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[Federal Register Volume 89, Number 223 (Tuesday, November 19, 2024)]
[Proposed Rules]
[Pages 91284-91291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-26831]

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 89, No. 223 / Tuesday, November 19, 2024 / 
Proposed Rules

[[Page 91284]]

SMALL BUSINESS ADMINISTRATION

13 CFR Part 115

[Agency Docket Number: SBA-2023-0009]
RIN 3245-AI06

Surety Bond Guarantee Program: Streamlining and Modernizing

AGENCY: U.S. Small Business Administration.

ACTION: Proposed rule.

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

SUMMARY: The U.S. Small Business Administration (SBA or Agency) 
proposes to amend its regulations for the Surety Bond Guarantee Program 
to reduce the burden on participating surety companies for submission 
and retention of documents. SBA is also correcting conflicting 
provisions, as well as revising the obsolete preferred surety 
admissions requirements and the Quarterly Contract Completion Report.

DATES: SBA must receive comments to this proposed rule on or before 
January 21, 2025.

ADDRESSES: Identify your comments by Docket No. SBA-2023-0009 or RIN 
3245-AI06 and submit them by one of the following methods: (1) Federal 
eRulemaking Portal: www.regulations.gov. Follow the instructions for 
submitting comments; or (2) Mail/Hand Delivery/Courier: Kevin Valdes, 
Management Analyst, Office of Surety Guarantees, U.S. Small Business 
Administration, 409 3rd Street SW, 8th Floor, Washington, DC 20416.
    SBA will post all comments to this proposed rule on 
www.regulations.gov. If you wish to submit confidential business 
information (CBI) as defined in the User Notice at www.regulations.gov, 
you must submit such information to U.S. Small Business Administration, 
Kevin Valdes, Management Analyst, Office of Surety Guarantees, U.S. 
Small Business Administration, 409 3rd Street SW, 8th Floor, 
Washington, DC 20416, or send an email to [email protected]. 
Highlight the information that you consider to be CBI and explain why 
you believe SBA should hold this information as confidential. SBA will 
review your information and determine whether it will make the 
information public.

FOR FURTHER INFORMATION CONTACT: Kevin Valdes, Management Analyst, 
Office of Surety Guarantees, U.S. Small Business Administration, 409 
3rd Street SW, 8th Floor, Washington, DC 20416, (202) 816-0137 or 
[email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    SBA is amending several regulations applicable to its Surety Bond 
Guarantee (SBG) program. SBA guarantees bid, payment, and performance 
bonds for small and emerging contractors who cannot obtain surety bonds 
through regular commercial channels. SBA's guarantee, authorized 
pursuant to part B of title IV of the Small Business Investment Act of 
1958, 15 U.S.C. 694a et seq., gives Sureties an incentive to provide 
bonding for small businesses and thereby assists small businesses in 
obtaining greater access to contracting opportunities. SBA's guarantee 
is an agreement between a Surety and SBA that SBA will assume a certain 
percentage of the Surety's loss should a contractor default on the 
underlying contract.
    As part of its ongoing responsibility to ensure that the rules it 
issues align with surety industry practices and do not have an adverse 
economic impact on those affected by those rules, SBA held a series of 
listening sessions with Surety professionals for input about their 
experiences using the SBG program. Findings of the listening sessions 
and additional impact studies resulted in the decision to change and 
clarify several current procedures and regulations to improve customer 
experience and better enable modernization efforts within the SBG 
program.

II. Prior Approval Agreement: Sec.  115.11, Sec.  115.30(b) and (d)

    Current SBA regulation 13 CFR 115.11 requires prospective Surety 
Partners to submit applications by mail. SBA proposes adding the option 
to email Surety Partner application packages. This change will 
modernize regulation to align with current business practices.
    The SBG program requires signed certification by Surety Partners 
participating in SBA's Prior Approval program each time a bond 
application is submitted to the program. Each signed form certifies 
small business program eligibility, the need for program assistance, 
and the accuracy of applicant information. The certification process 
involves completion of the SBA Form 990 fields (normally 
electronically) along with download, signature, and re-upload of the 
form to SBA's Capital Access Financial System (CAFS). In SBA's 
Preferred Surety Bond (PSB) program, SBA Form 990 is not required due 
to delegated authority and a written Surety Partner participation 
agreement that blanketly certifies the same items as in SBA Form 990. 
SBA proposes removing the signature requirement in 115.30(b) for each 
application and replace with a master certification.
    All Prior Approval participants surveyed agreed that having a 
Surety Partner participation agreement for the Prior Approval program 
would greatly benefit program participants by removing SBA's 
requirement to individually certify every application submission. SBA 
proposes changes to 13 CFR 115.30(d) to require a new Prior Approval 
Agreement between SBA and the Prior Approval Surety Partner which will 
contain a master certification for all the applications to follow. This 
removes the need for each application to be individually certified. SBA 
estimates the new agreements would reduce application time burden on 
program participants by 557 hours, or $15,818 according to fiscal year 
2023 program activity.

