PART 115—SURETY BOND GUARANTEE Authority: 5 U.S.C. app 3; 15 U.S.C. 636i, 687b, 687c, 694a, and 694b note. Source: 61 FR 3271, Jan. 31, 1996, unless otherwise noted. Editorial Note: Nomenclature changes to part 115 appear at 72 FR 50038, Aug. 30, 2007. § 115.1 Overview of regulations. The regulations in this part cover the SBA's Surety Bond Guarantee Programs under Part B of Title IV of the Small Business Investment Act of 1958, as amended. Subpart A of this part contains regulations common to both the program requiring prior SBA approval of each bond guarantee (the Prior Approval Program) and the program not requiring prior approval (the PSB Program). Subpart B of this part contains the regulations applicable only to the Prior Approval Program. Subpart C of this part contains the regulations applicable only to the PSB Program. § 115.2 Savings clause. Transactions affected by this part 115 are governed by the regulations in effect at the time they occur. § 115.3 Severability. Any provision of this part held to be invalid or unenforceable as applied to any person, entity, or circumstance shall be construed so as to continue to give the maximum effect to such provision as permitted by law, including as applied to persons or entities not similarly situated or to dissimilar circumstances, unless such holding is that the provision of this part is invalid and unenforceable in all circumstances, in which event the provision shall be severable from the remainder of this part and shall not affect the remainder thereof. [89 FR 34101, Apr. 30, 2024] Subpart A—Provisions for All Surety Bond Guarantees § 115.10 Definitions. Affiliate Ancillary Bond Applicable Statutory Limit (1) $9 million (as adjusted for inflation in accordance with 41 U.S.C. 1908). (2) $14 million if a contracting officer of a Federal agency certifies, in accordance with section 115.12(e)(3), that such guarantee is necessary. (3) If SBA is guaranteeing the bond in connection with a procurement related to a major disaster pursuant to section 12079 of Public Law 110-246, see section 115.12(e)(4). Bid Bond Contract (1) Must not prohibit a Surety from performing the Contract upon default of the Principal; (2) Does not include a permit, subdivision contract, lease, land contract, evidence of debt, financial guarantee ( e.g., (3) May include a maintenance agreement under the following circumstances: (i) The maintenance agreement is ancillary to a Contract for which SBA is guaranteeing a bond, is performed by the same Principal, is for a period of 2 years or less, and only covers defective workmanship or materials that are not covered by a manufacturer's warranty. With SBA's prior written approval, the agreement may cover a period longer than 2 years, or cover something other than defective workmanship or materials, if a longer period or something other than defective workmanship or materials is customarily required in the relevant trade or industry; or (ii) The maintenance agreement is stand-alone and is entered into in connection with a Contract for which a bond was not required and only covers defective workmanship or materials that are not covered by a manufacturer's warranty. The agreement must cover a period of 3 years or less that begins immediately after the Contract is complete and must be executed prior to the completion of the Contract. It must also be entered into with the same Principal that completed the Contract. With SBA's prior written approval, the agreement may cover a period longer than 3 years if a longer period is customarily required in the relevant trade or industry. D/SG Execution Final Bond Head of Agency Imminent Breach Investment Act et seq. Loss Obligee means: (1)(i) In the case of a Bid Bond, the Person requesting bids for the performance of a Contract; or (ii) In the case of a Final Bond, the Person who has contracted with a Principal for the completion of the Contract and to whom the primary obligation of the Surety runs in the event of a breach by the Principal. (2) In either case, no Person (other than a Federal department or agency) may be named co-Obligee or Obligee on a bond or on a rider to the bond unless that Person is bound by the Contract to the Principal (or to the Surety, if the Surety has arranged completion of the Contract) to the same extent as the original Obligee. In no event may the addition of one or more co-Obligees increase the aggregate liability of the Surety under the bond. Order OSG Payment