[Federal Register Volume 71, Number 186 (Tuesday, September 26, 2006)]
[Proposed Rules]
[Pages 56049-56054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-8205]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 115
RIN 3245-AF39
Surety Bond Guarantee Program--Preferred Surety Bond Surety
Qualification, Increased Guarantee for Veteran and Service-Disabled
Veteran-Owned Business, Deadline for Payment of Guarantee Fees, Denial
of Liability, and Technical Amendments
AGENCY: U.S. Small Business Administration (SBA).
ACTION: Proposed rule.
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SUMMARY: This proposal encompasses six objectives. It would give effect
to the statutory reduction in the frequency of audits required of
Preferred Surety Bond (PSB) Sureties. It would obligate SBA to
guarantee 90 percent of the Loss incurred by a Prior Approval Surety on
bonds issued on behalf of small businesses owned and controlled by
veterans, including service-disabled veterans. It would impose a 45-day
deadline on Sureties for the remission of surety fees to SBA in lieu of
the present requirement of payment in the ordinary course of business,
and would allow SBA to deny liability if payment is not timely made. It
would allow PSB Sureties to charge premiums in accordance with
applicable state ceilings, as presently permitted under the Prior
Approval Program. It would delete the existing reference to the
expiration of the PSB Program and, finally, it would allow Affiliates
of a PSB Surety to participate in the Prior Approval Program.
DATES: Comments must be received on or before October 26, 2006.
ADDRESSES: You may submit comments, identified by RIN number 3245-AF39,
by any of the following methods: (1) Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments;
(2) Fax: 202-205-7600; (3) Mail: Barbara Brannan, Special Assistant,
Office of Surety Guarantees, U.S. Small Business Administration, 409
3rd Street, SW., Washington, DC 20416; or (4) Hand Delivery/Courier to
Office of Surety Guarantees, U.S. Small Business Administration, 409
3rd Street, SW., Washington, DC 20416.
FOR FURTHER INFORMATION CONTACT: Frank Lalumiere, Associate
[[Page 56050]]
Administrator, Office of Surety Guarantees, (202) 205-6540 or
[email protected].
SUPPLEMENTARY INFORMATION: The U.S. Small Business Administration (SBA)
can guarantee bonds for contracts up to $2 million, covering bid,
performance and payment 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 strengthens their ability to obtain bonding and
greater access to contracting opportunities. SBA's guarantee is an
agreement between a surety and the SBA that provides that SBA will
assume a predetermined percentage of loss in the event the contractor
should breach the terms of the contract.
Several changes to the regulations governing SBA's Surety Bond
Guarantee (SBG) Program are proposed in this rulemaking. The purpose of
these amendments is to improve the operation of the SBG Program and to
make it easier for sureties and small business concerns to participate.
Section 411(g)(3) of the Small Business Investment Act of 1958 (the
Act) formerly required PSB Sureties to be audited every year. 15 U.S.C.
694b(g)(3). As amended by Public Law 108-447, Div. K, section 203, the
Small Business Reauthorization and Manufacturing Assistance Act of
2004, the Act now requires audits to be made at least once every three
years. The proposed rule would contain the regulations to this
statutory change.
In relevant part, Section 4(b)(1) of the Small Business Act
provides that SBA ``shall give special consideration to veterans of the
Armed Forces of the United States and their survivors and dependents.''
15 U.S.C. 633(b)(1). Accordingly, the proposed rule would encourage the
issuance of bonds on behalf of small business concerns owned and
controlled by veterans, and small business concerns owned and
controlled by service-disabled veterans, by SBA's guaranty to pay 90
percent of a Prior Approval Program Surety's Loss, thus affording such
concerns more opportunity to obtain contracts generally.