III. Streamline Fee Collection Process: Sec.  115.19(g), Sec.  
115.32(b) and (d), and Sec.  115.66

    Currently, SBA requires two fees to support surety bonds on awarded 
contracts: a fee charged to the Surety company under Sec.  115.32(a), 
and a fee charged to the small business contractor under Sec.  
115.32(b). SBA's SBG program requires that the payment of SBA 
contractor fees be submitted by small business applicants at the time 
of application approval. For the Prior Approval program, Sec.  
115.32(b) requires that the contractor must submit receipt of the 
payment to SBA before an application is given final approval, and Sec.  
115.32(d) requires that for bond increases the Principal must submit 
the

[[Page 91285]]

increased fee upon notification of the increase in the contract or bind 
amount. For the PSB program, Sec.  115.66 requires the PSB Surety remit 
SBA's Premium share and the Principal's guarantee fee with the 
bordereau listing the related Final Bond, as required in the PSB 
Agreement.
    While payments are verified via payment receipt, the receipt of the 
payments by SBA are not always successful due to a variety of issues 
that can occur during the processing of the payment. When contractor 
fee payments are unsuccessful, SBA must seek remittance of the 
delinquent payments due to SBA from the small businesses through surety 
professional participants in both PSB and Prior Approval programs. If 
still unsuccessful, a small business becomes ineligible for further SBA 
guarantees and SBA writes off the delinquent debt. Over the last five 
fiscal years, SBA wrote off over $100,000 in uncollected contractor 
fees. Relatedly, SBA surety fee payments are due to SBA within 60 days 
of a guarantee's approval. Surety companies remit these payments 
directly to SBA. While delinquency is periodically an issue, SBA has 
not written off any surety fees over the last five fiscal years.
    All surety professional participants surveyed stated SBA's 
contractor fee collection process is incongruent with surety industry 
practice for premium (industry fee) collection. Instead of small 
businesses directly paying surety bond companies for each individual 
premium due, surety bond companies typically bill premiums (fees) due 
to surety bond agencies (intermediaries) representing applicant 
businesses via monthly billing statements. Collection is directly from 
these agencies, net their commission. The agencies independently manage 
premium collection from applicant businesses and are responsible for 
payment to surety bond companies. The industry almost always issues 
bonds before receiving premium.
    Prior Approval survey participants all stated SBA's current 
contractor fee collection requirements delay the bonding process since 
payment cannot be made prior to an initial intent-to-approve from SBA 
and the surety bond cannot be issued until payment is made by the small 
business. Two participants noted a small business can sometimes take 
days to pay SBA's fee, which further delays the bonding process.
    SBA proposes streamlining fee collection by changing regulations to 
allow SBA merger of contractor fee collection procedures into the same 
process as SBA surety fee collection. The regulatory changes would 
allow SBA to procedurally adjust contractor fee collection to be with 
Surety Partners in the same format as current surety fee collection. 
Likewise, any guarantee fee refund owed by SBA will be remitted to the 
Surety that collected the fee from the Principal. The new process will 
be the same for the Prior Approval and PSB Sureties.
    SBA estimates the change would reduce application time burden on 
program participants and small businesses by approximately 568 hours 
per year, or roughly $14,495 in annual savings, on average. To estimate 
time burden, the SBA relies on a combination of FY2023 program data and 
interviews with program participants and small businesses. The change 
would shift small business contractor fee remittance to SBA from small 
businesses to Surety Partners, enable the industry to align their SBA 
contractor fee collection procedures with industry fee collection 
practices, and reduce the amount of uncollectible fees with small 
businesses.
    The proposed change is estimated to save each impacted small 
business an average of 5 minutes per response, or a total of 284 total 
burden hours for all small businesses. To quantify the value of time 
saved, the SBA relies on the most recently available Bureau of Labor 
Statistics (BLS) wage data and assumes that the representative impacted 
small business occupation would be ``miscellaneous construction and 
related workers.'' The median wage from 2023 for this occupation was 
$22.64. In FY2023, there were approximately 3,406 small businesses in 
the program which brings the estimated total burden hours saved for 
small businesses per year to roughly 284. The total annual savings that 
the SBA estimates for small businesses as a result of the proposed 
changes comes to $6,430 ($23*284), on average.
    To quantify the value of time saved for program participants, the 
SBA relies on BLS wage data and assumes that the representative 
impacted occupation would be ``insurance sales agents''. The median 
wage from 2023 for this occupation was $28.40. Using the same program 
data from FY2023, the estimated total burden hours saved for program 
participants per year comes to 284. The total annual savings that the 
SBA estimates for program participants as a result of the proposed 
changes comes to $8,066 ($28*284), on average.

IV. Quarterly Contract Completion Report: Sec.  115.22

    Currently, 13 CFR 115.22 requires Surety Partners to submit a 
quarterly certification report detailing all contracts for guaranteed 
bonds that were completed during the most recent quarter. The report 
was implemented in 2017 with the intention of ensuring that fees due 
for increases on successfully completed contracts are accurately 
calculated and paid timely. At that time, industry commented on the 
proposed rule that the report creates an administrative burden on 
Surety Partners. During SBA's recent survey, participants stated the 
industry typically considers contracts up to $250,000 complete upon the 
estimated completion date on file without verification. In fiscal year 
2023, over 43% of guaranteed bonds for awarded contracts were within 
this range. Surety Partners for the program have stated reporting 
details, such as the contract completion date, can require additional 
work when contracts are within this range.
    SBA proposes modifying the regulation to allow SBA to set the 
timeframe. The change will create greater program office agility in 
adapting completion reporting to the practices of the industry. It will 
also allow the program office to adjust internal guarantee closeout 
monitoring procedures to secure collection of deferred fees due at the 
time of contract completion.

