Proposed Rule2024-26831
Surety Bond Guarantee Program: Streamlining and Modernizing
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 19, 2024
Issuing agencies
Small Business Administration
Abstract
The U.S. Small Business Administration (SBA or Agency) proposes to amend its regulations for the Surety Bond Guarantee Program to reduce the burden on participating surety companies for submission and retention of documents. SBA is also correcting conflicting provisions, as well as revising the obsolete preferred surety admissions requirements and the Quarterly Contract Completion Report.
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[Federal Register Volume 89, Number 223 (Tuesday, November 19, 2024)]
[Proposed Rules]
[Pages 91284-91291]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-26831]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 89, No. 223 / Tuesday, November 19, 2024 /
Proposed Rules
[[Page 91284]]
SMALL BUSINESS ADMINISTRATION
13 CFR Part 115
[Agency Docket Number: SBA-2023-0009]
RIN 3245-AI06
Surety Bond Guarantee Program: Streamlining and Modernizing
AGENCY: U.S. Small Business Administration.
ACTION: Proposed rule.
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SUMMARY: The U.S. Small Business Administration (SBA or Agency)
proposes to amend its regulations for the Surety Bond Guarantee Program
to reduce the burden on participating surety companies for submission
and retention of documents. SBA is also correcting conflicting
provisions, as well as revising the obsolete preferred surety
admissions requirements and the Quarterly Contract Completion Report.
DATES: SBA must receive comments to this proposed rule on or before
January 21, 2025.
ADDRESSES: Identify your comments by Docket No. SBA-2023-0009 or RIN
3245-AI06 and submit them by one of the following methods: (1) Federal
eRulemaking Portal: <a href="http://www.regulations.gov">www.regulations.gov</a>. Follow the instructions for
submitting comments; or (2) Mail/Hand Delivery/Courier: Kevin Valdes,
Management Analyst, Office of Surety Guarantees, U.S. Small Business
Administration, 409 3rd Street SW, 8th Floor, Washington, DC 20416.
SBA will post all comments to this proposed rule on
<a href="http://www.regulations.gov">www.regulations.gov</a>. If you wish to submit confidential business
information (CBI) as defined in the User Notice at <a href="http://www.regulations.gov">www.regulations.gov</a>,
you must submit such information to U.S. Small Business Administration,
Kevin Valdes, Management Analyst, Office of Surety Guarantees, U.S.
Small Business Administration, 409 3rd Street SW, 8th Floor,
Washington, DC 20416, or send an email to <a href="/cdn-cgi/l/email-protection#753e10031c1b5b231419111006350617145b121a03"><span class="__cf_email__" data-cfemail="5a113f2c3334740c3b363e3f291a29383b743d352c">[email protected]</span></a>.
Highlight the information that you consider to be CBI and explain why
you believe SBA should hold this information as confidential. SBA will
review your information and determine whether it will make the
information public.
FOR FURTHER INFORMATION CONTACT: Kevin Valdes, Management Analyst,
Office of Surety Guarantees, U.S. Small Business Administration, 409
3rd Street SW, 8th Floor, Washington, DC 20416, (202) 816-0137 or
<a href="/cdn-cgi/l/email-protection#713a1407181f5f27101d151402310213105f161e07"><span class="__cf_email__" data-cfemail="cb80aebda2a5e59daaa7afaeb88bb8a9aae5aca4bd">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
SBA is amending several regulations applicable to its Surety Bond
Guarantee (SBG) program. SBA guarantees bid, payment, and performance
bonds for small and emerging contractors who cannot obtain surety bonds
through regular commercial channels. SBA's guarantee, authorized
pursuant to part B of title IV of the Small Business Investment Act of
1958, 15 U.S.C. 694a et seq., 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.
As part of its ongoing responsibility to ensure that the rules it
issues align with surety industry practices and do not have an adverse
economic impact on those affected by those rules, SBA held a series of
listening sessions with Surety professionals for input about their
experiences using the SBG program. Findings of the listening sessions
and additional impact studies resulted in the decision to change and
clarify several current procedures and regulations to improve customer
experience and better enable modernization efforts within the SBG
program.
II. Prior Approval Agreement: Sec. 115.11, Sec. 115.30(b) and (d)
Current SBA regulation 13 CFR 115.11 requires prospective Surety
Partners to submit applications by mail. SBA proposes adding the option
to email Surety Partner application packages. This change will
modernize regulation to align with current business practices.
The SBG program requires signed certification by Surety Partners
participating in SBA's Prior Approval program each time a bond
application is submitted to the program. Each signed form certifies
small business program eligibility, the need for program assistance,
and the accuracy of applicant information. The certification process
involves completion of the SBA Form 990 fields (normally
electronically) along with download, signature, and re-upload of the
form to SBA's Capital Access Financial System (CAFS). In SBA's
Preferred Surety Bond (PSB) program, SBA Form 990 is not required due
to delegated authority and a written Surety Partner participation
agreement that blanketly certifies the same items as in SBA Form 990.
SBA proposes removing the signature requirement in 115.30(b) for each
application and replace with a master certification.
