Pt. 115 13 CFR Ch. I (1–1–06 Edition)
SBA should provide representational 115.35 Claims for reimbursement of Losses.
assistance for such an employee, those 115.36 Indemnity settlements and reinstate-
attorneys undertake a full and tradi- ment of Principal.
tional attorney-client relationship
with the employee with respect to the Subpart C—Preferred Surety Bond (PSB)
attorney-client privilege. If representa- Guarantees
tion is authorized, SBA attorneys who 115.60 Selection and admission of PSB Sure-
assist in the representation of an SBA ties.
employee also undertake a full and tra- 115.61 Duration of PSB program.
ditional attorney-client relationship 115.62 Prohibition on participation in Prior
with the employee with respect to the Approval program.
attorney-client privilege. Unless au- 115.63 Allotment of guarantee authority.
thorized by the employee, the attorney 115.64 Timeliness requirement.
must not disclose to anyone other than 115.65 General PSB procedures.
attorneys also responsible for the em- 115.66 Fees.
ployee’s representation information 115.67 Changes in Contract or bond amount.
communicated to the attorney by the 115.68 Guarantee percentage.
client-employee during the course of 115.69 Imminent Breach.
the attorney-client relationship. The 115.70 Claims for reimbursement of Losses.
attorney-client privilege will continue 115.71 Denial of liability.
with respect to that information AUTHORITY: 5 U.S.C. app 3; 15 U.S.C. 687b,
whether or not representation is pro- 687c, 694a, 694b; 694b note, Pub. L. 106–554, 114
vided, and even if the employee’s rep- Stat. 2763A–653.
resentation is denied or discontinued.
SOURCE: 61 FR 3271, Jan. 31, 1996, unless
otherwise noted.
PART 115—SURETY BOND
GUARANTEE § 115.1 Overview of regulations.
The regulations in this part cover the
Sec.
SBA’s Surety Bond Guarantee Pro-
115.1 Overview of regulations.
115.2 Savings clause. grams under Part B of Title IV of the
Small Business Investment Act of 1958,
Subpart A—Provisions for All Surety Bond as amended. Subpart A of this part
Guarantees contains regulations common to both
the program requiring prior SBA ap-
115.10 Definitions.
115.11 Applying to participate in the Surety
proval of each bond guarantee (the
Bond Guarantee Program. Prior Approval Program) and the pro-
115.12 General program policies and provi- gram not requiring prior approval (the
sions. PSB Program). Subpart B of this part
115.13 Eligibility of Principal. contains the regulations applicable
115.14 Loss of Principal’s eligibility for fu- only to the Prior Approval Program.
ture assistance. Subpart C of this part contains the reg-
115.15 Underwriting and servicing stand-
ards.
ulations applicable only to the PSB
115.16 Determination of Surety’s Loss. Program.
115.17 Minimization of Surety’s Loss.
115.18 Refusal to issue further guarantees; § 115.2 Savings clause.
suspension and termination of PSB sta- Transactions affected by this part 115
tus.
115.19 Denial of liability. are governed by the regulations in ef-
115.20 Insolvency of Surety. fect at the time they occur.
115.21 Audits and investigations.
Subpart A—Provisions for All
Subpart B—Guarantees Subject to Prior
Approval
Surety Bond Guarantees
115.30 Submission of Surety’s guarantee ap- § 115.10 Definitions.
plication.
AA/SG means SBA’s Associate Ad-
115.31 Guarantee percentage.
115.32 Fees and Premiums. ministrator for Surety Guarantees.
115.33 Surety bonding line. Affiliate is defined in part 121 of this
115.34 Minimization of Surety’s Loss. chapter.
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Small Business Administration § 115.10
Ancillary Bond means a bond inci- Loss has the meaning set forth in
dental and essential to the perform- § 115.16.
ance of a Contract for which there is a Obligee means:
guaranteed Final Bond. (1)(i) In the case of a Bid Bond, the
Bid Bond means a bond conditioned Person requesting bids for the perform-
upon the bidder on a Contract entering ance of a Contract; or
into the Contract, and furnishing the (ii) In the case of a Final Bond, the
required Payment and Performance Person who has contracted with a Prin-
Bonds. The term does not include a for- cipal for the completion of the Con-
feiture bond unless it is issued for a ju- tract and to whom the primary obliga-
risdiction where statute or settled tion of the Surety runs in the event of
decisional law requires forfeiture bonds a breach by the Principal.
for public works. (2) In either case, no Person (other
Contract means a written obligation than a Federal department or agency)
of the Principal requiring the fur- may be named co-Obligee or Obligee on
nishing of services, supplies, labor, ma- a bond or on a rider to the bond unless
terials, machinery, equipment, or con- that Person is bound by the Contract
struction. A Contract must not pro- to the Principal (or to the Surety, if
hibit a Surety from performing the the Surety has arranged completion of
Contract upon default of the Principal. the Contract) to the same extent as the
A Contract does not include a permit, original Obligee. In no event may the
subdivision contract, lease, land con- addition of one or more co-Obligees in-
tract, evidence of debt, financial guar- crease the aggregate liability of the
antee (e.g., a contract requiring any Surety under the bond.
payment by the Principal to the Obli- OSG means SBA’s Office of Surety
gee), warranty of performance or effi- Guarantees.
ciency, warranty of fidelity, or release Payment Bond means a bond which is
of lien (other than for claims under a conditioned upon the payment by the
guaranteed bond). It includes a mainte- Principal of money to persons who
nance agreement of 2 years or less have a right of action against such
which covers defective workmanship or bond, including those who have fur-
materials only. With SBA’s written ap- nished labor, materials, equipment and
proval, it can also include a longer supplies for use in the performance of
maintenance agreement covering de- the Contract. A Payment Bond can not
fective workmanship or materials, or a require the Surety to pay an amount
maintenance agreement covering which exceeds the claimant’s actual
something other than defective work- loss or damage.
manship or materials. To qualify for Performance Bond means a bond con-
such approval, the agreement must be ditioned upon the completion by the
ancillary to the Contract for which Principal of a Contract in accordance
SBA is guaranteeing a bond, must be with its terms.
required to be performed by the same Person means a natural person or a
Principal, and must be customarily re- legal entity.
quired in the relevant trade or indus- Premium means the amount charged
try. by a Surety to issue bonds. The Pre-
Execution means signing by a rep- mium is determined by applying an ap-
resentative or agent of the Surety with proved rate (see §§ 115.32(a) and
the authority and power to bind the 115.60(a)(2)) to the bond or contract
Surety. amount. The Premium does not include
Final Bond means a Performance surcharges for extra services, whether
Bond and/or a Payment Bond. or not considered part of the ‘‘pre-
Imminent Breach means a threat to mium’’ under local law.
the successful completion of a bonded Principal means, in the case of a Bid
Contract which, unless remedied by the Bond, the Person bidding for the award
Surety, makes a default under the bond of a Contract. In the case of Final
appear to be inevitable. Bonds and Ancillary Bonds, Principal
Investment Act means the Small Busi- means the Person primarily liable to
ness Investment Act of 1958 (15 U.S.C. complete the Contract, or to make
661 et seq.), as amended. Contract-related payments to other
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§ 115.11 13 CFR Ch. I (1–1–06 Edition)
persons, and is the Person whose per- as eligible to issue bonds in connection
formance or payment is bonded by the with Federal procurement contracts.
Surety. A Principal may be a prime
contractor or a subcontractor. § 115.12 General program policies and
Prior Approval Agreement means the provisions.
Surety Bond Guarantee Agreement (a) Description of Surety Bond Guar-
(SBA Form 990) entered into between a antee Programs. SBA guarantees Sure-
Prior Approval Surety and SBA under ties participating in the Surety Bond
which SBA agrees to guarantee a spe- Guarantee Programs against a portion
cific bond. of their Losses incurred and paid as a
Prior Approval Surety means a Surety result of a Principal’s breach of the
which must obtain SBA’s prior ap- terms of a Bid Bond, Final Bond or An-
proval on each guarantee and which cillary Bond, on any eligible Contract.
has entered into one or more Prior Ap- In the Prior Approval Program, the
proval Agreements with SBA. Surety must obtain SBA’s approval be-
PSB Agreement means the Preferred fore a guaranteed bond can be issued.
