1035

Rural Utilities Service, USDA § 1788.1

this section shall be required for refinancing or prepayment under this section.

(2) In the case of a loan advanced

under an agreement that permits the

refinancing or prepayment of the loan

advance based on the payment of 1 year

of interest on the outstanding principal

balance of the loan advance, a borrower

may, in lieu of the premium required

by paragraph (a)(1) of this section, pay

a premium as provided by:

(i) Paragraph (a)(2) of this section, if

the loan advance has reached the 12-

year maturity required under the loan

agreement for the refinancing or prepayment; or

(ii) Paragraph (a)(3) of this section, if

the loan advance has not reached the

12-year maturity required under the

loan agreement for the refinancing or

prepayment.

§ 1786.208 Increased principal.

A borrower can meet the premium requirements by increasing the outstanding principal balance of the loan

advance that is being refinanced. If it

does so the borrower shall make a payment at the time of the refinancing

equal to 2.5 percent of the amount of

the premium that is added to the outstanding principal balance of the loan.

§ 1786.209 Outstanding loan documents.

(a) Except as expressly provided in

this subpart, the borrower shall comply

with all provisions of its RUS loan contract, its outstanding notes issued to

RUS, and the RUS mortgage.

(b) Nothing in this subpart shall affect any rights of supplemental lenders

under the RUS mortgage or the rights

of any other creditors of the borrower.

(c) Nothing in this subpart shall prohibit a borrower from making prepayments on any loans pursuant to the RE

Act in accordance with the terms

thereof or as may be otherwise permitted by law.

§ 1786.210 Approvals.

The borrower shall be responsible for

obtaining all approvals necessary to

consummate the transaction as required by the refinancing note, including such approvals as may be required

by regulatory bodies and other lenders.

PART 1788—RUS FIDELITY AND INSURANCE REQUIREMENTS FOR

ELECTRIC AND TELECOMMUNICATIONS BORROWERS

Subpart A—Borrower Insurance

Requirements

Sec.

1788.1 General and definitions.

1788.2 General insurance requirements.

1788.3 Flood insurance.

1788.4 Disclosure of irregularities and illegal acts.

1788.5 RUS endorsement required.

1788.6 RUS right to place insurance.

1788.7–1788.10 [Reserved]

Subpart B—Insurance for Contractors, Engineers, and Architects, Electric Borrowers

1788.11 Minimum insurance requirements

for contractors, engineers, and architects.

1788.12 Contractors’ bonds.

Subpart C—Insurance for Contractors, Engineers, and Architects, Telecommunications Borrowers

1788.46 General.

1788.47 Policy requirements.

1788.48 Contract insurance requirements.

1788.49 Contractors’ bond requirements.

1788.50 Acceptable sureties.

1788.51–1788.53 [Reserved]

1788.54 Compliance with contracts.

1788.55 Providing RUS evidence.

AUTHORITY: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921

et seq.; 7 U.S.C. 6941 et seq.

SOURCE: 64 FR 2, Jan. 4, 1999, unless otherwise noted.

Subpart A—Borrower Insurance

Requirements

§ 1788.1 General and definitions.

(a) The standard forms of documents

covering loans made or guaranteed by

the Rural Utilities Service contain provisions regarding insurance and fidelity coverage to be maintained by each

borrower. This part implements those

provisions by setting forth the requirements to be met by all borrowers.

(b) As used in this part:

Borrower means any entity with any

outstanding loan made or guaranteed

by RUS.

Irregularity has the meaning found in

§1773.2.

1036

§ 1788.2 7 CFR Ch. XVII (1–1–00 Edition)

Loan documents means the loan

agreement, notes, and mortgage evidencing or used in conjunction with an

RUS loan.

Mortgage means the mortgage, deed

of trust, security agreement, or other

security document securing an RUS

loan.

Mortgaged property means any property subject to the lien of a mortgage.

RUS means the Rural Utilities Service and includes the Rural Telephone

Bank.

RUS loan means a loan made or guaranteed by RUS.

(c) RUS may revise these requirements on a case by case basis for borrowers with unusual circumstances.

§ 1788.2 General insurance requirements.

