[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Rules and Regulations]
[Pages 9962-9963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4010]



13 CFR Part 115

RIN 3245-AG14

Surety Bond Guarantee Program; Timber Sales

AGENCY: U.S. Small Business Administration.

ACTION: Final rule.


SUMMARY: The Small Business Administration (SBA) is issuing this final 
rule to amend its Surety Bond Guarantee Program rules to guarantee bid 
and performance bonds for timber sale contracts awarded by the Federal 
Government or other public and private landowners.

DATES:  This rule is effective on March 25, 2011.

FOR FURTHER INFORMATION CONTACT: Ms. Barbara J. Brannan, Office of 
Surety Guarantees, 202-205-6545, e-mail: [email protected].

SUPPLEMENTARY INFORMATION: SBA guarantees bonds for small contractors 
who cannot obtain surety bonds through the traditional commercial 
market. SBA's guarantee provides surety companies with the incentive to 
bond these contractors, enabling them to bid on and be awarded more 
contracts. The Surety Bond Guarantee (SBG) Program consists of the 
Prior Approval Program and the Preferred Surety Bond (PSB) Program. In 
the Prior Approval Program, each bond guarantee application must be 
submitted to SBA individually for approval, while PSB sureties have the 
delegated authority to issue, monitor, and service bonds without SBA's 
prior approval.
    The Forest Service of the U.S. Department of Agriculture (USDA), 
and other public and private entities that manage forests, may permit 
the harvesting of timber in exchange for the payment of an agreed upon 
sum of money. To bid on these timber sale contracts, the USDA and these 
other public and private entities may require the bidder to obtain a 
bond to ensure satisfactory compliance with the contract terms and 
conditions associated with forest management, such as the protection of 
natural resources, soil, water, erosion control and road maintenance. 
Unlike the typical contract for supplies or services where the Obligee 
pays the Principal for providing supplies or rendering services, the 
Principal in the timber sale contract (the harvester of the timber) 
pays the Obligee (e.g. the Federal Government) for the right to cut the 
designated trees. However, under the current definition of ``Contract'' 
in 13 CFR 115.10, a contract for which SBA may issue a Surety Bond 
Guarantee cannot include a contract requiring any payment by the 
Principal to the Obligee. This final rule amends the definition of 
``Contract'' to permit SBA to issue bid or performance bond guarantees 
for contracts that require the Principal to pay the Obligee for 
harvesting timber or other forest products, such as biomass. This 
change applies to contracts involving forests managed by the U.S. 
Forest Service as well as other public and private entities.

Discussion of Public Comments

    On October 15, 2010, SBA published the notice of proposed 
rulemaking with request for comments on this change to the SBG Program 
in the Federal Register. See 75 FR 63419. SBA received comments from 
four submitters before the comment period ended on November 15, 2010 
and from two submitters after the comment period ended. SBA has 
considered all of the comments received.
    Three submitters stated that small businesses have difficulty or 
are unable to obtain bonding to bid on timber sale contracts. They 
expressed support for the proposed rule because it will enable small 
contractors to obtain bonding more easily, making it possible for them 
to bid against larger companies and compete for timber sale contracts.
    One submitter expressed concern that the fee assessed by SBA on the 
Principal for the bond may make it difficult or economically unfeasible 
for them to obtain timber sale contracts. SBA periodically reviews the 
program fees charged, which are established in the amounts SBA deems 
reasonable and necessary, in accordance with Sec.  411(h) of the Small 
Business Investment Act of 1958.
    One submitter suggested that SBA paperwork requirements, 
specifically the submission of SBA Form 990, Surety Bond Guarantee 
Agreement, with each bond could be cumbersome for timber sale bonds. 
However, SBA is not requiring any additional paperwork for timber sale 
bonds, and electronic application submission and processing is 
available in the Prior Approval Program. In addition, PSB sureties do 
not have to submit SBA Form 990 for any bond. The same submitter 
suggested that there is limited access to participating sureties in 
rural areas. SBA admitted six new sureties to the program in fiscal 
year 2010 and is working to expand access to the program.
    Lastly, one submitter suggested that SBA clarify its intent to 
exclude payment bonds from eligibility by changing the definition of 
Payment Bond. SBA agrees that payment bonds in connection with timber 
sale contracts should be excluded, as the guarantee on payment bonds 
under the SBG Program was not intended to reimburse the Obligee for 
amounts owed the Obligee by the Principal, but to cover the claims 
caused by the Principal's failure to pay others furnishing supplies and 
materials for use in the performance of the Contract. SBA has added 
language to the rule to make it clear that the exception for timber 
sale contracts applies only to bid and performance bonds. Bid bonds are 
included because a small contractor may be required to submit a bid 
bond with its bid for the timber sale contract.