Section 411(h) of the Small Business Investment Act mandates the
operation of the program ``on a prudent and economically justifiable
basis'' and authorizes SBA to impose fees on both small business
concerns and sureties, ``to be payable at such time'as may be
determined by [SBA].'' In accordance with its statutory obligation, SBA
proposes to establish a clearer deadline for a Prior Approval Surety's
payment of the guarantee fees owed to SBA. Under the present
regulation, such fees are payable in the ordinary course of the Prior
Approval Surety's business. The proposed regulation, if adopted, would
require the payment of such fees within 45 calendar days of SBA's
approval of the Prior Approval Agreement, and the failure to make
timely payment would allow SBA to deny liability under its guarantee.
No changes are contemplated in the comparable regulations covering a
PSB Surety's payment of guarantee fees, since such fees are forwarded
with the PSB's monthly bordereau.
The proposed rule would change one of the standards by which SBA
admits Sureties to the PSB Program. PSB Program Sureties are currently
required to charge no more than the Surety Association of America's
advisory premium rates in effect August 1, 1987. The proposed rule
would allow PSB Program Sureties to charge no more than the premium
rates permitted under applicable state law, as Prior Approval Sureties
are now allowed to do.
Public Law 100-590 established the Preferred Surety Bond (PSB)
program on a pilot basis in 1988, meaning that its continued existence
depended upon affirmative Congressional action. The initial regulations
for the program specified that the premium rates charged by PSB
Sureties could not exceed the Surety Association of America's advisory
premium rates in effect on August 1, 1987. The Surety Association of
America (SAA) is the trade association to which most, if not all, the
prospective PSB Sureties belonged, and the 1987 rates were the latest
rates. SAA discontinued its rate setting function shortly after
promulgating the 1987 rates, and participating surety companies have
been obligated to use the 1987 SAA rates for the past eighteen years
despite economic and market place changes.
Now that Public Law 108-447 has put the PSB program on a permanent
legal basis, SBA considers it necessary to allow PSB Sureties to charge
rates that reflect present economic conditions and thereby encourage
those Sureties now in the PSB program to continue their participation,
and to encourage others to participate. Under the Prior Approval
Program, SBA's other surety bond program, surety companies are
permitted to use rates approved by the individual States. This proposed
change will put the Preferred and Prior Approval Programs on the same
footing by relying on the individual State oversight bodies.
As previously mentioned, from its creation in 1988 until 2004, the
PSB program was a pilot program, subject to automatic termination in
the absence of affirmative Congressional action. Indeed, for several
months in 2004 the PSB program ceased to exist. Now that the PSB
program has been made permanent, the present regulation that speaks of
the termination of the program will be removed and reserved.
Finally, this proposed rule would allow Affiliates, as defined in
13 CFR Part 121, of PSB Sureties to participate in the Prior Approval
program, from which they are presently barred. The term ``Affiliate''
is defined at length in 13 CFR Part 121, but in the context of the
present discussion it means a relationship in which one Surety owns or
otherwise controls another Surety, or in which two or more Sureties are
commonly owned by, or under common control with, a third party. A
series of mergers and acquisitions in the surety industry in recent
years has caused Sureties previously eligible to participate in the
Prior Approval Program to become Affiliates of PSB Sureties and, under
the present regulations, to lose their eligibility. To encourage and
increase participation in the Prior Approval Program by otherwise
qualified Sureties that are Affiliates of PSB Sureties, SBA proposes to
abolish the present prohibition on their participation.
Section-by-Section Analysis:
In connection with its proposed amendment of Sec. 115.31(a)(2),
SBA proposes to amend Sec. 115.10 by adding definitions of ``Service-
Disabled Veteran'', ``Small Business Owned and Controlled by Service-
Disabled Veterans'', ``Small Business Owned and Controlled by
Veterans'', and ``Veteran''.
In connection with its proposed establishment of a clear deadline
for payment of a Prior Approval Surety's guaranty fee to SBA, SBA
proposes to amend Sec. 115.19(g) to make the lack of timely payment of
this fee a ground for denial of liability on the same terms as the
regulation now allows such denials by reason of the Surety's failure to
make timely remittance of the Principal's fee.
Current Sec. 115.21(a)(2) subjects PSB Sureties to annual audits.