V. Surety Bonding Line: Sec.  115.19(f)(1)(i), Sec.  115.33(b)(1)

    Currently, 13 CFR 115.33(b)(1) allows Sureties participating in 
SBA's Prior Approval program to submit applications up to 15 days after 
bond execution under an SBA-approved bonding line. However, 13 CFR 
115.19(f)(1)(i) requires bonds be approved by SBA prior to execution. 
The two regulations conflict and must be reconciled to allow SBA 
acceptance of executed bonds under an SBA bonding line. SBA is also 
clarifying when a bonding line expires in 13 CFR 115.33(b)(1). 
Currently, regulations state ``not to exceed 1 year.'' However, SBA 
bonding lines cannot extend past the originated fiscal year per 
allocated funding restrictions of the program. SBA proposes modifying 
current regulatory language by removing the conflicting requirement in 
13 CFR 115.19(f)(1)(i) and clarify its effective period in 13 CFR 
115.33(b)(1).

VI. Revisions to Underwriting and the Preferred Surety Bond (PSB) 
Program: Sec.  115.11, Sec.  115.60, Sec.  115.65(b)

    SBA's Preferred Surety Bond (PSB) program is for sureties that seek 
delegated authority to approve SBA guaranteed surety bonds. Sureties 
can be selected to participate in the PSB program if they meet criteria 
established

[[Page 91286]]

by SBA. Once approved, the surety enters into a PSB Agreement with SBA 
under which the surety can issue, monitor, and service SBA-guaranteed 
bonds without SBA's prior approval of the bond guarantee.
    SBA proposes revising its admissions policies for PSB sureties. The 
admissions criteria for PSB sureties found in 13 CFR 115.60 that SBA 
proposes for revision include the minimum underwriting limit assigned 
by the U.S. Treasury of $6,500,000.00, the limit on the proportion of 
government-backed bonds to their overall premium income, and the 
requirement that the surety obtain SBA's approval before issuing a bond 
greater than $2 million during the initial 9 months the surety is first 
in the PSB program.
    SBA identified that 61, or 24%, of all currently T-listed surety 
companies have limits below SBA's required threshold to participate in 
the PSB program. Some companies in the surety industry utilize 
affiliate entities to manage different portfolio segments, including 
the portfolio segment SBA assists, termed ``small specialty.'' Given 
the typical bond size need of small and emerging businesses, some 
surety bond companies utilize affiliates with low T-listing limits to 
support small specialty before moving them to surety affiliates with 
higher T-listing amounts.
    The T-listing is based on a surety's ability to pay losses via 
reserve funds and is not an indicator of surety performance. By 
excluding some of these affiliates via the T-listing limit, the program 
also potentially reduces access to the program for some small 
businesses. Removing the regulatory limit will allow greater agility 
for SBA to adjust the requirement based on inflation and industry 
practices. This allows the PSB program to support more small surety 
bond companies. The PSB agreement outlines delegated authority for PSB 
participation and can be given in amounts that reflect the 
participating surety's T-listing limit.
    SBA also proposes removing: (1) the limit on government-backed 
bonds as a proportion of their premium income, and (2) the requirement 
that a PSB surety get approval before issuing a bond greater than $2 
million during the initial 9 months of program participation. SBA could 
not identify a current benefit to the implementation of these 
requirements. PSB surety participation as a percent of premium income 
unduly restricts small business access to the SBG program. Restricting 
program participation for a surety bond company on this basis 
potentially forces a participating surety to deny small business access 
to strictly due to reaching their premium share limit.
    The 9-month delegated authority restriction for new Surety 
participants does not contain enough time to obtain a program 
performance assessment of the new participant. SBA could not identify 
rationale for the restriction. Additionally, the conclusion of a review 
of program performance for new PSB surety partners between fiscal year 
2018 and 2024 did not support the initial 9-month program performance 
period as an indicator of program performance thereafter. The language 
will be replaced with SBA maintaining the right to restrict 
participation to evaluate the Surety's program performance. This 
language is in line with 13 CFR 115.18, pertaining to improper 
practices within the program. These proposals are anticipated to 
increase the pool of PSB sureties, which will expand the SBA surety 
agency base and increase bond opportunities for small businesses.
    Current SBA regulations 13 CFR 115.11, 13 CFR 115.60(a)(4), and 13 
CFR 115.65(b) require all Surety partners to oversee its underwriting 
function with surety staff and for PSB sureties to underwrite using 
employees of the surety and in ``the same manner and with the same 
staff'' for SBA bonds as they do for their non-SBA bonds. During 
listening sessions, meetings, and other engagements with the surety 
bond industry, SBA found it is common practice in the industry to 
delegate bond writing authority to staff of an affiliated surety and 
vetted surety bond agencies. Agents in these agencies are vetted for 
their knowledge and performance in the industry in relation to their 
portfolio with the surety bond company delegating such authority. 
Agencies with this authority are referred to as ``Managing General 
Agencies'' (MGAs) and ``Managing General Underwriters'' (MGUs). With 
this authority, these entities act on behalf of the surety by 
performing the underwriting of a bond application and issuing the 
surety bond. Oftentimes, MGAs and MGUs handle large books of business 
that are too cumbersome or time-consuming for surety bond companies to 
manage.
    Sureties have stated to SBA that surety bonds to small businesses 
who have trouble being approved for a bond fit this category of 
business. The Prior Approval program does not have staff restrictions 
on underwriting by participating surety bond companies. A comparative 
review of program performance for fiscal years 2014-2021 by known MGAs 
and MGUs in the Prior Approval program shows that performance by these 
entities has been on par with the rest of the program during the same 
period. SBA will refer to MGAs and MGUs delegated by SBA-partnered 
surety bond companies as partner-affiliated entities. SBA proposes to 
allow PSB sureties to use affiliate staff for underwriting and allow 
the use of partner-affiliated entities. This change will allow surety 
partners to write more bonds with fewer resources and align SBA 
regulation with industry practice. Overall, SBA expects this to 
increase the number of surety partners and bond opportunities for small 
businesses.

