[Federal Register Volume 79, Number 8 (Monday, January 13, 2014)]
[Rules and Regulations]
[Pages 2084-2087]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-00295]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 115
RIN 3245-AG56
Surety Bond Guarantee Program
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
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SUMMARY: The Small Business Administration (SBA) is issuing this final
rule to conform the regulations governing the Surety Bond Guarantee
Program to certain provisions of the National Defense Authorization Act
for Fiscal Year 2013 (NDAA), including the provisions that increase the
contract amounts for which SBA is authorized to guarantee bonds, grant
SBA the authority to partially deny liability under its bond guarantee,
and prohibit SBA from denying liability based on material information
that was provided as part of the guarantee application in the Prior
Approval Program. This rule also makes changes to the Quick Bond
Guarantee Application and Agreement, the timeframes for taking certain
actions related to claims, and the dollar threshold for determining
when a change in the Contract or bond amounts meets certain criteria or
requires certain action. Finally, the final rule eliminates references
to the provisions of the American Recovery and Reinvestment Act of 2009
(Recovery Act) that have expired.
DATES: This rule is effective February 12, 2014.
FOR FURTHER INFORMATION CONTACT: Barbara J. Brannan, Office of Surety
Guarantees, 202-205-6545, email: [email protected].
SUPPLEMENTARY INFORMATION:
I. Background Information
The U.S. Small Business Administration (SBA) guarantees bid,
payment and performance bonds for small and emerging contractors who
cannot obtain surety bonds through regular commercial channels. SBA's
guarantee gives Sureties an incentive to provide bonding for small
businesses and thereby assists small businesses in obtaining greater
access to contracting opportunities. SBA's guarantee is an agreement
between a Surety and SBA that SBA will assume a certain percentage of
the Surety's loss should a contractor default on the underlying
contract.
On August 1, 2013, SBA published a notice of proposed rulemaking
with a request for comments in the Federal Register. The rule proposed
to: (1) Conform SBA's Surety Bond Guarantee Program (``SBG Program'')
to certain provisions of the National Defense Authorization Act of 2013
(NDAA); (2) clarify the extent to which a Principal may subcontract
work performed under the Contract; (3) make changes to the Quick Bond
Guarantee Application and Agreement; (4) increase the dollar threshold
for determining when a change in the Contract or bond amounts may
result in denial of liability or require certain actions; (5) reduce
the timeframes for taking certain actions related to claims; and (6)
eliminate references to the provisions of the American Recovery and
Reinvestment Act of 2009 (Recovery Act) that have expired. See 78 FR
46528.
The comment period was open until September 30, 2013. SBA received
two comments, both from trade associations, that expressed their
support for the proposed rule and indicated that the changes are
favorable to small businesses. With respect to the proposed increases
in the dollar thresholds, one commenter noted that a Surety may not be
in a position to notify SBA or seek SBA's approval when a change order
exceeds the specified dollar threshold because a Surety may be required
contractually to waive notice of contract amount changes. Under section
115.32(d), a Prior Approval Surety is required to notify SBA of any
required changes in the Contract or bond amount that aggregate 25% or
$50,000 (to be increased to $100,000 under this final rule) ``as soon
as the Surety acquires knowledge of the change''. Thus, the Surety is
required to provide notice to SBA under this provision upon acquiring
knowledge of
[[Page 2085]]
these aggregated changes. It is important to note that, under section
115.15(b), the Surety is required to monitor the Principal's progress
on bonded Contracts guaranteed by SBA and, accordingly, SBA would
expect the Surety to be aware of changes in the Contract or bond
amounts. Moreover, for increases in the original bond amount as a
result of a single change order of at least 25% or $50,000 (to be
increased to $100,000 by this final rule), the Surety must, under
section 115.32(d), obtain SBA's prior written approval of such increase
(and such approval is conditioned upon payment by the Surety of the
increase in the Principal's guarantee fee).
In addition, as the commenter observed, SBA now has the discretion,
under section 115.19, to deny liability in whole or in part. The
commenter suggested that SBA propose regulations to address the use of
such discretion where the Surety does not obtain approval or notify SBA
of the change in the Contract or bond amount. However, the exercise of
this discretion must be based on the circumstances of each case and
will be determined on a case-by-case basis.