All Prior Approval participants surveyed agreed that having a
Surety Partner participation agreement for the Prior Approval program
would greatly benefit program participants by removing SBA's
requirement to individually certify every application submission. SBA
proposes changes to 13 CFR 115.30(d) to require a new Prior Approval
Agreement between SBA and the Prior Approval Surety Partner which will
contain a master certification for all the applications to follow. This
removes the need for each application to be individually certified. SBA
estimates the new agreements would reduce application time burden on
program participants by 557 hours, or $15,818 according to fiscal year
2023 program activity.
III. Streamline Fee Collection Process: Sec. 115.19(g), Sec.
115.32(b) and (d), and Sec. 115.66
Currently, SBA requires two fees to support surety bonds on awarded
contracts: a fee charged to the Surety company under Sec. 115.32(a),
and a fee charged to the small business contractor under Sec.
115.32(b). SBA's SBG program requires that the payment of SBA
contractor fees be submitted by small business applicants at the time
of application approval. For the Prior Approval program, Sec.
115.32(b) requires that the contractor must submit receipt of the
payment to SBA before an application is given final approval, and Sec.
115.32(d) requires that for bond increases the Principal must submit
the
[[Page 91285]]
increased fee upon notification of the increase in the contract or bind
amount. For the PSB program, Sec. 115.66 requires the PSB Surety remit
SBA's Premium share and the Principal's guarantee fee with the
bordereau listing the related Final Bond, as required in the PSB
Agreement.
While payments are verified via payment receipt, the receipt of the
payments by SBA are not always successful due to a variety of issues
that can occur during the processing of the payment. When contractor
fee payments are unsuccessful, SBA must seek remittance of the
delinquent payments due to SBA from the small businesses through surety
professional participants in both PSB and Prior Approval programs. If
still unsuccessful, a small business becomes ineligible for further SBA
guarantees and SBA writes off the delinquent debt. Over the last five
fiscal years, SBA wrote off over $100,000 in uncollected contractor
fees. Relatedly, SBA surety fee payments are due to SBA within 60 days
of a guarantee's approval. Surety companies remit these payments
directly to SBA. While delinquency is periodically an issue, SBA has
not written off any surety fees over the last five fiscal years.
All surety professional participants surveyed stated SBA's
contractor fee collection process is incongruent with surety industry
practice for premium (industry fee) collection. Instead of small
businesses directly paying surety bond companies for each individual
premium due, surety bond companies typically bill premiums (fees) due
to surety bond agencies (intermediaries) representing applicant
businesses via monthly billing statements. Collection is directly from
these agencies, net their commission. The agencies independently manage
premium collection from applicant businesses and are responsible for
payment to surety bond companies. The industry almost always issues
bonds before receiving premium.
Prior Approval survey participants all stated SBA's current
contractor fee collection requirements delay the bonding process since
payment cannot be made prior to an initial intent-to-approve from SBA
and the surety bond cannot be issued until payment is made by the small
business. Two participants noted a small business can sometimes take
days to pay SBA's fee, which further delays the bonding process.
SBA proposes streamlining fee collection by changing regulations to
allow SBA merger of contractor fee collection procedures into the same
process as SBA surety fee collection. The regulatory changes would
allow SBA to procedurally adjust contractor fee collection to be with
Surety Partners in the same format as current surety fee collection.
Likewise, any guarantee fee refund owed by SBA will be remitted to the
Surety that collected the fee from the Principal. The new process will
be the same for the Prior Approval and PSB Sureties.
SBA estimates the change would reduce application time burden on
program participants and small businesses by approximately 568 hours
per year, or roughly $14,495 in annual savings, on average. To estimate
time burden, the SBA relies on a combination of FY2023 program data and
interviews with program participants and small businesses. The change
would shift small business contractor fee remittance to SBA from small
businesses to Surety Partners, enable the industry to align their SBA
contractor fee collection procedures with industry fee collection
practices, and reduce the amount of uncollectible fees with small
businesses.
The proposed change is estimated to save each impacted small
business an average of 5 minutes per response, or a total of 284 total
burden hours for all small businesses. To quantify the value of time
saved, the SBA relies on the most recently available Bureau of Labor
Statistics (BLS) wage data and assumes that the representative impacted
small business occupation would be ``miscellaneous construction and
related workers.'' The median wage from 2023 for this occupation was
$22.64. In FY2023, there were approximately 3,406 small businesses in
the program which brings the estimated total burden hours saved for
small businesses per year to roughly 284. The total annual savings that
the SBA estimates for small businesses as a result of the proposed
changes comes to $6,430 ($23*284), on average.
To quantify the value of time saved for program participants, the
SBA relies on BLS wage data and assumes that the representative
impacted occupation would be ``insurance sales agents''. The median
wage from 2023 for this occupation was $28.40. Using the same program
data from FY2023, the estimated total burden hours saved for program
participants per year comes to 284. The total annual savings that the
SBA estimates for program participants as a result of the proposed
changes comes to $8,066 ($28*284), on average.
