Surety Bond Guarantee Program-Preferred Surety Qualification, Increased Guarantee for Veteran and Service-Disabled Veteran-Owned Business, Deadline for Payment of Guarantee Fees, Denial of Liability, and Technical Amendments, 34597-34600 [07-2983]
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Federal Register / Vol. 72, No. 121 / Monday, June 25, 2007 / Rules and Regulations
As explained in the Board’s final rule
published in the Federal Register on
May 18, 2007, the Federal Reserve
Banks have decided to restructure their
check processing services by reducing
further the number of locations at which
they process checks.2 The Board issues
separate final rules amending appendix
A for each phase of the restructuring,
and the amendments set forth in this
notice are such final rules.3
As part of the restructuring process,
the head office of the Federal Reserve
Bank of San Francisco will cease
processing checks on August 18, 2007.
As of that date, banks with routing
symbols currently assigned to the San
Francisco head office for check
processing purposes will be reassigned
to the San Francisco Reserve Bank’s Los
Angeles branch office. As a result of this
change, some checks that are drawn on
and deposited at banks located in the
affected check processing regions and
that currently are nonlocal checks will
become local checks subject to faster
availability schedules.
To assist banks in identifying local
and nonlocal banks, the Board
accordingly is amending the lists of
routing symbols assigned to Twelfth
District check processing offices to
conform to the transfer of operations
from the San Francisco head office to
the Los Angeles branch office. To
coincide with the effective date of the
underlying check processing changes,
the amendments are effective August 18,
2007. The Board is providing advance
notice of these amendments to give
affected banks ample time to make any
needed processing changes. The
advance notice also will enable affected
banks to amend their availability
schedules and related disclosures, if
necessary, and provide their customers
with notice of these changes.4 The
Federal Reserve routing symbols
assigned to all other Federal Reserve
branches and offices will remain the
same at this time. The Board of
Governors, however, intends to issue a
similar notice at least sixty days prior to
the elimination of check processing
operations at the Helena branch office of
the Federal Reserve Bank of
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2 See
72 FR 27951, May 18, 2007.
3 In addition to the general advance notice of
future amendments provided by the Board, and the
Board’s notices of final amendments, the Reserve
Banks strive to inform affected depository
institutions of the exact date of each office
transition at least 120 days in advance. The Reserve
Banks’ communications to affected depository
institutions are available at https://
www.frbservices.org.
4 Section 229.18(e) of Regulation CC requires that
banks notify account holders who are consumers
within 30 days after implementing a change that
improves the availability of funds.
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16:34 Jun 22, 2007
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Minneapolis, as described in the May
2007 Federal Register document.
Administrative Procedure Act
The Board has not followed the
provisions of 5 U.S.C. 553(b) relating to
notice and public participation in
connection with the adoption of this
final rule. The revisions to the appendix
are technical in nature, and the routing
symbol revisions are required by the
statutory and regulatory definitions of
‘‘check-processing region.’’ Because
there is no substantive change on which
to seek public input, the Board has
determined that the section 553(b)
notice and comment procedures are
unnecessary.
Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR part 1320 Appendix A.1), the
Board has reviewed the final rule under
authority delegated to the Board by the
Office of Management and Budget. This
technical amendment to appendix A of
Regulation CC will delete the reference
to the head office of the Federal Reserve
Bank of San Francisco and reassign the
routing symbols listed under that office
to the Los Angeles branch office of the
Federal Reserve Bank of San Francisco.
The depository institutions that are
located in the affected check processing
regions and that include the routing
numbers in their disclosure statements
would be required to notify customers
of the resulting change in availability
under § 229.18(e). However, because all
paperwork collection procedures
associated with Regulation CC already
are in place, the Board anticipates that
no additional burden will be imposed as
a result of this rulemaking.
List of Subjects in 12 CFR Part 229
Banks, Banking, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the
preamble, the Board is amending 12
CFR part 229 to read as follows:
I
PART 229—AVAILABILITY OF FUNDS
AND COLLECTION OF CHECKS
(REGULATION CC)
1. The authority citation for part 229
continues to read as follows:
I
Authority: 12 U.S.C. 4001–4010, 12 U.S.C.
5001–5018.