As revised, the paragraph would require audits at least once every
three years, as the Act now requires.
Current Sec. 115.31 limits SBA's liability on bonds issued by a
Prior Approval Surety to 80 percent of the Surety's loss, unless the
total amount of the contract in question does not exceed $100,000 or
the small business concern falls within one of the classes enumerated
in Sec. 115.31(a)(2). SBA is proposing to
[[Page 56051]]
expand the enumerated classes to include small businesses owned and
controlled by veterans or by service-disabled veterans. SBA believes
this action is consistent with the special consideration of veterans
expressed in Section 4(b)(1) of the Small Business Act, as amended.
Accordingly, this rule would amend Sec. 115.31(a)(2) to add such small
business concerns to the list of small business concerns for which SBA
will obligate itself to pay 90 percent of the Prior Approval Surety's
Loss in the event of a contract default. This proposed amendment would
not apply to bonds issued by PSB Sureties because the Act does not
allow SBA's guarantee on such bonds to exceed 70 percent.
Current Sec. 115.32 (c) requires the Surety to pay a guarantee fee
to SBA ``in the ordinary course of business.'' The effect of subsequent
increases in the Contract amount or the bond amount on the fees payable
to SBA ``in the ordinary course of business'' is covered in Sec.
115.32(d)(2) and (3), respectively. SBA proposes to revise these
paragraphs to impose a 45-day deadline upon the Surety for payment of
the initial guarantee fee and for subsequent payments when increases in
the Contract or bond amounts require payment to SBA.
SBA proposes to revise Sec. 115.60(a) to permit PSB Sureties to
charge premiums no higher than those approved by the applicable state
regulatory body, as is the practice with the Prior Approval Surety Bond
Program. Sureties applying to participate as PSB Sureties are now
required to agree to charge Principals premiums no higher than those
recommended by the Surety Association of America and in effect August
1, 1987. 13 CFR 115.60(a)(2). These premiums differ from the premiums
approved by the various States today in response to inflation, and
changes in the economy and in the nature of the surety business. The
proposed change will encourage PSB Sureties to remain in the PSB
program and will make the PSB program attractive to prospective new
participants. SBA will allow PSB Sureties that have previously agreed
to adhere to the Surety Association's recommended 1987 rates to impose
premium charges approved by the applicable state regulatory body if
they wish.
SBA proposes to remove and reserve present Sec. 115.61, in
conformity with the language of Public Law 108-447 making the PSB
program permanent and to revise Sec. 115.62 to allow Affiliates of PSB
Sureties to participate in the Prior Approval Program. A series of
mergers and acquisitions in the surety industry in recent years has
caused Sureties previously eligible to participate in the Prior
Approval Program to become Affiliates of PSB Sureties and, under the
present regulations, to lose their eligibility. To encourage and
increase participation in the Prior Approval Program by otherwise
qualified Sureties that are Affiliates of PSB Sureties, SBA proposes to
abolish the present prohibition on their participation.
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)
Compliance With Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule constitutes a significant regulatory action for purposes of
Executive Order 12866. A general discussion of the need for this
regulatory action and its potential costs and benefits follows.
Regulatory Impact Analysis
A. Regulatory Objective of Proposed Rule
Program Objectives
The objectives of the Surety Bond Guarantee (SBG) Program are: (1)
To strengthen the competitive free enterprise system by assisting
qualified small and disadvantaged contractors obtain bid, performance,
payment and ancillary bonds who would otherwise be unable to obtain
them without the SBA guarantee; (2) to enable surety companies to reach
more small businesses; and (3) to manage the tax payers' dollars at
risk. The purpose of the program is to assist small, disadvantaged, and
competitive opportunity gap contractors obtain bonding for public and
private contracts. SBA's guarantee provides incentives for sureties
(companies that guarantee the performance of a contractor) to bond
contractors that are skilled, but lack the financial strength or bonded
track record to obtain bonding on reasonable terms in the standard
market. Federal contracts valued at $100,000 or more and many State,
local and private contracts require bonds. Many small and emerging
contractors are unable to secure necessary bonding because surety
companies are unwilling to take 100% of the risk in writing their
bonds. Emerging small businesses lack the track record or financial
strength to meet standard surety bonding requirements. SBA's guarantee
provides the incentive necessary for sureties to issue bonds for these
contractors, who could not otherwise compete in the contracting
industry. As a result, small businesses can establish and grow their
businesses.
