[Federal Register Volume 70, Number 156 (Monday, August 15, 2005)]
[Page 47874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-16085]



Surety Bond Guarantee Program Fee

AGENCY: Small Business Administration (SBA).

ACTION: Notice of proposed fee increase. Request for public comments.


SUMMARY: SBA proposes to increase the guarantee fee charged on each 
guaranteed bond (other than bid bonds) and payable by surety companies 
participating in SBA's Surety Bond Guarantee (SBG) Program from 20% to 
32% of the bond premium, effective October 1, 2005. SBA believes that 
the fee increase is necessary to increase the reserves in the SBG 
Program's revolving fund to better offset the unfunded program 
liabilities resulting from defaults under guaranteed bonds. SBA is 
requesting public comments on the proposed fee increase.

DATES: The Agency must receive comments on or before September 14, 

ADDRESSES: You may submit comments by any of the following methods: 
Mail or Hand Delivery / Courier: Barbara Brannan, Special Assistant, 
U.S. Small Business Administration, Office of Surety Guarantees, 409 
Third Street, SW., Washington, DC 20416; Fax: (202) 205-7600; Email: 
[email protected].

FOR FURTHER INFORMATION CONTACT: Barbara Brannan, Special Assistant, 
Office of Surety Guarantees, (202) 205-6545, [email protected].

SUPPLEMENTARY INFORMATION: Under the authority of Title IV, Part B of 
the Small Business Investment Act, as amended, 15 U.S.C. 694a, et seq., 
SBA has entered into guarantee agreements with surety companies 
(individually referred to as ``the Surety'' or collectively referred to 
as ``Sureties'') for the purpose of inducing Sureties to provide 
necessary bonding to eligible small business concerns that would not 
otherwise meet their underwriting standards. All such agreements 
obligate SBA to indemnify the Surety against a specified percentage of 
loss, which the Surety may incur as a result of the breach of the 
bonded contract. Some agreements generally require SBA's prior approval 
before SBA's guarantee attaches, and the Sureties involved are known as 
Prior Approval Sureties. Other agreements allow the Surety to issue 
bonds that will be guaranteed without SBA's prior approval. These 
Sureties are Preferred (PSB) Sureties. In order to offset the expenses 
and liabilities of the Surety Bond Guarantee (SBG) Program, SBA charges 
both the small business concern (the Principal) and the Surety a 
guarantee fee (pursuant to the statutory directive that the SBG Program 
be administered ``on a prudent and economically justifiable basis''),15 
U.S.C. 694b(h), and deposits the fees collected from them into a 
revolving fund.
    Since 1998, the guarantee fee payable by Prior Approval Sureties 
under 13 CFR 115.32(c) and by the PSB Sureties under 13 CFR 115.66 has 
been 20% of the bond premium. SBA analyzed the SBG Program performance 
and trends to determine if changes in the guarantee fees charged to the 
Principal or the Surety are warranted. In particular, SBA evaluated 
past program performance and trends to project future potential losses, 
loss recoveries, and fee income. Based on this analysis, the current 
reserves in the SBG Program's revolving fund, which are supported by 
guarantee fees collected from Principals and Sureties, will be 
insufficient to cover unfunded program liabilities. These liabilities 
result from claims filed by Sureties under SBA's guarantee. SBA 
believes, therefore, that an increase in fees is necessary to 
supplement the current reserves in the revolving fund. This increase 
will be imposed on Sureties only. SBA is not proposing to increase the 
fee charged to Principals because raising their fees is inconsistent 
with the SBG Program purpose to make bonding assistance and contracting 
opportunities more accessible to small business concerns that would not 
otherwise meet the Surety's underwriting standards. In addition, 
increased fees would place a financial burden on small contractors, and 
may make them uncompetitive in the bonding market.
    The proposed increase in guarantee fees payable by Prior Approval 
Sureties and PSB Sureties would take effect on October 1, 2005. The 
proposed date would allow sufficient time for SBG Program participants 
to make any necessary adjustments to their accounting systems.
    SBA is requesting public comments on the proposed fee increase. 
Please clearly identify paper and electronic comments as ``Public 
Comments on Proposed Fee Increase for SBG Program,'' and send them to 
the contact listed in the ADDRESSES section of the preamble.

(Authority: 13 CFR 115.32(c) and 115.66)
Barbara Brannan,
Special Assistant, Office of Surety Guarantees.
[FR Doc. 05-16085 Filed 8-12-05; 8:45 am]