[Federal Register Volume 77, Number 136 (Monday, July 16, 2012)]
[Rules and Regulations]
[Pages 41663-41666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-17104]



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  Federal Register / Vol. 77, No. 136 / Monday, July 16, 2012 / Rules 
and Regulations  

[[Page 41663]]



SMALL BUSINESS ADMINISTRATION

13 CFR Part 115

RIN 3245-AG39


Surety Bond Guarantee Program--Quick Bond Application and 
Agreement

AGENCY: Small Business Administration.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Small Business Administration (SBA) is issuing this final 
rule to amend its Surety Bond Guarantee (SBG) rules to implement a 
streamlined application process in the Prior Approval Program for 
contract amounts not exceeding $250,000. This rule also makes minor 
administrative changes to the SBG Program regulations to, among other 
things, clarify the procedures for submitting application forms and 
paying fees, and deletes an obsolete reference to a form.

DATES: This rule is effective August 15, 2012.

FOR FURTHER INFORMATION CONTACT: Ms. Barbara Brannan, Office of Surety 
Guarantees, U.S. Small Business Administration, 409 Third Street SW., 
Washington, DC 20416; 202-205-6545, email: [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background Information

    Through the Surety Bond Guarantee (SBG) Program, SBA guarantees 
bid, payment, and performance bonds for contracts up to $2 million for 
small and emerging contractors who cannot obtain bonds through regular 
commercial surety channels. SBA's guarantee provides the incentive 
needed for sureties to bond these contractors, giving them greater 
access to contracting opportunities. The SBG Program consists of the 
Prior Approval Program and the Preferred Surety Bond (PSB) Program. In 
the Prior Approval Program, Sureties must apply to SBA for each bond 
guarantee and must receive SBA approval before issuing bonds. Sureties 
in the PSB Program can issue SBA guaranteed bonds without SBA's prior 
approval.
    On February 6, 2012, SBA published a notice of proposed rulemaking 
with request for comments in the Federal Register to implement a 
streamlined application process in the Prior Approval Program for 
contract amounts not exceeding $250,000, and to make other minor 
administrative changes to the SBG Program regulations, including 
clarifying the procedures for submitting application forms and paying 
fees, and deleting an obsolete reference to a form. See 77 FR 5721. The 
comment period was open until April 6, 2012, and SBA received three 
comments, two from trade associations and one from a contract bond 
underwriter. All submitters expressed support for the proposed rule, 
observing that it is consistent with industry practice, and two 
commenters commended SBA for its efforts to reduce the paperwork burden 
on contractors and sureties. The trade associations believe that the 
streamlined process will reduce costs associated with the SBG Program, 
which may lead to greater participation. One submitter offered 
suggestions for program enhancements, including changes to the current 
fee structure and to the notice requirements related to changes in the 
contract amount. These suggestions are outside the scope of this rule; 
however, SBA will take them into consideration in the context of any 
future program review.
    Under this new streamlined process involving contracts not 
exceeding $250,000, the Surety will use the new Quick Bond Guarantee 
Application and Agreement, SBA Form 990A, which consolidates two of the 
forms currently used in the SBG Program--SBA Form 990, Surety Bond 
Agreement and SBA Form 994, Application for Surety Bond Guarantee 
Assistance. The new process complements the existing industry practice 
of offering a streamlined bond application for smaller contract 
amounts. In addition, under this new process, SBA will not require the 
Principal to complete and submit two other forms for these small 
contract amounts, including SBA Form 994F; Schedule of Work in Process, 
and SBA Form 413; Personal Financial Statement. Instead, to mitigate 
any risk associated with these smaller contract amounts, the new SBA 
Form 990A requires the Principal to provide a list of the three largest 
contracts completed in the last 5 years. This final rule also sets 
forth the circumstances under which SBA Form 990A cannot be used.
    This final rule also makes other changes to the existing SBG 
Program rules, including clarifying that SBA Form 990 or SBA Form 990A 
must be submitted to and approved by SBA prior to the Surety's 
execution of the bond (except for bonds issued under surety bonding 
lines). With respect to the rules regarding surety bonding lines, this 
final rule removes the reference to SBA Form 994C as this form is no 
longer used. In addition, with this final rule, SBA is making minor and 
technical modifications to clarify that Sureties and Principals may 
make fee payments through electronic means. The Department of Treasury 
has directed that payments be made by electronic funds transfer when 
cost-effective, practicable, and consistent with statutory authority. 
See 31 CFR 206.4. The final rule makes minor changes to the language in 
13 CFR 115.32(b) and 115.32(d) to provide Sureties and Principals with 
the flexibility to make these payments electronically, conforming these 
provisions to the Department of Treasury's requirements.

