Authority of Secretary to guarantee surety against loss from principal’s breach of bond

Subsection (e) of section 332 of title 49, United States Code, is amended to read as follows:

(e)

Authority of Secretary To guarantee surety against loss from principal’s breach of bond

(1)

Authority

(A)

In general

The Secretary may, upon such terms and conditions as the Secretary may prescribe, guarantee and enter into commitments to guarantee any surety against loss resulting from a breach of the terms of a bid bond, payment bond, performance bond, or bonds ancillary thereto, by a principal. (B)

Limitation

No such guarantee may be issued, unless— (i)the person who would be principal under the bond is an eligible small business concern; (ii)the bond is required in order for such person to bid on a contract, or to serve as a prime contractor or subcontractor thereon; (iii)such person is not able to obtain such bond on reasonable terms and conditions without a guarantee under this subsection; and (iv)there is a reasonable expectation that such principal will perform the covenants and conditions of the contract with respect to which such bond is required, and the terms and conditions of such bond are reasonable in light of the risks involved and the extent of the surety's participation. (2)

Indemnification of surety against loss from avoiding breach

Subject to the provisions of this subsection, in connection with the issuance by the Secretary of a guarantee to a surety under paragraph (1), the Secretary may agree to indemnify such surety against a loss sustained by such surety in avoiding or attempting to avoid a breach of the terms of a bond guaranteed by the Secretary in accordance with the following: (A)Prior to making any payment under this paragraph, the Secretary shall first determine that a breach of the terms of such bond was imminent. (B)A surety must obtain approval from the Secretary prior to making any payments pursuant to this paragraph. (C)No payment by the Secretary pursuant to this paragraph shall exceed 10 percent of the contract price unless the Secretary determines that a greater payment should be made as a result of a finding by the Secretary that the surety’s loss sustained in avoiding or attempting to avoid such breach was necessary and reasonable. (D)In no event shall the Secretary pay a surety pursuant to this paragraph an amount exceeding the guaranteed share of the bond available to such surety pursuant to paragraph (1). (3)

Reimbursement of surety

(A)

In general

Any guarantee or agreement to indemnify under this subsection shall obligate the Secretary to pay to the surety a sum— (i)not to exceed 90 percent of the loss incurred and paid by the surety, but in no event may the Secretary make any duplicate payment pursuant to paragraph (2) or any other paragraph; or (ii)determined pursuant to paragraph (2), if applicable. (B)

Exception

Pursuant to any such guarantee or agreement, the Secretary shall reimburse the surety, as provided in subparagraph (A), except that the Secretary shall be relieved of all liability if— (i)the surety obtained such guarantee or agreement, or applied for such reimbursement, by fraud or material misrepresentation; (ii)the surety has breached a material term or condition of such guarantee or agreement; or (iii)the surety has substantially violated the regulations issued by the Secretary pursuant to paragraph (4). (4)

Regulations

The Secretary may establish and periodically review regulations for participating sureties which shall require such sureties to meet the Secretary’s standards for underwriting, claim practices, and loss ratios. (5)

Procedure for reimbursement

The Secretary may, upon such terms and conditions as the Secretary may prescribe, adopt a procedure for reimbursing a surety for its paid losses billed each month, based upon prior monthly payments to such surety, with subsequent adjustments after such disbursement. (6)

Reports to and audits by the Secretary

(A)

Reports to the Secretary

The Secretary shall require each participating surety to make reports to the Secretary at such times and in such forms as the Secretary requires. (B)

Audits by the Secretary

The Secretary may at all reasonable times audit, in the offices of a participating surety, all documents, files, books, records, and other material relevant to the Secretary’s guarantee, commitments to guarantee, or agreements to indemnify any surety pursuant to this subsection. (C)

Timing

Each participating surety shall be audited at least once every three years by examiners selected and approved by the Secretary. (7)

Administrative provisions

The Secretary shall administer this subsection on a prudent and economically justifiable basis and establish such fee or fees for eligible small business concerns and premium or premiums for sureties as the Secretary deems reasonable and necessary, to be payable at such time and under such conditions as may be determined by the Secretary. (8)

State program

(A)

