[Federal Register Volume 85, Number 192 (Friday, October 2, 2020)]
[Notices]
[Pages 62362-62363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21876]


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SMALL BUSINESS ADMINISTRATION


Surety Bond Guarantee Program Fees

AGENCY: U.S. Small Business Administration.

ACTION: Notification of Surety Bond Guarantee Program Fees.

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SUMMARY: This document announces that the U.S. Small Business 
Administration (SBA) is adopting the guarantee fees in the amounts that 
SBA has been charging during the temporary fee reduction initiative 
that began October 1, 2018 and continues through September 30, 2020. 
These guarantee fees are charged to all Surety companies and Principals 
on each guaranteed bond (other than a bid bond) issued in SBA's Surety 
Bond Guarantee (SBG) Program.

DATES: The fees described in this document will be adopted as of 
October 1, 2020 and will apply to all SBA surety bond guarantees 
approved on or after October 1, 2020.

FOR FURTHER INFORMATION CONTACT: Jermaine Perry, Management Analyst, 
Office of Surety Guarantees; (202) 401-8275 or [email protected].

SUPPLEMENTARY INFORMATION: Under its SBG Program, the SBA guarantees a 
certain percentage of bid, payment, and performance bonds for small and 
emerging contractors who cannot obtain surety bonds through regular 
commercial channels. The SBA guarantee incentivizes Sureties to provide 
bonding for small businesses and thereby assists small businesses in 
obtaining greater access to contracting opportunities. Pursuant to its 
statutory authority to ``establish such fee or fees for small business 
concerns and premium or premiums for sureties as it deems reasonable 
and necessary,'' and to administer the SBG Program ``on a prudent and 
economically justifiable basis,'' 15 U.S.C. 694b(h), SBA assesses a 
guarantee fee against both the small business concern (the Principal) 
and the Surety and deposits these fees into a revolving fund to cover 
the program's liabilities and certain program expenses.
    SBA's rules provide that the amount of the fees to be paid by the 
Surety and the Principal will be determined by SBA and published in 
Notices in the Federal Register from time to time. See 13 CFR 115.32(b) 
and (c) and 115.66. On July 30, 2018, SBA published a notification in 
the Federal Register (83 FR 36658) that announced that, for all 
guaranteed bonds approved during the one year period beginning October 
1, 2018 through September 30, 2019, the Surety fee would decrease from 
26% of the bond premium to 20% of the bond premium, and the Principal 
fee would decrease from $7.29 per thousand dollars of the contract 
amount to $6 per thousand dollars of the contract amount (the decrease 
in the Surety and Principal fees referred to, collectively, as ``lower 
fees''). The announcement stated that SBA will evaluate whether the 
lower fees will result in an increase in the bond activity level of the 
SBG Program and, if so, whether any such increased level of activity 
will generate sufficient revenues to offset the reduced fee amounts. 
SBA invited comments on this temporary initiative and received a total 
of eleven comments, with nine comments from surety companies and agents 
and two comments from trade associations, all of which expressed 
support for the lower fees.
    SBA subsequently published a notification in the Federal Register 
(84 FR 40466) extending the lower fees through September 30, 2020 to 
provide additional time for SBA to evaluate the fee reduction due to 
the Government lapse of appropriation, which spanned from December 22, 
2018 through January 25, 2019. During the extension, SBA continued its 
evaluation into how lower fees affect the SBG Program, including 
program utilization by surety companies, surety agents and small 
businesses; the size and characteristics of the portfolio; and the risk 
level of the program, including cash flow and defaults. A final report 
of the evaluation study conducted by SBA (which covered the period 
between October 1, 2018 and December 31, 2019) will be published on 
www.sba.gov/evaluation.
    In addition to the report and the public comments in support of the 
lower fees, SBA has considered the effect of the lower fees on the 
annual cashflow (fees collected minus claims paid) and the reserves in 
the SBG Program's revolving fund. The annual cashflow during the period 
of the temporary fee reductions, between October 1, 2018 and September 
21, 2020, maintained a surplus, resulting in an increase in the 
reserves in the

[[Page 62363]]

revolving fund. SBA has determined that the lower fees are reasonable 
to maintain sufficient funds in the revolving fund to cover the cost of 
anticipated losses in the SBG program. Although the report on the 
evaluation study found that the lower fees did not increase the number 
or values of bonds during the fee evaluation period, the lower fees 
charged to the Principal and Surety will reduce the cost of bonding to 
small businesses, and result in a projected average annual cost savings 
of $3.5 million for Principals and Sureties. In addition, the 
evaluation report indicated that ``higher volume surety producers were 
more likely to respond more positively or optimistically to the 
potential benefits of continuing or increasing the [fee] reductions.''
    In light of the above, SBA has decided to adopt the lower fees of 
20% of the bond premium for the Surety fee and $6 per thousand dollars 
of the contract amount for the Principal fee, and will continue to 
apply these lower fees to all SBA surety bond guarantees approved on or 
after October 1, 2020. SBA will actively monitor the performance of the 
SBG program to ensure that the fees are reasonable and necessary and 
allow SBA to administer the SBG program on a prudent and economically 
justifiable basis.

    Authority: 15 U.S.C. 694b(h); 13 CFR 115.32(b) and (c) and 
115.66.

    Dated: September 29, 2020.
William Manger,
Associate Administrator/Chief of Staff, Office of Capital Access.
[FR Doc. 2020-21876 Filed 9-29-20; 4:15 pm]
BILLING CODE 8026-03-P