Surety Bond Guarantee Program, 2084-2087 [2014-00295]
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2084
Federal Register / Vol. 79, No. 8 / Monday, January 13, 2014 / Rules and Regulations
d. Amend section 2(k)(1)(ii) by
removing the phrase ‘‘2(k)(2)(i)(A), (B),
(D) or (E)’’ and adding the phrase
‘‘2(k)(2)(i)(A), (B) or (D)’’ in its place;
■ e. Amend section 2(k)(2)(i)(C) by
adding the word ‘‘or’’ after the
semicolon at the end;
■ f. Amend section 2(k)(2)(i)(D) by
removing the phrase ‘‘; or’’ and adding
a period in its place;
■ g. Remove section 2(k)(2)(i)(E);
■ h. Amend section 2(k)(2)(ii) by
removing the phrase ‘‘2(k)(2)(i)(A), (B),
(D) or (E)’’ and adding the phrase
‘‘2(k)(2)(i)(A), (B) or (D)’’ in its place;
■ i. Revise section 2(k)(3)(iii); and
■ j. Amend section 2(p)(2) by removing
the phrase ‘‘or you file a petition to
discharge the debt in bankruptcy’’ in the
last sentence and adding the phrase ‘‘or
you have your debts discharged in
bankruptcy’’ in its place.
The revised text reads as follows:
■
§ 407.9
policy.
discharge the debt in bankruptcy’’ in the
last sentence and adding the phrase ‘‘or
you have your debts discharged in
bankruptcy’’ in its place.
The revised text reads as follows:
§ 457.8
The application and policy.
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2. Life of Policy, Cancellation, and
Termination.
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(f) * * *
(3) * * *
(iii) Have your debts discharged in
bankruptcy.
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Signed in Washington, DC, on December
20, 2013.
Brandon Willis,
Manager, Federal Crop Insurance
Corporation.
[FR Doc. 2013–31357 Filed 1–10–14; 8:45 am]
BILLING CODE 3410–08–P
Area risk protection insurance
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2. Life of Policy, Cancellation, and
Termination.
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(k) * * *
(3) * * *
(iii) Have your debts discharged in
bankruptcy.
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SMALL BUSINESS ADMINISTRATION
PART 457—COMMON CROP
INSURANCE REGULATIONS
SUMMARY:
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13 CFR Part 115
RIN 3245–AG56
Surety Bond Guarantee Program
U.S. Small Business
Administration.
ACTION: Final rule.
AGENCY:
7. The authority citation for 7 CFR
part 457 continues to read as follows:
■
Authority: 7 U.S.C. 1506(l), 1506(p).
8. Amend § 457.8 as follows:
a. Amend section 2(f)(1)(i)(B) by
adding the word ‘‘or’’ after the
semicolon at the end;
■ b. Amend section 2(f)(1)(i)(C) by
removing the phrase ‘‘; or’’ and adding
a period in its place;
■ c. Remove section 2(f)(1)(i)(D);
■ d. Amend section 2(f)(1)(ii) by
removing the phrase ‘‘2(f)(2)(i)(A), (B),
(D) or (E)’’ and adding the phrase
‘‘2(f)(2)(i)(A), (B) or (D)’’ in its place;
■ e. Amend section 2(f)(2)(i)(C) by
adding the word ‘‘or’’ after the
semicolon at the end;
■ f. Amend section 2(f)(2)(i)(D) by
removing the phrase ‘‘; or’’ and adding
a period in its place;
■ g. Remove section 2(f)(2)(i)(E);
■ h. Amend section 2(f)(2)(ii) by
removing the phrase ‘‘2(f)(2)(i)(A), (B),
(D) or (E)’’ and adding the phrase
‘‘2(f)(2)(i)(A), (B) or (D)’’ in its place;
■ i. Revise section 2(f)(3)(iii); and
■ j. Amend section 2(f)(5) by removing
the phrase ‘‘or you file a petition to
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■
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The Small Business
Administration (SBA) is issuing this
final rule to conform the regulations
governing the Surety Bond Guarantee
Program to certain provisions of the
National Defense Authorization Act for
Fiscal Year 2013 (NDAA), including the
provisions that increase the contract
amounts for which SBA is authorized to
guarantee bonds, grant SBA the
authority to partially deny liability
under its bond guarantee, and prohibit
SBA from denying liability based on
material information that was provided
as part of the guarantee application in
the Prior Approval Program. This rule
also makes changes to the Quick Bond
Guarantee Application and Agreement,
the timeframes for taking certain actions
related to claims, and the dollar
threshold for determining when a
change in the Contract or bond amounts
meets certain criteria or requires certain
action. Finally, the final rule eliminates
references to the provisions of the
American Recovery and Reinvestment
Act of 2009 (Recovery Act) that have
expired.