In general

The Secretary shall establish a program under which not more than 5 States may be selected to carry out, with a portion of the amounts appropriated for this subsection, the following: (i)Activities of the Secretary under this subsection with respect to issuing guarantees. (ii)Activities of a surety to assist eligible small business concerns. (B)

Assessments and standards

States selected to participate in the program under subparagraph (A) shall be subjected to such assessments and shall meet such standards and conditions as the Secretary may prescribe. (C)

Reports by States

A State selected to participate in the program under subparagraph (A) shall submit to the Secretary an annual report describing, at a minimum, the nature of the program such State administers, the total number and amounts of guarantees provided by the program, and the number of eligible small business concerns that have participated in the program. (9)

Annual report

Not later than June 1, 2012, and annually thereafter, the Secretary shall submit to the Committee on Transportation and Infrastructure of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate a report that describes, at a minimum— (A)the actions taken to implement this subsection; (B)the number of sureties that have received guarantees, the States with respect to which guarantees were issued, the number of eligible small business concerns that have participated in the program, and the number and total amount of guarantees paid by the Secretary; and (C)the number of States that have applied to manage amounts under the program established under paragraph (8), the number of States approved to participate in such program, and the results achieved by States participating in such program. (10)

Definitions

In this subsection, the following definitions apply: (A)

Bid bond

The term bid bond means a bond conditioned upon the bidder on a contract entering into the contract, if the bidder receives the award thereof, and furnishing the prescribed payment bond and performance bond. (B)

Eligible small business concern

The term eligible small business concern means an entity determined by the Secretary to be any of the following: (i)A small business concern owned and controlled by socially and economically disadvantaged individuals (as such term is defined in section 8(d)(3) of the Small Business Act (15 U.S.C. 637(d)(3))). (ii)A small business concern owned and controlled by service-disabled veterans (as such term is defined under section 3(q) of the Small Business Act (15 U.S.C. 632(q))). (iii)A qualified HUBZone small business concern (as such term is defined under section 3(p) of the Small Business Act (15 U.S.C. 632(p))). (iv)A small business concern owned and controlled by women (as such term is defined under section 3(n) of the Small Business Act (15 U.S.C. 632(n))). (C)

Obligee

The term obligee means— (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 payment bond or performance bond, the person who has contracted with a principal for the completion of the contract and to whom the obligation of the surety runs in the event of a breach by the principal of the conditions of a payment bond or performance bond. (D)

Payment bond

The term payment bond means a bond conditioned upon the payment by the principal of money to persons under contract with the principal. (E)

Performance bond

The term performance bond means a bond conditioned upon the completion by the principal of a contract in accordance with its terms. (F)

Prime contractor

The term prime contractor means the person with whom the obligee has contracted to perform the contract. (G)

Principal

The term principal means a person who may be a prime contractor or a subcontractor and— (i)in the case of a bid bond, is bidding for the award of a contract; or (ii)is primarily liable to complete a contract for the obligee, or to make payments to other persons in respect of such contract, and for whose performance of his obligation the surety is bound under the terms of a payment or performance bond. (H)

Secretary

The term Secretary means the Secretary of Transportation, acting through the Minority Resource Center established under subsection (b). (I)

Subcontractor

The term subcontractor means a person who has contracted with a prime contractor or with another subcontractor to perform a contract. (J)

Surety

The term surety means the person or State that— (i)under the terms of a bid bond, undertakes to pay a sum of money to the obligee in the event the principal breaches the conditions of the bond; (ii)under the terms of a performance bond, undertakes to incur the cost of fulfilling the terms of a contract in the event the principal breaches the conditions of the contract; (iii)under the terms of a payment bond, undertakes to make payment to all persons supplying labor and material in the prosecution of the work provided for in the contract if the principal fails to make prompt payment; or (iv)is an agent, independent agent, underwriter, or any other company or individual empowered to act on behalf of such person or State. (11)

Authorization of appropriations

There is authorized to be appropriated to the Secretary to carry out activities under this subsection $50,000,000 for each of fiscal years 2012 through 2016, of which not more than $20,000,000 may be made available each fiscal year to carry out activities under paragraph (8).