather than anything else. Getting a track record from the man and where he has performed competently so we can make a judgment that he will perform competently now.

Mr. ROE. Would you say this problem results from a lack of experience?

Mr. COOKE. Yes; the lack of experience; lack of accounting records; perhaps just the lack of work too. If we can get this information we can get into a loan with them.

You are talking about surety bonds. That doesn't come first in my mind, insofar as our assisting the contractor. The bond won't protect me. It helps the contractor and the prime contractor. In fact, we had an instance where we made an SBA loan and in order for the subcontractor to get a performance bond we subordinated part of our interest in the assets of the business to the insurance company. So this can be done.

We have tended to treat many of these loans, especially the shortterm loans, as just unsecured credit. It is borrowing on an unperformed contract.

Mr. ROE. The surety bond doesn't have any effect on you as a lender. In other words, it protects only the contractor and the homeowner or the propertyowner for whom the work is being done.

Mr. COOKE. It protects the primary contractor or the owner.

Mr. ROE. In the process of trying to help a small businessman in the contracting business, solving the surety bond problems does not solve the problems of financing?

Mr. COOKE. No; I can think of instances where we have made loans where the bond has been waived and we have extended the credit. If we are assured that the performance can be made by the subcontractor, we will go ahead and make a loan.

Mr. ROE. Is that the most important criteria in your judgment?
Mr. COOKE. Performance.

Mr. ROE. The ability to do the job correctly and on time?
Mr. COOKE. Right, profit is what makes the job worthwhile.

Mr. ROE. How many small businessmen do you help on the average? Mr. COOKE. Oh, I suppose we have half a dozen or 10 loans on right now, both some short-term and some longer term loans.

Mr. ROE. For what purpose do you lend money to small contractors in the beginning of the contract?

Mr. COOKE. Primarily to provide the capital that will be needed to pay for labor and sometimes material, until that subcontractor can complete the contract and get the final payment, if there are a series of payments to be had.

Mr. ROE. So, do you feel there would be an advantage to a small contractor, say, in the area of Federal contracts, if the Federal Government were able to release more money as the work progresses?

Mr. COOKE. No; I think I would be more interested if I could feel assured that the Federal Government would allow a subcontractor to get in only on the basis that he can make a profit and that he submitted a reasonable bid and that he can perform on that bid, that he hasn't put his foot into an impossible situation and won't be able to perform.

Because if he can't perform, I can't get paid. If the person accepting the bid assures himself that this contractor can perform and if the primary contractor can assist in any way to see that the sub performs, even a kind of on-the-job training program, this would benefit me more than the surety bond.

Mr. ROE. Do you have any recommendations you can submit to the committee at this time?

Mr. COOKE. No. Although I understand that the Small Business Administration is working on a form of revolving credit. At this particular time, as I understand it, the SBA makes just one loan. If you need further credit, they make additional loans. There appears that there might be a need for a line of credit.

I could think of a contractor whose needs might be $200,000 over a period of 2 years, but at no one time during those 2 years would he need more than $50,000.

Now, it is certainly easier for me to consider a loan of $50,000 than to program a loan of $200,000 which might place such a burden on the company that they couldn't repay it.

The second suggestion I have I understand this has been tried and worked on-would be furthering the relationship between very successful and profitable contractors and those who are coming up and learning; an on-the-job program.

We have a very successful contractor in our area who is working on bigger and better contracts as his knowledge permits. And he has used the facilities of one of the very large contractors in the city of Chicago. He has used those facilities to streamline and better his bookkeeping operation, his office operation, et cetera. He has talked to them about bids he was going to make, what problems he might encounter if he made this bid. He has received some very fine advice and learned from the ones that knew.

And this is the way he has done it. And I think more of this could be very helpful.

Mr. ROE. Thank you. Are we talking about loans from the Small Business Administration; they would loan, well, we will say some factory $50,000–

Mr. COOKE. We would actually make the loan.

Mr. ROE. You could make the loan if it is approved by the Small Business Administration?

Mr. COOKE. We would ask them to give us a guarantee of a portion. of that loan. We would accept part of the liability and the Small Business Administration would accept part of the liability.

Mr. ROE. Do you have many of those loans?

Mr. COOKE. No, because this-we have some, we have loans where the Small Business Administration has assisted us where we have just made one loan, right at the start with $50,000 or $30,000, but we don't have a revolving credit program.

Mr. KLUCZYNSKI. If you could hold off for just a moment-Mr. Rooney, would you kindly step up here, please?

Mr. Rooney is with the Small Business Administration. I have known him for years and years, and he has done a marvelous job. Would you give your name to the reporter, please?

TESTIMONY OF JOSEPH S. ROONEY, CHIEF, LOAN ADMINISTRATION DIVISION, SMALL BUSINESS ADMINISTRATION, CHICAGO REGION; ACCOMPANIED BY BERNARD S. MOUST, ASSISTANT CHIEF OF FINANCING, MIDWEST REGION

Mr. KLUCZYNSKI. Would you clear something up for us here? Now, I have asked some questions

Mr. ROONEY. Mr. Chairman, I think what Mr. Cooke wants to bring out, like in the case of the small manufacturer that you mentioned, we could make a 6-year loan and amortize it monthly to be paid off, whereas in the building trades, with the building contractor he is talking about primarily, he may need money over a period but it may be that he needs $30,000 and then maybe he will pay it back, and then he needs $50,000.