SBA is adopting the rule as proposed and as described in the
section-by-section analysis below.
II. Section By Section Analysis
Section 115.10. SBA is revising the definition of ``Applicable
Statutory Limit'' to include the maximum amounts of any Contract or
Order for which SBA is authorized by the NDAA to guarantee, or commit
to guarantee, a Bid Bond, Payment Bond, Performance Bond, or Ancillary
Bond. The statutory limits set by the NDAA are (1) $6.5 million (as
adjusted for inflation in accordance with 41 U.S.C. 1908); and (2) $10
million if a contracting officer of a Federal agency certifies that
such guarantee is necessary. In addition, SBA is including a reference
in the definition to the maximum amounts of any Contract or Order when
SBA guarantees the bond in connection with a procurement related to a
major disaster pursuant to section 12079 of Public Law 110-246. Under
this provision, which was enacted on June 18, 2008, the maximum amounts
are: (1) $5 million; and (2) $10 million on Federal Contracts or Orders
at the request of the Head of any Federal agency involved in
reconstruction efforts in response to a major disaster. The authority
to guarantee bonds under this provision is subject to the availability
of funds appropriated in advance specifically for the purpose of
guaranteeing bonds for any Contract or Order related to a major
disaster. SBA does not expect this authority to be often used, given
NDAA's increase in the maximum amounts for any Contract or Order up to
$6.5 million (and $10 million if a Federal contracting officer
certifies that such guarantee is necessary) and the requirement that
funds be appropriated in advance specifically for guaranteeing bonds
related to a major disaster. No changes have been made to this
provision as proposed.
Section 115.12(b). SBA is deleting the reference to the ``Contract
Bonds'' section of the current ``Manual of Rules, Procedures and
Classifications of the Surety Association of America'' and is replacing
this reference with two specific types of bonds, Commercial and
Fidelity bonds, which are not eligible for an SBA guarantee. No changes
have been made to this provision as proposed.
Section 115.12(e)(3). This provision is being deleted in its
entirety, as it relates to requirements imposed by the Recovery Act
that expired on September 30, 2010. No changes have been made to this
provision as proposed.
Section 115.12(e)(4). This provision is being renumbered as (e)(3),
and now reflects the authority to guarantee bonds on Federal Contracts
or Orders greater than $6.5 million, but not exceeding $10 million,
upon a signed certification of a Federal contracting officer, as
authorized by the NDAA. No changes have been made to this provision as
proposed.
Section 115.12(e)(5). This provision has been renumbered as (e)(4),
and implements an alternative statutory authority provided SBA under
Public Law 110-246 for guaranteeing bonds for procurements related to a
major disaster. References to requirements imposed by the Recovery Act
that expired on September 30, 2010, have been deleted. No changes have
been made to this provision as proposed.
Section 115.13(a)(5). SBA is revising this provision to clarify
that, to be eligible for a bond guaranteed by SBA, the Principal must
retain full responsibility for the oversight and management of the
Contract, including any work performed by any subcontractor, and may
not subcontract the full scope of the statement of work. No changes
have been made to this provision as proposed.
Section 115.17(b)(2). SBA is reducing the time frame allowed for a
Surety to reimburse or credit SBA for salvage and recovery from 90 days
to 45 days after the Surety receives any salvage and recovery. No
changes have been made to this provision as proposed.
Section 115.19. SBA is revising the introductory paragraph of this
provision to conform it to current law by deleting the time frame
reference required by the Recovery Act, which has expired, and by
inserting the relevant requirements of the NDAA, including the
authority of SBA to deny liability, in whole or in part, within its
discretion if any of the circumstances in paragraphs (a) through (h) of
this section exist, and the prohibition on denying liability based on
material information that was provided to SBA as part of the Surety's
guarantee application in the Prior Approval Program. SBA made one minor
clarification to the provision as proposed by revising the introductory
language in section 115.19 to make it clear that the material
information must have been provided to SBA in the Surety's application.