VII. Revisions to the Quick Bond Agreement: Sec.  115.30(d)(2)

    SBA's Quick Bond agreement (Quick Bond) is for small contract 
amounts. The program aligns with the surety bond industry practice of 
providing reduced and expedient underwriting for surety bonds with 
limited scope and size in private industry programs collectively 
referred to as fast-track programs. SBA's Quick Bond option removes 
bonding barriers for start-ups and other emerging small businesses by 
reducing qualification to small business and contract eligibility for 
SBA assistance. Currently, 13 CFR 115.30(d)(2) outlines Quick Bond 
limitations. In surety bond industry listening sessions, meetings, and 
day-to-day program application review, SBA has found many industries 
(e.g., plumbing, HVAC, drywall, painting, roofing, etc.) often have 
contracts with clauses that don't fit the program's regulatory 
limitations.
    Additionally, SBA historically lags behind industry adjustments to 
similar programs outside SBA in regard to limits on contract size, 
liquidated damages, and job duration. During engagements, surety 
industry professionals have advised SBA that the industry supports more 
expansive small business needs within fast-track programs outside SBA 
and that not all emerging small business contractors are able to 
regularly maintain financial statements. When reviewing program 
performance, SBA found some industries may experience elevated risk of 
failure due to external impacts. In these events, applications from 
small businesses in the impacted industry would benefit from regular 
application underwriting even when qualifying for SBA's Quick Bond 
application type. Due to Quick Bond limitations being part of 
regulation, SBA cannot readily adapt to economic changes and emerging 
program risks. SBA proposes removing the regulatory limitations for 
Quick Bond application types. This will enable SBA to better align the 
program

[[Page 91287]]

with industry practices and better support small businesses.

VIII. Technical Corrections: Sec.  115.11, Sec.  115.12(f), Sec.  
115.18(c), Sec.  115.30(b) and (c), Sec.  115.31(d), and Sec.  
115.35(a)(1)(iv)

    SBA proposes making several technical corrections to clarify and 
correct current regulations. 13 CFR 115.11 states the T-listing limit 
is for bonds in connection with Federal procurement contracts. However, 
U.S. Treasury clarified to SBA that the requirement is in connection 
with all bonds issued by the surety bond company should the company be 
Treasury listed. SBA proposes removing reference to Federal procurement 
contracts to align with U.S. Treasury.
    13 CFR 115.12(f) explains procedures for SBA-approved transfers and 
sales of files and accounts by a surety. SBA proposes adding language 
that clarifies sale of an entire SBA-partnered business operation 
without prior-written approval by SBA voids SBA's guarantee and claims 
reimbursement agreements to that division unless the sale is to an 
existing SBA partner.
    13 CFR 115.18(c) references SBA form 912. SBA's form 994 was 
previously modified to capture the same information as SBA form 912 and 
the program stopped actively collecting SBA form 912. SBG program 
currently relies solely on SBA form 994 for the information previously 
collected on SBA form 912. SBA proposes replacing reference to SBA form 
912 with reference to individual certification by applicant owners.
    13 CFR 115.30(b) and (c) refer to SBA staff as SBA officers. This 
will be changed to SBA staff to be consistent with references to 
employees throughout the rest of the regulations.
    13 CFR 115.31(d) includes an example calculation for determining a 
reduced guarantee percent on a contract over the statutory limit of the 
program. For consistency with other examples as guidance, this example 
will be removed from the regulations.
    13 CFR 115.35(a)(1)(iv) states a surety must notify SBA when it 
receives any adverse information concerning a Principal's financial 
condition or possible inability to complete the project or pay laborers 
or suppliers. In practice, SBA verifies this information when submitted 
to SBA. Additionally, these conditions for notification are 
collectively defined by SBA in Sec.  115.10 as ``imminent breach'' when 
the conditions, unless remedied by the Surety, make a default under the 
bond appear to be inevitable. SBA proposes clarifying this requirement 
by stating the surety must notify SBA when it verifies any adverse 
information concerning imminent breach by the Principal.

IX. Section-by-Section Analysis

A. Sec.  115.11

    Remove the requirement that physical applications be submitted and 
allow Surety Partners to email application packages. Remove the 
requirement that a Surety's salaried staff must oversee its 
underwriting function. Remove language stating that T-listing limit for 
bonds is in connection with Federal procurement contracts.

B. Sec.  115.12(f)

    Add clarifying language that the sale of an entire business 
operation partnered with SBA occurs without prior written approval of 
SBA, it will void SBA's guarantee and claims reimbursement agreements 
to that division unless the sale is to an existing SBA partner.

C. Sec.  115.18(c)

    Remove reference to SBA Form 912 Statement of Personal History as 
it is no longer in use.