(a) Borrowers will take out, as the respective risks are incurred, and maintain the classes and amounts of insurance in conformance with generally accepted utility industry standards for

such classes and amounts of coverage

for utilities of the size and character of

the borrower and consistent with Prudent Utility Practice. Prudent Utility

Practice shall mean any of the practices, methods, and acts which, in the

exercise of reasonable judgment, in

light of the facts, including but not

limited to, the practices, methods, and

acts engaged in or approved by a significant portion of the electric utility

industry in the case of an electric borrower or of the telecommunications industry in the case of a telecommunications borrowers prior thereto, known

at the time the decision was made,

would have been expected to accomplish the desired result consistent with

cost-effectiveness, reliability, safety,

and expedition. It is recognized that

Prudent Utility Practice is not intended to be limited to optimum practice, method, or act to the exclusion of

all others, but rather is a spectrum of

possible practices, methods, or act

which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with

cost-effectiveness, reliability, safety,

and expedition.

(b) The foregoing insurance coverage

shall be obtained by means of bond and

policy forms approved by regulatory

authorities having jurisdiction, and,

with respect to insurance upon any

part of the mortgaged property securing an RUS loan, shall provide that the

insurance shall be payable to the mortgagees as their interests may appear by

means of the standard mortgagee

clause without contribution. Each policy or other contract for such insurance shall contain an agreement by the

insurer that, notwithstanding any

right of cancellation reserved to such

insurer, such policy or contract shall

continue in force for at least 30 days

after written notice to each mortgagee

of suspension, cancellation, or termination.

(c) In the event of damage to or the

destruction or loss of any portion of

the mortgaged property which is used

or useful in the borrower’s business and

which shall be covered by insurance,

unless each mortgagee shall otherwise

agree, the borrower shall replace or restore such damaged, destroyed, or lost

portion so that such mortgaged property shall be in substantially the same

condition as it was in prior to such

damage, destruction, or loss and shall

apply the proceeds of the insurance for

that purpose. The borrower shall replace the lost portion of such mortgaged property or shall commence such

restoration promptly after such damage, destruction, or loss shall have occurred and shall complete such replacement or restoration as expeditiously as

practicable, and shall pay or cause to

be paid out of the proceeds of such insurance form all costs and expenses in

connection therewith.

(d) Sums recovered under any policy

or fidelity bond by the borrower for a

loss of funds advanced under a note secured by a mortgage or recovered by

any mortgagee or holder of any note

secured by the mortgage for any loss

under such policy or bond shall, unless

applied as provided in the preceding

paragraph, be used as directed by the

borrower’s mortgage.

(e) Borrowers shall furnish evidence

annually that the required insurance

and fidelity coverage has been in force

for the entire year, and that the borrower has taken all steps currently

necessary and will continue to take all

steps necessary to ensure that the coverage will remain in force until all

1037

Rural Utilities Service, USDA § 1788.6

loans made or guaranteed by RUS are

paid in full. Such evidence shall be in a

form satisfactory to RUS. Generally a

certification included as part of the

RUS Financial and Statistical Report

filed by the borrower annually (RUS

Form 7 or Form 12 for electric borrowers, RUS Form 479 for telecommunications borrowers, or the successors to these forms) is sufficient evidence of this coverage.

§ 1788.3 Flood insurance.

(a) Borrowers shall purchase and

maintain flood insurance for buildings

in flood hazard areas to the extent

available and required under the National Flood Insurance Act of 1968, as

amended (42 U.S.C. 4001, et seq.) The insurance should cover, in addition to

the building, any machinery, equipment, fixtures, and furnishings contained in the building.

(b) The National Flood Insurance

Program (see 44 CFR Part 59 et seq.)

provides for a standard flood insurance

policy; however, other existing insurance policies which provide flood coverage may be used where flood insurance is available in lieu of the standard

flood insurance policy. Such policies

must be endorsed to provide:

(1) That the insurer give 30 days written notice of cancellation or nonrenewal to the insured with respect to

the flood insurance coverage. To be effective, such notice must be mailed to

both the insured and RUS and other

mortgagees if any and must include information as to the availability of

flood insurance coverage under the National Flood Insurance Program, and

(2) That the flood insurance coverage

is at least as broad as the coverage offered by the Standard Flood Insurance

Policy.