SBA is also amending section 115.19(c)(1) by increasing the dollar
threshold for determining whether the Surety has committed a material
breach of one or more terms or conditions of its Prior Approval or PSB
Agreement from $50,000 to $100,000. In addition, SBA is amending
section 115.19(d) by increasing the dollar threshold for determining
whether the Surety has committed a substantial violation of SBA
regulations from $50,000 to $100,000, and is amending section
115.19(e)(2) by increasing the dollar threshold for determining whether
a Prior Approval Surety has agreed to or acquiesced in any material
alteration in the terms, conditions, or provisions of the bond from
$50,000 to $100,000. In each of these sections, the phrase ``whichever
is less'' is being added after the $100,000 to clarify the meaning of
this requirement. No other changes have been made to this provision as
proposed.
Section 115.30(d)(2). SBA is deleting the phrase ``or the warranty/
maintenance period'' from this provision to allow the Quick Bond
Application and Agreement (SBA Form 990A) to be used for a Contract
that includes a maintenance period of 2 years or less (for defective
workmanship or materials only), and with SBA's approval, for longer
maintenance periods and broader coverage, as provided in section 115.10
under the definition of ``Contract''. In addition, SBA is increasing
the allowable liquidated damages provision from $250.00 per day to
$1,000.00 per day. No changes have been made to this provision as
proposed.
Section 115.31(d). SBA is revising the final sentence of this
provision by basing the example on the current statutory limit of $6.5
million. No
[[Page 2086]]
changes have been made to this provision as proposed.
Section 115.32(d). SBA is amending this provision by changing the
dollar threshold for determining when the Prior Approval Surety must
notify SBA of the change and/or obtain SBA's approval from at least
$50,000 to $100,000. The phrase ``whichever is less'' has been added to
clarify the meaning of this requirement. No changes have been made to
this provision as proposed.
Section 115.35(c)(1). SBA is reducing the time frame allowed for a
Prior Approval Surety to submit a claim to SBA from one year to 90 days
after the Surety pays the claim. In addition, the title of the SBA Form
994H, ``Default Report, Claim for Reimbursement and Record of
Administrative Action,'' has been changed to ``Default Report, Claim
for Reimbursement and Report of Recoveries,'' to reflect the current
version of the form. No changes have been made to this provision as
proposed.
Section 115.35(c)(4). SBA is reducing the time frame for SBA to pay
a claim submitted by a Surety in the Prior Approval Program from 90
days to 45 days after receipt of the requisite information. No changes
have been made to this provision as proposed.
Section 115.36(a)(3). SBA is reducing the time frame allowed for a
Surety to reimburse SBA its share of a settlement from 90 days to 45
days after receipt. No changes have been made to this provision as
proposed.
Section 115.67(a). SBA is increasing the dollar threshold for
determining when a PSB Surety must present checks for additional fees
due from the Principal and Surety from $50,000 to $100,000. The phrase
``whichever is less'' has been added to clarify the meaning of this
requirement. No changes have been made to this provision as proposed.
Section 115.69. For imminent breach payments that exceed 10% of the
Contract amount, SBA is revising this provision to give the PSB Surety
the opportunity to request SBA to approve the amount prior to the
Surety making the Imminent Breach payment. SBA will approve such
payment if SBA finds that the payment is necessary and reasonable. If
the Surety does not request prior SBA approval for such payments, SBA
may refuse to reimburse the Surety if SBA finds that the payment that
exceeds 10% of the Contract amount was not necessary and reasonable. No
changes have been made to this provision as proposed.
SBA 115.70(a). SBA is reducing the time frame allowed for a PSB
Surety to submit a claim to SBA from one year to 90 days after the
Surety pays the claim. SBA is also reducing the time frame for SBA to
pay a claim submitted by a Surety in the PSB Program from 90 days to 45
days after receipt of the requisite information. No changes have been
made to this provision as proposed.
Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork
Reduction Act (44 U.S.C. Ch. 35) and the Regulatory Flexibility Act (5
U.S.C. 601-612)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
final rule does not constitute a significant regulatory action under
Executive Order 12866. This is also not a ``major rule'' under the
Congressional Review Act, 5 U.S.C. 800.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
SBA has determined that this final rule will not have substantial,
direct effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, for
the purposes of Executive Order 13132, SBA has determined that this
final rule has no federalism implications warranting preparation of a
federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Ch. 35
SBA has determined that this final rule does not impose additional
reporting or recordkeeping requirements under the Paperwork Reduction
Act, 44 U.S.C., Chapter 35.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA) requires administrative
agencies to consider the effect of their actions on small entities,
small non-profit enterprises, and small local governments. Pursuant to
the RFA, when an agency issues a rulemaking, the agency must prepare a
regulatory flexibility analysis which describes the impact of the rule
on small entities. However, section 605 of the RFA allows an agency to
certify a rule, in lieu of preparing an analysis, if the rulemaking is
not expected to have a significant economic impact on a substantial
number of small entities. There are twenty-one Sureties that
participate in the SBA program, and no part of this final rule would
impose any additional cost or any significant burden on them.