DATES: This rule is effective February
12, 2014.
FOR FURTHER INFORMATION CONTACT:
Barbara J. Brannan, Office of Surety
PO 00000
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Guarantees, 202–205–6545, email:
Barbara.brannan@sba.gov.
SUPPLEMENTARY INFORMATION:
I. Background Information
The U.S. Small Business
Administration (SBA) guarantees bid,
payment and performance 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 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.
On August 1, 2013, SBA published a
notice of proposed rulemaking with a
request for comments in the Federal
Register. The rule proposed to: (1)
Conform SBA’s Surety Bond Guarantee
Program (‘‘SBG Program’’) to certain
provisions of the National Defense
Authorization Act of 2013 (NDAA); (2)
clarify the extent to which a Principal
may subcontract work performed under
the Contract; (3) make changes to the
Quick Bond Guarantee Application and
Agreement; (4) increase the dollar
threshold for determining when a
change in the Contract or bond amounts
may result in denial of liability or
require certain actions; (5) reduce the
timeframes for taking certain actions
related to claims; and (6) eliminate
references to the provisions of the
American Recovery and Reinvestment
Act of 2009 (Recovery Act) that have
expired. See 78 FR 46528.
The comment period was open until
September 30, 2013. SBA received two
comments, both from trade associations,
that expressed their support for the
proposed rule and indicated that the
changes are favorable to small
businesses. With respect to the
proposed increases in the dollar
thresholds, one commenter noted that a
Surety may not be in a position to notify
SBA or seek SBA’s approval when a
change order exceeds the specified
dollar threshold because a Surety may
be required contractually to waive
notice of contract amount changes.
Under section 115.32(d), a Prior
Approval Surety is required to notify
SBA of any required changes in the
Contract or bond amount that aggregate
25% or $50,000 (to be increased to
$100,000 under this final rule) ‘‘as soon
as the Surety acquires knowledge of the
change’’. Thus, the Surety is required to
provide notice to SBA under this
provision upon acquiring knowledge of
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these aggregated changes. It is important
to note that, under section 115.15(b), the
Surety is required to monitor the
Principal’s progress on bonded
Contracts guaranteed by SBA and,
accordingly, SBA would expect the
Surety to be aware of changes in the
Contract or bond amounts. Moreover,
for increases in the original bond
amount as a result of a single change
order of at least 25% or $50,000 (to be
increased to $100,000 by this final rule),
the Surety must, under section
115.32(d), obtain SBA’s prior written
approval of such increase (and such
approval is conditioned upon payment
by the Surety of the increase in the
Principal’s guarantee fee).
In addition, as the commenter
observed, SBA now has the discretion,
under section 115.19, to deny liability
in whole or in part. The commenter
suggested that SBA propose regulations
to address the use of such discretion
where the Surety does not obtain
approval or notify SBA of the change in
the Contract or bond amount. However,
the exercise of this discretion must be
based on the circumstances of each case
and will be determined on a case-bycase basis.
SBA is adopting the rule as proposed
and as described in the section-bysection analysis below.