II. Section-by-Section Analysis

    Section 115.10. This section amends the definition of the term 
``Prior Approval Agreement'' to add the ``Quick Bond Guarantee 
Application and Agreement (SBA Form 990A)'' to the agreements into 
which a Prior Approval Surety may enter with SBA. No changes have been 
made to this provision as proposed.
    Section 115.30(d)(1). SBA amends this paragraph to clarify that, 
where the Surety Bond Guarantee Agreement (SBA Form 990) is used, it 
must be approved before the Prior Approval Surety executes a Bid or a 
Final Bond, except in the case of a bonding line under Sec.  115.33(d). 
This is consistent with 13 CFR 115.19(f), which provides that SBA may 
deny liability under its guarantee if the Surety executes the bond 
prior to the date of SBA's guarantee. SBA is also amending this 
paragraph to clarify that the applicable guarantee fees must be paid in 
accordance with 13 CFR 115.32.

[[Page 41664]]

No changes have been made to this provision as proposed.
    Section 115.30(d)(2). This new provision implements a streamlined 
application process for bond guarantees for contracts that do not 
exceed $250,000. Under this new process, applicants use a new form, the 
``Quick Bond Guarantee Application and Agreement (SBA Form 990A)'' in 
place of SBA Form 990 and SBA Form 994. This new provision requires 
that the Quick Bond Guarantee Application and Agreement (SBA Form 990A) 
be submitted to and approved by SBA before the Surety executes the Bid 
or Final Bond. This provision also requires that the guarantee fees be 
paid in accordance with 13 CFR 115.32. This provision also sets forth 
six circumstances under which this streamlined application process may 
not be used. No changes have been made to this provision as proposed.
    Section 115.32(b). SBA amends the fourth sentence of this provision 
to add the requirement that the Principal's fee be remitted to SBA with 
the new SBA Form 990A, just as it is required to be submitted with SBA 
Form 990. In addition, SBA is making minor modifications to the rule as 
proposed to give the Sureties and the Principals the flexibility to pay 
the fee electronically through the Pay.gov Web site managed by the U.S. 
Department of Treasury's Financial Management Service. These 
modifications include deleting the word ``together'' in the sentence to 
avoid any suggestion that the payment must be made by a paper check 
that is attached to the SBA Form 990, and deleting the phrase ``by the 
Surety'' to clarify that the payment may be made by either the Surety 
or the Principal. By deleting the word ``together'', SBA does not 
intend to change the requirement that the Principal's fee be remitted 
before the guarantee application may be approved.
    Section 115.32(c). SBA amends this paragraph to clarify that the 
requirements regarding the guarantee fee paid by the Surety apply to 
the new SBA Form 990A, just as they apply to the SBA Form 990. No 
changes have been made to this provision as proposed.
    Section 115.32(d)(1). SBA is deleting the words ``Supplemental Form 
990'' from this paragraph to make it clear that this provision applies 
to bond guarantees approved under the new SBA Form 990A in addition to 
SBA Form 990. SBA is also adding a sentence to provide that, in 
notifying SBA of any increase or decrease in the Contract or bond 
amount, the Surety must use the same form that it used in applying for 
the original bond guarantee. No changes have been made to this 
provision as proposed.
    Section 115.32(d)(2). SBA is making minor modifications to the rule 
as proposed by revising this provision to give Principals and Sureties 
the flexibility to remit the required fees electronically through the 
Pay.gov Web site. The modifications include deleting the word ``check'' 
throughout the provision.
    Section 115.33(d). SBA is eliminating references to the ``Surety 
Bond Guarantee Review Update (SBA Form 994C)'' throughout this 
provision because the form is no longer used. No changes have been made 
to this provision as proposed.

Compliance With Executive Orders 12866, 12988, 13132, and 13563, 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 
final rule does not constitute a significant regulatory action under 
Executive Order 12866. This final 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 the 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.