§ 1788.4 Disclosure of irregularities

and illegal acts.

(a) Borrowers must immediately report, in writing, all irregularities and

all indications or instances of illegal

acts in its operations, whether material or not, to RUS and the Office of

the Inspector General (OIG). See 7 CFR

1773.9(c)(3) for OIG addresses. The reporting requirements for borrowers are

the same as those for CPA’s set forth

in §1773.9

(b) Borrowers are required to make

full disclosure to the bonding company

of the dishonest or fraudulent acts.

§ 1788.5 RUS endorsement required.

In the case of a cooperative or mutual organization, RUS requires that

the following:

Endorsement Waiving Immunity From

Tort Liability’’ be included as a part of each

public liability, owned, non-owned, hired

automobile, and aircraft liability, employers’ liability policy, and boiler policy:

The Insurer agrees with the Rural Utilities

Service that such insurance as is afforded by

the policy applies subject to the following

provisions:

1. The Insurer agrees that it will not use,

either in the adjustment of claims or in the

defense of suits against the Insured, the immunity of the Insured from tort liability, unless requested by the Insured to interpose

such defense.

2. The Insured agrees that the waiver of

the defense of immunity shall not subject

the Insurer to liability of any portion of a

claim, verdict or judgment in excess of the

limits of liability stated in the policy.

3. The Insurer agrees that if the Insured is

relieved of liability because of its immunity,

either by interposition of such defense at the

request of the Insured or by voluntary action

of a court, the insurance applicable to the injuries on which such suit is based, to the extent to which it would otherwise have been

available to the Insured, shall apply to officers and employees of the Insured in their

capacity as such; provided that all defenses

other than immunity from tort liability

which would be available to the Insurer but

for said immunity in suits against the Insured or against the Insurer under the policy

shall be available to the Insurer with respect

to such officers and employees in suits

against such officers and employees or

against the Insurer under the policy.

§ 1788.6 RUS right to place insurance.

If a borrower fails to purchase or

maintain the required insurance and fidelity coverage, the mortgagees may

place required insurance and fidelity

coverage on behalf and in the name of

the borrower. The borrower shall pay

the cost of this coverage, as provided in

the loan documents.

1038

§§ 1788.7–1788.10 7 CFR Ch. XVII (1–1–00 Edition)

§§ 1788.7–1788.10 [Reserved]

Subpart B—Insurance for Contractors, Engineers, and Architects, Electric Borrowers

§ 1788.11 Minimum insurance requirements for contractors, engineers,

and architects.

(a) Each electric borrower shall include the provisions in this paragraph

in its agreements with contractors, engineers, and architects, said agreements that are wholly or partially financed by RUS loans or guarantees.

The borrower should replace ‘‘Contractor’’ with ‘‘Engineer’’ or ‘‘Architect’’ as appropriate.

1. The Contractor shall take out and maintain throughout the period of this Agreement insurance of the following minimum

types and amounts:

a. Worker’s compensation and employer’s

liability insurance, as required by law, covering all their employees who perform any of

the obligations of the contractor, engineer,

and architect under the contract. If any employer or employee is not subject to workers’

compensation laws of the governing State,

then insurance shall be obtained voluntarily

to extend to the employer and employee coverage to the same extent as though the employer or employee were subject to the workers’ compensation laws.

b. Public liability insurance covering all

operations under the contract shall have

limits for bodily injury or death of not less

than $1 million each occurrence, limits for

property damage of not less than $1 million

each occurrence, and $1 million aggregate for

accidents during the policy period. A single

limit of $1 million of bodily injury and property damage is acceptable. This required insurance may be in a policy or policies of insurance, primary and excess including the

umbrella or catastrophe form.

c. Automobile liability insurance on all

motor vehicles used in connection with the

contract, whether owned, non-owned, or

hired, shall have limits for bodily injury or

death of not less than $1 million per person

and $1 million each occurrence, and property

damage limits of $1 million for each occurrence. This required insurance may be in a

policy or policies of insurance, primary and

excess including the umbrella or catastrophe

form.

2. The Owner shall have the right at any

time to require public liability insurance

and property damage liability insurance

greater than those required in paragraphs

(a)(1)(b) and (a)(1)(c) of this section. In any

such event, the additional premium or premiums payable solely as the result of such

additional insurance shall be added to the

Contract price.