IV. Quarterly Contract Completion Report: Sec. 115.22
Currently, 13 CFR 115.22 requires Surety Partners to submit a
quarterly certification report detailing all contracts for guaranteed
bonds that were completed during the most recent quarter. The report
was implemented in 2017 with the intention of ensuring that fees due
for increases on successfully completed contracts are accurately
calculated and paid timely. At that time, industry commented on the
proposed rule that the report creates an administrative burden on
Surety Partners. During SBA's recent survey, participants stated the
industry typically considers contracts up to $250,000 complete upon the
estimated completion date on file without verification. In fiscal year
2023, over 43% of guaranteed bonds for awarded contracts were within
this range. Surety Partners for the program have stated reporting
details, such as the contract completion date, can require additional
work when contracts are within this range.
SBA proposes modifying the regulation to allow SBA to set the
timeframe. The change will create greater program office agility in
adapting completion reporting to the practices of the industry. It will
also allow the program office to adjust internal guarantee closeout
monitoring procedures to secure collection of deferred fees due at the
time of contract completion.
V. Surety Bonding Line: Sec. 115.19(f)(1)(i), Sec. 115.33(b)(1)
Currently, 13 CFR 115.33(b)(1) allows Sureties participating in
SBA's Prior Approval program to submit applications up to 15 days after
bond execution under an SBA-approved bonding line. However, 13 CFR
115.19(f)(1)(i) requires bonds be approved by SBA prior to execution.
The two regulations conflict and must be reconciled to allow SBA
acceptance of executed bonds under an SBA bonding line. SBA is also
clarifying when a bonding line expires in 13 CFR 115.33(b)(1).
Currently, regulations state ``not to exceed 1 year.'' However, SBA
bonding lines cannot extend past the originated fiscal year per
allocated funding restrictions of the program. SBA proposes modifying
current regulatory language by removing the conflicting requirement in
13 CFR 115.19(f)(1)(i) and clarify its effective period in 13 CFR
115.33(b)(1).
VI. Revisions to Underwriting and the Preferred Surety Bond (PSB)
Program: Sec. 115.11, Sec. 115.60, Sec. 115.65(b)
SBA's Preferred Surety Bond (PSB) program is for sureties that seek
delegated authority to approve SBA guaranteed surety bonds. Sureties
can be selected to participate in the PSB program if they meet criteria
established
[[Page 91286]]
by SBA. Once approved, the surety enters into a PSB Agreement with SBA
under which the surety can issue, monitor, and service SBA-guaranteed
bonds without SBA's prior approval of the bond guarantee.
SBA proposes revising its admissions policies for PSB sureties. The
admissions criteria for PSB sureties found in 13 CFR 115.60 that SBA
proposes for revision include the minimum underwriting limit assigned
by the U.S. Treasury of $6,500,000.00, the limit on the proportion of
government-backed bonds to their overall premium income, and the
requirement that the surety obtain SBA's approval before issuing a bond
greater than $2 million during the initial 9 months the surety is first
in the PSB program.
SBA identified that 61, or 24%, of all currently T-listed surety
companies have limits below SBA's required threshold to participate in
the PSB program. Some companies in the surety industry utilize
affiliate entities to manage different portfolio segments, including
the portfolio segment SBA assists, termed ``small specialty.'' Given
the typical bond size need of small and emerging businesses, some
surety bond companies utilize affiliates with low T-listing limits to
support small specialty before moving them to surety affiliates with
higher T-listing amounts.
The T-listing is based on a surety's ability to pay losses via
reserve funds and is not an indicator of surety performance. By
excluding some of these affiliates via the T-listing limit, the program
also potentially reduces access to the program for some small
businesses. Removing the regulatory limit will allow greater agility
for SBA to adjust the requirement based on inflation and industry
practices. This allows the PSB program to support more small surety
bond companies. The PSB agreement outlines delegated authority for PSB
participation and can be given in amounts that reflect the
participating surety's T-listing limit.
SBA also proposes removing: (1) the limit on government-backed
bonds as a proportion of their premium income, and (2) the requirement
that a PSB surety get approval before issuing a bond greater than $2
million during the initial 9 months of program participation. SBA could
not identify a current benefit to the implementation of these
requirements. PSB surety participation as a percent of premium income
unduly restricts small business access to the SBG program. Restricting
program participation for a surety bond company on this basis
potentially forces a participating surety to deny small business access
to strictly due to reaching their premium share limit.
The 9-month delegated authority restriction for new Surety
participants does not contain enough time to obtain a program
performance assessment of the new participant. SBA could not identify
rationale for the restriction. Additionally, the conclusion of a review
of program performance for new PSB surety partners between fiscal year
2018 and 2024 did not support the initial 9-month program performance
period as an indicator of program performance thereafter. The language
will be replaced with SBA maintaining the right to restrict
participation to evaluate the Surety's program performance. This
language is in line with 13 CFR 115.18, pertaining to improper
practices within the program. These proposals are anticipated to
increase the pool of PSB sureties, which will expand the SBA surety
agency base and increase bond opportunities for small businesses.