Surety Bond Guarantee Agreement en-
In the PSB Program, selected Sureties
tered into between a PSB Surety and
may issue, monitor, and service SBA
SBA.
guaranteed bonds without further SBA
PSB Surety means a Surety that has
approval.
been admitted to the Preferred Surety
Bond (PSB) Program. (b) Eligibility of bonds. Bid Bonds and
Surety means a company which: Final Bonds are eligible for an SBA
(1)(i) Under the terms of a Bid Bond, guarantee if they are executed in con-
agrees to pay a sum of money to the nection with an eligible Contract and
Obligee if the Principal breaches the are of a type listed in the ‘‘Contract
conditions of the bond; Bonds’’ section of the current Manual
(ii) Under the terms of a Performance of Rules, Procedures and Classifica-
Bond, agrees to pay a sum of money or tions of the Surety Association of
to incur the cost of fulfilling the terms America (100 Wood Avenue South,
of a Contract if the Principal breaches Iselin, New Jersey 08830). Ancillary
the conditions of the Contract; and Bonds may also be eligible for SBA’s
(iii) Under the terms of a Payment or guarantee. A Performance Bond must
an Ancillary Bond, agrees to make pay- not prohibit a Surety from performing
ment to all who have a right of action the Contract upon default of the Prin-
against such bond, including those who cipal.
have furnished labor, materials, equip- (c) Expiration of Bid Bond Guarantee.
ment and supplies in the performance A Bid Bond guarantee expires 120 days
of the Contract. after Execution of the Bid Bond, unless
(2) The term Surety includes an the Surety notifies SBA in writing be-
agent, independent agent, underwriter, fore the 120th day that a later expira-
or any other company or individual tion date is required. The notification
empowered to act on behalf of the Sur- must include the new expiration date.
ety. (d) Guarantee agreement. The terms
[61 FR 3271, Jan. 31, 1996; 61 FR 7985, Mar. 1, and conditions of SBA’s bond guar-
1996] antee agreements, including the guar-
antee percentage, may vary from Sur-
§ 115.11 Applying to participate in the ety to Surety, depending on past expe-
Surety Bond Guarantee Program. rience with SBA. If the guarantee per-
Sureties interested in participating centage is not fixed by the Investment
as Prior Approval Sureties or PSB Act, it is determined by OSG after con-
Sureties should apply in writing to the sidering, among other things, the rat-
AA/SG at 409 3rd Street, SW., Wash- ing or ranking assigned to the Surety
ington, DC 20416. OSG will determine by recognized authority, and the Sure-
the eligibility of the applicant consid- ty’s Loss rate, average Contract
ering its standards and procedures for amount, average bond penalty per
underwriting, administration, claims guaranteed bond, and ratio of Bid
and recovery. Each applicant must be a Bonds to Final Bonds, all in compari-
corporation listed by the U.S. Treasury son with other Sureties participating
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Small Business Administration § 115.13
in the same SBA Surety Bond Guar- (2) Character. It must possess good
antee Program (Prior Approval or PSB) character and reputation. A Principal
to a comparable degree. Any guarantee meets this standard if each owner of
agreement under this part is made ex- 20% or more of its equity, and each of
clusively for the benefit of SBA and the its officers, directors, or general part-
Surety, and does not confer any rights ners, possesses good character and rep-
(such as a right of action against SBA) utation. A Person’s good character and
or benefits on any other party. reputation is presumed absent when:
(e) Amount of Contract—(1) Statutory (i) The Person is under indictment
ceiling. The amount of the Contract to for, or has been convicted of a felony,
be bonded must not exceed $2,000,000 in or a final civil judgment has been en-
face value at the time of the bond’s tered stating that such Person has
Execution. committed a breach of trust or has vio-
(2) Aggregation of Contract amounts. lated a law or regulation protecting
The amounts of two or more Contracts the integrity of business transactions
for a ‘‘single project’’ are aggregated to or business relationships; or
determine the Contract amount unless (ii) A regulatory authority has re-
the Contracts are to be performed in voked, canceled, or suspended a license
phases and the prior bond is released of the Person which is necessary to
before the beginning of each succeeding perform the Contract; or
phase. A bond may be considered re- (iii) The Person has obtained a bond
leased even if the warranty period it is guarantee by fraud or material mis-
covering has not yet expired. For pur- representation (as described in
poses of this paragraph, a ‘‘single § 115.19(b)), or has failed to keep the
project’’ means one represented by two Surety informed of unbonded contracts
or more Contracts of one Principal or or of a contract bonded by another Sur-
its Affiliates with one Obligee or its Af- ety, as required by a bonding line com-
filiates for performance at the same lo- mitment under § 115.33.
cation, regardless of job title or nature (3) Need for bond. It must certify that
of the work to be performed. a bond is expressly required by the bid
(3) Service and supply contracts. A solicitation or the original Contract in
service or supply Contract covering order to bid on the Contract or to serve
more than a 1 year period is eligible for as a prime contractor or subcontractor.
an SBA guaranteed bond if neither the (4) Availability of bond. It must certify
annual Contract amount nor the penal that a bond is not obtainable on rea-
sum of the bond exceeds $2,000,000 at sonable terms and conditions without
any time. SBA’s guarantee.
(f) Transfers or sales by Surety. Sure- (5) Partial subcontract. It must certify
ties must not sell or otherwise transfer the percentage of work under the Con-
their files or accounts, whether before tract to be subcontracted. SBA will not
or after a default by the Principal has guarantee bonds for Principals who are
occurred, without the prior written ap- primarily brokers or who have effec-
proval of SBA. A violation of this pro- tively transferred control over the
vision is grounds for termination from project to one or more subcontractors.
participation in the program. This pro- (6) Debarment. It must certify that
vision does not apply to the sale of an the Principal is not presently debarred,
entire business division, subsidiary or suspended, proposed for debarment, de-
operation of the Surety. clared ineligible, or voluntarily ex-
[61 FR 3271, Jan. 31, 1996, as amended at 66 cluded from transactions with any Fed-
FR 30804, June 8, 2001] eral department or agency, under gov-
ernmentwide debarment and suspen-
§ 115.13 Eligibility of Principal. sion rules.
(a) General eligibility. In order to be (b) Conflict of interest. A Principal is
eligible for a bond guaranteed by SBA, not eligible for an SBA-guaranteed
the Principal must comply with the bond issued by a particular Surety if
following requirements: that Surety, or an Affiliate of that
(1) Size. Together with its Affiliates, Surety, or a close relative or member
it must qualify as a small business of the household of that Surety or Af-
under part 121 of this title. filiate owns, directly or indirectly, 10%
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§ 115.14 13 CFR Ch. I (1–1–06 Edition)
or more of the Principal. This prohibi- as to the reasonableness of cost and the
tion also applies to ownership interests feasibility of successful completion of
in any of the Principal’s Affiliates. the Contract.
(b) Servicing. The Surety must ensure
§ 115.14 Loss of Principal’s eligibility that the Principal remains viable and
for future assistance. eligible for SBA’s Surety Bond Guar-
(a) Ineligibility. A Principal and its antee Program, must monitor the Prin-
Affiliates lose eligibility for further cipal’s progress on bonded Contracts
SBA bond guarantees if any of the fol- guaranteed by SBA, and must request
lowing occurs under an SBA-guaran- job status reports from Obligees of
teed bond issued on behalf of the Prin- Final Bonds guaranteed by SBA. Docu-
cipal: mentation of the job status requests
(1) Legal action under the guaranteed must be maintained by the Surety.
bond has been initiated.