Bond Performance Bond Person Premium Principal Prior Approval Agreement Prior Approval Surety PSB Agreement PSB Surety Service-Disabled Veteran Small Business Owned and Controlled by Service-Disabled Veterans (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 (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. Surety (1)(i) Under the terms of a Bid Bond, agrees to pay a sum of money to the Obligee if the Principal breaches the conditions of the bond; (ii) Under the terms of a Performance Bond, agrees to pay a sum of money or to incur the cost of fulfilling the terms of a Contract if the Principal breaches the conditions of the Contract; and (iii) Under the terms of a Payment or an Ancillary Bond, agrees to make payment to all who have a right of action against such bond, including those who have furnished labor, materials, equipment and supplies in the performance of the Contract. (2) The term Surety includes an agent, independent agent, underwriter, or any other company or individual empowered to act on behalf of the Surety. Veteran [61 FR 3271, Jan. 31, 1996, as amended at 61 FR 7985, Mar. 1, 1996; 72 FR 34599, June 25, 2007; 72 FR 50038, Aug. 30, 2007; 74 FR 36109, July 22, 2009; 76 FR 2572, Jan. 14, 2011; 76 FR 9963, Feb. 23, 2011; 77 FR 41665, July 16, 2012; 79 FR 2086, Jan. 13, 2014; 81 FR 41428, June 27, 2016; 87 FR 48083, Aug. 8, 2022; 88 FR 24473, Apr. 21, 2023; 89 FR 11712, Feb. 15, 2024] § 115.11 Applying to participate in the Surety Bond Guarantee Program. Sureties interested in participating as Prior Approval Sureties or PSB Sureties should apply 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 in connection with Federal procurement contracts. 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 oversee its underwriting function and 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 Programs. [61 FR 3271, Jan. 31, 1996, as amended at 81 FR 23565, Apr. 22, 2016] § 115.12 General program policies and provisions. (a) Description of Surety Bond Guarantee Programs. (b) Eligibility of bonds. (c) Expiration of Bid Bond Guarantee. (d) Guarantee agreement. (e) Amount of Contract Determination of Amount of Contract. (i) SBA approves a Prior Approval Surety's request for a Bid Bond guarantee; (ii) A Preferred Surety Executes a Bid Bond; or (iii) The date Final Bonds (and any Ancillary Bonds) unrelated to an SBA-guaranteed Bid Bond are Executed by a Preferred Surety or by a Prior Approval Surety following SBA's approval of its request for a guarantee of Final Bonds. (2) Aggregation of Contract and Order amounts. (ii) The amounts of two or more Contracts or Orders for supplies and services awarded to the same Principal or its Affiliates are aggregated to determine the Contract or Order amount if SBA determines, after discussion with the contracting official responsible for the award of the contract, that award of a single Contract or Order could reasonably have satisfied the supply or service requirement at the time of issuance. (3) Federal Contracts or Orders in excess of $9,000,000 as adjusted for inflation in accordance with section 1908 of title 41, United States Code [email protected], (i) Name, address and telephone number of the small business; (ii) Offer or Contract number and brief description of the contract; and (iii) Estimated Contract value and date of anticipated award determination. (4) Alternative authority to guarantee bonds for Contracts and Orders related to a major disaster area. (i) The Contract or Order does not exceed $5,000,000 at the time of bond execution, and: (A) For products or services procured under a Federal Contract or Order, the products will be manufactured or the services will be performed in the major disaster area identified in the Federal Emergency Management Agency (FEMA) Web site at http://www.fema.gov, (B) For products or services procured under any other Contract or Order, the products will be manufactured or the services will be performed in the major disaster area identified in the FEMA Web site at http://www.fema.gov; (ii) At the request of the Head of the Agency involved in reconstruction efforts in response to a major disaster, SBA may guarantee bonds on Federal Contracts or Orders in excess of $5,000,000, but not more than $10,000,000; (iii) A guarantee may be issued under this paragraph (e)(4) for any Contract or Order for which an offer is submitted or an award is made within 12 months from the date an area is designated a major