The amendments proposed in this rulemaking would provide fee
structure parity between Prior Approval Surety (Prior Approval) and
Preferred Surety Bond (PSB) sureties, thus encouraging PSB sureties to
remain in the program and promote the SBA-guaranteed bonds. Similarly,
an amendment allowing affiliates of a PSB to participate in the Prior
Approval Program provides needed flexibility to surety bond
participants in the SBG Program to remain in the Program and promote
its products. The amendments also obligate SBA to reimburse a higher
percentage of loss incurred by a Prior Approval on bonds issued on
behalf of a veteran-owned small business, including service-disabled
veterans. The rulemaking also deletes an obsolete reference to the
pilot nature of the PSB Program, which became permanent in 2004
legislation.
The Program
The SBG Program evolved from a pilot project created in 1971. Since
its inception, the SBG Program has enabled thousands of small
businesses to obtain Federal, State and private contracts that they
would not otherwise have been able to obtain. These small business
contracts have resulted in the creation of thousands of jobs. The
Office of Surety Guarantees administers the SBG program through a
private-public partnership between the Federal Government and the
surety industry. SBA guarantees bonds issued by surety companies for
construction, service and supply contracts and reimburses the sureties
a percentage of the losses sustained if the contractor defaults. SBA's
guarantee provides the incentive necessary for sureties to issue bonds
to qualified small businesses.
The SBG program consists of the Prior Approval Program and the PSB
Program. The Prior Approval program guarantees up to 90% of a surety's
loss. Participants must obtain SBA's approval for each bond guarantee
issued. Under the PSB program, sureties receive a 70% guarantee and are
empowered to issue, service and monitor bonds without SBA's prior
approval. The surety bond guarantee programs are acknowledged as a
major factor in the surety reinsurance and construction industries and
are recognized as a primary stabilizing influence by those industries.
Cost of an SBA Guaranteed Bond
The SBA charges fees to both the contractor and the surety company,
as described in the most recent edition of
[[Page 56052]]
13 CFR Part 115 . SBA does not charge an application or bid bond
guarantee fee. If SBA guarantees a final bond, the contractor and the
surety each must pay a guarantee fee equal to a certain percentage of
the contract amount. The percentages are determined by SBA and are
published in notices in the Federal Register from time to time. The
fees were most recently changed in the Federal Register, effective
April 3, 2006. 71 FR 9632 (February 24, 2006). When the bond is issued,
the small business also pays the surety company's bond premium.
Currently, this charge cannot exceed the level approved by the
appropriate state regulatory body for a Prior Approval Surety or the
1987 SAA rates for a PSB Surety.
The rates assessed small businesses will generally increase, as
surety companies will adopt the rates that are currently filed and
approved by the individual States, and utilized on their accounts.
Because different surety companies have different rate structures, it
is difficult to estimate precisely the cost impact to small businesses.
Other program costs will decrease, as there will be one not two rate
structures to track by surety companies and the Government.
Additionally, this change will have a positive impact on the program
through increased bond activity for the small business community and
increased participation in the program by surety companies.
B. Baseline Costs of Existing Regulatory Framework
In FY2002, the Office of Management and Budget (OMB) developed the
Program Assessment Rating Tool (PART) to establish a systematic,
consistent process for rating the performance of programs across the
Federal government. The SBG Program was evaluated under the PART
criteria in FY2005. The PART review revealed that program enhancements
are needed to maximize the effectiveness of the SBG Program and achieve
performance goals. In particular, it was recommended that the SBG
Program develop an internet-based electronic application and claims
processing system, and restructure program outreach. The proposed rule
is an important component of implementing the PART recommendations.