Executive Order 13563

    For the purposes of Executive Order 13563, SBA discussed 
implementing a streamlined application process with several surety 
industry associations and surety company representatives. The final 
application reflects the feedback received from these sources, 
particularly the incorporation of best practices used throughout the 
surety industry. SBA also solicited public comments as part of the 
standard rule making process. Those comments are described above.

Paperwork Reduction Act, 44 U.S.C. Ch 35

    SBA has determined that this final rule imposes additional 
reporting and recordkeeping requirements under the Paperwork Reduction 
Act, 44 U.S.C. chapter 35. SBA included a request for comments on the 
Quick Bond Guarantee Application and Agreement (SBA Form 990A) in the 
proposed rule that was published in the Federal Register on February 6, 
2012 at 77 FR 5721. The agency received three comments in response to 
this request during the 60-day comment period. All of the submitters 
expressed support for this streamlined bond guarantee application 
process, including the belief that it would reduce the burden on 
sureties and small business contractors. SBA has not modified this 
information collection; it is the same as described in the proposed 
rule. As required by law, SBA has submitted SBA Form 990A to the Office 
of Management and Budget (OMB) for review and approval. The information 
submitted to OMB for review is available at http://www.reginfo.gov/public/jsp/PRA/praDashboard.jsp.
    A summary description of this information collection, the 
respondents, and the estimate of the annual hour burden resulting from 
this new process is provided below. Included in the estimate is the 
time for reviewing instructions, searching existing data sources, 
gathering the data needed, and completing and reviewing the responses.
    Title: Quick Bond Surety Guarantee Application and Agreement (SBA 
Form 990A).
    Description: The Quick Bond Surety Guarantee Application and 
Agreement is a combination application and bond guarantee agreement 
that would be used in the Prior Approval Program for contract amounts 
that do not exceed $250,000. It is a streamlined alternative to the 
existing surety bond application and agreement, the SBA Forms 990 and 
994 (OMB Control Number 3245-0007). The information would be used to 
evaluate whether the applicant small business meets the program 
eligibility criteria and the likelihood that it will successfully 
complete performance on the contract.
    OMB Control Number: New Collection.
    Description of and Estimated Number of Respondents. This proposed 
new collection would be submitted by small businesses seeking to obtain 
a bond in order to bid or perform on a contract,

[[Page 41665]]

and by surety companies and their agents or representatives. Based on 
the current volume of bonds for contracts up to $250,000, SBA estimates 
that approximately 500 small businesses and 13 Prior Approval Sureties 
would submit this streamlined application and agreement form.
    Estimated Response Time: It is estimated that each applicant would 
require approximately 5 minutes to complete the proposed new form.
    Estimated Number of Responses: 4,450. This number is based on SBA's 
projection of program activity during Fiscal Year 2012.
    Total Estimated Annual Hour Burden: 369 hours.
    Estimated Annual Cost Burden: $18,941.

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 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 
impact on a substantial number of small entities. Within the meaning of 
RFA, SBA certifies that this final rule will not have a significant 
economic impact on a substantial number of small entities. There are 13 
Sureties that currently participate in the SBA Prior Approval 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, Reporting and recordkeeping requirements, Small businesses, 
Surety bonds.

    For the reasons stated in the preamble, SBA amends 13 CFR part 115 
as follows:

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. 687b, 687c, 694a, 694b 
note, Pub. L. 106-554; Pub. L. 108-447, Div K, Sec. 203; Pub. L. 
110-246, Sec. 12079, 122 Stat. 1651; and Pub. L. 111-5, 123 Stat. 
115.


Sec.  115.10  [Amended]

0
2. In Sec.  115.10 amend the definition of ``Prior Approval Agreement'' 
by adding ``or Quick Bond Guarantee Application and Agreement (SBA Form 
990A)'' after ``(SBA Form 990)''.

0
3. Amend Sec.  115.30 by revising paragraph (d) to read as follows:


Sec.  115.30  Submission of Surety's guarantee application.