(2) The Obligee has declared the Prin- § 115.16 Determination of Surety’s
cipal to be in default under the Con- Loss.
tract. Loss is determined as follows:
(3) The Surety has established a (a) Loss under a Bid Bond is the lesser
claim reserve for the bond of at least of the penal sum or the amount which
$1000. is the difference between the bonded
(4) The Surety has requested reim- bid and the next higher responsive bid.
bursement for Losses incurred under In either case, the Loss is reduced by
the bond. any amounts the Surety recovers by
(5) The guarantee fee has not been reason of the Principal’s defenses
paid by the Principal. against the Obligee’s demand for per-
(6) The Principal committed fraud or formance by the Principal and any
material misrepresentation in obtain- sums the Surety recovers from
ing the guaranteed bond. indemnitors and other salvage.
(b) Reinstatement of Principal’s eligi- (b) Loss under a Payment Bond is, at
bility. Prior Approval Sureties should the Surety’s option, the sum necessary
refer to § 115.36(b) for provisions on re- to pay all just and timely claims
instatement of the Principal’s eligi- against the Principal for the value of
bility. A PSB Surety may reinstate a labor, materials, equipment and sup-
Principal’s eligibility upon the Sure- plies furnished for use in the perform-
ty’s determination that reinstatement ance of the bonded Contract and other
is appropriate. covered debts, or the penal sum of the
Payment Bond. In either case, the Loss
§ 115.15 Underwriting and servicing includes interest (if any), but Loss is
standards. reduced by any amounts recovered
(a) Underwriting. (1) Sureties must (through offset or otherwise) by reason
evaluate the credit, capacity, and char- of the Principal’s claims against labor-
acter of a Principal using standards ers, materialmen, subcontractors, sup-
generally accepted by the surety indus- pliers, or other rightful claimants, and
try and in accordance with SBA’s by any amounts recovered from
Standard Operating Procedures on un- indemnitors and other salvage.
derwriting and the Surety’s principles (c) Loss under a Performance Bond is,
and practices on unguaranteed bonds. at the Surety’s option, the sum nec-
The Principal must satisfy the eligi- essary to meet the cost of fulfilling the
bility requirements set forth in § 115.13. terms of a bonded Contract or the
The Surety must reasonably expect penal sum of the bond. In either case,
that the Principal will successfully the Loss includes interest (if any), but
perform the Contract to be bonded. Loss is reduced by any amounts recov-
(2) The terms and conditions of the ered (through offset or otherwise) by
bond and the Contract must be reason- reason of the Principal’s defenses or
able in light of the risks involved and causes of action against the Obligee,
the extent of the Surety’s participa- and by any amounts recovered from
tion. The bond must satisfy the eligi- indemnitors and other salvage.
bility requirements set forth in (d) Loss under an Ancillary Bond is the
§ 115.12(b). The Surety must be satisfied amount covered by such bond which is
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Small Business Administration § 115.18
attributable to the Contract for which finds appropriate. Indemnity agree-
guaranteed Final Bonds were Executed. ments from other Persons, secured or
(e) Loss includes the following ex- unsecured, may also be required by the
penses if they are itemized, docu- Surety or SBA.
mented and attributable solely to the (2) Prohibitions. No indemnity agree-
Loss under the guaranteed bond: ment may be obtained from the Surety,
(1) Amounts actually paid by the its agent or any other representative of
Surety which are specifically allocable the Surety. The Surety must not sepa-
to the investigation, adjustment, nego- rately collateralize the portion of its
tiation, compromise, settlement of, or bond which is not guaranteed by SBA.
resistance to a claim for Loss resulting (b) Salvage and recovery—(1) General.
from the breach of the terms of the The Surety must pursue all possible
bonded Contract. Any cost allocation sources of salvage and recovery. Sal-
method must be reasonable and must vage and recovery includes all pay-
comply with generally accepted ac- ments made in settlement of the Sure-
counting principles; and ty’s claim, even though the Surety has
(2) Amounts actually paid by the incurred other losses as a result of that
Surety for court costs and reasonable Principal which are not reimbursable
attorney’s fees incurred to mitigate by SBA.
any Loss under paragraphs (a) through (2) SBA’s share. SBA is entitled to its
(e)(1) of this section including suits to guaranteed percentage of all salvage
obtain sums due from Obligees, and recovery from a defaulted Prin-
indemnitors, Principals and others. cipal, its guarantors and indemnitors,
(f) Loss does not include the following and any other party, received by the
expenses: Surety in connection with the guaran-
(1) Any unallocated expenses, or any teed bond or any other bond issued by
clear mark-up on expenses or any over- the Surety on behalf of the Principal
head, of the Surety, its attorney, or unless such recovery is unquestionably
any other party hired by the Surety or identifiable as related solely to the
the attorney; non-guaranteed bond. The Surety must
(2) Expenses paid for any suits, cross- reimburse or credit SBA (in the same
claims, or counterclaims filed against proportion as SBA’s share of Loss)
the United States of America or any of within 90 days of receipt of any recov-
its agencies, officers, or employees un- ery by the Surety.
less the Surety has received, prior to (3) Multiple Sureties. In any dispute
filing such suit or claim, written con- between two or more Sureties con-
currence from SBA that the suit may cerning recovery under SBA guaran-
be filed; teed bonds, the dispute must first be
(3) Attorney’s fees and court costs in- brought to the attention of OSG for an
curred by the Surety in a suit by or attempt at mediation and settlement.
against SBA or its Administrator; and
(4) Fees, costs, or other payments, in- § 115.18 Refusal to issue further guar-
cluding tort damages, arising from a antees; suspension and termination
successful tort suit or claim by a Prin- of PSB status.
cipal or any other Person against the (a) Improper surety bond guarantee
Surety. practices—(1) Imprudent practices. SBA
may refuse to issue further guarantees
§ 115.17 Minimization of Surety’s Loss. to a Prior Approval Surety or may sus-
(a) Indemnity agreements and collat- pend the preferred status of a PSB Sur-
eral—(1) Requirements. The Surety must ety, by written notice stating all rea-
take all reasonable action to minimize sons for such decision and the effective
risk of Loss including, but not limited date. Reasons for such a decision in-
to, obtaining from each Principal a clude, but are not limited to, a deter-
written indemnity agreement which mination that the Surety (in its under-
covers actual Losses under the Con- writing, its efforts to minimize Loss,
tract and Imminent Breach payments its claims or recovery practices, or its
under § 115.34(a) or § 115.69. The indem- documentation related to SBA guaran-
nity agreement must be secured by teed bonds) has failed to adhere to pru-
such collateral as the Surety or SBA dent standards or practices, including
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§ 115.18 13 CFR Ch. I (1–1–06 Edition)
any standards or practices required by least the duration of the license sus-
SBA, as compared to those of other pension.
Sureties participating in the same SBA (2) If such Person has been indicted
Surety Bond Guarantee Program to a or otherwise formally charged with a
comparable degree. misdemeanor or felony bearing on such
(2) Regulatory violations, fraud. Acts Person’s fitness to participate in the
of wrongdoing such as fraud, material Surety Bond Guarantee Programs, the
misrepresentation, breach of the Prior participation of such Person may be
Approval or PSB Agreement, or regu- suspended pending disposition of the
latory violations (as defined in charge. Upon conviction, participation
§§ 115.19(d) and 115.19(h)) also constitute may be denied or terminated.
sufficient grounds for refusal to issue (3) If a final civil judgment is entered
further guarantees, or in the case of a holding that such Person has com-
PSB Surety, termination of preferred mitted a breach of trust or violation of
status. a law or regulation protecting the in-
(3) Audit; records. The failure of a tegrity of business transactions or re-
Surety to consent to SBA’s audit or to lationships, participation may be de-
maintain and produce records con- nied or terminated.
stitutes grounds for SBA to refuse to (4) If such Person has made a mate-
issue further guarantees for a Prior Ap- rial misrepresentation or willfully
proval Surety, to suspend a PSB Sur- false statement in the presentation of
ety from participation, and to refuse to oral or written information to SBA in
honor claims submitted by a Prior Ap- connection with an application for a
proval or PSB Surety until the Surety surety bond guarantee or the presen-
consents to the audit. tation of a claim, or committed a ma-
(4) Excessive Losses. If a Surety expe- terial breach of the Prior Approval or
riences excessive Losses on SBA guar- PSB Agreement or a material violation
anteed bonds relative to those of other of the regulations (all as described in
Sureties participating in the same SBA § 115.19), participation may be denied or
Surety Bond Guarantee Program to a terminated.
comparable degree, SBA may also re- (5) If such Person is debarred, sus-
quire the renegotiation of the guar- pended, voluntarily excluded from, or
antee percentage and/or SBA’s charge declared ineligible for participation in
to the Surety for bonds executed there- Federal programs, participation may
after. be denied or terminated.