disaster area in the Federal Register. Federal Register. (f) Transfers or sales by Surety. [61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001; 74 FR 36109, July 22, 2009; 76 FR 2572, Jan. 14, 2011; 79 FR 2086, Jan. 13, 2014; 87 FR 48083, Aug. 8, 2022; 89 FR 11712, Feb. 15, 2024] § 115.13 Eligibility of Principal. (a) General eligibility. (1) Size. (2) Character. (i) The Person is currently incarcerated, serving a sentence of imprisonment imposed upon adjudication of guilty, or under indictment for a felony; or (ii) A regulatory authority has revoked, canceled, or suspended a license of the Person which is necessary to perform the Contract; or (iii) The Person has obtained a bond guarantee by fraud or material misrepresentation (as described in § 115.19(b)), or has failed to keep the Surety informed of unbonded contracts or of a contract bonded by another Surety, as required by a bonding line commitment under § 115.33. (3) Need for bond. (4) Availability of bond. (5) Partial subcontract. (6) Debarment. (7) No loss of eligibility. (b) Conflict of interest. [61 FR 3271, Jan. 31, 1996, as amended at 79 FR 2087, Jan. 13, 2014; 81 FR 23565, Apr. 22, 2016; 89 FR 34101, Apr. 30, 2024] § 115.14 Loss of Principal's eligibility for future assistance and reinstatement of Principal. (a) Ineligibility. (1) Legal action under the guaranteed bond has been initiated. (2) The Obligee has declared the Principal to be in default under the Contract. (3) The Surety has established a claim reserve for the bond of at least $10,000. (4) The Principal, or any of its Affiliates, has defaulted on an SBA-guaranteed bond resulting in a Loss that has not been fully reimbursed to SBA, or SBA has not been fully reimbursed for any Imminent Breach payments. (5) The guarantee fee has not been paid by the Principal. (6) The Principal committed fraud or material misrepresentation in obtaining the guaranteed bond. (b) Reinstatement of Principal's eligibility. (1) A Prior Approval Surety may recommend that such Principal's eligibility be reinstated, and OSG may agree to reinstate the Principal if: (i) The Surety has settled its claim with the Principal, or any of its Affiliates, for an amount that results in no Loss to SBA or in no amount owed for Imminent Breach payments, or OSG finds good cause for reinstating the Principal notwithstanding the Loss to SBA or amount owed for Imminent Breach payments; or (ii) OSG and the Surety determine that further bond guarantees are appropriate after the Principal was deemed ineligible for further SBA bond guarantees under paragraph (a)(1), (2), (3), (5) or (6) of this section. (2) A PSB Surety may: (i) Recommend that such Principal's eligibility be reinstated, and OSG may agree to reinstate the Principal, if the Surety has settled its claim with the Principal, or any of its Affiliates, for an amount that results in no Loss to SBA or in no amount owed for Imminent Breach payments, or OSG finds good cause for reinstating the Principal notwithstanding the Loss to SBA or amount owed for Imminent Breach payments; or (ii) Reinstate a Principal's eligibility upon the Surety's determination that further bond guarantees are appropriate after the Principal was deemed ineligible for further SBA bond guarantees under paragraph (a)(1), (2), (3), (5) or (6) of this section. (c) Underwriting after reinstatement. [61 FR 3271, Jan. 31, 1996, as amended at 81 FR 23565, Apr. 22, 2016; 87 FR 48084, Aug. 8, 2022] § 115.15 Underwriting and servicing standards. (a) Underwriting. (2) The terms and conditions of the bond and the Contract must be reasonable in light of the risks involved and the extent of the Surety's participation. The bond must satisfy the eligibility requirements set forth in § 115.12(b). The Surety must be satisfied as to the reasonableness of cost and the feasibility of successful completion of the Contract. (b) Servicing. § 115.16 Determination of Surety's Loss. Loss is determined as follows: (a) Loss under a Bid Bond (b) Loss under a Payment Bond (c) Loss under a Performance Bond (d) Loss under an Ancillary Bond (e) Loss includes (1) Amounts actually paid by the Surety for specialized services that are provided under contract by an outside consultant, which is not an Affiliate of the Surety, provided that such services are beyond the capability of the Surety's salaried claims staff, and amounts actually paid by the Surety for travel expenses of the Surety's claims staff. The cost of the