2. The Twelfth District routing symbol
list in appendix A is revised to read as
follows:
I
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34597
Appendix A to PART 229—Routing
Number Guide to Next-Day Availability
Checks and Local Checks
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Twelfth Federal Reserve District
[Federal Reserve Bank of San Francisco]
Los Angeles Branch
1210
3210
1211
3211
1212
3212
1213
3213
1220
3220
1221
3221
1222
3222
1223
3223
1224
3224
Seattle Branch
1230
3230
1231
3231
1232
3232
1233
3233
1250
3250
1251
3251
1252
3252
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*
*
By order of the Board of Governors of the
Federal Reserve System, acting through the
Secretary of the Board under delegated
authority, June 20, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7–12194 Filed 6–22–07; 8:45 am]
BILLING CODE 6210–01–P
SMALL BUSINESS ADMINISTRATION
13 CFR Part 115
RIN 3245–AF39
Surety Bond Guarantee ProgramPreferred Surety Qualification,
Increased Guarantee for Veteran and
Service-Disabled Veteran-Owned
Business, Deadline for Payment of
Guarantee Fees, Denial of Liability, and
Technical Amendments
U.S. Small Business
Administration (SBA).
ACTION: Final rule.
AGENCY:
SUMMARY: On September 26, 2006, SBA
published a proposed rule in the
Federal Register addressing six changes
to the SBA Surety Bond Guarantee
(SBG) Program in order to improve
operation of the SBG program and make
it easier for sureties and small business
concerns to participate in the program.
Specifically, this rules makes the
following amendments to the program:
(1) Gives effect to the statutory
reduction in the frequency of audits
required of Preferred Surety Bond (PSB)
Sureties; (2) obligates SBA to guarantee
90 percent of the loss incurred by a
Prior Approval Surety on bonds issued
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34598
Federal Register / Vol. 72, No. 121 / Monday, June 25, 2007 / Rules and Regulations
on behalf of small businesses owned
and controlled by veterans, and Servicedisabled veterans; (3) imposes a 60-day
deadline for the submission of surety
fees to SBA; (4) allows PSB Sureties to
charge premiums in accordance with
applicable state ceilings, as presently
permitted under the Prior Approval
Program; (5) deletes the existing
reference to the expiration of the PSB
Program; and (6) allows Affiliates of a
PSB Surety to participate in the Prior
Approval Program.
DATES: This rule is effective July 25,
2007.
FOR FURTHER INFORMATION CONTACT:
Frank Lalumiere, Director, Office of
Surety Guarantees, (202) 205–6540;
Frank.Lalumiere@sba.gov.
SUPPLEMENTARY INFORMATION:
SBA can guarantee bonds for
contracts up to $2 million, covering bid,
performance and payment bonds for
small and emerging contractors who
cannot obtain surety bonds through
regular commercial channels. SBA’s
guarantee gives sureties an incentive to
provide bonding for small businesses
and thereby strengthens their ability to
obtain bonding and greater access to
contracting opportunities.
Section 411(g)(3) of the Small
Business Investment Act of 1958 (the
Act) formerly required PSB Sureties to
be audited every year. 15 U.S.C.
694b(g)(3). As amended by Public Law
108–447, Div. K. Section 203, the Small
Business Reauthorization and
Manufacturing Assistance Act of 2004,
the Act now requires audits to be made
at least once every 3 years. This final
rule implements this statutory
requirement.
In relevant part, Section 4(b)(1) of the
Small Business Act provides that SBA
‘‘shall give special consideration to
veterans of the Armed Forces of the
United States and their survivors and
dependents.’’ 15 U.S.C. 633(b)(1). This
final rule encourages the issuance of
bonds on behalf of small business
concerns owned and controlled by
veterans and Service-disabled veterans,
by guaranteeing to pay 90 percent of a
Prior Approval Program Surety’s loss.
This guaranty affords such concerns
more opportunity to obtain contracts
generally.
Section 411(h) of the Small Business
Investment Act mandates the operation
of the program ‘‘on a prudent and
economically justifiable basis’’ and
authorizes SBA to impose fees on both
small business concerns and sureties,
‘‘to be payable at such time as may be
determined by [SBA].’’ Accordingly,
this final rule establishes a clear
deadline for a Prior Approval Surety’s
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payment of the guarantee fees owed to
SBA in order to maintain SBA’s
guarantee.
The final rule also allows PSB
Program Sureties to charge no more than
the premium rates permitted under
applicable State law, as Prior Approval
Sureties are already allowed. The initial
regulations for the PSB program
specified that the premium rates
charged by PSB Sureties could not
exceed the Surety Association of
America’s advisory premium rates in
effect on August 1, 1987. SAA
discontinued its rate setting function
shortly after promulgating the 1987
rates, and participating surety
companies have been obligated to use
the 1987 SAA rates for the past 18 years
despite economic and market place
changes. This change puts the Preferred
and Prior Approval Programs on the
same footing by relying on the
individual State oversight bodies for
setting fee rates.