(b) Lack of business integrity. A Sure- (c) Notification requirement. The Prior
ty’s participation in the Surety Bond Approval or PSB Surety must prompt-
Guarantee Programs may be denied, ly notify SBA of the occurrence of any
suspended, or terminated upon the oc- event in paragraphs (b) (1) through (5)
currence of any event in paragraphs (b) of this section, or if any of the Persons
(1) through (5) of this section involving described in paragraph (b) of this sec-
any of the following Persons: The Sur- tion does not, or ceases to, qualify as a
ety or any of its officers, directors, Surety. SBA may require submission of
partners, or other individuals holding a Statement of Personal History (SBA
at least 20% of the Surety’s voting se- Form 912) from any of these Persons.
curities, and any agents, underwriters, (d) SBA proceedings. Decisions to sus-
or any individual empowered to act on pend, terminate, deny participation in,
behalf of any of the preceding Persons. or deny reinstatement in the Surety
(1) If a State or other authority has Bond Guarantee program are made by
revoked, canceled, or suspended the li- the AA/SG. A Surety may file a peti-
cense required of such Person to en- tion for review of suspensions and ter-
gage in the surety business, the right minations with the SBA Office of Hear-
of such Person to participate in the ings and Appeals (OHA) under part 134
SBA Surety Bond Guarantee Program of this chapter. SBA’s Administrator
may be denied, terminated, or sus- may, pending a decision pursuant to
pended, as applicable, in that jurisdic- part 134 of this chapter, suspend the
tion or in other jurisdictions. Ineligi- participation of any Surety for any of
bility or suspension from the Surety the causes listed in paragraphs (b) (1)
Bond Guarantee Programs is for at through (5) of this section.
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Small Business Administration § 115.19
(e) Effect on guarantee. A guarantee (d) Substantial regulatory violation.
issued by SBA before a suspension or The Surety has committed a ‘‘substan-
termination under this section remains tial violation’’ of SBA regulations. For
in effect, subject to SBA’s right to purposes of this paragraph, a ‘‘sub-
deny liability under the guarantee. stantial violation’’ is a violation which
causes an increase in the bond amount
§ 115.19 Denial of liability. of at least 25% or $50,000 in the aggre-
In addition to equitable and legal de- gate, or is contrary to the purposes of
fenses and remedies under contract the Surety Bond Guarantee Programs.
law, the Act and the regulations in this (e) Alteration. Without obtaining
part, SBA is not liable under a Prior prior written approval from SBA
Approval or PSB Agreement if any of (which may be conditioned upon pay-
the circumstances in paragraphs (a) ment of additional fees), the Surety
through (h) of this section exist. agrees to or acquiesces in any material
alteration in the terms, conditions, or
(a) Excess Contract or bond amount.
provisions of the bond, including but
The total Contract amount at the time
not limited to the following acts:
of Execution of the bond exceeds
(1) Naming as an Obligee or co-Obli-
$2,000,000 in face value (see § 115.12(e)),
gee any Person that does not qualify as
or the bond amount at any time ex-
an Obligee under § 115.10; or
ceeds the total Contract amount.
(2) In the case of a Prior Approval
(b) Misrepresentation or fraud. The Surety, acquiescing in any alteration
Surety obtained the Prior Approval or to the bond which would increase the
PSB Agreement, or applied for reim- bond amount by at least 25% or $50,000.
bursement for losses, by fraud or mate- (f) Timeliness. (1) Either:
rial misrepresentation. Material mis- (i) The bond was Executed prior to
representation includes (but is not lim- the date of SBA’s guarantee; or
ited to) both the making of an untrue (ii) The bond was Executed (or ap-
statement of material fact and the proved, if the Surety is legally bound
omission of a statement of material by such approval) after the work under
fact necessary to make a statement the Contract had begun, unless SBA
not misleading in light of the cir- executes a ‘‘Surety Bond Guarantee
cumstances in which it was made. Ma- Agreement Addendum’’ (SBA Form 991)
terial misrepresentation also includes after receiving all of the following
the adoption by the Surety of a mate- from the Surety:
rial misstatement made by others (A) Satisfactory evidence, including
which the Surety knew or under gen- a certified copy of the Contract (or a
erally accepted underwriting standards sworn affidavit from the Principal),
should have known to be false or mis- showing that the bond requirement was
leading. The Surety’s failure to dis- contained in the original Contract, or
close its ownership (or the ownership other documentation satisfactory to
by any owner of at least 20% of the SBA, showing why a bond was not pre-
Surety’s equity) of an interest in a viously obtained and is now being re-
Principal or an Obligee is considered quired;
the omission of a statement of mate- (B) Certification by the Principal
rial fact. that all taxes and labor costs are cur-
(c) Material breach. The Surety has rent, and listing all suppliers and sub-
committed a material breach of one or contractors, indicating that they are
more terms or conditions of its Prior all paid to date, and attaching a waiver
Approval or PSB Agreement. A mate- of lien from each; or an explanation
rial breach is considered to have oc- satisfactory to SBA why such docu-
curred if: mentation cannot be produced; and
(1) Such breach (or such breaches in (C) Certification by the Obligee that
the aggregate) causes an increase in all payments due under the Contract to
the Contract amount or in the bond date have been made and that the job
amount of at least 25% or $50,000; or has been satisfactorily completed to
(2) One of the conditions under Part date.
B of Title IV of the Investment Act is (2)(i) For purposes of paragraph
not met. (f)(1)(ii) of this section, work under a
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§ 115.20 13 CFR Ch. I (1–1–06 Edition)
Contract is considered to have begun (b) Filing requirement. The trustee or
when a Principal takes any action at receiver must submit to SBA quarterly
the job site which would have exposed status reports accounting for all funds
its Surety to liability under applicable received and all settlements being con-
law had a bond been Executed (or ap- sidered.
proved, if the Surety is legally bound
by such approval) at the time. § 115.21 Audits and investigations.
(ii) For purposes of this paragraph (f), (a) Audits—(1) Scope of audit. SBA
the Surety must maintain a contem-
may audit in the office of a Prior Ap-
poraneous record of the Execution and
proval or PSB Surety, the Surety’s at-
approval of each bond.
torneys or consultants, or the Prin-
(g) Principal fee. The Surety has not
cipal or its subcontractors, all docu-
remitted to SBA the Principal’s pay-
ment for the full amount of the guar- ments, files, books, records, tapes,
antee fee within the time period re- disks and other material relevant to
quired under § 115.30(d) for Prior Ap- SBA’s guarantee, commitments to
proval Sureties or § 115.66 for PSB Sure- guarantee a surety bond, or agree-
ties. SBA may reinstate the guarantee ments to indemnify the Prior Approval
upon a showing that the Contract is or PSB Surety. See § 115.18(a)(3) for
not in default and that a valid reason consequences of failure to comply with
exists why a timely submission was not this section.
made. (2) Frequency of PSB audits. Each PSB
(h) Other regulatory violations. The oc- Surety is subject to audit at least once
currence of any of the following: each year by examiners selected and
(1) The Principal on the bonded Con- approved by SBA.