consultant's services and the travel expenses of the Surety's claims staff must be reasonable and necessary and must specifically concern the investigation, adjustment, negotiation, compromise, settlement of, or resistance to a claim for Loss resulting from the breach of the terms of the bonded Contract. The cost allocation method must be reasonable and must comply with generally accepted accounting principles; and (2) Amounts actually paid by the Surety for court costs and reasonable attorney's fees incurred to mitigate any Loss under paragraphs (a) through (e)(1) of this section including suits to obtain sums due from Obligees, indemnitors, Principals and others. (f) Loss does not include (1) Any unallocated expenses, all direct and indirect costs incurred by the Surety's salaried claims staff (except for reasonable and necessary travel expenses of such staff), or any clear mark-up on expenses or any overhead of the Surety, its attorney, or any other consultant hired by the Surety or the attorney; (2) Expenses paid for any suits, cross-claims, or counterclaims filed against the United States of America or any of its agencies, officers, or employees unless the Surety has received, prior to filing such suit or claim, written concurrence from SBA that the suit may be filed; (3) Attorney's fees and court costs incurred by the Surety in a suit by or against SBA or its Administrator; (4) Fees, costs, or other payments, including tort damages, arising from a successful tort suit or claim by a Principal or any other Person against the Surety; and (5) Any costs that arise from the Principal's failure to secure and maintain insurance coverage required by the Contract or Order, or any costs that result from any claims or judgments that exceed the amount of any insurance coverage required by the Contract or Order, as well as any costs that arise as a result of any agreement by the Principal in the Contract or Order to indemnify the Obligee or any other Persons. [61 FR 3271, Jan. 31, 1996, as amended at 76 FR 2572, Jan. 14, 2011; 81 FR 23566, Apr. 22, 2016] § 115.17 Minimization of Surety's Loss. (a) Indemnity agreements and collateral Requirements. (2) Prohibitions. (b) Salvage and recovery General. (2) SBA's share. (3) Multiple Sureties. [61 FR 3271, Jan. 31, 1996, as amended at 79 FR 2087, Jan. 13, 2014] § 115.18 Refusal to issue further guarantees; suspension and termination of PSB status. (a) Improper surety bond guarantee practices Imprudent practices. (2) Regulatory violations, fraud. (3) Audit; records. (4) Excessive Losses. (b) Lack of business integrity. (1) If a State or other authority has revoked, canceled, or suspended the license required of such Person to engage in the surety business, the right of such Person to participate in the SBA Surety Bond Guarantee Program may be denied, terminated, or suspended, as applicable, in that jurisdiction or in other jurisdictions. Ineligibility or suspension from the Surety Bond Guarantee Programs is for at least the duration of the license suspension. (2) If such Person has been indicted or otherwise formally charged with a misdemeanor or felony bearing on such Person's fitness to participate in the Surety Bond Guarantee Programs, the participation of such Person may be suspended pending disposition of the charge. Upon conviction, participation may be denied or terminated. (3) If a final civil judgment is entered holding that such Person has committed a breach of trust or violation of a law or regulation protecting the integrity of business transactions or relationships, participation may be denied or terminated. (4) If such Person has made a material misrepresentation or willfully false statement in the presentation of oral or written information to SBA in connection with an application for a surety bond guarantee or the presentation of a claim, or committed a material breach of the Prior Approval or PSB Agreement or a material violation of the regulations (all as described in § 115.19), participation may be denied or terminated. (5) If such Person is debarred, suspended, voluntarily excluded from, or declared ineligible for participation in Federal programs, participation may be denied or terminated. (c) Notification requirement. (d) SBA proceedings. (e) Effect on guarantee. [61 FR 3271, Jan. 31, 1996, as amended at 81 FR 23566, Apr. 22, 2016] § 115.19 Denial of liability. In addition to equitable and legal defenses and remedies under contract law, the Act, and