II. Section By Section Analysis
Section 115.10. SBA is revising the
definition of ‘‘Applicable Statutory
Limit’’ to include the maximum
amounts of any Contract or Order for
which SBA is authorized by the NDAA
to guarantee, or commit to guarantee, a
Bid Bond, Payment Bond, Performance
Bond, or Ancillary Bond. The statutory
limits set by the NDAA are (1) $6.5
million (as adjusted for inflation in
accordance with 41 U.S.C. 1908); and
(2) $10 million if a contracting officer of
a Federal agency certifies that such
guarantee is necessary. In addition, SBA
is including a reference in the definition
to the maximum amounts of any
Contract or Order when SBA guarantees
the bond in connection with a
procurement related to a major disaster
pursuant to section 12079 of Public Law
110–246. Under this provision, which
was enacted on June 18, 2008, the
maximum amounts are: (1) $5 million;
and (2) $10 million on Federal Contracts
or Orders at the request of the Head of
any Federal agency involved in
reconstruction efforts in response to a
major disaster. The authority to
guarantee bonds under this provision is
subject to the availability of funds
appropriated in advance specifically for
the purpose of guaranteeing bonds for
any Contract or Order related to a major
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disaster. SBA does not expect this
authority to be often used, given
NDAA’s increase in the maximum
amounts for any Contract or Order up to
$6.5 million (and $10 million if a
Federal contracting officer certifies that
such guarantee is necessary) and the
requirement that funds be appropriated
in advance specifically for guaranteeing
bonds related to a major disaster. No
changes have been made to this
provision as proposed.
Section 115.12(b). SBA is deleting the
reference to the ‘‘Contract Bonds’’
section of the current ‘‘Manual of Rules,
Procedures and Classifications of the
Surety Association of America’’ and is
replacing this reference with two
specific types of bonds, Commercial and
Fidelity bonds, which are not eligible
for an SBA guarantee. No changes have
been made to this provision as
proposed.
Section 115.12(e)(3). This provision is
being deleted in its entirety, as it relates
to requirements imposed by the
Recovery Act that expired on September
30, 2010. No changes have been made
to this provision as proposed.
Section 115.12(e)(4). This provision is
being renumbered as (e)(3), and now
reflects the authority to guarantee bonds
on Federal Contracts or Orders greater
than $6.5 million, but not exceeding $10
million, upon a signed certification of a
Federal contracting officer, as
authorized by the NDAA. No changes
have been made to this provision as
proposed.
Section 115.12(e)(5). This provision
has been renumbered as (e)(4), and
implements an alternative statutory
authority provided SBA under Public
Law 110–246 for guaranteeing bonds for
procurements related to a major
disaster. References to requirements
imposed by the Recovery Act that
expired on September 30, 2010, have
been deleted. No changes have been
made to this provision as proposed.
Section 115.13(a)(5). SBA is revising
this provision to clarify that, to be
eligible for a bond guaranteed by SBA,
the Principal must retain full
responsibility for the oversight and
management of the Contract, including
any work performed by any
subcontractor, and may not subcontract
the full scope of the statement of work.
No changes have been made to this
provision as proposed.
Section 115.17(b)(2). SBA is reducing
the time frame allowed for a Surety to
reimburse or credit SBA for salvage and
recovery from 90 days to 45 days after
the Surety receives any salvage and
recovery. No changes have been made to
this provision as proposed.