tract is not a small business; (b) Records. The Surety must main-
(2) The bond was not required under tain the records listed in this para-
the bid solicitation or the original Con- graph (b) for the term of each bond,
tract; plus any additional time required to
(3) The bond was not eligible for settle any claims of the Surety for re-
guarantee by SBA because the bonded imbursement from SBA and to attempt
contract was not a Contract as defined salvage or other recovery, plus an addi-
in § 115.10; tional 3 years. If there are any unre-
(4) The loss occurred under a bond solved audit findings in relation to a
that was not guaranteed by SBA; particular bond, the Surety must main-
(5) The loss incurred by the Surety tain the related records until the find-
was not a Loss as determined under ings are resolved. The records to be
§ 115.16; or
maintained include the following:
(6) The Surety’s loss under a Per-
(1) A copy of the bond;
formance Bond did not result from the
Principal’s breach or Imminent Breach (2) A copy of the bonded Contract;
of the Contract. (3) All documentation submitted by
the Principal in applying for the bond;
[61 FR 3271, Jan. 31, 1996, as amended at 66 (4) All information gathered by the
FR 30804, June 8, 2001]
Surety in reviewing the Principal’s ap-
§ 115.20 Insolvency of Surety. plication;
(5) All documentation of any of the
(a) Successor in interest. If a Surety
events set forth in § 115.35(a) or
becomes insolvent, all rights or bene-
§ 115.65(c)(2);
fits conferred on the Surety under a
valid and binding Prior Approval or (6) All records of any transaction for
PSB Agreement will accrue only to the which the Surety makes payment
trustee or receiver of the Surety. SBA under or in connection with the bond,
will not be liable to the trustee or re- including but not limited to claims,
ceiver of the insolvent Surety except bills (including lawyers’ and consult-
for the guaranteed portion of any Loss ants’ bills), judgments, settlement
incurred and actually paid by such Sur- agreements and court or arbitration
ety or its trustee or receiver under the decisions, consultants’ reports, Con-
guaranteed bonds. tracts and receipts;
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Small Business Administration § 115.31
(7) All documentation relating to ef- ized SBA officer. The officer may pro-
forts to mitigate Losses, including doc- vide telephone notice before the Prior
umentation required by § 115.34(a) or Approval Surety receives SBA’s guar-
§ 115.69 concerning Imminent Breach; antee approval form if the officer has
(8) All records of any accounts into already signed the form. In the event of
which fees and funds obtained in miti- a conflict between the telephone notice
gation of Losses were paid and from and the written form, the written form
which payments were made under the controls.
bond, and any other trust accounts, (c) Reconsideration-appeal of SBA de-
and any reconciliations of such ac- termination. A Prior Approval Surety
counts;
may request reconsideration of a de-
(9) Job status reports received from
cline from the SBA officer who made
Obligees and documentation of each
unanswered request for a job status re- the decision. If the decision on recon-
port; and sideration is negative, the Surety may
(10) All documentation relating to appeal to an individual designated by
any collateral held by or available to the AA/SG. If the decision is again ad-
the Surety. verse, the Surety may appeal to the
(c) Purpose of audit. SBA’s audit will AA/SG, who will make the final deci-
determine, but not be limited to: sion.
(1) The adequacy and sufficiency of (d) Notice and payment to SBA. When
the Surety’s underwriting and credit the Surety has Executed a Final Bond,
analysis, its documentation of claims including a Final Bond under a bonding
and claims settlement procedures and line, the Surety must complete the
activities, and its recovery procedures Prior Approval Agreement, and submit
and practices; the form, together with the Principal’s
(2) The Surety’s minimization of payment for its guarantee fee (see
Loss, including the exercise of bond op- § 115.32(b)) to SBA within 45 days, or in
tions upon Contract default; and the case of a bonding line, within 15
(3) The Surety’s loss ratio in com- business days (see § 115.33(d)(2)) after
parison with other Sureties partici- Execution of the bond.
pating in the same SBA Surety Bond
Guarantee Program to a comparable § 115.31 Guarantee percentage.
degree. (a) Ninety percent. SBA reimburses a
(d) Investigations. SBA may conduct
Prior Approval Surety for 90% of the
investigations to inquire into the pos-
Loss incurred and paid if:
sible violation by any Person of the
Small Business Act or the Investment (1) The total amount of the Contract
Act, or of any rule or regulation under at the time of Execution of the bond is
those Acts, or of any order issued under $100,000 or less; or
those Acts, or of any Federal law relat- (2) The bond was issued on behalf of
ing to programs and operations of SBA. a small business owned and controlled
by socially and economically disadvan-
Subpart B—Guarantees Subject to taged individuals or on behalf of a
qualified HUBZone small business con-
Prior Approval cern.
§ 115.30 Submission of Surety’s guar- (b) Eighty percent. SBA reimburses a
antee application. Prior Approval Surety in an amount
(a) Legal effect of application. By sub- not to exceed 80% of the Loss incurred
mitting an application to SBA for a and paid on bonds for Contracts in ex-
bond guarantee, the Prior Approval cess of $100,000 which are executed on
Surety certifies that the Principal behalf of non-disadvantaged concerns.
meets the eligibility requirements set (c) Contract increase to over $100,000. If
forth in § 115.13 and that the under- the Contract amount increases to more
writing standards set forth in § 115.15 than $100,000 after Execution of the
have been met. bond, the guarantee percentage de-
(b) SBA’s determination. SBA’s ap- creases by one percentage point for
proval or decline of a guarantee appli- each $5,000 of increase or part thereof,
cation is made in writing by an author- but it does not decrease below 80%.
189
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§ 115.32 13 CFR Ch. I (1–1–06 Edition)
This provision applies only to guaran- tional requirements when the Contract
tees which qualify under paragraph amount changes.
(a)(1) of this section. (c) SBA charge to Surety. SBA does
(d) Contract increase to over $2,000,000. not charge Sureties application or Bid
If the Contract amount increases above Bond guarantee fees. Subject to
the statutory limit of $2,000,000 after § 115.18(a)(4), the Surety must pay SBA
Execution of the bond, SBA’s share of a guarantee fee on each guaranteed
the Loss is limited to that percentage bond (other than a Bid Bond) in the or-
of the increased Contract amount dinary course of business. The fee is a
which the statutory limit represents, certain percentage of the bond Pre-
multiplied by the guarantee percentage mium, determined by SBA and pub-
approved by SBA. For example if a lished in Notices in the FEDERAL REG-
Contract amount increases to ISTER from time to time. The fee is
$2,100,000, SBA’s share of the Loss rounded to the nearest dollar. SBA
under an 80% guarantee is limited to does not receive any portion of a Sure-
76.1% [2,000,000 / 2,100,000 = 95.2% × 80% ty’s non-Premium charges. See para-
= 76.1%]. graph (d) of this section for additional
(e) Contract decrease to $100,000 or less. requirements when the bond amount or
If the Contract amount decreases to the Contract amount changes.