Current SBA regulations 13 CFR 115.11, 13 CFR 115.60(a)(4), and 13
CFR 115.65(b) require all Surety partners to oversee its underwriting
function with surety staff and for PSB sureties to underwrite using
employees of the surety and in ``the same manner and with the same
staff'' for SBA bonds as they do for their non-SBA bonds. During
listening sessions, meetings, and other engagements with the surety
bond industry, SBA found it is common practice in the industry to
delegate bond writing authority to staff of an affiliated surety and
vetted surety bond agencies. Agents in these agencies are vetted for
their knowledge and performance in the industry in relation to their
portfolio with the surety bond company delegating such authority.
Agencies with this authority are referred to as ``Managing General
Agencies'' (MGAs) and ``Managing General Underwriters'' (MGUs). With
this authority, these entities act on behalf of the surety by
performing the underwriting of a bond application and issuing the
surety bond. Oftentimes, MGAs and MGUs handle large books of business
that are too cumbersome or time-consuming for surety bond companies to
manage.
Sureties have stated to SBA that surety bonds to small businesses
who have trouble being approved for a bond fit this category of
business. The Prior Approval program does not have staff restrictions
on underwriting by participating surety bond companies. A comparative
review of program performance for fiscal years 2014-2021 by known MGAs
and MGUs in the Prior Approval program shows that performance by these
entities has been on par with the rest of the program during the same
period. SBA will refer to MGAs and MGUs delegated by SBA-partnered
surety bond companies as partner-affiliated entities. SBA proposes to
allow PSB sureties to use affiliate staff for underwriting and allow
the use of partner-affiliated entities. This change will allow surety
partners to write more bonds with fewer resources and align SBA
regulation with industry practice. Overall, SBA expects this to
increase the number of surety partners and bond opportunities for small
businesses.
VII. Revisions to the Quick Bond Agreement: Sec. 115.30(d)(2)
SBA's Quick Bond agreement (Quick Bond) is for small contract
amounts. The program aligns with the surety bond industry practice of
providing reduced and expedient underwriting for surety bonds with
limited scope and size in private industry programs collectively
referred to as fast-track programs. SBA's Quick Bond option removes
bonding barriers for start-ups and other emerging small businesses by
reducing qualification to small business and contract eligibility for
SBA assistance. Currently, 13 CFR 115.30(d)(2) outlines Quick Bond
limitations. In surety bond industry listening sessions, meetings, and
day-to-day program application review, SBA has found many industries
(e.g., plumbing, HVAC, drywall, painting, roofing, etc.) often have
contracts with clauses that don't fit the program's regulatory
limitations.
Additionally, SBA historically lags behind industry adjustments to
similar programs outside SBA in regard to limits on contract size,
liquidated damages, and job duration. During engagements, surety
industry professionals have advised SBA that the industry supports more
expansive small business needs within fast-track programs outside SBA
and that not all emerging small business contractors are able to
regularly maintain financial statements. When reviewing program
performance, SBA found some industries may experience elevated risk of
failure due to external impacts. In these events, applications from
small businesses in the impacted industry would benefit from regular
application underwriting even when qualifying for SBA's Quick Bond
application type. Due to Quick Bond limitations being part of
regulation, SBA cannot readily adapt to economic changes and emerging
program risks. SBA proposes removing the regulatory limitations for
Quick Bond application types. This will enable SBA to better align the
program
[[Page 91287]]
with industry practices and better support small businesses.
VIII. Technical Corrections: Sec. 115.11, Sec. 115.12(f), Sec.
115.18(c), Sec. 115.30(b) and (c), Sec. 115.31(d), and Sec.
115.35(a)(1)(iv)
SBA proposes making several technical corrections to clarify and
correct current regulations. 13 CFR 115.11 states the T-listing limit
is for bonds in connection with Federal procurement contracts. However,
U.S. Treasury clarified to SBA that the requirement is in connection
with all bonds issued by the surety bond company should the company be
Treasury listed. SBA proposes removing reference to Federal procurement
contracts to align with U.S. Treasury.
13 CFR 115.12(f) explains procedures for SBA-approved transfers and
sales of files and accounts by a surety. SBA proposes adding language
that clarifies sale of an entire SBA-partnered business operation
without prior-written approval by SBA voids SBA's guarantee and claims
reimbursement agreements to that division unless the sale is to an
existing SBA partner.
13 CFR 115.18(c) references SBA form 912. SBA's form 994 was
previously modified to capture the same information as SBA form 912 and
the program stopped actively collecting SBA form 912. SBG program
currently relies solely on SBA form 994 for the information previously
collected on SBA form 912. SBA proposes replacing reference to SBA form
912 with reference to individual certification by applicant owners.
13 CFR 115.30(b) and (c) refer to SBA staff as SBA officers. This
will be changed to SBA staff to be consistent with references to
employees throughout the rest of the regulations.
13 CFR 115.31(d) includes an example calculation for determining a
reduced guarantee percent on a contract over the statutory limit of the
program. For consistency with other examples as guidance, this example
will be removed from the regulations.
13 CFR 115.35(a)(1)(iv) states a surety must notify SBA when it
receives any adverse information concerning a Principal's financial
condition or possible inability to complete the project or pay laborers
or suppliers. In practice, SBA verifies this information when submitted
to SBA. Additionally, these conditions for notification are
collectively defined by SBA in Sec. 115.10 as ``imminent breach'' when
the conditions, unless remedied by the Surety, make a default under the
bond appear to be inevitable. SBA proposes clarifying this requirement
by stating the surety must notify SBA when it verifies any adverse
information concerning imminent breach by the Principal.