Consequently, this final rule does not meet the substantial number of
small businesses criterion anticipated by the Regulatory Flexibility
Act.
List of Subjects in 13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
For the reasons stated in the preamble, SBA amends 13 CFR part 115
as follows:
PART 115--SURETY BOND GUARANTEE
0
1. The authority citation for part 115 is revised to read as follows:
Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b
note; and Pub. L. 110-246, Sec. 12079, 122 Stat. 1651.
0
2. In Sec. 115.10, revise the definition of ``Applicable Statutory
Limit'' to read as follows:
Sec. 115.10 Definitions.
* * * * *
Applicable Statutory Limit means the maximum amount, set forth
below, of any Contract or Order for which SBA is authorized to
guarantee, or commit to guarantee, a Bid Bond, Payment Bond,
Performance Bond, or Ancillary Bond:
(1) $6.5 million (as adjusted for inflation in accordance with 41
U.S.C. 1908);
(2) $10 million if a contracting officer of a Federal agency
certifies, in accordance with section 115.12(e)(3), that such guarantee
is necessary; or
(3) if SBA is guaranteeing the bond in connection with a
procurement related to a major disaster pursuant to section 12079 of
Pub. L. 110-246, see section 115.12(e)(4).
* * * * *
0
3. Amend Sec. 115.12 as follows:
0
a. Revise paragraph (b);
0
b. Remove paragraph (e)(3);
0
c. Redesignate paragraphs (e)(4) and (5) as paragraphs (e)(3) and (4),
respectively;
0
d. In newly redesignated paragraph (e)(3), revise the heading and the
first sentence;
0
e. Revise newly redesignated paragraph (e)(4) introductory text, remove
newly redesignated paragraph (e)(4)(iii), and redesignate paragraph
(e)(4)(iv) as paragraph (e)(4)(iii);
[[Page 2087]]
0
f. In newly redesignated paragraph (e)(4)(iii), remove ``paragraph
(e)(5)'' and add in its place ``paragraph (e)(4)''.
The revisions read as follows:
Sec. 115.12 General program policies and provisions.
* * * * *
(b) Eligibility of bonds. Bid Bonds and Final Bonds are eligible
for an SBA guarantee if they are executed in connection with an
eligible Contract, as defined in Sec. 115.10, Definitions. Commercial
and Fidelity bonds are not eligible for SBA guarantees. Ancillary Bonds
may also be eligible for SBA's guarantee. A performance bond must not
prohibit a Surety from performing the Contract upon default of the
Principal.
* * * * *
(e) * * *
(3) Federal Contracts or Orders in excess of $6,500,000 (as
adjusted for inflation in accordance with section 1908 of title 41,
United States Code). SBA is authorized to guarantee bonds on Federal
Contracts or Orders greater than $6,500,000 (as adjusted for inflation
in accordance with 41 U.S.C. 1908), but not exceeding $10,000,000, upon
a signed certification of a Federal contracting officer. * * *
(4) Alternative authority to guarantee bonds for Contracts and
Orders related to a major disaster area. Subject to the availability of
funds appropriated in advance specifically for the purpose of
guaranteeing bonds for any Contract or Order related to a major
disaster, SBA may, as an alternative to the authority otherwise set
forth in this Part, guarantee bonds on any Contract or Order under the
following terms and conditions:
* * * * *
0
4. In Sec. 115.13, amend paragraph (a)(5) by revising the second
sentence and adding a third sentence to read as follows:
Sec. 115.13 Eligibility of Principal.
(a) * * *
(5) * * * SBA will not guarantee bonds for Principals who are
primarily brokers. In addition, the Principal must retain full
responsibility for the oversight and management of the Contract,
including any work performed by any subcontractor, and may not
subcontract the full scope of the statement of work.