From its creation in 1988 until 2004,
the PSB program was a pilot program,
subject to automatic termination in the
absence of affirmative Congressional
action. Now that the PSB program has
been made permanent, the present
regulation that speaks of the termination
of the program has been removed.
Finally, pursuant to this rule
Affiliates of PSB Sureties are no longer
barred from participation in the Prior
Approval program. The term ‘‘Affiliate’’
is defined in 13 CFR part 121, but in the
context of the present discussion it
means a relationship in which one
Surety owns or otherwise controls
another Surety, or in which two or more
Sureties are commonly owned by, or
under common control with, a third
party. A series of mergers and
acquisitions in the surety industry in
recent years had caused Sureties
previously eligible to participate in the
Prior Approval Program to become
Affiliates of PSB Sureties and lose their
eligibility. This final amendment should
encourage increased participation in the
Prior Approval Program by otherwise
qualified Sureties that are Affiliates of
PSB Sureties.
Discussion of Public Comments
SBA received five public comments
on the proposed rule, three from
associations and two from individual
surety companies. Each commenter
supported the proposed changes, with
two exceptions.
Four commenters recommended
removal of the proposed language in
§ 115.19, Denial of Liability, that would
allow SBA to deny bond liability as a
result of the failure of a surety company
to pay the required surety fee. In
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general, the commenters stated that
such a requirement would weaken the
SBA/Surety Industry partnership that is
designed to assist small businesses.
While SBA values its partners in the
surety industry, the Agency has a
fiduciary responsibility to ensure timely
payment of guaranty fees in order to
honor its guaranty. Accordingly, the
language in the proposed rule regarding
the denial of bond liability if the surety
fee is not paid within 60 days is
retained. The proposed rule also
included a provision that the guaranty
can be reinstated if a valid reason for the
delinquent payment of guaranty fee is
provided and the contract is not in
default. This language is also retained in
the final rule.
Three commenters expressed concern
with the proposed 45 days fee payment
requirement. One commenter requested
clarification of when the 45-day period
begins. A few commenters said it would
be difficult to remit payment within 45
days, in part because many sureties do
not receive payment on the final bond
premium until 45 days after the bond is
issued, and to require payment before
collection on the premium is unduly
punitive. In consideration of these
comments, in this final rule, SBA has
amended the proposed rule. First, the
proposed 45-day period cited in
§ 115.32 is increased to 60 days. SBA
believes that the additional 15 days will
provide time for a surety company agent
to provide the surety company with
sufficient information for the surety
company to make payment. Second, the
same section is also revised to specify
that payment is required within 60 days
following SBA approval of the Prior
Approval Payment or Performance Bond
on the SBA Form 990, Guarantee
Agreement.
One commenter also suggested that
the agency should extend the 10-day
deadline for PSB sureties to submit the
executed bond to SBA to a 15-day
deadline. SBA did not propose to
amend this particular requirement, and
it will be considered among other
changes in a future amendment.
Compliance With Executive Orders
12866, 12988, and 13132, the
Paperwork Reduction Act (44 U.S.C.
Ch. 35), and the Regulatory Flexibility
Act (5 U.S.C. 601–612)
Compliance With Executive Order
12866
The Office of Management and Budget
(OMB) has determined that this rule
constitutes a significant regulatory
action for purposes of Executive Order
12866, thereby necessitating a
regulatory impact analysis. SBA
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published this analysis in the Proposed
Rule. The agency did not receive any
comments addressing the analysis and
is not aware of any additional
information that would require revision
of its initial conclusions.
Compliance With 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.
Compliance With Executive Order
13132
For purpose of E.O. 13132, the SBA
has determined that the 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, SBA
determines that this final rule has no
federalism implications warranting
preparation of a federalism assessment.
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Compliance With Paperwork Reduction
Act, 44 U.S.C. Ch. 35
SBA has determined that this final
rule does not impose additional
reporting or recordkeeping requirements
under the Paperwork Reduction Act, 44
U.S.C., Chapter 35.
Compliance With the 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 nonprofit enterprises, and small local
governments. Pursuant to the RFA,
when an agency issues a rulemaking,
the agency must prepare a regulatory
flexibility analysis which describes the
impact of the rule on small entities.