These measures will contribute to the sustainability and growth of
existing and competitive opportunity gaps confronting small businesses
by increasing their contract revenue and job creation rates. Both of
these actions are well underway.
The SBG program routinely tracks the number of surety bond
guarantees approved, contract revenue, and the number of jobs created
to measure its progress toward achieving program long-term outcomes. In
FY 2003, SBA guaranteed a total of 8,974 bonds, which represented $594
million in final bond contract revenue and 5,123 jobs created. Although
a temporary expiration of the PSB program in Fiscal Years (FY) 2004 and
2005 impacted goal accomplishment, SBA guaranteed a total of 7,803
bonds in FY 2004, which represented $598 million in final bond contract
revenue and 5,154 jobs created. In FY 2005, SBA guaranteed a total of
5,678 bonds, which represented $488 million in final bond contract
revenue and 4,203 jobs.
The SBG program has specific values assigned for annual program
targets. The SBG program is included in the Cost Allocation Model that
SBA has implemented. A cost per bond is calculated using information
from that model, and is included in the annual Performance and
Accountability Report (PAR). The increased contract revenue and jobs
created will contribute to the survivability and growth of the small
contractors that received SBG assistance. The program's cost per bond
decreased from $570 in 2002 to $408 in 2003. In FY 2004, the program's
cost per bond increased slightly to $489 since the program activity
significantly decreased with the expiration of the PSB program. In FY
2005, the program's cost per bond increased to $860. The shutdown of
the PSB Program during the first quarter of FY2005 and the proposed
surety bond fee increase adversely affected program activity. The total
cost of the SBG Program to the Federal Government is as follows:
FY2002--$4.2 million; FY2003--$3.6 million; FY2004--$3.8 million;
FY2005--$4.8 million.
The only other Federal bond guarantee program is the Department of
Transportation's (DOT) Bonding Assistance program authorized under 49
U.S.C. 332 (Pub. L. 97-449). Under that program, the bonds must be
issued for transportation related contracts and on behalf of certified
minority, women-owned, and disadvantaged businesses. SBA guarantees
bonds for construction, service, and supply contracts not exceeding $2
million. SBA assistance is not limited to minority, women-owned, and
disadvantaged contractors. Few states have bonding assistance programs.
There are no similar programs in the private sector.
SBA's FY2007 Budget discusses the SBG Program's goals of 7,725 bond
guarantees in both FY2006 and FY2007, resulting in $447 million in
final bond contract revenue and creating 3,852 jobs each year. To
achieve these goals, the FY2007 Budget states that SBA will continue to
seek increased nationwide program visibility, making the SBG Program
accessible to more small contractors.
C. Potential Benefits and Costs of the Proposed Rule
The amendments proposed all offer significant benefits. The rule
offers incentives to PSB and Prior Approval Sureties to expand
participation in the SBG Program. Most importantly, the proposed rule
would allow PSB Sureties to charge the premium rates permitted by
applicable state law rather than the Surety Association of America's
advisory premium rates as of August 1, 1987. This provides parity of
compensation for the PSB Sureties with the Prior Approval Sureties.
Currently, the PSB Sureties are not able to charge current rates for
the SBG bonds, as they are limited to rates that are nineteen years
old. If this proposed rule is adopted without change and PSB Sureties
take advantage of it, Small Concerns bonded by PSB Sureties will be
paying the same premium rates as the Small Concerns that receive
bonding from Prior Approval Sureties. Rate parity means that Prior
Approval and PSB Sureties will be charging similar rates for the same
SBG bond. In addition, the other amendments offer a greater SBG bonding
guarantee to veteran-owned contractors and allow PSB and Prior Approval
Suretires to be held together in a holding company structure as
affiliates. These regulatory flexibilities should ensure continued
surety bond participation in the SBG Program to allow small contractors
to continue to receive the SBG Program guarantees in the future.