$100,000 or less after Execution of the (d) Contract or bond increases/de-
bond, SBA’s guarantee percentage in- creases—(1) Notification and approval.
creases to 90% if the Surety provides The Prior Approval Surety must notify
SBA with evidence supporting the de- SBA of any increases or decreases in
crease and any other information or the Contract or bond amount that ag-
documents requested. gregate 25% or $50,000, as soon as the
Surety acquires knowledge of the
[61 FR 3271, Jan. 31, 1996, as amended at 64 change. Whenever the original bond
FR 18324, Apr. 14, 1999; 66 FR 30804, June 8, amount increases as a result of a single
2001] change order of at least 25% or $50,000,
the prior written approval of such in-
§ 115.32 Fees and Premiums.
crease by SBA is required on a supple-
(a) Surety’s Premium. A Prior Ap- mental Prior Approval Agreement
proval Surety must not charge a Prin- (Supplemental Form 990) and is condi-
cipal an amount greater than that au- tioned upon payment by the Surety of
thorized by the appropriate insurance the increase in the Principal’s guar-
department. The Surety must not re- antee fee as set forth in paragraph
quire the Principal to purchase cas- (d)(2) of this section.
ualty or other insurance or any other (2) Increases; fees. Notification of in-
services from the Surety or any Affil- creases in the Contract or bond amount
iate or agent of the Surety. The Surety under this paragraph (d) must be ac-
must not charge non-Premium fees to a companied by payment of the increase
Principal unless the Surety performs in the Principal’s guarantee fee com-
other services for the Principal, the ad- puted on the increase in the Contract
ditional fee is permitted by State law, amount. If the increase in the Prin-
and the Principal agrees to the fee. cipal’s fee is less than $40, such in-
(b) SBA charge to Principal. SBA does crease is not due until all unpaid in-
not charge Principals application or creases in the Principal’s fee aggregate
Bid Bond guarantee fees. If SBA guar- at least $40. The Surety’s check for
antees a Final Bond, the Principal payment of the increase in the Surety’s
must pay a guarantee fee equal to a guarantee fee, computed on the in-
certain percentage of the Contract crease in the bond Premium, may be
amount. The percentage is determined submitted in the ordinary course of
by SBA and is published in Notices in business. Increases in the Surety’s fee
the FEDERAL REGISTER from time to are not due until they aggregate at
time. The Principal’s fee is rounded to least $40.
the nearest dollar and is to be remitted (3) Decreases; refunds. Whenever SBA
to SBA by the Surety together with is notified of a decrease in the Contract
the form required under § 115.30(d). See or bond amount, SBA will refund to the
paragraph (d) of this section for addi- Principal a proportionate amount of
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Small Business Administration § 115.33
the Principal’s guarantee fee and re- documentation required under
bate to the Surety a proportionate § 115.19(f)(1)(ii); and
amount of SBA’s Premium share in the (6) Any other limitation related to
ordinary course of business. If the type, specialty of work, geographical
amount to be refunded or rebated is area, or credit.
less than $40, such refund or rebate will (c) Excess bonding. If, after a bonding
not be made until the amounts to be line is issued, the Principal desires a
refunded or rebated, respectively, ag- bond and the Surety desires a guar-
gregate at least $40. Upon receipt of the antee exceeding a limitation of the
refund, the Surety must promptly pay bonding line, the Surety must submit
a proportionate amount of its Premium an application to SBA under regular
to the Principal. procedures.
(d) Submission of forms to SBA—(1) Bid
§ 115.33 Surety bonding line. Bonds. Within 15 business days after
A surety bonding line is a written the Execution of any Bid Bonds under
commitment by SBA to a Prior Ap- a bonding line, the Surety must submit
proval Surety which provides for the a ‘‘Surety Bond Guarantee Under-
Surety’s Execution of multiple bonds writing Review’’ (SBA Form 994B) to
for a specified small business strictly SBA for approval. If that form is al-
within pre-approved terms, conditions ready on file with SBA and no new fi-
and limitations. In applying for a bond- nancial statements are required or
ing line, the Surety must provide SBA have been received from the Principal,
with information on the applicant as a ‘‘Surety Bond Guarantee Review Up-
requested. In addition to the other lim- date’’ (SBA Form 994C) may be sub-
itations and provisions set forth in this mitted instead. If the Surety fails to
part 115, the following conditions apply submit either form within this time pe-
to each surety bonding line: riod, SBA’s guarantee of the bond will
(a) Underwriting. A bonding line may be void from its inception unless SBA
be issued by SBA for a Principal only if determines otherwise upon a showing
the underwriting evaluation is satisfac- that a valid reason exists why the
tory. The Prior Approval Surety must timely submission was not made.
require the Principal to keep it in- (2) Final Bonds. Within 15 business
formed of all its contracts, whether days after the Execution of any Final
bonded by the same or another surety Bonds under a bonding line, the Surety
or unbonded, during the term of the must submit a signed Prior Approval
bonding line. Agreement and a ‘‘Surety Bond Guar-
(b) Bonding line conditions. The bond- antee Underwriting Review’’ (SBA
ing line contains limitations on the Form 994B) to SBA for approval. If that
following: form is already on file with SBA and no
(1) The term of the bonding line, not new financial statements are required
to exceed 1 year subject to renewal in or have been received from the Prin-
writing; cipal, a ‘‘Surety Bond Guarantee Re-
(2) The total dollar amount of the view Update’’ (SBA Form 994C) may be
Principal’s bonded and unbonded work submitted instead. If the Surety fails
on hand at any time, including out- to submit these forms together with
standing bids, during the term of the the Principal’s payment for its guar-
bonding line; antee fee within this time period,
(3) The number of such bonded and SBA’s guarantee of the bond will be
unbonded contracts outstanding at any void from its inception unless SBA de-
time during the term of the bonding termines otherwise upon a showing
line; that the Contract is not in default and
(4) The maximum dollar amount of a valid reason exists why the timely
any single guaranteed bonded Con- submission was not made.
tract; (3) Additional information. The Surety
(5) The timing of Execution of bonds must submit any other data SBA re-
under the bonding line—bonds must be quests.
dated and Executed before the work on (e) Cancellation of bonding line—(1)
the underlying Contract has begun, or Optional cancellation. Either SBA or the
the Surety must submit to SBA the Surety may cancel a bonding line at
191
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§ 115.34 13 CFR Ch. I (1–1–06 Edition)
any time, with or without cause, upon egy in maximizing recovery. See also
written notice to the other party. Upon § 115.17(b).
the receipt of any adverse information
concerning the Principal, the Surety § 115.35 Claims for reimbursement of
must promptly notify SBA, and SBA Losses.
may cancel the bonding line. (a) Notification requirements—(1)
(2) Mandatory cancellation. Upon the Events requiring notification. A Prior
occurrence of a default by the Prin- Approval Surety must notify OSG of
cipal, whether under a contract bonded the occurrence of any of the following:
by the same or another surety or an (i) Legal action under the bond has
unbonded contract, the Surety must been initiated.
immediately cancel the bonding line. (ii) The Obligee has declared the
(3) Effect of cancellation. Cancellation Principal to be in default under the
of a bonding line by SBA is effective Contract.
upon receipt of written notice by the (iii) The Surety has established a
Surety. Bonds issued before the effec- claim reserve for the bond.
tive date of cancellation remain guar- (iv) The Surety has received any ad-
anteed by SBA. Upon cancellation by verse information concerning the Prin-
SBA or the Surety, the Surety must cipal’s financial condition or possible
promptly notify the Principal in writ- inability to complete the project or to
ing. pay laborers or suppliers.
(2) Timing of notification. Notification
§ 115.34 Minimization of Surety’s Loss. must be made in writing at the earlier
(a) Imminent Breach—(1) Prior ap- of the time the Surety applies for a
proval requirement. SBA will reimburse guarantee on behalf of an affected
its guaranteed share of payments made Principal, or within 30 days of the date
by a Surety to avoid or attempt to the Surety acquires knowledge, or
avoid an Imminent Breach of the terms should have acquired knowledge, of any
of a Contract covered by an SBA guar- of the listed events.
anteed bond only if the payments were (b) Surety action. The Surety must
made with the prior approval of OSG. take all necessary steps to mitigate
OSG’s prior approval will be given only Losses resulting from any of the events
if the Surety demonstrates to SBA’s in paragraph (a) of this section, includ-
satisfaction that a breach is imminent ing the disposal at fair market value of
and that there is no other recourse to any collateral held by or available to
prevent such breach. the Surety. Unless SBA notifies the
(2) Amount of reimbursement. The ag- Surety otherwise, the Surety must
gregate of the payments by SBA to take charge of all claims or suits aris-
avoid Imminent Breach cannot exceed ing from a defaulted bond, and com-
10% of the Contract amount, unless the promise, settle and defend such suits.