However, Section 605 of the RFA allows
an agency to certify a rule, in lieu of
preparing an analysis, if the rulemaking
is not expected to have a significant
economic impact on a substantial
number of small entities. Within the
meaning of RFA, SBA certifies that this
rule will not have a significant
economic impact on a substantial
number of small entities. Consequently,
this rule doe not meet the substantial
number of small businesses criterion
anticipated by the Regulatory Flexibility
Act.
There are about a dozen Sureties that
participate in the SBA program, and this
rule does not impose any additional cost
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or any significant burden on them.
Allowing PSB Sureties to charge the
highest premium rates permitted by
applicable State law raises the
possibility of an economic impact on
those contractors that now receive their
bonding from PSB Sureties, but out of
843 contractors participating in the SBA
program in FY2005, about 143 were
bonded by PSB Sureties. Prior Approval
Sureties are already allowed to charge
the premium rates permitted by the
individual State law, so the economic
effect, if any, of this final rule would be
to subject approximately 17 percent of
the contractors in the SBA program to
the risk that they might have to pay the
same premium rates that their fellow
participating contractors must pay. No
public comments were received in
response to the RFA analysis provided
in the proposed rule.
List of Subjects in 13 CFR Part 115
Claims, Reporting and recordkeeping
requirements, Small businesses, Surety
bonds.
I For the reasons stated in the preamble,
the Small Business Administration
amends 13 CFR part 115 as follows:
PART 115—SURETY BOND
GUARANTEE
1. The authority citation for part 115
is revised to read as follows:
I
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, § 203.
2. Amend § 115.10 by adding the
following definitions in alphabetical
order.
I
§ 115.10
Definitions.
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Service-Disabled Veteran means a
veteran with a disability that is serviceconnected, as defined in Section 101(16)
of Title 38, United States Code.
Small Business Owned and
Controlled by Service-Disabled Veterans
means:
(1) A Small Concern of which not less
than 51 percent is owned by one or
more Service-Disabled Veterans; or a
publicly-owned Small concern of which
not less than 51 percent of the stock is
owned by one or more Service-Disabled
Veterans; and
(2) The management and daily
business operations of which are
controlled by one or more ServiceDisabled Veterans, or in the case of a
Service-Disabled Veteran with
permanent and severe disability, the
spouse or permanent caregiver of such
Veteran.
Small Business Owned and
Controlled by Veterans means:
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34599
(1) A Small Concern of which not less
than 51 percent is owned by one or
more Veterans; or a publicly-owned
Small Concern of which not less than 51
percent of the stock is owned by one or
more Veterans; and
(2) The management and daily
business operations of which are
controlled by one or more Veterans.
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*
*
*
Veteran has the meaning given the
term in Section 101(2) of Title 38,
United States Code.
I 3. Revise § 115.19(g) to read as
follows:
§ 115.19
Denial of liability.
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*
*
*
*
(g) Delinquent fees. The Surety has
not remitted to SBA the Principal’s
payment for the full amount of the
guarantee fee within the time period
required under § 115.30(d) for Prior
Approval Sureties or § 115.66 for PSB
Sureties, or has not made timely
payment of the Surety’s fee within the
time period required by § 115.32(c).
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.
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*
I 4. Revise § 115.21(a)(2) to read as
follows:
§ 115.21
Audits and investigations.
(a) * * *
(1) * * *
(2) Frequency of PSB Audits. Each
PSB Surety is subject to an audit at least
once every 3 years by examiners
selected and approved by SBA.
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*
*
*
I 5. Revise § 115.31(a)(2) to read as
follows:
§ 115.31
Guarantee percentage.
(a) * * *
(1) * * *
(2) The bond was issued on behalf of
a small business owned and controlled
by socially and economically
disadvantaged individuals, on behalf of
a qualified HUBZone small business
concern, or on behalf of a small business
owned and controlled by veterans or a
small business owned and controlled by
Service-disabled veterans.
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*
I 6. Revise § 115.32 (c) and (d)(2) to
read as follows:
§ 115.32
Fees and premiums.
*
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*
*
(c) SBA charge to Surety. SBA does
not charge Sureties application or Bid
Bond guarantee fees. Subject to
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Federal Register / Vol. 72, No. 121 / Monday, June 25, 2007 / Rules and Regulations
§ 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 Payment or
Performance Bond on the SBA Form
990, Guarantee Agreement. 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 paragraph (d) of this
section for additional requirements
when the Contract or bond amount
changes.