D. Sec.  115.19

    Add language to 13 CFR 115.19(f)(1)(i) to clarify that timeliness 
for a bonding line is determined by Sec.  133(d).

E. Sec.  115.22

    Change time frame for contract completion reporting from quarterly 
to requiring the Surety to submit to SBA notification of successfully 
completed contracts within the time frame set by SBA.

F. Sec.  115.30

    Remove the signature requirement in Sec.  115.30(b) for each 
application and replace with a master certification. Change Sec.  
115.30 (d) to require a new Prior Approval Agreement between SBA and 
the Prior Approval Surety Partner which will contain a master 
certification for all the applications that follow.
    Revise Sec.  115.30(b) and (c) by removing references to 
``authorized SBA officer'' and replace with the SBA's Director, Office 
of Surety Guarantees (D/SG) or their designee.
    Revise Quick Bond Agreement requirements in paragraph (d)(2) by 
removing the restriction that a Quick Bond Agreement can only be used 
for contract amounts under $500,000 at the time of application and 
remove the regulatory exclusions in paragraph (d)(ii).

G. Sec.  115.31

    Remove from paragraph (d) the example calculation for when a 
contract amount increases above the statutory limit.

H. Sec.  115.32

    Revise paragraph (b) to delete the requirement that the SBA's 
charge to Principal be remitted with the application, and replace that 
with a requirement that the Prior Approval Surety is responsible to 
collect the guarantee fee from the Principal and remit to SBA within 60 
calendar days of the approval of the Surety Bond Guarantee Agreement 
(SBA form 990).
    Revise paragraph (d)(1) by changing the cross reference in 
paragraph (d)(1) for the payment of the increased Principal's guarantee 
fee from in accordance with (d)(2) to (b). Revise (d)(2) by deleting 
the provision requiring payment for an increase in the Principal's fee 
from resulting from an increase in the contract amount. Revise 
paragraph (d)(3) by detecting that refunds fees from bond increases 
will go from SBA to the Principal and replace it with the refund will 
be returned to the Surety who collected the payment.

I. Sec.  115.33(b)(1)

    Revise the duration of a Bonding Line from 1 year to the fiscal 
year of approval.

J. Sec.  115.35(a)(1)(iv)

    Revise when a Surety must notify SBA about adverse information. 
Change the reporting threshold from when the Surety has adverse 
information concerning a Principal's financial condition to when the 
Surety has verified imminent breach by the Principal.

K. Sec.  115.60

    Remove underwriting limitation of $6,500,000 in paragraph (a)(1) 
and replace with a minimum threshold set by SBA for the applicant 
Surety or an SBA-partnered affiliate. Delete paragraph (a)(3). Revise 
paragraph (a)(4) by adding employees of a Surety's affiliates and SBA 
approved affiliated entities as those who are allowed to do 
underwriting on behalf of the Surety. Revise paragraph (b) by removing 
the 9-month trial period before a Surety can be admitted into the PSB 
program and replace with a time frame set by SBA.

L. Sec.  115.65(b)

    Revise by eliminating the restriction that the approval, execution, 
and administration of SBA Bonds by a PSB Surety must be handled by the 
same staff as the Surety's outside activity and

[[Page 91288]]

replace with a cross reference to individuals outlined in Sec.  
115.60(a)(4). Section 115.60(a)(4) is also being revised by adding 
employees of a Surety's affiliates and SBA approved affiliated entities 
as those who are allowed to do underwriting on behalf of the Surety.

M. Sec.  115.66

    Revise Sec.  115.66 which relates to fee collection by PSB Sureties 
to mirror the requirements for Prior Approval Sureties in Sec.  115.32. 
Revisions include deleting existing text and adding subsections (a), 
(b), and (c). Subsection (a) describes the Surety's Premium. Subsection 
(b) describes the SBA charge to the Principal. Subsection (c) describes 
the SBA charge to the Surety. None of these are new charges or fees.

X. Request for Comments

    SBA invites public comments on any part of the proposed rule.

XI. Compliance the Regulatory Flexibility Act (5 U.S.C. 601-612), 
Executive Orders Executive Orders 12866, 13563, and 14094, Executive 
Orders 13563, 12988, and 13132, and the Paperwork Reduction Act (44 
U.S.C., Ch. 35)

Regulatory Flexibility Act

    When an agency issues a rulemaking proposal, the Regulatory 
Flexibility Act (RFA), as amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996, requires the agency to ``prepare and 
make available for public comment an initial regulatory flexibility 
analysis,'' which shall ``describe the impact of the proposed rule on 
small entities.'' (5 U.S.C. 603(a)). Section 605 of the RFA allows an 
agency to certify a rule, in lieu of preparing an analysis, if the 
proposed rulemaking is not expected to have a significant economic 
impact on a substantial number of small entities.
    This is expected to be a time saving rule making so it is not 
anticipated to have a significant economic impact. As of fiscal year 
end 2023, the Program had 9,265 surety bond guarantees to 32 active 
surety companies (which may or may not be small businesses) that would 
be impacted by this rulemaking. Accordingly, the Administrator of the 
SBA hereby certifies that this rule will not have a significant 
economic impact on a substantial number of small entities. SBA invites 
comments from members of the public who believe this rule will have a 
significant economic impact on a substantial number of small entities.