Administrator finds that a greater pay- The Surety must handle and process all
ment (not to exceed the guaranteed claims under the bond and all settle-
share of the bond penalty) is necessary ments and recoveries as it does on non-
and reasonable. In no event will SBA guaranteed bonds.
make any duplicate payment pursuant (c) Claim reimbursement requests. (1)
to this or any other provision of this Claims for reimbursement for Losses
part 115. which the Surety has paid must be sub-
(3) Recordkeeping requirement. The mitted (together with a copy of the
Surety must keep records of payments bond, the bonded Contract, and any in-
made to avoid Imminent Breach. demnity agreements) with the initial
(b) Salvage and recovery. A Prior Ap- claim to OSG on a ‘‘Default Report,
proval Surety must pursue all possible Claim for Reimbursement and Record
sources of salvage and recovery until of Administrative Action’’ (SBA Form
SBA concurs with the Surety’s rec- 994H), within 1 year from the time of
ommendation for a discontinuance or each disbursement. Claims submitted
for a settlement. The Surety must cer- after 1 year must be accompanied by
tify that continued pursuit of salvage substantiation satisfactory to SBA.
and recovery would be neither eco- The date of the claim for reimburse-
nomically feasible nor a viable strat- ment is the date of receipt of the claim
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Small Business Administration § 115.60
by SBA, or such later date as addi- Principal is interested in further bond-
tional information requested by SBA is ing.
received. (3) The Surety must pay SBA its pro
(2) The Surety must also submit evi- rata share of the settlement amount
dence of the disposal of all collateral at within 90 days of receipt. Prior to clos-
fair market value. ing the file on a Principal, the Surety
(3) SBA may request additional infor- must certify that SBA has received its
mation prior to reimbursing the Surety pro rata share of all indemnity recov-
for its Loss. ery.
(4) Subject to the offset provisions of (b) Conditions for reinstatement. At
part 140, SBA pays its share of the Loss any time after a Principal becomes in-
incurred and paid by the Surety within eligible for further bond guarantees
90 days of receipt of the requisite infor- under § 115.14(a), the Surety may rec-
mation. ommend that such Principal’s eligi-
(5) Claims for reimbursement and any bility be reinstated. OSG may agree to
additional information submitted are reinstate the Principal and its Affili-
subject to review and audit by SBA, in- ates if:
cluding but not limited to the Surety’s (1) The Principal’s guarantee fee has
compliance with SBA’s regulations and been paid to SBA and SBA receives evi-
forms. dence that the Principal has paid all
(d) Status updates. The Surety must delinquent amounts due to the Surety
submit semiannual status reports on (including amounts for Imminent
each claim 6 months after the initial Breach); or
default notice, and then every 6 (2) The Surety has settled its claim
months. The Surety must notify SBA with the Principal for an amount and
immediately of any substantial on terms accepted by OSG; or
changes in the status of the claim or (3) The Principal contests a claim
the amounts of Loss reserves. and provides collateral, acceptable to
(e) Reservation of SBA rights. The pay- the Surety and OSG, which has a liq-
ment by SBA of a Surety’s claim does uidation value of at least the amount
not waive or invalidate any of the of the claim including related ex-
terms of the Prior Approval Agree- penses; or
ment, the regulations set forth in this (4) The Principal’s indebtedness to
part 115, or any defense SBA may have the Surety is discharged by operation
against the Surety. Within 30 days of of law (e.g., bankruptcy discharge); or
receipt of notification that a claim or (5) OSG and the Surety determine
any portion of a claim should not have that further bond guarantees are ap-
been paid by SBA, the Surety must propriate.
repay the specified amounts to SBA. (c) Underwriting after reinstatement. A
guarantee application submitted after
§ 115.36 Indemnity settlements and re- reinstatement of the Principal’s eligi-
instatement of Principal. bility is subject to a very stringent un-
(a) Indemnity settlements. (1) An in- derwriting review.
demnity settlement occurs when a de-
faulted Principal and its Surety agree Subpart C—Preferred Surety Bond
upon an amount, less than the actual (PSB) Guarantees
loss under the bond, which will satisfy
the Principal’s indebtedness to the § 115.60 Selection and admission of
Surety. Sureties must not agree to any PSB Sureties.
indemnity settlement proposal or enter (a) Selection of PSB Sureties. SBA’s se-
into any such agreement without lection of PSB Sureties will be guided
SBA’s concurrence. by, but not limited to, these factors:
(2) Any settlement proposal sub- (1) An underwriting limitation of at
mitted for SBA’s consideration must least $2,000,000 on the U.S. Treasury
include current financial information, Department list of acceptable sureties;
including financial statements, tax re- (2) An agreement to charge Prin-
turns, and credit reports, together with cipals no more than the Surety Asso-
the Surety’s written recommendations. ciation of America’s advisory premium
It should also indicate whether the rates in effect on August 1, 1987;
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§ 115.61 13 CFR Ch. I (1–1–06 Edition)
(3) Premium income from contract amount equal to the guarantee per-
bonds guaranteed by any government centage of the estimated penal sum of
agency (Federal, State or local) of no the Final Bond SBA would guarantee if
more than one- quarter of the total the Contract were awarded. If the Con-
contract bond premium income of the tract is then awarded for an amount
Surety; other than the bid amount, or if the bid
(4) The vesting of underwriting au- is withdrawn or the Bid Bond guar-
thority for SBA guaranteed bonds only antee has expired (see § 115.12(c)), SBA
in employees of the Surety; debits or credits the Surety’s allot-
(5) The vesting of final settlement ment accordingly.
authority for claims and recovery (c) Execution of Final Bonds. If the
under the PSB program only in em- PSB Surety Executes a guaranteed
ployees of the Surety’s permanent Final Bond, but not the related Bid
claims department; and Bond, SBA debits the Surety’s allot-
(6) The rating or ranking designa- ment for an amount equal to the guar-
tions assigned to the Surety by recog- antee percentage of the penal sum of
nized authority. the Final Bond. SBA will debit the al-
(b) Admission of PSB Sureties. A Sur- lotment for increases, and credit the
ety admitted to the PSB program must allotment for decreases, in the bond
execute a PSB Agreement before ap- amount.
proving SBA guaranteed bonds. No (d) Release and non-issuance of Final
SBA guarantee attaches to bonds ap- Bonds. The release of Final Bonds upon
proved before the AA/SG or designee completion of the Contract does not re-
has countersigned the Agreement. store the corresponding allotment. If,
[61 FR 3271, Jan. 31, 1996, as amended at 66 however, a PSB Surety approves a
FR 30804, June 8, 2001] Final Bond but never issues the bond,
SBA will credit the Surety’s allotment
§ 115.61 Duration of PSB program. for an amount equal to the guarantee
The PSB program terminates on Sep- percentage of the penal sum of the
tember 30, 2003, unless extended by leg- bond. In that event, the Surety must
islation. SBA guarantees effective notify SBA as soon as possible, but in
under this program on or before Sep- no event later than 5 business days
tember 30, 2003, will remain in effect after the non-issuance has been deter-
after such date. mined. Until the Surety has so notified
SBA, it cannot rely on such credit.
[61 FR 3271, Jan. 31, 1996, as amended at 63
FR 12605, Mar. 16, 1998; 66 FR 30804, June 8, § 115.64 Timeliness requirement.