(d) * * *
(1) * * *
(2) Increases; fees. Notification of
increases in the Contract or bond
amount under this paragraph (d) must
be accompanied by the Principal’s
check for the increase in the Principal’s
guarantee fee computed on the increase
in the Contract amount. 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 check for
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
supplemental 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’s check must be submitted to
SBA within 60 calendar days.
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*
*
I 7. Revise § 115.60(a)(2) to read as
follows:
§ 115.60 Selection and admission of PSB
Sureties.
(a) * * *
(1) * * *
(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.
*
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*
*
*
§ 115.61
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I
I
[Removed & Reserved]
8. Remove and reserve § 115.61.
9. Revise § 115.62 to read as follows:
§ 115.62 Prohibition on participation in
Prior Approval program.
A PSB Surety is not eligible to submit
applications under subpart B of this
part. This prohibition does not extend to
an Affiliate, as defined in 13 CFR
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§ 121.103, of a PSB Surety that is not
itself a PSB Surety provided that the
relationship between the PSB Surety
and the Affiliate has been fully
disclosed to SBA and that such Affiliate
has been approved by SBA to
participate as a Prior Approval Surety
pursuant to § 115.11.
Steven C. Preston,
Administrator.
[FR Doc. 07–2983 Filed 6–22–07; 8:45 am]
BILLING CODE 8025–01–M
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9332]
RIN 1545–BG00
Exclusions From Gross Income of
Foreign Corporations
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
SUMMARY: This document contains final
and temporary regulations under section
883(a) and (c) of the Internal Revenue
Code (Code), relating to the exclusion
from gross income of income derived by
certain foreign corporations engaged in
the international operation of ships or
aircraft. These regulations revise
§ 1.883–3 of the final regulations,
relating to the eligibility of controlled
foreign corporations for the exclusion
under section 883, following the repeal
of section 954(a)(4) and (f) (foreign base
company shipping provisions) by
section 415 of the American Jobs
Creation Act of 2004. In addition, these
regulations provide certain additional
guidance under section 883(a) and (c),
including for foreign corporations that
are organized in countries providing an
exemption from taxation for certain
shipping and air transport income solely
through an income tax convention. The
text of these temporary regulations also
serves as the text of the proposed
regulations (REG–138707–06) set forth
in the Proposed Rules section in this
issue of the Federal Register.
DATES: Effective Date: These regulations
are effective on June 25, 2007.
Applicability Date: For dates of
applicability, see § 1.883–5T.
FOR FURTHER INFORMATION CONTACT:
Patricia A. Bray, at (202) 622–3880 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
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Paperwork Reduction Act
These regulations are being issued
without prior notice and public
procedure pursuant to the
Administrative Procedure Act (5 U.S.C.
553). For this reason, the collections of
information contained in these
regulations has been reviewed, and
pending receipt and evaluation of
public comments, approved by the
Office of Management and Budget under
control number 1545–1667. Responses
to these collections of information are
mandatory.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
For further information concerning
these collections of information, where
to submit comments on the collections
of information and the accuracy of the
estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to the cross-referencing notice
of proposed rulemaking published in
the Proposed Rules section of this issue
of the Federal Register.
Books and records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
1. Section 883 and the Final Regulations
Sections 883(a)(1) and (a)(2) of the
Code generally provide that income
from the international operation of ships
or aircraft derived by a foreign
corporation will be excluded from gross
income and exempt from U.S. taxation
if the foreign country in which the
corporation is organized grants an
equivalent exemption to corporations
organized in the United States. Section
883(c)(1) provides that a foreign
corporation cannot qualify for the
section 883(a) exemption if 50 percent
or more of the value of its stock is
owned by individuals who are not
residents of a country that grants an
equivalent exemption to U.S.
corporations. However, under section
883(c)(2), section 883(c)(1) does not
apply to a foreign corporation that is a
controlled foreign corporation as
defined in section 957(a)(CFC). In
addition, under section 883(c)(3),
section 883(c)(1) does not apply to a
foreign corporation whose stock is
primarily and regularly traded on an
established securities market in the
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]]>Agencies
[Federal Register Volume 72, Number 121 (Monday, June 25, 2007)]
[Rules and Regulations]
[Pages 34597-34600]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 07-2983]
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SMALL BUSINESS ADMINISTRATION
13 CFR Part 115
RIN 3245-AF39
Surety Bond Guarantee Program-Preferred Surety Qualification,
Increased Guarantee for Veteran and Service-Disabled Veteran-Owned
Business, Deadline for Payment of Guarantee Fees, Denial of Liability,
and Technical Amendments
AGENCY: U.S. Small Business Administration (SBA).