3. The Owner shall be named as Additional

Insured on all policies of insurance required

in (a)(1)(b) and (a)(1)(c) of this section.

4. The policies of insurance shall be in such

form and issued by such insurer as shall be

satisfactory to the Owner. The Contractor

shall furnish the Owner a certificate evidencing compliance with the foregoing requirements that shall provide not less than 30

days prior written notice to the Owner of

any cancellation or material change in the

insurance.

(b) Electric borrowers shall also ensure that all architects and engineers

working under contract with the borrower have insurance coverage for Errors and Omissions (Professional Liability Insurance) in an amount at

least as large as the amount of the architectural or engineering services

contract but not less than $500,000.

(c) The borrower may increase the

limits of insurance if desired.

(d) The minimum requirement of $1

million of public liability insurance

does not apply to contractors performing maintenance work, janitorialtype services, meter reading services,

rights-of-way mowing, and jobs of a

similar nature. However, borrowers

shall ensure that the contractor performing the work has public liability

coverage at a level determined to be

appropriate by the borrower.

(e) If requested by RUS, the borrower

shall provide RUS with a certificate

from the contractor, engineer, or architect evidencing compliance with the

requirements of this section.

§ 1788.12 Contractors’ bonds.

Electric borrowers shall require contractors to obtain contractors’ bonds

when required by part 1726, Electric

System Construction Policies and Procedures, of this chapter. Surety companies providing contractors’ bonds shall

be listed as acceptable sureties in the

U.S. Department of Treasury Circular

No. 570. The circular is maintained

through periodic publication in the

FEDERAL REGISTER and is available on

the Internet under ftp://

ftp.fedworld.gov/pub/tel/sureties.txt,

and on the Department of the Treasury’s computer bulletin board at 202–

874–6817.

1039

Rural Utilities Service, USDA § 1788.49

Subpart C—Insurance for Contractors, Engineers, and Architects, Telecommunications

Borrowers

§ 1788.46 General.

This subpart sets forth RUS policies

for minimum insurance requirements

for contractors, engineers, and architects performing work under contracts

which are wholly or partially financed

by RUS loans or guarantees with telecommunications borrowers.

§ 1788.47 Policy requirements.

(a) Contractors, engineers, and architects performing work for borrowers

under construction, engineering, and

architectural service contracts shall

obtain insurance coverage, as required

in §1788.48, and maintain it in effect

until work under the contracts is completed.

(b) Contractors entering into construction contracts with borrowers

shall furnish a contractors’ bond, except as provided for in §1788.49, covering all of the contractors’ undertaking under the contract.

(c) Borrowers shall make sure that

their contractors, engineers, and architects comply with the insurance and

bond requirements of their contracts.

§ 1788.48 Contract insurance requirements.

Contracts entered into between borrowers and contractors, engineers, and

architects shall provide that they take

out and maintain throughout the contract period insurance of the following

types and minimum amounts:

(a) Workers’ compensation and employers’ liability insurance, as required

by law, covering all their employees

who perform any of the obligations of

the contractor, engineer, and architect

under the contract. If any employer or

employee is not subject to the workers’

compensation laws of the governing

state, then insurance shall be obtained

voluntarily to extend to the employer

and employee coverage to the same extent as though the employer or employee were subject to the workers’

compensation laws.

(b) Public liability insurance covering all operations under the contract

shall have limits for bodily injury or

death of not less than $1 million each

occurrence, limits for property damage

of not less than $1 million each occurrence, and $1 million aggregate for accidents during the policy period. A single limit of $1 million of bodily injury

and property damage is acceptable.

This required insurance may be in a

policy or policies of insurance, primary

and excess including the umbrella or

catastrophe form.

(c) Automobile liability insurance on

all motor vehicles used in connection

with the contract, whether owned, nonowned, or hired, shall have limits for

bodily injury or death of not less than

$1 million per person and $1 million per

occurrence, and property damage limits of $1 million for each occurrence.

This required insurance may be in a

policy or policies of insurance, primary

and excess including the umbrella or

catastrophe form.