2001]
There must be no Execution or ap-
§ 115.62 Prohibition on participation proval of a bond by a PSB Surety after
in Prior Approval program. commencement of work under a Con-
Neither a PSB Surety nor any of its tract unless the Surety obtains written
Affiliates is eligible to submit applica- approval from the AA/SG. To apply for
tions under subpart B of this part. such approval, the Surety must submit
a completed ‘‘Surety Bond Guarantee
§ 115.63 Allotment of guarantee au- Agreement Addendum’’ (SBA Form
thority. 991), together with the evidence and
(a) General. SBA allots to each PSB certifications described in
Surety a periodic maximum guarantee § 115.19(f)(1)(ii).
authority. No SBA guarantee attaches
to bonds approved by a PSB Surety if § 115.65 General PSB procedures.
the bonds exceed the allotted authority (a) Retention of information. A PSB
for the period in which the bonds are Surety must comply with all applica-
approved. No reliance on future author- ble SBA regulations and obtain from
ity is permitted. An allotment can be its applicants all the information and
increased only by prior written permis- certifications required by SBA. The
sion of SBA. PSB Surety must document compli-
(b) Execution of Bid Bonds. When the ance with SBA regulations and retain
PSB Surety Executes a Bid Bond, SBA such certifications in its files, includ-
debits the Surety’s allotment for an ing a contemporaneous record of the
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Small Business Administration § 115.68
date of approval and Execution of each charges on Final Bonds. The PSB Sur-
bond. See also § 115.19(f). The certifi- ety must also remit to SBA the Prin-
cations and other information must be cipal’s payment for its guarantee fee,
made available for inspection by SBA equal to a certain percentage of the
or its agents and must be available for Contract amount. The fee percentages
submission to SBA in connection with are determined by SBA and are pub-
the Surety’s claims for reimbursement. lished in Notices in the FEDERAL REG-
The PSB Surety must retain the cer- ISTER from time to time. Each fee is
tifications and other information for rounded to the nearest dollar. The Sur-
the term of the bond, plus such addi- ety must remit SBA’s Premium share
tional time as may be required to set- and the Principal’s guarantee fee with
tle any claims of the Surety for reim- the bordereau listing the related Final
bursement from SBA and to attempt Bond, as required in the PSB Agree-
salvage or other recovery, plus an addi- ment.
tional 3 years. If there are any unre-
solved audit findings in relation to a § 115.67 Changes in Contract or bond
particular bond, the Surety must main- amount.
tain the related certifications and (a) Increases. The PSB Surety must
other information until the findings process Contract or bond amount in-
are resolved. creases within its allotment in the
(b) Usual staff and procedures. The ap- same manner as initial guaranteed
proval, Execution and administration bond issuances (see § 115.65(c)(1)). The
by a PSB Surety of SBA guaranteed Surety must present checks for addi-
bonds must be handled in the same tional fees due from the Principal and
manner and with the same staff as the the Surety on increases aggregating
Surety’s activity outside the PSB pro- 25% of the contract or bond amount or
gram. The Surety must request job sta- $50,000, and attach such payments to
tus reports from Obligees in accordance the respective monthly bordereau. If
with its own procedures. the additional Principal’s fee or Sure-
(c) Notification to SBA—(1) Approvals. ty’s fee is less than $40, such fee is not
A PSB Surety must notify SBA by due until all unpaid increases in such
electronic transmission or monthly fee aggregate at least $40.
bordereau, as agreed between the Sur- (b) Decreases. If the Contract or bond
ety and SBA, of all approved Bid and amount is decreased, SBA will refund
Final Bonds, and of the Surety’s ap- to the Principal a proportionate
proval of increases and decreases in the amount of the guarantee fee, and ad-
Contract or bond amount. The notice just SBA’s Premium share accordingly
must contain the information specified in the ordinary course of business. No
from time to time in agreements be- refund or adjustment will be made
tween the Surety and SBA. SBA may until the amounts to be refunded or re-
deny liability with respect to Final bated, respectively, aggregate at least
Bonds for which SBA has not received $40.
timely notice.
(2) Other events requiring notification. § 115.68 Guarantee percentage.
The PSB Surety must notify SBA with-
in 30 calendar days of the name and ad- SBA reimburses a PSB Surety in an
dress of any Principal against whom amount not to exceed 70% of the Loss
legal action on the bond has been insti- incurred and paid. Where the Contract
tuted; whenever an Obligee has de- amount, after the Execution of the
clared a default; whenever the Surety bond, increases beyond the statutory
has established or added to a claim re- limit of $2,000,000, SBA’s share of the
serve; of the recovery of any amounts Loss is limited to that percentage of
on the guaranteed bond; and of any de- the increased Contract amount which
cision by the Surety to bond any such the statutory limit represents, multi-
Principal again. plied by the guarantee percentage ap-
proved by SBA. For an example, see
§ 115.66 Fees. § 115.31(d).
The PSB Surety must pay SBA a cer- [61 FR 3271, Jan. 31, 1996, as amended at 66
tain percentage of the Premium it FR 30804, June 8, 2001]
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§ 115.69 13 CFR Ch. I (1–1–06 Edition)
§ 115.69 Imminent Breach. (c) Reservation of SBA’s rights. The
(a) No prior approval requirement. SBA payment by SBA of a PSB Surety’s
will reimburse a PSB Surety for the claim does not waive or invalidate any
guaranteed portion of payments the of the terms of the PSB Agreement,
Surety makes to avoid or attempt to the regulations in this part 115, or any
avoid an Imminent Breach of the terms defense SBA may have against the Sur-
of a Contract covered by an SBA guar- ety. Within 30 days of receipt of notifi-
anteed bond. The PSB Surety does not cation that a claim or any portion of a
need SBA approval to make Imminent claim should not have been paid by
Breach payments. SBA, the Surety must repay the speci-
(b) Amount of reimbursement. The ag- fied amounts to SBA.
gregate of the payments by SBA under § 115.71 Denial of liability.
this section cannot exceed 10% of the
Contract amount, unless the Adminis- In addition to the grounds set forth
trator finds that a greater payment in § 115.19, SBA may deny liability to a
(not to exceed the guaranteed portion PSB Surety if:
of the bond penalty) is necessary and (a) The PSB Surety’s guaranteed
reasonable. In no event will SBA make bond was in an amount which, together
any duplicate payment under any pro- with all other guaranteed bonds, ex-
vision of these regulations in this part. ceeded the allotment for the period
(c) Recordkeeping requirement. The during which the bond was approved,
PSB Surety must keep records of pay- and no prior SBA approval had been ob-
ments made to avoid Imminent Breach. tained;
(b) The PSB Surety’s loss was in-
§ 115.70 Claims for reimbursement of curred under a bond which was not list-
Losses. ed on the bordereau for the period
(a) How claims are submitted. A PSB when it was approved; or
Surety must submit claims for reim- (c) The loss incurred by the PSB Sur-
bursement on a form approved by SBA ety is not attributable to the par-
no later than 1 year from the date the ticular Contract for which an SBA
Surety paid the amount. Loss is deter- guaranteed bond was approved.
mined as of the date of receipt by SBA
of the claim for reimbursement, or as PART 117—NONDISCRIMINATION
of such later date as additional infor- IN FEDERALLY ASSISTED PRO-
mation requested by SBA is received. GRAMS OR ACTIVITIES OF SBA—
Subject to the offset provisions of part
140, SBA pays its share of Loss within
EFFECTUATION OF THE AGE DIS-
90 days of receipt of the requisite infor- CRIMINATION ACT OF 1975, AS
mation. Claims for reimbursement and AMENDED
any additional information submitted
are subject to review and audit by Sec.
117.1 Purpose.
SBA. 117.2 Application of this part.
(b) Surety responsibilities. The PSB 117.3 Definitions.
Surety must take all necessary steps 117.4 Discrimination prohibited and excep-
to mitigate Losses when legal action tions.
against a bond has been instituted, 117.5 Illustrative applications.
when the Obligee has declared a de- 117.6 Remedial and affirmative action by re-
fault, and when the Surety has estab- cipients.
117.7 Assurances required.
lished a claim reserve. The Surety may 117.8 Responsibilities of SBA recipients.
dispose of collateral at fair market 117.9 Compliance information.
value only. Unless SBA notifies the 117.10 Review procedures.
Surety otherwise, the Surety must 117.11 Complaint procedures.
take charge of all claims or suits aris- 117.12 Mediation.
ing from a defaulted bond, and com- 117.13 Investigation and resolution of mat-
promise, settle or defend the suits. The ters.
117.14 Intimidating or retaliatory acts pro-
Surety must handle and process all hibited.
claims under the bond and all settle- 117.15 Procedure for effecting compliance.
ments and recoveries in the same man- 117.16 Hearings.
ner as it does on non-guaranteed bonds. 117.17 Decisions and notices.
196
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