IX. Section-by-Section Analysis
A. Sec. 115.11
Remove the requirement that physical applications be submitted and
allow Surety Partners to email application packages. Remove the
requirement that a Surety's salaried staff must oversee its
underwriting function. Remove language stating that T-listing limit for
bonds is in connection with Federal procurement contracts.
B. Sec. 115.12(f)
Add clarifying language that the sale of an entire business
operation partnered with SBA occurs without prior written approval of
SBA, it will void SBA's guarantee and claims reimbursement agreements
to that division unless the sale is to an existing SBA partner.
C. Sec. 115.18(c)
Remove reference to SBA Form 912 Statement of Personal History as
it is no longer in use.
D. Sec. 115.19
Add language to 13 CFR 115.19(f)(1)(i) to clarify that timeliness
for a bonding line is determined by Sec. 133(d).
E. Sec. 115.22
Change time frame for contract completion reporting from quarterly
to requiring the Surety to submit to SBA notification of successfully
completed contracts within the time frame set by SBA.
F. Sec. 115.30
Remove the signature requirement in Sec. 115.30(b) for each
application and replace with a master certification. Change Sec.
115.30 (d) to require a new Prior Approval Agreement between SBA and
the Prior Approval Surety Partner which will contain a master
certification for all the applications that follow.
Revise Sec. 115.30(b) and (c) by removing references to
``authorized SBA officer'' and replace with the SBA's Director, Office
of Surety Guarantees (D/SG) or their designee.
Revise Quick Bond Agreement requirements in paragraph (d)(2) by
removing the restriction that a Quick Bond Agreement can only be used
for contract amounts under $500,000 at the time of application and
remove the regulatory exclusions in paragraph (d)(ii).
G. Sec. 115.31
Remove from paragraph (d) the example calculation for when a
contract amount increases above the statutory limit.
H. Sec. 115.32
Revise paragraph (b) to delete the requirement that the SBA's
charge to Principal be remitted with the application, and replace that
with a requirement that the Prior Approval Surety is responsible to
collect the guarantee fee from the Principal and remit to SBA within 60
calendar days of the approval of the Surety Bond Guarantee Agreement
(SBA form 990).
Revise paragraph (d)(1) by changing the cross reference in
paragraph (d)(1) for the payment of the increased Principal's guarantee
fee from in accordance with (d)(2) to (b). Revise (d)(2) by deleting
the provision requiring payment for an increase in the Principal's fee
from resulting from an increase in the contract amount. Revise
paragraph (d)(3) by detecting that refunds fees from bond increases
will go from SBA to the Principal and replace it with the refund will
be returned to the Surety who collected the payment.
I. Sec. 115.33(b)(1)
Revise the duration of a Bonding Line from 1 year to the fiscal
year of approval.
J. Sec. 115.35(a)(1)(iv)
Revise when a Surety must notify SBA about adverse information.
Change the reporting threshold from when the Surety has adverse
information concerning a Principal's financial condition to when the
Surety has verified imminent breach by the Principal.
K. Sec. 115.60
Remove underwriting limitation of $6,500,000 in paragraph (a)(1)
and replace with a minimum threshold set by SBA for the applicant
Surety or an SBA-partnered affiliate. Delete paragraph (a)(3). Revise
paragraph (a)(4) by adding employees of a Surety's affiliates and SBA
approved affiliated entities as those who are allowed to do
underwriting on behalf of the Surety. Revise paragraph (b) by removing
the 9-month trial period before a Surety can be admitted into the PSB
program and replace with a time frame set by SBA.
L. Sec. 115.65(b)
Revise by eliminating the restriction that the approval, execution,
and administration of SBA Bonds by a PSB Surety must be handled by the
same staff as the Surety's outside activity and
[[Page 91288]]
replace with a cross reference to individuals outlined in Sec.
115.60(a)(4). Section 115.60(a)(4) is also being revised by adding
employees of a Surety's affiliates and SBA approved affiliated entities
as those who are allowed to do underwriting on behalf of the Surety.
M. Sec. 115.66
Revise Sec. 115.66 which relates to fee collection by PSB Sureties
to mirror the requirements for Prior Approval Sureties in Sec. 115.32.
Revisions include deleting existing text and adding subsections (a),
(b), and (c). Subsection (a) describes the Surety's Premium. Subsection
(b) describes the SBA charge to the Principal. Subsection (c) describes
the SBA charge to the Surety. None of these are new charges or fees.
X. Request for Comments
SBA invites public comments on any part of the proposed rule.
XI. Compliance the Regulatory Flexibility Act (5 U.S.C. 601-612),
Executive Orders Executive Orders 12866, 13563, and 14094, Executive
Orders 13563, 12988, and 13132, and the Paperwork Reduction Act (44
U.S.C., Ch. 35)
Regulatory Flexibility Act
When an agency issues a rulemaking proposal, the Regulatory
Flexibility Act (RFA), as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996, requires the agency to ``prepare and
make available for public comment an initial regulatory flexibility
analysis,'' which shall ``describe the impact of the proposed rule on
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an
agency to certify a rule, in lieu of preparing an analysis, if the
proposed rulemaking is not expected to have a significant economic
impact on a substantial number of small entities.