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Section 115.19. SBA is revising the
introductory paragraph of this provision
to conform it to current law by deleting
the time frame reference required by the
Recovery Act, which has expired, and
by inserting the relevant requirements of
the NDAA, including the authority of
SBA to deny liability, in whole or in
part, within its discretion if any of the
circumstances in paragraphs (a) through
(h) of this section exist, and the
prohibition on denying liability based
on material information that was
provided to SBA as part of the Surety’s
guarantee application in the Prior
Approval Program. SBA made one
minor clarification to the provision as
proposed by revising the introductory
language in section 115.19 to make it
clear that the material information must
have been provided to SBA in the
Surety’s application. SBA is also
amending section 115.19(c)(1) by
increasing the dollar threshold for
determining whether the Surety has
committed a material breach of one or
more terms or conditions of its Prior
Approval or PSB Agreement from
$50,000 to $100,000. In addition, SBA is
amending section 115.19(d) by
increasing the dollar threshold for
determining whether the Surety has
committed a substantial violation of
SBA regulations from $50,000 to
$100,000, and is amending section
115.19(e)(2) by increasing the dollar
threshold for determining whether a
Prior Approval Surety has agreed to or
acquiesced in any material alteration in
the terms, conditions, or provisions of
the bond from $50,000 to $100,000. In
each of these sections, the phrase
‘‘whichever is less’’ is being added after
the $100,000 to clarify the meaning of
this requirement. No other changes have
been made to this provision as
proposed.
Section 115.30(d)(2). SBA is deleting
the phrase ‘‘or the warranty/
maintenance period’’ from this
provision to allow the Quick Bond
Application and Agreement (SBA Form
990A) to be used for a Contract that
includes a maintenance period of 2
years or less (for defective workmanship
or materials only), and with SBA’s
approval, for longer maintenance
periods and broader coverage, as
provided in section 115.10 under the
definition of ‘‘Contract’’. In addition,
SBA is increasing the allowable
liquidated damages provision from
$250.00 per day to $1,000.00 per day.
No changes have been made to this
provision as proposed.
Section 115.31(d). SBA is revising the
final sentence of this provision by
basing the example on the current
statutory limit of $6.5 million. No
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changes have been made to this
provision as proposed.
Section 115.32(d). SBA is amending
this provision by changing the dollar
threshold for determining when the
Prior Approval Surety must notify SBA
of the change and/or obtain SBA’s
approval from at least $50,000 to
$100,000. The phrase ‘‘whichever is
less’’ has been added to clarify the
meaning of this requirement. No
changes have been made to this
provision as proposed.
Section 115.35(c)(1). SBA is reducing
the time frame allowed for a Prior
Approval Surety to submit a claim to
SBA from one year to 90 days after the
Surety pays the claim. In addition, the
title of the SBA Form 994H, ‘‘Default
Report, Claim for Reimbursement and
Record of Administrative Action,’’ has
been changed to ‘‘Default Report, Claim
for Reimbursement and Report of
Recoveries,’’ to reflect the current
version of the form. No changes have
been made to this provision as
proposed.
Section 115.35(c)(4). SBA is reducing
the time frame for SBA to pay a claim
submitted by a Surety in the Prior
Approval Program from 90 days to 45
days after receipt of the requisite
information. No changes have been
made to this provision as proposed.
Section 115.36(a)(3). SBA is reducing
the time frame allowed for a Surety to
reimburse SBA its share of a settlement
from 90 days to 45 days after receipt. No
changes have been made to this
provision as proposed.
Section 115.67(a). SBA is increasing
the dollar threshold for determining
when a PSB Surety must present checks
for additional fees due from the
Principal and Surety from $50,000 to
$100,000. The phrase ‘‘whichever is
less’’ has been added to clarify the
meaning of this requirement. No
changes have been made to this
provision as proposed.
Section 115.69. For imminent breach
payments that exceed 10% of the
Contract amount, SBA is revising this
provision to give the PSB Surety the
opportunity to request SBA to approve
the amount prior to the Surety making
the Imminent Breach payment. SBA will
approve such payment if SBA finds that
the payment is necessary and
reasonable. If the Surety does not
request prior SBA approval for such
payments, SBA may refuse to reimburse
the Surety if SBA finds that the payment
that exceeds 10% of the Contract
amount was not necessary and
reasonable. No changes have been made
to this provision as proposed.
SBA 115.70(a). SBA is reducing the
time frame allowed for a PSB Surety to
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submit a claim to SBA from one year to
90 days after the Surety pays the claim.