* * * * *
Sec. 115.17 [Amended]
0
5. In Sec. 115.17, amend paragraph (b)(2) by removing ``90 days'' and
adding ``45 days'' in its place.
0
6. Amend Sec. 115.19 by revising the introductory text and by removing
``$50,000'' wherever it appears in paragraphs (c)(1), (d), and (e)(2)
and adding in its place ``$100,000, whichever is less''.
The revision reads as follows:
Sec. 115.19 Denial of liability.
In addition to equitable and legal defenses and remedies under
contract law, the Act, and the regulations in this Part, SBA is
relieved of liability in whole or in part within its discretion if any
of the circumstances in paragraphs (a) through (h) of this section
exist, except that SBA shall not deny liability on Prior Approval bonds
based solely upon material information that was provided to SBA as part
of the Surety's guarantee application.
* * * * *
Sec. 115.30 [Amended]
0
7. In Sec. 115.30, in paragraph (d)(2)(ii)(C), remove the phrase ``or
the warranty/maintenance period'', and in paragraph (d)(2)(ii)(D),
remove ``$250'' and add ``$1,000'' in its place.
0
8. Amend Sec. 115.31 by revising the final sentence of paragraph (d)
to read as follows:
Sec. 115.31 Guarantee percentage.
* * * * *
(d) * * * For example, if a contract amount increases to
$6,800,000, SBA's share of the loss under an 80% guarantee is limited
to 76.5% [6,500,000/6,800,000 = 95.6% x 80% = 76.5%].
* * * * *
Sec. 115.32 [Amended]
0
9. In Sec. 115.32, amend paragraph (d)(1) by removing ``$50,000'' and
adding ``$100,000, whichever is less'' in its place.
0
10. Amend Sec. 115.35 by revising paragraph (c)(1), and in paragraph
(c)(4), by removing ``90 days'' and adding ``45 days'' in its place.
The revision reads as follows:
Sec. 115.35 Claims for reimbursement of Losses.
* * * * *
(c) Claim reimbursement requests. (1) Claims for reimbursement for
Losses which the Surety has paid must be submitted (together with a
copy of the bond, the bonded Contract, and any indemnity agreements)
with the initial claim to OSG on a ``Default Report, Claim for
Reimbursement and Report of Recoveries'' (SBA Form 994H), within 90
days from the time of each disbursement. Claims submitted after 90 days
must be accompanied by substantiation satisfactory to SBA. The date of
the claim for reimbursement is the date of receipt of the claim by SBA,
or such later date as additional information requested by SBA is
received.
* * * * *
Sec. 115.36 [Amended]
0
11. In Sec. 115.36, amend paragraph (a)(3) by removing ``90 days'' and
adding ``45 days'' in its place.
Sec. 115.67 [Amended]
0
12. In Sec. 115.67, amend paragraph (a) by removing ``$50,000'' and
adding ``$100,000, whichever is less'' in its place.
0
13. Revise Sec. 115.69 to read as follows:
Sec. 115.69 Imminent Breach.
(a) No prior approval requirement. SBA will reimburse a PSB Surety
for the guaranteed portion of payments the Surety makes to avoid or
attempt to avoid an Imminent Breach of the terms of a Contract covered
by an SBA guaranteed bond. The aggregate of the payments by SBA under
this section cannot exceed 10% of the Contract amount, unless the
Administrator finds that a greater payment (not to exceed the
guaranteed portion of the bond penalty) is necessary and reasonable.
The PSB Surety does not need to obtain prior SBA approval to make
Imminent Breach payments, except that the PSB Surety may request SBA to
approve payments that exceed 10% of the Contract amount prior to the
Surety making the payment. In no event will SBA make any duplicate
payment under any provision of these regulations in this part.
(b) Recordkeeping requirement. The PSB Surety must keep records of
payments made to avoid Imminent Breach.
Sec. 115.70 [Amended]
0
14. In Sec. 115.70, amend paragraph (a) by removing the term ``1
year'' in the first sentence and adding ``90 days'' in its place and by
removing the term ``90 days'' in the third sentence and adding ``45
days'' in its place.
Jeanne A. Hulit,
Acting Administrator.
[FR Doc. 2014-00295 Filed 1-10-14; 8:45 am]
BILLING CODE 8025-01-P