the regulations in this Part, SBA is relieved of liability in whole or in part within its discretion if any of the circumstances in paragraphs (a) through (h) of this section exist, except that SBA shall not deny liability on Prior Approval bonds based solely upon material information that was provided to SBA as part of the Surety's guarantee application. (a) Excess Contract or bond amount. (b) Misrepresentation or fraud. (c) Material breach. (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 $500,000 of the original contract or bond amount, whichever is less; or (2) One of the conditions under Part B of Title IV of the Investment Act is not met. (d) Substantial regulatory violation. (e) Alteration. (1) Naming as an Obligee or co-Obligee any Person that does not qualify as an Obligee under § 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 $500,000 of the original contract or bond amount, whichever is less. (f) Timeliness. (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 Contract is considered to have begun when a Principal takes any action related to the contract or bond that 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) Delinquent fees. (h) Other regulatory violations. (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 § 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 § 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; 72 FR 34599, July 25, 2007; 74 FR 36110, July 22, 2009; 79 FR 2087, Jan. 13, 2014; 82 FR 39501, Aug. 21, 2017; 87 FR 48084, Aug. 8, 2022] § 115.20 Insolvency of Surety. (a) Successor in interest. (b) Filing requirement. § 115.21 Audits and investigations. (a) Audits Scope of audit. (2) Frequency of PSB audits. (b) Records. (1) A copy of the bond; (2) A copy of the bonded Contract; (3) All documentation submitted by the Principal in applying for the bond; (4) All information gathered by the Surety in reviewing the Principal's application; (5) All documentation of any of the events set forth in § 115.35(a) or § 115.65(c)(2); (6) All records of any transaction for which the Surety makes payment under or in connection with the bond, including but not limited to claims, bills (including lawyers' and consultants' bills), judgments, settlement agreements and court or arbitration decisions, consultants' reports, Contracts and receipts; (7) All documentation relating to efforts to mitigate Losses, including documentation required by § 115.34(a) or § 115.69 concerning Imminent Breach; (8) All records of any accounts into which fees and funds obtained in mitigation of Losses were paid and from which payments were made under the bond, and any other trust accounts, and any reconciliations of such accounts; (9) Job status reports received from Obligees and documentation of each unanswered request for a job status report; and (10) All documentation relating to any collateral held by or available to the Surety. (c) Purpose of audit. (1) The adequacy and sufficiency of the Surety's underwriting and credit analysis, its documentation of claims and claims settlement procedures and activities, and its recovery procedures and practices; (2) The Surety's minimization of Loss, including the exercise of bond options upon Contract default; and (3) The Surety's loss ratio in comparison with other Sureties participating in the same SBA Surety Bond Guarantee Program to a comparable degree. (d) Investigations. [61 FR 3271, Jan. 31, 1996, as amended at 72 FR 34599, June 25, 2007] § 115.22 Quarterly Contract Completion Report. The Surety must submit a Quarterly Contract Completion Report within 45 days after the close of each fiscal year quarter ending December 31, March 31, June 30, and September 30, that identifies each contract successfully completed during the quarter. The report shall include: (a) The SBA Surety Bond Guarantee Number, (b) Name of the Principal, (c) The original Contract Dollar Amount, (d) The revised Contract Dollar Amount (if applicable), (e) The date of Contract completion, and (f) A summary specifying the fee amounts paid to SBA by the Surety and Principal, the fee amounts due to SBA as a result of any increases in the Contract amount, and the fee amounts to be refunded to the Principal or rebated to the Surety as a result of any decreases in the Contract amount. [82 FR 39501, Aug. 21, 2017] Subpart B—Guarantees Subject to Prior Approval § 115.30 Submission of Surety's guarantee application. (a) Legal effect of application. (b) SBA's