D. Proposed Rule Alternatives
SBA has analyzed several alternatives to this proposed rule. First,
SBA could do nothing. SBA believes, however, that this would not
further the objective of the SBG Program as it could lead to surety
departures from the SBG Program, directly leading to fewer small
businesses able to receive a SBG bond. Second, SBA could completely
overhaul the SBG Program. SBA believes that most of the regulatory
framework of the SBG Program is working and that drastic changes are
not needed. As stated in the PART review and FY2007 Budget, the SBG
Program and the small businesses it serves would most benefit from an
internet-based application system and more program outreach, not
regulatory overhaul. Third, SBA could act as it has,
[[Page 56053]]
by proposing amendments conforming the rules to our commitments in the
PART review and our FY2007 Budget. These amendments will allow SBA to
retain the surety bond participation it needs in order to operate the
program and continue providing bonding benefits to small contractors in
need of bid, payment, performance or ancillary bonds necessary to
obtain Federal and State contracts.
E. Request for Comments
SBA requests comment on this Regulatory Impact Analysis (RIA), in
particular the assumptions made and the projections of costs and
benefits of this proposed regulatory action. SBA also requests comments
on all aspects of the RIA.
Compliance With 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.
Compliance With Executive Order 13132
For purposes of E.O. 13132, the SBA has determined that the 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 purpose of Executive Order 13132, SBA
determines that this proposed rule has no federalism implications
warranting preparation of a federalism assessment.
Compliance With Paperwork Reduction Act, 44 U.S.C. Ch. 35
SBA has determined that this proposed rule does not impose
additional reporting or recordkeeping requirements under the Paperwork
Reduction Act, 44 U.S.C., Chapter 35.
Compliance With the Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, 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. Within the
meaning of RFA, SBA certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
Consequently, this rule does not meet the substantial number of small
businesses criterion anticipated by the Regulatory Flexibility Act.
There are about a dozen Sureties that participate in the SBA program,
and no part of this proposed rule would impose any additional cost or
any significant burden on them. The proposal to allow PSB Sureties to
charge the highest premium rates permitted by applicable state law
raises the possibility of an economic impact on those contractors that
now receive their bonding from PSB Sureties, but out of 843 contractors
participating in the SBA program in FY2005, about 143 were bonded by
PSB Sureties. Prior Approval Sureties are already allowed to charge the
premium rates permitted by the individual State law, so the economic
effect, if any, of this proposed rule would be to subject approximately
17 percent of the contractors in the SBA program to the risk that they
might have to pay the same premium rates that their fellow
participating contractors must pay.
List of Subjects in 13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
For the reasons stated in the preamble, the Small Business
Administration proposes to amend 13 CFR part 115 as follows:
PART 115--SURETY BOND GUARANTEE
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, Pub. L. 106-554; Pub. L. 108-447, Div. K, Sec. 203.
2. Amend Sec. 115.10 by adding the following definitions at the
appropriate places:
Sec. 115.10 Definitions.
* * * * *
Service-Disabled Veteran means a veteran with a disability that is
service-connected, as defined in Section 101(16) of Title 38, United
States Code.
Small Business Owned and Controlled by Service-Disabled Veterans
means:
(1) A Small Concern of which not less than 51 percent is owned by
one or more Service-Disabled Veterans; or a publicly-owned Small
Concern of which not less than 51 percent of the stock is owned by one
or more Service-Disabled Veterans; and
(2) The management and daily business operations of which are
controlled by one or more Service-Disabled Veterans, or in the case of
a Service-Disabled Veteran with permanent and severe disability, the
spouse or permanent caregiver of such Veteran.
Small Business Owned and Controlled by Veterans means:
(1) A Small Concern of which not less than 51 percent is owned by
one or more Veterans; or a publicly-owned Small Concern of which not
less than 51 percent of the stock is owned by one or more Veterans; and
(2) The management and daily business operations of which are
controlled by one or more Veterans.
* * * * *
Veteran has the meaning given the term in Section 101(2) of Title
38, United States Code.
3. Revise Sec. 115.19(g) to read as follows:
Sec. 115.19 Denial of Liability.