SBA is also reducing the time frame for
SBA to pay a claim submitted by a
Surety in the PSB Program from 90 days
to 45 days after receipt of the requisite
information. No changes have been
made to this provision as proposed.
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)
Executive Order 12866
The Office of Management and Budget
(OMB) has determined that this final
rule does not constitute a significant
regulatory action under Executive Order
12866. This is also not a ‘‘major rule’’
under the Congressional Review Act, 5
U.S.C. 800.
Executive Order 12988
This action meets applicable
standards set forth in Sections 3(a) and
3(b)(2) of Executive Order 12988, Civil
Justice Reform, to minimize litigation,
eliminate ambiguity, and reduce
burden. The action does not have
retroactive or preemptive effect.
Executive Order 13132
SBA has determined that this final
rule will not have substantial, direct
effects on the States, on the relationship
between the national government and
the States, or on the distribution of
power and responsibilities among the
various levels of government. Therefore,
for the purposes of Executive Order
13132, SBA has determined that this
final rule has no federalism implications
warranting preparation of a federalism
assessment.
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.
Regulatory Flexibility Act, 5 U.S.C. 601–
612
The Regulatory Flexibility Act (RFA)
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
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is not expected to have a significant
economic impact on a substantial
number of small entities. There are
twenty-one Sureties that participate in
the SBA program, and no part of this
final rule would impose any additional
cost or any significant burden on them.
Consequently, this final rule does not
meet the substantial number of small
businesses criterion anticipated by the
Regulatory Flexibility Act.
List of Subjects in 13 CFR Part 115
Claims, Reporting and recordkeeping
requirements, Small businesses, Surety
bonds.
For the reasons stated in the
preamble, SBA amends 13 CFR part 115
as follows:
PART 115—SURETY BOND
GUARANTEE
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; and Pub. L. 110–246,
Sec. 12079, 122 Stat. 1651.
2. In § 115.10, revise the definition of
‘‘Applicable Statutory Limit’’ to read as
follows:
■
§ 115.10
Definitions.
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Applicable Statutory Limit means the
maximum amount, set forth below, of
any Contract or Order for which SBA is
authorized to guarantee, or commit to
guarantee, a Bid Bond, Payment Bond,
Performance Bond, or Ancillary Bond:
(1) $6.5 million (as adjusted for
inflation in accordance with 41 U.S.C.
1908);
(2) $10 million if a contracting officer
of a Federal agency certifies, in
accordance with section 115.12(e)(3),
that such guarantee is necessary; or
(3) if SBA is guaranteeing the bond in
connection with a procurement related
to a major disaster pursuant to section
12079 of Pub. L. 110–246, see section
115.12(e)(4).
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■ 3. Amend § 115.12 as follows:
■ a. Revise paragraph (b);
■ b. Remove paragraph (e)(3);
■ c. Redesignate paragraphs (e)(4) and
(5) as paragraphs (e)(3) and (4),
respectively;
■ d. In newly redesignated paragraph
(e)(3), revise the heading and the first
sentence;
■ e. Revise newly redesignated
paragraph (e)(4) introductory text,
remove newly redesignated paragraph
(e)(4)(iii), and redesignate paragraph
(e)(4)(iv) as paragraph (e)(4)(iii);
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f. In newly redesignated paragraph
(e)(4)(iii), remove ‘‘paragraph (e)(5)’’ and
add in its place ‘‘paragraph (e)(4)’’.
The revisions read as follows:
■
§ 115.12 General program policies and
provisions.
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(b) Eligibility of bonds. Bid Bonds and
Final Bonds are eligible for an SBA
guarantee if they are executed in
connection with an eligible Contract, as
defined in § 115.10, Definitions.
Commercial and Fidelity bonds are not
eligible for SBA guarantees. Ancillary
Bonds may also be eligible for SBA’s
guarantee. A performance bond must
not prohibit a Surety from performing
the Contract upon default of the
Principal.