This is expected to be a time saving rule making so it is not
anticipated to have a significant economic impact. As of fiscal year
end 2023, the Program had 9,265 surety bond guarantees to 32 active
surety companies (which may or may not be small businesses) that would
be impacted by this rulemaking. Accordingly, the Administrator of the
SBA hereby certifies that this rule will not have a significant
economic impact on a substantial number of small entities. SBA invites
comments from members of the public who believe this rule will have a
significant economic impact on a substantial number of small entities.
Executive Orders 12866, 13563, and 14094
Executive Order 12866, Regulatory Planning and Review, as amended
by Executive Order 14094, Modernizing Regulatory Review, requires
agencies to provide a Regulatory Impact Analysis assessing costs and
benefits and addressing available alternatives for any ``significant
regulatory action.'' The Office of Management and Budget has determined
that this rule does not constitute a ``significant regulatory action''
as defined in Executive Order 12866.
Executive Order 13563, Improving Regulation and Regulatory Review,
reaffirms the principles of Executive Order 12866 and requires agencies
to adopt regulations through a process that involves public
participation and, to the extent feasible, base regulations on the open
exchange of information and perspectives from affected stakeholders and
the public as a whole. SBA has developed this rule in a manner
consistent with these requirements. In addition, Executive Order 13563
requires agencies to assess the benefits and costs of any regulations
and address available alternatives to direct regulation.
As described above, this proposed rule could affect small entities
that participate as sureties in SBA's Surety Bond Guarantee program and
small entities seeking assistance through the program. SBA's proposed
rule will reduce time in two significant ways.
First, All Prior Approval participants surveyed agreed that having
a Surety Partner participation agreement for the Prior Approval program
would greatly benefit program participants by removing SBA's
requirement to individually certify every application submission. SBA
proposes changes to 13 CFR 115.30(d) to require a new Prior Approval
Agreement between SBA and the Prior Approval Surety Partner which will
contain a master certification for all the applications to follow. This
removes the need for each application to be individually certified. SBA
estimates the new agreements would reduce application time burden on
program participants by 557 hours, or $15,818 according to fiscal year
2023 program activity.
The proposed change is estimated to save each impacted program
participant an average of 3 minutes per response, or a total of 557
total burden hours for all small businesses. To quantify the value of
time saved, the SBA relies on BLS wage data and assumes that the
representative impacted occupation would be ``insurance sales agents''.
The median wage from 2023 for this occupation was $28.40. Using the
program data from FY2023, the estimated total burden hours saved for
program participants per year is approximately 557. The total annual
savings that the SBA estimates for program participants as a result of
the proposed changes comes to $15,818 ($28*557), on average.
Second, SBA proposes shifting how small business contractor remit
fees to SBA from the small businesses itself to being remitted by the
Surety Partners. This enables the industry to align their SBA
contractor fee collection procedures with industry fee collection
practices and reduce the amount of uncollectible fees with small
businesses. As explained on page 6 of this text, SBA estimates the
change would reduce application time burden on program participants and
small businesses by 568 hours, or $14,495 according to fiscal year 2023
program activity.
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. This rule does not
have retroactive or preemptive effect.
Executive Order 13132
For purposes of Executive Order 13132, SBA has determined this
rulemaking 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, SBA has determined that this proposed rule
has no federalism implications warranting preparation of a federalism
assessment.
Paperwork Reduction Act
For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35,
SBA will update the affected information collections and go through the
typical Paperwork Reduction Act process.
List of Subjects in 13 CFR Part 115
Administrative practice and procedure, Bonding, Surety bonds,
Surety, Small businesses.
For the reasons set forth in the preamble, SBA proposes to amend 13
CFR part 115 as follows:
[[Page 91289]]
PART 115--SURETY BOND GUARANTEE
0
1. The authority citation for part 115 continues to read as follows:
Authority: 5 U.S.C. app 3; 15 U.S.C. 636i, 687b, 687c, 694a, and
694b note.
0
2. Revise Sec. 115.11 to read as follows:
Sec. 115.11 Applying to participate in the Surety Bond Guarantee
Program.
Sureties interested in participating as Prior Approval Sureties or
PSB Sureties should apply by email or in writing to the D/SG at 409 3rd
Street SW, Washington, DC 20416. OSG will determine the eligibility of
the applicant considering its standards and procedures for
underwriting, administration, claims and recovery. Each applicant must
be a corporation listed by the U.S. Treasury as eligible to issue
bonds. At a minimum, each applicant must have salaried staff that is
employed directly (not an agent or other individual or entity under
contract with the applicant) to perform all claims and recovery
functions other than specialized services the costs of which may be
reimbursable under 13 CFR 115.16(e)(1). Final settlement authority for
claims and recovery must be vested only in the applicant's salaried
claims staff. The applicant must continue to comply with SBA's
standards and procedures for underwriting, administration, claims,
recovery, and staffing requirements while participating in SBA's Surety
Bond Guarantee Program.
