[Code of Federal Regulations]
[Title 13, Volume 1]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 13CFR115.19]

[Page 187-188]
 
                TITLE 13--BUSINESS CREDIT AND ASSISTANCE
 
                CHAPTER I--SMALL BUSINESS ADMINISTRATION
 
PART 115_SURETY BOND GUARANTEE--Table of Contents
 
           Subpart A_Provisions for All Surety Bond Guarantees
 
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 not 
liable under a Prior Approval or PSB Agreement if any of the 
circumstances in paragraphs (a) through (h) of this section exist.
    (a) Excess Contract or bond amount. The total Contract amount at the 
time of Execution of the bond exceeds $2,000,000 in face value (see 
Sec.  115.12(e)), or the bond amount at any time exceeds the total 
Contract amount.
    (b) Misrepresentation or fraud. The Surety obtained the Prior 
Approval or PSB Agreement, or applied for reimbursement for losses, by 
fraud or material misrepresentation. Material misrepresentation includes 
(but is not limited to) both the making of an untrue statement of 
material fact and the omission of a statement of material fact necessary 
to make a statement not misleading in light of the circumstances in 
which it was made. Material misrepresentation also includes the adoption 
by the Surety of a material misstatement made by others which the Surety 
knew or under generally accepted underwriting standards should have 
known to be false or misleading. The Surety's failure to disclose its 
ownership (or the ownership by any owner of at least 20% of the Surety's 
equity) of an interest in a Principal or an Obligee is considered the 
omission of a statement of material fact.
    (c) Material breach. The Surety has committed a material breach of 
one or more terms or conditions of its Prior Approval or PSB Agreement. 
A material breach is considered to have occurred if:
    (1) Such breach (or such breaches in the aggregate) causes an 
increase in the Contract amount or in the bond amount of at least 25% or 
$50,000; or
    (2) One of the conditions under Part B of Title IV of the Investment 
Act is not met.
    (d) Substantial regulatory violation. The Surety has committed a 
``substantial violation'' of SBA regulations. For purposes of this 
paragraph, a ``substantial violation'' is a violation which causes an 
increase in the bond amount of at least 25% or $50,000 in the aggregate, 
or is contrary to the purposes of the Surety Bond Guarantee Programs.
    (e) Alteration. Without obtaining prior written approval from SBA 
(which may be conditioned upon payment of additional fees), the Surety 
agrees to or acquiesces in any material alteration in the terms, 
conditions, or provisions of the bond, including but not limited to the 
following acts:
    (1) Naming as an Obligee or co-Obligee any Person that does not 
qualify as an Obligee under Sec.  115.10; or
    (2) In the case of a Prior Approval Surety, acquiescing in any 
alteration to the bond which would increase the bond amount by at least 
25% or $50,000.
    (f) Timeliness. (1) Either:
    (i) The bond was Executed prior to the date of SBA's guarantee; or
    (ii) The bond was Executed (or approved, if the Surety is legally 
bound by such approval) after the work under the Contract had begun, 
unless SBA executes a ``Surety Bond Guarantee Agreement Addendum'' (SBA 
Form 991) after receiving all of the following from the Surety:
    (A) Satisfactory evidence, including a certified copy of the 
Contract (or a sworn affidavit from the Principal), showing that the 
bond requirement was contained in the original Contract, or other 
documentation satisfactory to SBA, showing why a bond was not previously 
obtained and is now being required;
    (B) Certification by the Principal that all taxes and labor costs 
are current, and listing all suppliers and subcontractors, indicating 
that they are all paid to date, and attaching a waiver of lien from 
each; or an explanation satisfactory to SBA why such documentation 
cannot be produced; and
    (C) Certification by the Obligee that all payments due under the 
Contract to date have been made and that the job has been satisfactorily 
completed to date.
    (2)(i) For purposes of paragraph (f)(1)(ii) of this section, work 
under a

[[Page 188]]

Contract is considered to have begun when a Principal takes any action 
at the job site which would have exposed its Surety to liability under 
applicable law had a bond been Executed (or approved, if the Surety is 
legally bound by such approval) at the time.
    (ii) For purposes of this paragraph (f), the Surety must maintain a 
contemporaneous record of the Execution and approval of each bond.
    (g) Principal fee. 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. SBA may reinstate the guarantee upon a 
showing that the Contract is not in default and that a valid reason 
exists why a timely submission was not made.
    (h) Other regulatory violations. The occurrence of any of the 
following:
    (1) The Principal on the bonded Contract is not a small business;
    (2) The bond was not required under the bid solicitation or the 
original Contract;
    (3) The bond was not eligible for guarantee by SBA because the 
bonded contract was not a Contract as defined in Sec.  115.10;
    (4) The loss occurred under a bond that was not guaranteed by SBA;
    (5) The loss incurred by the Surety was not a Loss as determined 
under Sec.  115.16; or
    (6) The Surety's loss under a Performance Bond did not result from 
the Principal's breach or Imminent Breach of the Contract.

[61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001]