ACTION: Final rule.
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SUMMARY: On September 26, 2006, SBA published a proposed rule in the
Federal Register addressing six changes to the SBA Surety Bond
Guarantee (SBG) Program in order to improve operation of the SBG
program and make it easier for sureties and small business concerns to
participate in the program. Specifically, this rules makes the
following amendments to the program: (1) Gives effect to the statutory
reduction in the frequency of audits required of Preferred Surety Bond
(PSB) Sureties; (2) obligates SBA to guarantee 90 percent of the loss
incurred by a Prior Approval Surety on bonds issued
[[Page 34598]]
on behalf of small businesses owned and controlled by veterans, and
Service-disabled veterans; (3) imposes a 60-day deadline for the
submission of surety fees to SBA; (4) allows PSB Sureties to charge
premiums in accordance with applicable state ceilings, as presently
permitted under the Prior Approval Program; (5) deletes the existing
reference to the expiration of the PSB Program; and (6) allows
Affiliates of a PSB Surety to participate in the Prior Approval
Program.
DATES: This rule is effective July 25, 2007.
FOR FURTHER INFORMATION CONTACT: Frank Lalumiere, Director, Office of
Surety Guarantees, (202) 205-6540; Frank.Lalumiere@sba.gov.
SUPPLEMENTARY INFORMATION:
SBA can guarantee bonds for contracts up to $2 million, covering
bid, performance and payment bonds for small and emerging contractors
who cannot obtain surety bonds through regular commercial channels.
SBA's guarantee gives sureties an incentive to provide bonding for
small businesses and thereby strengthens their ability to obtain
bonding and greater access to contracting opportunities.
Section 411(g)(3) of the Small Business Investment Act of 1958 (the
Act) formerly required PSB Sureties to be audited every year. 15 U.S.C.
694b(g)(3). As amended by Public Law 108-447, Div. K. Section 203, the
Small Business Reauthorization and Manufacturing Assistance Act of
2004, the Act now requires audits to be made at least once every 3
years. This final rule implements this statutory requirement.
In relevant part, Section 4(b)(1) of the Small Business Act
provides that SBA ``shall give special consideration to veterans of the
Armed Forces of the United States and their survivors and dependents.''
15 U.S.C. 633(b)(1). This final rule encourages the issuance of bonds
on behalf of small business concerns owned and controlled by veterans
and Service-disabled veterans, by guaranteeing to pay 90 percent of a
Prior Approval Program Surety's loss. This guaranty affords such
concerns more opportunity to obtain contracts generally.
Section 411(h) of the Small Business Investment Act mandates the
operation of the program ``on a prudent and economically justifiable
basis'' and authorizes SBA to impose fees on both small business
concerns and sureties, ``to be payable at such time as may be
determined by [SBA].'' Accordingly, this final rule establishes a clear
deadline for a Prior Approval Surety's payment of the guarantee fees
owed to SBA in order to maintain SBA's guarantee.
The final rule also allows PSB Program Sureties to charge no more
than the premium rates permitted under applicable State law, as Prior
Approval Sureties are already allowed. The initial regulations for the
PSB program specified that the premium rates charged by PSB Sureties
could not exceed the Surety Association of America's advisory premium
rates in effect on August 1, 1987. SAA discontinued its rate setting
function shortly after promulgating the 1987 rates, and participating
surety companies have been obligated to use the 1987 SAA rates for the
past 18 years despite economic and market place changes. This change
puts the Preferred and Prior Approval Programs on the same footing by
relying on the individual State oversight bodies for setting fee rates.
From its creation in 1988 until 2004, the PSB program was a pilot
program, subject to automatic termination in the absence of affirmative
Congressional action. Now that the PSB program has been made permanent,
the present regulation that speaks of the termination of the program
has been removed.
Finally, pursuant to this rule Affiliates of PSB Sureties are no
longer barred from participation in the Prior Approval program. The
term ``Affiliate'' is defined in 13 CFR part 121, but in the context of
the present discussion it means a relationship in which one Surety owns
or otherwise controls another Surety, or in which two or more Sureties
are commonly owned by, or under common control with, a third party. A
series of mergers and acquisitions in the surety industry in recent
years had caused Sureties previously eligible to participate in the
Prior Approval Program to become Affiliates of PSB Sureties and lose
their eligibility. This final amendment should encourage increased
participation in the Prior Approval Program by otherwise qualified
Sureties that are Affiliates of PSB Sureties.
