[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR115.35]

[Page 144-145]
 
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
 
                CHAPTER I--SMALL BUSINESS ADMINISTRATION
 
PART 115--SURETY BOND GUARANTEE--Table of Contents
 
             Subpart B--Guarantees Subject to Prior Approval
 
Sec. 115.35  Claims for reimbursement of Losses.

    (a) Notification requirements--(1) Events requiring notification. A 
Prior Approval Surety must notify OSG of the occurrence of any of the 
following:
    (i) Legal action under the bond has been initiated.
    (ii) The Obligee has declared the Principal to be in default under 
the Contract.
    (iii) The Surety has established a claim reserve for the bond.
    (iv) The Surety has received any adverse information concerning the 
Principal's financial condition or possible inability to complete the 
project or to pay laborers or suppliers.
    (2) Timing of notification. Notification must be made in writing at 
the earlier of the time the Surety applies for a guarantee on behalf of 
an affected Principal, or within 30 days of the date the Surety acquires 
knowledge, or should have acquired knowledge, of any of the listed 
events.
    (b) Surety action. The Surety must take all necessary steps to 
mitigate Losses resulting from any of the events in paragraph (a) of 
this section, including the disposal at fair market value of any 
collateral held by or available to the Surety. Unless SBA notifies the 
Surety otherwise, the Surety must take charge of all claims or suits 
arising from a defaulted bond, and compromise, settle and defend such 
suits.

[[Page 145]]

The Surety must handle and process all claims under the bond and all 
settlements and recoveries as it does on non-guaranteed bonds.
    (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 
Record of Administrative Action'' (SBA Form 994H), within 1 year from 
the time of each disbursement. Claims submitted after 1 year 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.
    (2) The Surety must also submit evidence of the disposal of all 
collateral at fair market value.
    (3) SBA may request additional information prior to reimbursing the 
Surety for its Loss.
    (4) Subject to the offset provisions of part 140, SBA pays its share 
of the Loss incurred and paid by the Surety within 90 days of receipt of 
the requisite information.
    (5) Claims for reimbursement and any additional information 
submitted are subject to review and audit by SBA, including but not 
limited to the Surety's compliance with SBA's regulations and forms.
    (d) Status updates. The Surety must submit semiannual status reports 
on each claim 6 months after the initial default notice, and then every 
6 months. The Surety must notify SBA immediately of any substantial 
changes in the status of the claim or the amounts of Loss reserves.
    (e) Reservation of SBA rights. The payment by SBA of a Surety's 
claim does not waive or invalidate any of the terms of the Prior 
Approval Agreement, the regulations set forth in this part 115, or any 
defense SBA may have against the Surety. Within 30 days of receipt of 
notification that a claim or any portion of a claim should not have been 
paid by SBA, the Surety must repay the specified amounts to SBA.