Executive Orders 12866, 13563, and 14094

    Executive Order 12866, Regulatory Planning and Review, as amended 
by Executive Order 14094, Modernizing Regulatory Review, requires 
agencies to provide a Regulatory Impact Analysis assessing costs and 
benefits and addressing available alternatives for any ``significant 
regulatory action.'' The Office of Management and Budget has determined 
that this rule does not constitute a ``significant regulatory action'' 
as defined in Executive Order 12866.
    Executive Order 13563, Improving Regulation and Regulatory Review, 
reaffirms the principles of Executive Order 12866 and requires agencies 
to adopt regulations through a process that involves public 
participation and, to the extent feasible, base regulations on the open 
exchange of information and perspectives from affected stakeholders and 
the public as a whole. SBA has developed this rule in a manner 
consistent with these requirements. In addition, Executive Order 13563 
requires agencies to assess the benefits and costs of any regulations 
and address available alternatives to direct regulation.
    As described above, this proposed rule could affect small entities 
that participate as sureties in SBA's Surety Bond Guarantee program and 
small entities seeking assistance through the program. SBA's proposed 
rule will reduce time in two significant ways.
    First, All Prior Approval participants surveyed agreed that having 
a Surety Partner participation agreement for the Prior Approval program 
would greatly benefit program participants by removing SBA's 
requirement to individually certify every application submission. SBA 
proposes changes to 13 CFR 115.30(d) to require a new Prior Approval 
Agreement between SBA and the Prior Approval Surety Partner which will 
contain a master certification for all the applications to follow. This 
removes the need for each application to be individually certified. SBA 
estimates the new agreements would reduce application time burden on 
program participants by 557 hours, or $15,818 according to fiscal year 
2023 program activity.
    The proposed change is estimated to save each impacted program 
participant an average of 3 minutes per response, or a total of 557 
total burden hours for all small businesses. To quantify the value of 
time saved, the SBA relies on BLS wage data and assumes that the 
representative impacted occupation would be ``insurance sales agents''. 
The median wage from 2023 for this occupation was $28.40. Using the 
program data from FY2023, the estimated total burden hours saved for 
program participants per year is approximately 557. The total annual 
savings that the SBA estimates for program participants as a result of 
the proposed changes comes to $15,818 ($28*557), on average.
    Second, SBA proposes shifting how small business contractor remit 
fees to SBA from the small businesses itself to being remitted by the 
Surety Partners. This enables the industry to align their SBA 
contractor fee collection procedures with industry fee collection 
practices and reduce the amount of uncollectible fees with small 
businesses. As explained on page 6 of this text, SBA estimates the 
change would reduce application time burden on program participants and 
small businesses by 568 hours, or $14,495 according to fiscal year 2023 
program activity.

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. This rule does not 
have retroactive or preemptive effect.

Executive Order 13132

    For purposes of Executive Order 13132, SBA has determined this 
rulemaking 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, SBA has determined that this proposed rule 
has no federalism implications warranting preparation of a federalism 
assessment.

Paperwork Reduction Act

    For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, 
SBA will update the affected information collections and go through the 
typical Paperwork Reduction Act process.

List of Subjects in 13 CFR Part 115

    Administrative practice and procedure, Bonding, Surety bonds, 
Surety, Small businesses.

    For the reasons set forth in the preamble, SBA proposes to amend 13 
CFR part 115 as follows:

[[Page 91289]]

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. 636i, 687b, 687c, 694a, and 
694b note.
0
2. Revise Sec.  115.11 to read as follows:

Sec.  115.11  Applying to participate in the Surety Bond Guarantee 
Program.

    Sureties interested in participating as Prior Approval Sureties or 
PSB Sureties should apply by email or in writing to the D/SG at 409 3rd 
Street SW, Washington, DC 20416. OSG will determine the eligibility of 
the applicant considering its standards and procedures for 
underwriting, administration, claims and recovery. Each applicant must 
be a corporation listed by the U.S. Treasury as eligible to issue 
bonds. At a minimum, each applicant must have salaried staff that is 
employed directly (not an agent or other individual or entity under 
contract with the applicant) to perform all claims and recovery 
functions other than specialized services the costs of which may be 
reimbursable under 13 CFR 115.16(e)(1). Final settlement authority for 
claims and recovery must be vested only in the applicant's salaried 
claims staff. The applicant must continue to comply with SBA's 
standards and procedures for underwriting, administration, claims, 
recovery, and staffing requirements while participating in SBA's Surety 
Bond Guarantee Program.
0
3. Amend Sec.  115.12 by revising paragraph (f) to read as follows:

Sec.  115.12  General program policies and provisions.

* * * * *
    (f) Transfers or sales by Surety. Sureties must not sell or 
otherwise transfer their files or accounts, whether before or after a 
default by the Principal has occurred, without the prior written 
approval of SBA. A violation of this provision is grounds for 
termination from participation in the program. This provision does not 
apply to the sale of an entire business division, subsidiary or 
operation of the Surety. If the sale of an entire business division 
partnered with SBA occurs without prior written approval of SBA, it 
will void SBA's guarantee and claims reimbursement agreements to that 
division unless the sale is to an existing SBA partner.
0
4. Amend Sec.  115.18 by revising paragraph (c) to read as follows:

Sec.  115.18  Refusal to issue further guarantees; suspension and 
termination of PSB status.