Discussion of Public Comments
SBA received five public comments on the proposed rule, three from
associations and two from individual surety companies. Each commenter
supported the proposed changes, with two exceptions.
Four commenters recommended removal of the proposed language in
Sec. 115.19, Denial of Liability, that would allow SBA to deny bond
liability as a result of the failure of a surety company to pay the
required surety fee. In general, the commenters stated that such a
requirement would weaken the SBA/Surety Industry partnership that is
designed to assist small businesses. While SBA values its partners in
the surety industry, the Agency has a fiduciary responsibility to
ensure timely payment of guaranty fees in order to honor its guaranty.
Accordingly, the language in the proposed rule regarding the denial of
bond liability if the surety fee is not paid within 60 days is
retained. The proposed rule also included a provision that the guaranty
can be reinstated if a valid reason for the delinquent payment of
guaranty fee is provided and the contract is not in default. This
language is also retained in the final rule.
Three commenters expressed concern with the proposed 45 days fee
payment requirement. One commenter requested clarification of when the
45-day period begins. A few commenters said it would be difficult to
remit payment within 45 days, in part because many sureties do not
receive payment on the final bond premium until 45 days after the bond
is issued, and to require payment before collection on the premium is
unduly punitive. In consideration of these comments, in this final
rule, SBA has amended the proposed rule. First, the proposed 45-day
period cited in Sec. 115.32 is increased to 60 days. SBA believes that
the additional 15 days will provide time for a surety company agent to
provide the surety company with sufficient information for the surety
company to make payment. Second, the same section is also revised to
specify that payment is required within 60 days following SBA approval
of the Prior Approval Payment or Performance Bond on the SBA Form 990,
Guarantee Agreement.
One commenter also suggested that the agency should extend the 10-
day deadline for PSB sureties to submit the executed bond to SBA to a
15-day deadline. SBA did not propose to amend this particular
requirement, and it will be considered among other changes in a future
amendment.
Compliance With Executive Orders 12866, 12988, and 13132, the Paperwork
Reduction Act (44 U.S.C. Ch. 35), and the Regulatory Flexibility Act (5
U.S.C. 601-612)
Compliance With Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
rule constitutes a significant regulatory action for purposes of
Executive Order 12866, thereby necessitating a regulatory impact
analysis. SBA
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published this analysis in the Proposed Rule. The agency did not
receive any comments addressing the analysis and is not aware of any
additional information that would require revision of its initial
conclusions.
Compliance With 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.
Compliance With Executive Order 13132
For purpose of E.O. 13132, the SBA has determined that the 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, SBA
determines that this final rule has no federalism implications
warranting preparation of a federalism assessment.
Compliance With Paperwork Reduction Act, 44 U.S.C. Ch. 35
SBA has determined that this final rule does not impose additional
reporting or recordkeeping requirements under the Paperwork Reduction
Act, 44 U.S.C., Chapter 35.
Compliance With the Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601, requires
administrative agencies to consider the effect of their actions on
small entities, small non-profit enterprises, and small local
governments. Pursuant to the RFA, when an agency issues a rulemaking,
the agency must prepare a regulatory flexibility analysis which
describes the impact of the rule on small entities. However, Section
605 of the RFA allows an agency to certify a rule, in lieu of preparing
an analysis, if the rulemaking is not expected to have a significant
economic impact on a substantial number of small entities. Within the
meaning of RFA, SBA certifies that this rule will not have a
significant economic impact on a substantial number of small entities.
Consequently, this rule doe not meet the substantial number of small
businesses criterion anticipated by the Regulatory Flexibility Act.
There are about a dozen Sureties that participate in the SBA
program, and this rule does not impose any additional cost or any
significant burden on them. Allowing PSB Sureties to charge the highest
premium rates permitted by applicable State law raises the possibility
of an economic impact on those contractors that now receive their
bonding from PSB Sureties, but out of 843 contractors participating in
the SBA program in FY2005, about 143 were bonded by PSB Sureties. Prior
Approval Sureties are already allowed to charge the premium rates
permitted by the individual State law, so the economic effect, if any,
of this final rule would be to subject approximately 17 percent of the
contractors in the SBA program to the risk that they might have to pay
the same premium rates that their fellow participating contractors must
pay. No public comments were received in response to the RFA analysis
provided in the proposed rule.