0
3. Amend Sec. 115.12 by revising paragraph (f) to read as follows:
Sec. 115.12 General program policies and provisions.
* * * * *
(f) Transfers or sales by Surety. Sureties must not sell or
otherwise transfer their files or accounts, whether before or after a
default by the Principal has occurred, without the prior written
approval of SBA. A violation of this provision is grounds for
termination from participation in the program. This provision does not
apply to the sale of an entire business division, subsidiary or
operation of the Surety. If the sale of an entire business division
partnered with SBA occurs without prior written approval of SBA, it
will void SBA's guarantee and claims reimbursement agreements to that
division unless the sale is to an existing SBA partner.
0
4. Amend Sec. 115.18 by revising paragraph (c) to read as follows:
Sec. 115.18 Refusal to issue further guarantees; suspension and
termination of PSB status.
* * * * *
(c) Notification requirement. The Prior Approval or PSB Surety must
promptly notify SBA of the occurrence of any event in paragraphs (b)
(1) through (5) of this section, or if any of the Persons described in
paragraph (b) of this section does not, or ceases to, qualify as a
Surety. SBA may require submission of individual certifications from
any of these Persons.
* * * * *
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5. Amend Sec. 115.19 by revising paragraphs (f)(1) and (g) to read as
follows:
Sec. 115.19 Denial of liability.
* * * * *
(f) * * *
(1) Either:
(i) The bond was Executed prior to the date of SBA's guarantee, or
in the case of a bonding line commitment under Sec. 115.33 the bonding
line was not established in accordance with Sec. 115.33(d); 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 approves 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.
* * * * *
(g) Delinquent fees. The Surety has not remitted to SBA payment for
the full amount of all guarantee fees within the time period required
under Sec. 115.32(b) and (c) for Prior Approval Sureties, or Sec.
115.66 for PSB Sureties. SBA may reinstate the guarantee upon showing
that the contract is not in default and that a valid reason exists why
a timely remittance or payment was not made.
* * * * *
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6. Revise Sec. 115.22 to read as follows:
Sec. 115.22 Closeout Reporting.
The Surety must submit to SBA notification of successfully
completed contracts and claims files within the timeframe set by SBA,
and in the manner as prescribed by SBA.
0
7. Amend Sec. 115.30 by revising paragraphs (b) and (c), the
introductory text of paragraph (d), and the introductory text of
paragraph (d)(2) to read as follows:
Sec. 115.30 Submission of Surety's guarantee application.
* * * * *
(b) SBA's approval or decline of a guarantee application is made in
writing by the D/SG or their designee. SBA may provide telephone notice
before the Prior Approval Surety receives SBA's guarantee approval form
if the guarantee has already received approval by SBA staff with
delegated authority. In the event of a conflict between the telephone
notice and the written form, the written form controls.
(c) A Prior Approval Surety may request reconsideration of a
decline from the D/SG or their designee who made the decision. If the
decision on reconsideration is negative, the Surety may appeal to an
individual designated by the D/SG. If the decision is again adverse,
the Surety may appeal to the D/SG, who will make the final decision.
(d) Prior Approval Agreement. To apply for a bond guarantee, a
Prior Approval Surety must have an active Prior Approval Agreement,
submit a Surety Bond Guarantee Agreement (SBA Form 990), and select one
of the following application types:
* * * * *
(2) Quick Bond Agreement. Except as determined by SBA, a Prior
Approval Surety may complete and submit an SBA Form 990 indicating a
Quick Bond Agreement application type for each Bid Bond or Final Bond.
This form must be approved by SBA prior to the Surety's Execution of
the bond. Eligibility parameters of the Quick Bond application type are
determined by SBA. The guarantee fees owed in connection with Final
Bonds must be paid in accordance with Sec. 115.32.
* * * * *
Sec. 115.31 [Amended]
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8. In Sec. 115.31, amend paragraph (d) by removing the last sentence.
0
9. Amend Sec. 115.32 by revising paragraphs (b) and (d) to read as
follows:
Sec. 115.32 Fees and Premiums.
* * * * *
(b) SBA charge to Principal. SBA does not charge Principals
application or Bid
[[Page 91290]]
Bond guarantee fees. If SBA guarantees a Final Bond, the Principal must
pay a guarantee fee equal to a certain percentage of the Contract
amount. The Surety is responsible for collecting the Principal's
guarantee fee due on each guaranteed bond (other than a Bid Bond under
13 CFR 115.19(g)) and remitting payment within 60 calendar days after
SBA's approval of the Surety Bond Guarantee Agreement (SBA form 990).
The percentage is determined by SBA and is published in Notices in the
Federal Register from time to time. The Principal's fee is rounded to
the nearest dollar. See paragraph (d) of this section for additional
requirements when the Contract amount changes.