* * * * *
    (c) Notification requirement. The Prior Approval or PSB Surety must 
promptly notify SBA of the occurrence of any event in paragraphs (b) 
(1) through (5) of this section, or if any of the Persons described in 
paragraph (b) of this section does not, or ceases to, qualify as a 
Surety. SBA may require submission of individual certifications from 
any of these Persons.
* * * * *
0
5. Amend Sec.  115.19 by revising paragraphs (f)(1) and (g) to read as 
follows:

Sec.  115.19  Denial of liability.

* * * * *
    (f) * * *
    (1) Either:
    (i) The bond was Executed prior to the date of SBA's guarantee, or 
in the case of a bonding line commitment under Sec.  115.33 the bonding 
line was not established in accordance with Sec.  115.33(d); or
    (ii) The bond was Executed (or approved, if the Surety is legally 
bound by such approval) after the work under the Contract had begun, 
unless SBA approves a ``Surety Bond Guarantee Agreement Addendum'' (SBA 
Form 991) after receiving all of the following from the Surety:
    (A) Satisfactory evidence, including a certified copy of the 
Contract (or a sworn affidavit from the Principal), showing that the 
bond requirement was contained in the original Contract, or other 
documentation satisfactory to SBA, showing why a bond was not 
previously obtained and is now being required;
    (B) Certification by the Principal that all taxes and labor costs 
are current, and listing all suppliers and subcontractors, indicating 
that they are all paid to date, and attaching a waiver of lien from 
each; or an explanation satisfactory to SBA why such documentation 
cannot be produced; and
    (C) Certification by the Obligee that all payments due under the 
Contract to date have been made and that the job has been 
satisfactorily completed to date.
* * * * *
    (g) Delinquent fees. The Surety has not remitted to SBA payment for 
the full amount of all guarantee fees within the time period required 
under Sec.  115.32(b) and (c) for Prior Approval Sureties, or Sec.  
115.66 for PSB Sureties. SBA may reinstate the guarantee upon showing 
that the contract is not in default and that a valid reason exists why 
a timely remittance or payment was not made.
* * * * *
0
6. Revise Sec.  115.22 to read as follows:

Sec.  115.22  Closeout Reporting.

    The Surety must submit to SBA notification of successfully 
completed contracts and claims files within the timeframe set by SBA, 
and in the manner as prescribed by SBA.
0
7. Amend Sec.  115.30 by revising paragraphs (b) and (c), the 
introductory text of paragraph (d), and the introductory text of 
paragraph (d)(2) to read as follows:

Sec.  115.30  Submission of Surety's guarantee application.

* * * * *
    (b) SBA's approval or decline of a guarantee application is made in 
writing by the D/SG or their designee. SBA may provide telephone notice 
before the Prior Approval Surety receives SBA's guarantee approval form 
if the guarantee has already received approval by SBA staff with 
delegated authority. In the event of a conflict between the telephone 
notice and the written form, the written form controls.
    (c) A Prior Approval Surety may request reconsideration of a 
decline from the D/SG or their designee who made the decision. If the 
decision on reconsideration is negative, the Surety may appeal to an 
individual designated by the D/SG. If the decision is again adverse, 
the Surety may appeal to the D/SG, who will make the final decision.
    (d) Prior Approval Agreement. To apply for a bond guarantee, a 
Prior Approval Surety must have an active Prior Approval Agreement, 
submit a Surety Bond Guarantee Agreement (SBA Form 990), and select one 
of the following application types:
* * * * *
    (2) Quick Bond Agreement. Except as determined by SBA, a Prior 
Approval Surety may complete and submit an SBA Form 990 indicating a 
Quick Bond Agreement application type for each Bid Bond or Final Bond. 
This form must be approved by SBA prior to the Surety's Execution of 
the bond. Eligibility parameters of the Quick Bond application type are 
determined by SBA. The guarantee fees owed in connection with Final 
Bonds must be paid in accordance with Sec.  115.32.
* * * * *

Sec.  115.31  [Amended]

0
8. In Sec.  115.31, amend paragraph (d) by removing the last sentence.
0
9. Amend Sec.  115.32 by revising paragraphs (b) and (d) to read as 
follows:

Sec.  115.32  Fees and Premiums.

* * * * *
    (b) SBA charge to Principal. SBA does not charge Principals 
application or Bid

[[Page 91290]]