List of Subjects in 13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
0
For the reasons stated in the preamble, the Small Business
Administration amends 13 CFR part 115 as follows:
PART 115--SURETY BOND GUARANTEE
0
1. The authority citation for part 115 is revised 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.
0
2. Amend Sec. 115.10 by adding the following definitions in
alphabetical order.
Sec. 115.10 Definitions.
* * * * *
Service-Disabled Veteran means a veteran with a disability that is
service-connected, as defined in Section 101(16) of Title 38, United
States Code.
Small Business Owned and Controlled by Service-Disabled Veterans
means:
(1) A Small Concern of which not less than 51 percent is owned by
one or more Service-Disabled Veterans; or a publicly-owned Small
concern of which not less than 51 percent of the stock is owned by one
or more Service-Disabled Veterans; and
(2) The management and daily business operations of which are
controlled by one or more Service-Disabled Veterans, or in the case of
a Service-Disabled Veteran with permanent and severe disability, the
spouse or permanent caregiver of such Veteran.
Small Business Owned and Controlled by Veterans means:
(1) A Small Concern of which not less than 51 percent is owned by
one or more Veterans; or a publicly-owned Small Concern of which not
less than 51 percent of the stock is owned by one or more Veterans; and
(2) The management and daily business operations of which are
controlled by one or more Veterans.
* * * * *
Veteran has the meaning given the term in Section 101(2) of Title
38, United States Code.
0
3. Revise Sec. 115.19(g) to read as follows:
Sec. 115.19 Denial of liability.
* * * * *
(g) Delinquent fees. The Surety has not remitted to SBA the
Principal's payment for the full amount of the guarantee fee within the
time period required under Sec. 115.30(d) for Prior Approval Sureties
or Sec. 115.66 for PSB Sureties, or has not made timely payment of the
Surety's fee within the time period required by Sec. 115.32(c). 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
4. Revise Sec. 115.21(a)(2) to read as follows:
Sec. 115.21 Audits and investigations.
(a) * * *
(1) * * *
(2) Frequency of PSB Audits. Each PSB Surety is subject to an audit
at least once every 3 years by examiners selected and approved by SBA.
* * * * *
0
5. Revise Sec. 115.31(a)(2) to read as follows:
Sec. 115.31 Guarantee percentage.
(a) * * *
(1) * * *
(2) The bond was issued on behalf of a small business owned and
controlled by socially and economically disadvantaged individuals, on
behalf of a qualified HUBZone small business concern, or on behalf of a
small business owned and controlled by veterans or a small business
owned and controlled by Service-disabled veterans.
* * * * *
0
6. Revise Sec. 115.32 (c) and (d)(2) to read as follows:
Sec. 115.32 Fees and premiums.
* * * * *
(c) SBA charge to Surety. SBA does not charge Sureties application
or Bid Bond guarantee fees. Subject to
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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 Payment or Performance Bond on the
SBA Form 990, Guarantee Agreement. 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 paragraph (d) of this section for additional requirements
when the Contract or bond amount changes.
(d) * * *
(1) * * *
(2) Increases; fees. Notification of increases in the Contract or
bond amount under this paragraph (d) must be accompanied by the
Principal's check for the increase in the Principal's guarantee fee
computed on the increase in the Contract amount. 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 check for 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 supplemental 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's check must be submitted to SBA
within 60 calendar days.
* * * * *
0
7. Revise Sec. 115.60(a)(2) to read as follows:
Sec. 115.60 Selection and admission of PSB Sureties.
(a) * * *
(1) * * *
(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.
* * * * *
Sec. 115.61 [Removed & Reserved]
0
8. Remove and reserve Sec. 115.61.
0
9. Revise Sec. 115.62 to read as follows:
Sec. 115.62 Prohibition on participation in Prior Approval program.
A PSB Surety is not eligible to submit applications under subpart B
of this part. This prohibition does not extend to an Affiliate, as
defined in 13 CFR Sec. 121.103, of a PSB Surety that is not itself a
PSB Surety provided that the relationship between the PSB Surety and
the Affiliate has been fully disclosed to SBA and that such Affiliate
has been approved by SBA to participate as a Prior Approval Surety
pursuant to Sec. 115.11.
Steven C. Preston,
Administrator.
[FR Doc. 07-2983 Filed 6-22-07; 8:45 am]
BILLING CODE 8025-01-M