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(e) * * *
(3) Federal Contracts or Orders in
excess of $6,500,000 (as adjusted for
inflation in accordance with section
1908 of title 41, United States Code).
SBA is authorized to guarantee bonds
on Federal Contracts or Orders greater
than $6,500,000 (as adjusted for
inflation in accordance with 41 U.S.C.
1908), but not exceeding $10,000,000,
upon a signed certification of a Federal
contracting officer. * * *
(4) Alternative authority to guarantee
bonds for Contracts and Orders related
to a major disaster area. Subject to the
availability of funds appropriated in
advance specifically for the purpose of
guaranteeing bonds for any Contract or
Order related to a major disaster, SBA
may, as an alternative to the authority
otherwise set forth in this Part,
guarantee bonds on any Contract or
Order under the following terms and
conditions:
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■ 4. In § 115.13, amend paragraph (a)(5)
by revising the second sentence and
adding a third sentence to read as
follows:
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§ 115.13
Eligibility of Principal.
(a) * * *
(5) * * * SBA will not guarantee
bonds for Principals who are primarily
brokers. In addition, the Principal must
retain full responsibility for the
oversight and management of the
Contract, including any work performed
by any subcontractor, and may not
subcontract the full scope of the
statement of work.
*
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*
*
*
§ 115.17
[Amended]
5. In § 115.17, amend paragraph (b)(2)
by removing ‘‘90 days’’ and adding ‘‘45
days’’ in its place.
■
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6. Amend § 115.19 by revising the
introductory text and by removing
‘‘$50,000’’ wherever it appears in
paragraphs (c)(1), (d), and (e)(2) and
adding in its place ‘‘$100,000,
whichever is less’’.
The revision reads as follows:
■
§ 115.19
Denial of liability.
2087
substantiation satisfactory to SBA. The
date of the claim for reimbursement is
the date of receipt of the claim by SBA,
or such later date as additional
information requested by SBA is
received.
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In addition to equitable and legal
defenses and remedies under contract
law, the Act, and the regulations in this
Part, SBA is relieved of liability in
whole or in part within its discretion if
any of the circumstances in paragraphs
(a) through (h) of this section exist,
except that SBA shall not deny liability
on Prior Approval bonds based solely
upon material information that was
provided to SBA as part of the Surety’s
guarantee application.
*
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*
*
*
§ 115.36
§ 115.30
(a) No prior approval requirement.
SBA will reimburse a PSB Surety for the
guaranteed portion of payments the
Surety makes to avoid or attempt to
avoid an Imminent Breach of the terms
of a Contract covered by an SBA
guaranteed bond. The aggregate of the
payments by SBA under this section
cannot exceed 10% of the Contract
amount, unless the Administrator finds
that a greater payment (not to exceed the
guaranteed portion of the bond penalty)
is necessary and reasonable. The PSB
Surety does not need to obtain prior
SBA approval to make Imminent Breach
payments, except that the PSB Surety
may request SBA to approve payments
that exceed 10% of the Contract amount
prior to the Surety making the payment.
In no event will SBA make any
duplicate payment under any provision
of these regulations in this part.
(b) Recordkeeping requirement. The
PSB Surety must keep records of
payments made to avoid Imminent
Breach.
[Amended]
7. In § 115.30, in paragraph
(d)(2)(ii)(C), remove the phrase ‘‘or the
warranty/maintenance period’’, and in
paragraph (d)(2)(ii)(D), remove ‘‘$250’’
and add ‘‘$1,000’’ in its place.
■ 8. Amend § 115.31 by revising the
final sentence of paragraph (d) to read
as follows:
■
§ 115.31
Guarantee percentage.
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(d) * * * For example, if a contract
amount increases to $6,800,000, SBA’s
share of the loss under an 80%
guarantee is limited to 76.5%
[6,500,000/6,800,000 = 95.6% x 80% =
76.5%].