* * * * *
(d) Contract or bond increases/decreases--(1) Notification and
approval. The Prior Approval Surety must notify SBA of any increases or
decreases in the Contract or bond amount that aggregate 25% or $500,000
of the original contract or bond amount, whichever is less, as soon as
the Surety acquires knowledge of the change. Whenever the original bond
amount increases as a result of a single change order of at least 25%
or $500,000 of the original contract or bond amount, whichever is less,
the prior written approval of such increase by SBA is required on a
supplemental Prior Approval Agreement and is conditioned upon payment
by the Surety of the increase in the Principal's guarantee fee as set
forth in paragraph (b) of this section. In notifying SBA of any
increase or decrease in the Contract or bond amount, the Prior Approval
Surety must use SBA Form 990 and select the application type that it
used in applying for the original bond guarantee.
(2) Increases; fees. The payment for the increase in the
Principal's guarantee fee is computed on the increase in the Contract
amount. . If the increase in the Principal's fee is less than $250, no
payment is due until the total amount of increases in the Principal's
fee equals or exceeds $250. The Surety's payment of the increase in the
Surety's guarantee fee, computed on the increase in the bond Premium,
must be submitted to SBA within 60 calendar days of SBA's approval of
the Prior Approval Agreement, unless the amount of such increased
guarantee fee is less than $250. When the total amount of increase in
the guarantee fee equals or exceeds $250, the Surety must remit the fee
within 60 calendar days.
(3) Decreases; refunds. Whenever SBA is notified of a decrease in
the Contract or bond amount, SBA will refund a proportionate amount of
the Principal's guarantee fee and rebate to the Surety a proportionate
amount of SBA's Premium share in the ordinary course of business. If
the amount to be refunded or rebated is less than $250, such refund or
rebate will not be made until the amounts to be refunded or rebated,
respectively, aggregate at least $250. Upon receipt of the refund, the
Surety must promptly pay a proportionate amount of its Premium to the
Principal.
0
10. Amend Sec. 115.33 by revising paragraph (b)(1) to read as follows:
Sec. 115.33 Surety bonding line.
* * * * *
(b) * * *
(1) The term of the bonding line, not to exceed the fiscal year of
approval subject to renewal in writing;
* * * * *
0
11. Amend Sec. 115.35 by revising paragraph (a)(1)(iv) to read as
follows:
Sec. 115.35 Claims for reimbursement of Losses.
(a) * * *
(1) * * *
(iv) The Surety has verified any adverse information concerning
imminent breach by the Principal.
* * * * *
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12. Revise Sec. 115.60 to read as follows:
Sec. 115.60 Selection and admission of PSB Sureties.
(a) Selection of PSB Sureties. SBA's selection of PSB Sureties will
be guided by, but not limited to, these factors:
(1) An underwriting limitation on the U.S. Treasury Department list
of acceptable sureties of at least the minimum threshold set by SBA for
the applicant Surety or an SBA-partnered affiliate;
(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.
(3) The vesting of underwriting authority for SBA guaranteed bonds
only in employees of the Surety, its affiliates, or partner-affiliated
entities approved by SBA;
(4) The rating or ranking designations assigned to the Surety by
recognized authority.
(b) Admission of PSB Sureties. A Surety admitted to the PSB program
must execute a PSB Agreement before approving SBA guaranteed bonds. No
SBA guarantee attaches to bonds approved before the D/SG or designee
has countersigned the Agreement. SBA may in its discretion limit
participation of the Surety for a period set by SBA to allow SBA to
evaluate the Surety's performance.
0
13. Amend Sec. 115.65 by revising paragraph (b) to read as follows:
Sec. 115.65 General PSB procedures.
* * * * *
(b) Usual staff and procedures. The approval, Execution and
administration by a PSB Surety of SBA guaranteed bonds must be handled
in the same manner and with the same individuals outlined in Sec.
115.60(a)(4). The Surety must request job status reports from Obligees
in accordance with its own procedures.
* * * * *
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14. Revise Sec. 115.66 to read as follows:
Sec. 115.66 Fees.
(a) Surety's Premium. A PSB Surety must not charge a Principal an
amount greater than that authorized by the appropriate insurance
department. The Surety must not require the Principal to purchase
casualty or other insurance or any other services from the Surety or
any Affiliate or agent of the Surety. The Surety must not charge non-
Premium fees to a Principal unless the Surety performs other services
for the Principal, the additional fee is permitted by State law, and
the Principal agrees to the fee.
(b) SBA charge to Principal. SBA does not charge Principals
application or Bid Bond guarantee fees. If SBA guarantees a Final Bond,
the Principal must pay a guarantee fee equal to a certain percentage of
the Contract amount. The Surety is responsible for collecting the
Principal's guarantee fee due on each guaranteed bond (other than a Bid
Bond) and remitting payment within 60 calendar days after submission to
SBA. The percentage is determined by SBA and is published in Notices in
the Federal Register from time to time. The Principal's fee is rounded
to the nearest dollar. See Sec. 115.67 for additional requirements
when the Contract amount changes.
(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 60 calendar days after the bordereau submission of the
related Final Bond. 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 Sec. 115.67
for
[[Page 91291]]
additional requirements when the Contract or bond amount changes.
Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-26831 Filed 11-18-24; 8:45 am]
BILLING CODE 8026-09-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.