* * * * *
(g) Delinquent fees. The Surety has not remitted to SBA the
Principal's payment for the full amount of the guarantee fee within the
time period required under Sec. 115.30(d) for Prior Approval Sureties
or Sec. 115.66 for PSB Sureties, or has not made timely payment of the
Surety's fee within the time period required by Sec. 115.32(c). SBA
may reinstate the guarantee upon a showing that the contract is not in
default and that a valid reason exists why a timely remittance or
payment was not made.
* * * * *
4. Revise Sec. 115.21(a)(2) to read as follows:
Sec. 115.21 Audits and investigations.
(a) * * *
(1) * * *
(2) Frequency of PSB Audits. Each PSB Surety is subject to audit at
least once every three years by examiners selected and approved by SBA.
* * * * *
5. Revise Sec. 115.31(a)(2) to read as follows:
Sec. 115.31 Guarantee percentage.
(a) * * *
(1) * * *
(2) The bond was issued on behalf of a small business owned and
controlled by socially and economically disadvantaged individuals or on
behalf of a qualified HUBZone small business concern, or on behalf of a
small business
[[Page 56054]]
owned and controlled by veterans or a small business owned and
controlled by service-disabled veterans.
* * * * *
6. Revise Sec. 115.32(c) and (d)(2) to read as follows:
Sec. 115.32 Fees and Premiums.
* * * * *
(c) SBA charge to Surety. SBA does not charge Sureties application
or Bid Bond guarantee fees. Subject to Sec. 115.18(a)(4) the Surety
must pay SBA a guarantee fee on each guaranteed bond (other than a Bid
Bond) within 45 calendar days after SBA's approval of the Prior
Approval Agreement. The fee is a certain percentage of the bond premium
determined by SBA and published in Notices in the Federal Register from
time to time. The fee is rounded to the nearest dollar. SBA does not
receive any portion of a Surety's non-Premium charges. See paragraph
(d) of this section for additional requirements when the Contract or
bond amount changes.
(d) * * *
(1) * * *
(2) Increases; fees. Notification of increases in the Contract or
bond amount under this paragraph (d) must be accompanied by the
Principal's check for the increase in the Principal's guarantee fee
computed on the increase in the Contract amount. If the increase in the
Principal's fee is less than $40 no payment is due until the total
amount of increases in the Principal's fee equals or exceeds $40. The
Surety's check for payment of the increase in the Surety's guarantee
fee, computed on the increase in the bond Premium, must be submitted to
SBA within 45 calendar days of SBA's approval of the supplemental Prior
Approval Agreement, unless the amount of such increased guarantee fee
is less than $40. When the total amount of increases in the guarantee
fee equals or exceeds $40, the Surety's check must be submitted to SBA
within 45 calendar days.
* * * * *
7. Revise Sec. 115.60(a)(2) to read as follows:
Sec. 115.60 Selection and admission of PSB Sureties.
(a) * * *
(1) * * *
(2) An agreement that the Surety will neither charge a bond premium
in excess of that authorized by the appropriate state insurance
department, nor impose any non-premium fee unless such fee is permitted
by applicable state law and approved by SBA.
* * * * *
Sec. 115.61 [Removed & Reserved]
8. Remove and reserve Sec. 115.61.
9. Revise Sec. 115.62 to read as follows:
Sec. 115.62 Prohibition on participation in Prior Approval program.
A PSB Surety is not eligible to submit applications under subpart B
of this part. This prohibition does not extend to an Affiliate, as
defined in 13 CFR Sec. 121.103, of a PSB Surety that is not itself a
PSB Surety provided that the relationship between the PSB Surety and
the Affiliate has been fully disclosed to SBA and that such Affiliate
has been approved by SBA to participate as a Prior Approval Surety
pursuant to section 115.11.
Dated: August 29, 2006.
Steve C. Preston,
Administrator.
[FR Doc. 06-8205 Filed 9-25-06; 8:45 am]
BILLING CODE 8025-01-P