Bond guarantee fees. If SBA guarantees a Final Bond, the Principal must 
pay a guarantee fee equal to a certain percentage of the Contract 
amount. The Surety is responsible for collecting the Principal's 
guarantee fee due on each guaranteed bond (other than a Bid Bond under 
13 CFR 115.19(g)) and remitting payment within 60 calendar days after 
SBA's approval of the Surety Bond Guarantee Agreement (SBA form 990). 
The percentage is determined by SBA and is published in Notices in the 
Federal Register from time to time. The Principal's fee is rounded to 
the nearest dollar. See paragraph (d) of this section for additional 
requirements when the Contract amount changes.
* * * * *
    (d) Contract or bond increases/decreases--(1) Notification and 
approval. The Prior Approval Surety must notify SBA of any increases or 
decreases in the Contract or bond amount that aggregate 25% or $500,000 
of the original contract or bond amount, whichever is less, as soon as 
the Surety acquires knowledge of the change. Whenever the original bond 
amount increases as a result of a single change order of at least 25% 
or $500,000 of the original contract or bond amount, whichever is less, 
the prior written approval of such increase by SBA is required on a 
supplemental Prior Approval Agreement and is conditioned upon payment 
by the Surety of the increase in the Principal's guarantee fee as set 
forth in paragraph (b) of this section. In notifying SBA of any 
increase or decrease in the Contract or bond amount, the Prior Approval 
Surety must use SBA Form 990 and select the application type that it 
used in applying for the original bond guarantee.
    (2) Increases; fees. The payment for the increase in the 
Principal's guarantee fee is computed on the increase in the Contract 
amount. . If the increase in the Principal's fee is less than $250, no 
payment is due until the total amount of increases in the Principal's 
fee equals or exceeds $250. 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 $250. When the total amount of increase in 
the guarantee fee equals or exceeds $250, the Surety must remit the fee 
within 60 calendar days.
    (3) Decreases; refunds. Whenever SBA is notified of a decrease in 
the Contract or bond amount, SBA will refund a proportionate amount of 
the Principal's guarantee fee and rebate to the Surety a proportionate 
amount of SBA's Premium share in the ordinary course of business. If 
the amount to be refunded or rebated is less than $250, such refund or 
rebate will not be made until the amounts to be refunded or rebated, 
respectively, aggregate at least $250. Upon receipt of the refund, the 
Surety must promptly pay a proportionate amount of its Premium to the 
Principal.
0
10. Amend Sec.  115.33 by revising paragraph (b)(1) to read as follows:

Sec.  115.33  Surety bonding line.

* * * * *
    (b) * * *
    (1) The term of the bonding line, not to exceed the fiscal year of 
approval subject to renewal in writing;
* * * * *
0
11. Amend Sec.  115.35 by revising paragraph (a)(1)(iv) to read as 
follows:

Sec.  115.35  Claims for reimbursement of Losses.

    (a) * * *
    (1) * * *
    (iv) The Surety has verified any adverse information concerning 
imminent breach by the Principal.
* * * * *
0
12. Revise Sec.  115.60 to read as follows:

Sec.  115.60  Selection and admission of PSB Sureties.

    (a) Selection of PSB Sureties. SBA's selection of PSB Sureties will 
be guided by, but not limited to, these factors:
    (1) An underwriting limitation on the U.S. Treasury Department list 
of acceptable sureties of at least the minimum threshold set by SBA for 
the applicant Surety or an SBA-partnered affiliate;
    (2) An agreement that the Surety will neither charge a bond premium 
in excess of that authorized by the appropriate State insurance 
department, nor impose any non-premium fee unless such fee is permitted 
by applicable State law and approved by SBA.
    (3) The vesting of underwriting authority for SBA guaranteed bonds 
only in employees of the Surety, its affiliates, or partner-affiliated 
entities approved by SBA;
    (4) The rating or ranking designations assigned to the Surety by 
recognized authority.
    (b) Admission of PSB Sureties. A Surety admitted to the PSB program 
must execute a PSB Agreement before approving SBA guaranteed bonds. No 
SBA guarantee attaches to bonds approved before the D/SG or designee 
has countersigned the Agreement. SBA may in its discretion limit 
participation of the Surety for a period set by SBA to allow SBA to 
evaluate the Surety's performance.
0
13. Amend Sec.  115.65 by revising paragraph (b) to read as follows:

Sec.  115.65  General PSB procedures.

* * * * *
    (b) Usual staff and procedures. The approval, Execution and 
administration by a PSB Surety of SBA guaranteed bonds must be handled 
in the same manner and with the same individuals outlined in Sec.  
115.60(a)(4). The Surety must request job status reports from Obligees 
in accordance with its own procedures.
* * * * *
0
14. Revise Sec.  115.66 to read as follows:

Sec.  115.66  Fees.

    (a) Surety's Premium. A PSB Surety must not charge a Principal an 
amount greater than that authorized by the appropriate insurance 
department. The Surety must not require the Principal to purchase 
casualty or other insurance or any other services from the Surety or 
any Affiliate or agent of the Surety. The Surety must not charge non-
Premium fees to a Principal unless the Surety performs other services 
for the Principal, the additional fee is permitted by State law, and 
the Principal agrees to the fee.
    (b) SBA charge to Principal. SBA does not charge Principals 
application or Bid Bond guarantee fees. If SBA guarantees a Final Bond, 
the Principal must pay a guarantee fee equal to a certain percentage of 
the Contract amount. The Surety is responsible for collecting the 
Principal's guarantee fee due on each guaranteed bond (other than a Bid 
Bond) and remitting payment within 60 calendar days after submission to 
SBA. The percentage is determined by SBA and is published in Notices in 
the Federal Register from time to time. The Principal's fee is rounded 
to the nearest dollar. See Sec.  115.67 for additional requirements 
when the Contract amount changes.
    (c) SBA charge to Surety. SBA does not charge Sureties application 
or Bid Bond guarantee fees. 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 the bordereau submission of the 
related Final Bond. The fee is a certain percentage of the bond premium 
determined by SBA and published in Notices in the Federal Register from 
time to time. The fee is rounded to the nearest dollar. SBA does not 
receive any portion of a Surety's non-premium charges. See Sec.  115.67 
for

[[Page 91291]]

additional requirements when the Contract or bond amount changes.

Isabella Casillas Guzman,
Administrator.
[FR Doc. 2024-26831 Filed 11-18-24; 8:45 am]
BILLING CODE 8026-09-P
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