* * * * *
    (d) Prior Approval Agreement. To apply for a bond guarantee, a 
Prior Approval Surety must submit one of the following forms:
    (1) Surety Bond Guarantee Agreement (SBA Form 990). A Prior 
Approval Surety may complete and submit a Surety Bond Guarantee 
Agreement (SBA Form 990) to SBA for each Bid Bond or Final Bond, and 
this Form must be approved by SBA prior to the Surety's Execution of 
the bond, except in the case of a surety bonding line approved by SBA 
under Sec.  115.33(d). The guarantee fees owed in connection with Final 
Bonds must be paid in accordance with Sec.  115.32.
    (2) Quick Bond Guarantee Application and Agreement (SBA Form 
990A)--(i) General procedures. Except as provided in paragraph 
(d)(2)(ii) of this section, a Prior Approval Surety may complete and 
submit the Quick Bond Guarantee Application and Agreement (SBA Form 
990A) to SBA for each Bid Bond or Final Bond, and this Form must be 
approved by SBA prior to the Surety's Execution of the bond. SBA Form 
990A is a streamlined application form that may be used only for 
contract amounts that do not exceed $250,000 at the time of 
application. The guarantee fees owed in connection with Final Bonds 
must be paid in accordance with Sec.  115.32.
    (ii) Exclusions. SBA Form 990A may not be used under the following 
circumstances:
    (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 is Executed;
    (C) The time for completion of the Contract or the warranty/
maintenance period exceeds 12 months;
    (D) The Contract includes a provision for liquidated damages that 
exceed $250 per day;
    (E) The Contract involves asbestos abatement, hazardous waste 
removal, demolition, or timber sales; or
    (F) The bond would be issued under a surety bonding line approved 
under Sec.  115.33.

0
4. Amend Sec.  115.32 as follows:
0
a. Revise the fourth sentence of paragraph (b) to read as follows;
0
b. Revise the second sentence of paragraph (c) to read as follows;
0
c. Amend the second sentence of paragraph (d)(1) by removing the words 
``(Supplemental Form 990)'' and add a new sentence at the end of 
paragraph (d)(1) to read as follows; and
0
d. Revise paragraph (d)(2) to read as follows.


Sec.  115.32  Fees and Premiums.

* * * * *
    (b) * * * The Principal's fee is rounded to the nearest dollar, and 
is to be remitted to SBA with the form submitted under either Sec.  
115.30(d)(1) or (2).
    (c) * * * 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 SBA's approval of the Prior Approval Agreement. * * 
*
    (d) * * *
    (1) * * * In notifying SBA of any increase or decrease in the 
Contract or bond amount, the Surety must use the same form (SBA Form 
990 or SBA Form 990A) that it used in applying for the original bond 
guarantee.
    (2) Increases; fees. The payment for the increase in the 
Principal's guarantee fee, which is computed on the increase in the 
Contract amount, is due upon notification of the increase in the 
Contract or bond amount under this paragraph (d). If the increase in 
the Principal's fee is less than $40, no payment is due until the total 
amount of increases in the Principal's fee equals or exceeds $40. 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 $40. When the total amount of increase in the guarantee fee equals 
or exceeds $40, the Surety must remit the fee within 60 calendar days.
* * * * *

0
5. Amend Sec.  115.33 by revising paragraphs (d)(1) and (d)(2) to read 
as follows:


Sec.  115.33  Surety bonding line.

* * * * *
    (d) * * *
    (1) Bid Bonds. Within 15 business days after the Execution of any 
Bid Bonds under a bonding line, the Surety must submit a ``Surety Bond 
Guarantee Underwriting Review'' (SBA Form 994B) to SBA for approval. If 
the Surety fails to submit the form within this time period, SBA's 
guarantee of the bond will be void from its inception unless SBA

[[Page 41666]]

determines otherwise upon a showing that a valid reason exists why the 
timely submission was not made.
    (2) Final Bonds. Within 15 business days after the Execution of any 
Final Bonds under a bonding line, the Surety must submit a Surety Bond 
Guarantee Underwriting Review (SBA Form 994B) and a Surety Bond 
Guarantee Agreement (SBA Form 990) to SBA for approval. If the surety 
fails to submit these forms within the time period or the guarantee 
fees are not paid in accordance with Sec.  115.32, SBA's guarantee of 
the bond will be void from its inception unless SBA determines 
otherwise upon a showing that the Contract is not in default and a 
valid reason exists why the timely submission was not made.
* * * * *

    Dated: July 2, 2012.
Karen G. Mills,
Administrator.
[FR Doc. 2012-17104 Filed 7-13-12; 8:45 am]
BILLING CODE 8025-01-P