[[Page 9963]]

    The two comments that were received after the deadline have also 
been considered by SBA. Both submitters suggested that the regulation 
be amended to include contracts for the sale of biomass products to 
increase the number of contracts for which small businesses could 
obtain bonding. SBA agrees and has modified the definition of 
``Contract'' in this final rule to clarify that this change applies to 
contracts for the sale of timber as well as other forest products, 
including biomass.

Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork 
Reduction Act (44 U.S.C. Ch. 35) and the Regulatory Flexibility Act (5 
U.S.C. 601-612)

Executive Order 12866
    The Office of Management and Budget (OMB) has determined that this 
rule does not constitute a significant regulatory action under 
Executive Order 12866. This rule is also not a major rule under the 
Congressional Review Act.
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. The action does not 
have retroactive or preemptive effect.
Executive Order 13132
    For purposes of Executive Order 13132, SBA has determined that this 
final rule 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, for the purpose of Executive Order 13132, 
Federalism, SBA has determined that this final rule has no federalism 
implications warranting preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C., Ch. 35
    SBA has determined that this final rule does not impose additional 
reporting or recordkeeping requirements under the Paperwork Reduction 
Act, 44 U.S.C., Chapter 35.
Regulatory Flexibility Act, 5 U.S.C. 601-612
    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires 
administrative agencies to consider the effect of their actions on 
small entities, small non-profit enterprises, and small local 
governments. Pursuant to the RFA, when an agency issues a rulemaking, 
the agency must prepare a regulatory flexibility analysis which 
describes the impact of the rule on small entities. However, section 
605 of the RFA allows an agency to certify a rule, in lieu of preparing 
an analysis, if the rulemaking is not expected to have a significant 
economic impact on a substantial number of small entities. Within the 
meaning of RFA, SBA certifies that this rule will not have a 
significant economic impact on a substantial number of small entities. 
There are seventeen Sureties that participate in the SBA program, and 
no part of this final rule would impose any significant additional cost 
or burden on them.

List of Subjects in 13 CFR Part 115

    Claims, Small businesses, Surety bonds.

    For the reasons stated in the preamble, the Small Business 
Administration amends 13 CFR Part 115 as follows:


1. The authority citation for part 115 continues to read as follows:

    Authority: 5 U.S.C. app. 3, 15 U.S.C. 687b, 687c, 694b, 694b 
note, Pub. L. 106-554; and Pub. L. 108-447, Div. K, Sec. 203.

2. Amend Sec.  115.10 by revising the third sentence of the definition 
of ``Contract'' to read as follows.

Sec.  115.10  Definitions.

* * * * *
    Contract * * * A contract does not include a permit, subdivision 
contract, lease, land contract, evidence of debt, financial guarantee 
(e.g., a contract requiring any payment by the Principal to the 
Obligee, except for contracts in connection with bid and performance 
bonds for the sale of timber and/or other forest products, such as 
biomass, that require the Principal to pay the Obligee), warranty of 
performance or efficiency, warranty of fidelity, or release of lien 
(other than for claims under a guaranteed bond). * * *
* * * * *

Karen G. Mills,
[FR Doc. 2011-4010 Filed 2-22-11; 8:45 am]