(d) When a borrower contracts for the

installation of major equipment by

other than the supplier or for the moving of major equipment from one location to another, the contractor shall

furnish the borrower with an installation floater policy. The policy shall

cover all risks of damage to the equipment until completion of the installation contract.

§ 1788.49 Contractors’ bond requirements.

Construction contracts in amounts in

excess of $250,000 for facilities shall require contractors to secure a contractors’ bond, on a form approved by RUS,

attached to the contract in a penal

sum of not less than the contract price,

which is the sum of all labor and materials including owner-furnished materials installed in the project. RUS

Form 168b is for use when the contract

exceeds $250,000. RUS Form 168c is for

use when the contractor’s surety has

accepted a Small Business Administration guarantee and the contract is for

$1,000,000 or less. For minor construction contracts under which work will

be done in sections and no section will

exceed a total cost of $250,000, the borrower may waive the requirement for a

contractors’ bond.

1040

§ 1788.50 7 CFR Ch. XVII (1–1–00 Edition)

§ 1788.50 Acceptable sureties.

Surety companies providing contractors’ bonds shall be listed as acceptable

sureties in the U.S. Department of

Treasury Circular No. 570. The circular

is maintained through periodic publication in the FEDERAL REGISTER and is

available on the Internet under ftp://

ftp.fedworld.gov/pub/tel/sureties.txt,

and on the Department of the Treasury’s computer bulletin board at 202–

874–6817.

§§ 1788.51–1788.53 [Reserved]

§ 1788.54 Compliance with contracts.

It is the responsibility of the borrower to determine, before the commencement of work, that the engineer,

architect, and the contractor have insurance that complies with their contract requirements.

§ 1788.55 Providing RUS evidence.

When RUS shall specifically so direct, the borrower shall also require

the engineer, the architect, and the

contractor, to forward to RUS evidence

of compliance with their contract representative of the insurance company

and include a provision that no change

in or cancellation of any policy listed

in the certificate will be made without

the prior written notice to the borrower and to RUS.

PART 1789—USE OF CONSULTANTS

FUNDED BY BORROWERS

Subpart A—Policy and Procedures With

Respect to Consultant Services Funded

by Borrowers—General

Sec.

1789.150 Purpose.

1789.151 Definitions.

1789.152 Policy.

1789.153 Borrower funding.

1789.154 Eligible borrowers.

1789.155 Approval criteria.

1789.156 Proposal procedure.

1789.157 Consultant contract.

1789.158 Implementation.

1789.159 Contract administration.

1789.160 Access to information.

1789.161 Conflicts of interest.

1789.162 Indemnification agreement.

1789.163 Waiver.

1789.164—1789.165 [Reserved]

Subpart B—Escrow Account Funding and

Payments

1789.166 Terms and conditions of funding

agreement.

1789.167 Terms and conditions of escrow

agreement.

1789.168—1789.175 [Reserved]

AUTHORITY: 7 U.S.C. 901–950b; Pub. L. 103–

354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

SOURCE: 61 FR 48606, Sept. 16, 1996, unless

otherwise noted.

Subpart A—Policy and Procedures

With Respect to Consultant

Services Funded by Borrowers—General

§ 1789.150 Purpose.

This part sets forth policies and the

procedures for implementing subsection (c) of section 18 of the Rural

Electrification Act of 1936, as amended

(7 U.S.C. 901 et seq.)(RE Act) which authorizes the Rural Utilities Service

(RUS) to use the services of Consultants funded by the Borrowers to facilitate timely action on Applications by

Borrowers for financial assistance and

other approvals.

§ 1789.151 Definitions.

As used in this part:

Administrator means the Administrator of the Rural Utilities Service

(RUS).

Application means a request for financial assistance under the RE Act or

such other approvals as may be required of the RUS pursuant to the

terms of outstanding loan or security

instruments or otherwise.

Borrower means any organization

which has an outstanding loan(s) made

or guaranteed by RUS or its predecessor agency, the Rural Electrification Administration (REA) under the

RE Act or any organization which has

submitted or submits an Application

before RUS.

Consultant means a person or firm

which has been retained pursuant to

this subpart under a contract to provide financial, legal, engineering, environmental, or other technical advice

and services.

Consultant Contract means a contract

for the performance of consulting services for RUS, to be paid using funds