determination. (c) Reconsideration-appeal of SBA determination. (d) Prior Approval Agreement. Surety Bond Guarantee Agreement (1) Regular. Surety Bond Guarantee Agreement (2) Quick Bond Agreement General procedures. (ii) Exclusions. (A) The Principal has previously defaulted on any contract or has had any claims or complaints filed against it with any court or administrative agency; (B) Work on the Contract commenced before a bond was Executed; (C) The time for completion of the Contract exceeds 12 months; (D) The Contract includes a provision for liquidated damages that exceed $2,500 per day; (E) The Contract involves asbestos abatement, hazardous waste removal, or timber sales; or (F) The bond would be issued under a surety bonding line approved under § 115.33. [61 FR 3271, Jan. 31, 1996, as amended at 77 FR 41665, July 16, 2012; 79 FR 2087, Jan. 13, 2014; 82 FR 39501, Aug. 21, 2017; 87 FR 48084, Aug. 8, 2022; 88 FR 24473, Apr. 21, 2023] § 115.31 Guarantee percentage. (a) Ninety percent. (1) The total amount of the Contract at the time of Execution of the bond is $100,000 or less; or (2) The bond was issued on behalf of a small business owned and controlled by socially and economically disadvantaged individuals, on behalf of a certified HUBZone small business concern, or on behalf of a small business owned and controlled by veterans or a small business owned and controlled by Service-disabled veterans. (b) Eighty percent. (c) Contract increase to over $100,000. (d) Contract or Order increases exceed Applicable Statutory Limit. (e) Contract or Order decrease to $100,000 or less. [61 FR 3271, Jan. 31, 1996, as amended at 64 FR 18324, Apr. 14, 1999; 66 FR 30804, June 8, 2001; 72 FR 34599, June 25, 2007; 74 FR 36110, July 22, 2009; 79 FR 2087, Jan. 13, 2014; 84 FR 65239, Nov. 26, 2019] § 115.32 Fees and Premiums. (a) Surety's Premium. (b) SBA charge to Principal. Federal Register (c) SBA charge to Surety. Federal Register (d) Contract or bond increases/decreases Notification and approval. (2) Increases; fees. (3) Decreases; refunds. [61 FR 3271, Jan. 31, 1996, as amended at 72 FR 34599, June 25, 2007; 77 FR 41665, July 16, 2012; 79 FR 2087, Jan. 13, 2014; 82 FR 39502, Aug. 21, 2017; 87 FR 48084, Aug. 8, 2022; 88 FR 24473, Apr. 21, 2023] § 115.33 Surety bonding line. A surety bonding line is a written commitment by SBA to a Prior Approval Surety which provides for the Surety's Execution of multiple bonds for a specified small business strictly within pre-approved terms, conditions and limitations. In applying for a bonding line, the Surety must provide SBA with information on the applicant as requested. In addition to the other limitations and provisions set forth in this part 115, the following conditions apply to each surety bonding line: (a) Underwriting. (b) Bonding line conditions. (1) The term of the bonding line, not to exceed 1 year subject to renewal in writing; (2) The total dollar amount of the Principal's bonded and unbonded work on hand at any time, including outstanding bids, during the term of the bonding line; (3) The number of such bonded and unbonded contracts outstanding at any time during the term of the bonding line; (4) The maximum dollar amount of any single guaranteed bonded Contract; (5) The timing of Execution of bonds under the bonding line—bonds must be dated and Executed before the work on the underlying Contract has begun, or the Surety must submit to SBA the documentation required under § 115.19(f)(1)(ii); and (6) Any other limitation related to type, specialty of work, geographical area, or credit. (c) Excess bonding. (d) Submission of forms to SBA Bid Bonds. (2) Final Bonds. (3) Additional information. (e) Cancellation of bonding line Optional cancellation. (2) Mandatory cancellation. (3) Effect of cancellation. [61 FR 3271, Jan. 31, 1996, as amended at 77 FR 41665, July 16, 2012; 87 FR 48084, Aug. 8, 2022] § 115.34 Minimization of Surety's Loss. (a) Imminent Breach Prior approval requirement. (2) Amount of reimbursement. (3) Recordkeeping requirement. (b) Salvage and recovery. § 115.35 Claims for reimbursement of Losses. (a) Notification requirements Events requiring notification. (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. (b) Surety action. (c) Claim reimbursement requests. (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 45 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. (e) Reservation of SBA rights. [61 FR 3271, Jan. 31, 1996, as amended at 79 FR 2087, Jan. 13, 2014] § 115.36 Indemnity settlements. (a) An indemnity settlement occurs when a defaulted Principal and its Surety agree upon an amount, less than the actual loss under the bond, which will satisfy the Principal's indebtedness to the Surety. Sureties must not agree to any indemnity settlement proposal or enter into any such agreement without SBA's concurrence. (b) Any settlement proposal submitted for SBA's consideration must include current financial information, including financial statements, tax returns, and credit reports, together with the Surety's written recommendations. It should also indicate whether the Principal is interested in further bonding. (c) The Surety must pay SBA its pro rata pro rata [61 FR 3271, Jan. 31, 1996, as amended at 79 FR 2087, Jan. 13, 2014; 81 FR 23566, Apr. 22, 2016] Subpart C—Preferred Surety Bond (PSB) Guarantees § 115.60 Selection and admission of PSB Sureties. (a) Selection of PSB Sureties. (1) An underwriting limitation of at least $6,500,000 on the U.S. Treasury Department list of acceptable sureties; (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) Premium income from contract bonds guaranteed by any government agency (Federal, State or local) of no more than one- quarter of the total contract bond premium income of the Surety; (4) The vesting of underwriting authority for SBA guaranteed bonds only in employees of the Surety; (5) The rating or ranking designations assigned to the Surety by recognized authority. (b) Admission of PSB Sureties. [61 FR 3271, Jan. 31, 1996, as amended at 66 FR 30804, June 8, 2001; 72 FR 34600, June 25, 2007; 81 FR 23566, Apr. 22, 2016; 82 FR 39502, Aug. 21, 2017] § 115.61 [Reserved] § 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 § 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 § 115.11. [72 FR 34600, June 25, 2007] § 115.63 Allotment of guarantee authority. (a) General. (b) Execution of Bid Bonds. (c) Execution of Final Bonds. (d) Release and non-issuance of Final Bonds. § 115.64 Timeliness requirement. There must be no Execution or approval of a bond by a PSB Surety after commencement of work under a Contract unless the Surety obtains written approval from the D/SG. To apply for such approval, the Surety must submit a completed “Surety Bond Guarantee Agreement Addendum” (SBA Form 991), together with the evidence and certifications described in § 115.19(f)(1)(ii). For purposes of this section, work has commenced under a Contract when a Principal takes any action related to the contract or bond that 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. [61 FR 3271, Jan. 31, 1996, as amended at 87 FR 48084, Aug. 8, 2022] § 115.65 General PSB procedures. (a) Retention of information. (b) Usual staff and procedures. (c) Notification to SBA Approvals. (2) Other events requiring notification. § 115.66 Fees. The PSB Surety must pay SBA a certain percentage of the Premium it charges on Final Bonds. The PSB Surety must also remit to SBA the Principal's payment for its guarantee fee, equal to a certain percentage of the Contract amount. The fee percentages are determined by SBA and are published in Notices in the Federal Register § 115.67 Changes in Contract or bond amount. (a) Increases. (b) Decreases. [61 FR 3271, Jan. 31, 1996, as amended at 79 FR 2087, Jan. 13, 2014; 82 FR 39502, Aug. 21, 2017; 87 FR 48084, Aug. 8, 2022] § 115.68 Guarantee percentage. SBA reimburses a PSB Surety in the same percentages and under the same terms as set forth in § 115.31. [82 FR 39502, Aug. 21, 2017] § 115.69 Imminent Breach. (a) No prior approval requirement. (b) Recordkeeping requirement. [79 FR 2087, Jan. 13, 2014] § 115.70 Claims for reimbursement of Losses. (a) How claims are submitted. (b) Surety responsibilities. (c) Reservation of SBA's rights. [61 FR 3271, Jan. 31, 1996, as amended at 79 FR 2087, Jan. 13, 2014] § 115.71 Denial of liability. In addition to the grounds set forth in § 115.19, SBA may deny liability to a PSB Surety if: (a) The PSB Surety's guaranteed bond was in an amount which, together with all other guaranteed bonds, exceeded the allotment for the period during which the bond was approved, and no prior SBA approval had been obtained; (b) The PSB Surety's loss was incurred under a bond which was not listed on the bordereau for the period when it was approved; or (c) The loss incurred by the PSB Surety is not attributable to the particular Contract for which an SBA guaranteed bond was approved.