*
*
*
*
*
§ 115.32
[Amended]
9. In § 115.32, amend paragraph (d)(1)
by removing ‘‘$50,000’’ and adding
‘‘$100,000, whichever is less’’ in its
place.
■ 10. Amend § 115.35 by revising
paragraph (c)(1), and in paragraph (c)(4),
by removing ‘‘90 days’’ and adding ‘‘45
days’’ in its place.
The revision reads as follows:
■
§ 115.35
Losses.
Claims for reimbursement of
*
*
*
*
*
(c) Claim reimbursement requests. (1)
Claims for reimbursement for Losses
which the Surety has paid must be
submitted (together with a copy of the
bond, the bonded Contract, and any
indemnity agreements) with the initial
claim to OSG on a ‘‘Default Report,
Claim for Reimbursement and Report of
Recoveries’’ (SBA Form 994H), within
90 days from the time of each
disbursement. Claims submitted after 90
days must be accompanied by
PO 00000
Frm 00013
Fmt 4700
Sfmt 9990
[Amended]
11. In § 115.36, amend paragraph
(a)(3) by removing ‘‘90 days’’ and
adding ‘‘45 days’’ in its place.
■
§ 115.67
[Amended]
12. In § 115.67, amend paragraph (a)
by removing ‘‘$50,000’’ and adding
‘‘$100,000, whichever is less’’ in its
place.
■ 13. Revise § 115.69 to read as follows:
■
§ 115.69
§ 115.70
Imminent Breach.
[Amended]
14. In § 115.70, amend paragraph (a)
by removing the term ‘‘1 year’’ in the
first sentence and adding ‘‘90 days’’ in
its place and by removing the term ‘‘90
days’’ in the third sentence and adding
‘‘45 days’’ in its place.
■
Jeanne A. Hulit,
Acting Administrator.
[FR Doc. 2014–00295 Filed 1–10–14; 8:45 am]
BILLING CODE 8025–01–P
E:\FR\FM\13JAR1.SGM
13JAR1
Agencies
[Federal Register Volume 79, Number 8 (Monday, January 13, 2014)]
[Rules and Regulations]
[Pages 2084-2087]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00295]
=======================================================================
-----------------------------------------------------------------------
SMALL BUSINESS ADMINISTRATION
13 CFR Part 115
RIN 3245-AG56
Surety Bond Guarantee Program
AGENCY: U.S. Small Business Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Small Business Administration (SBA) is issuing this final
rule to conform the regulations governing the Surety Bond Guarantee
Program to certain provisions of the National Defense Authorization Act
for Fiscal Year 2013 (NDAA), including the provisions that increase the
contract amounts for which SBA is authorized to guarantee bonds, grant
SBA the authority to partially deny liability under its bond guarantee,
and prohibit SBA from denying liability based on material information
that was provided as part of the guarantee application in the Prior
Approval Program. This rule also makes changes to the Quick Bond
Guarantee Application and Agreement, the timeframes for taking certain
actions related to claims, and the dollar threshold for determining
when a change in the Contract or bond amounts meets certain criteria or
requires certain action. Finally, the final rule eliminates references
to the provisions of the American Recovery and Reinvestment Act of 2009
(Recovery Act) that have expired.
DATES: This rule is effective February 12, 2014.
FOR FURTHER INFORMATION CONTACT: Barbara J. Brannan, Office of Surety
Guarantees, 202-205-6545, email: Barbara.brannan@sba.gov.
SUPPLEMENTARY INFORMATION:
I. Background Information
The U.S. Small Business Administration (SBA) guarantees bid,
payment and performance 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 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.
On August 1, 2013, SBA published a notice of proposed rulemaking
with a request for comments in the Federal Register. The rule proposed
to: (1) Conform SBA's Surety Bond Guarantee Program (``SBG Program'')
to certain provisions of the National Defense Authorization Act of 2013
(NDAA); (2) clarify the extent to which a Principal may subcontract
work performed under the Contract; (3) make changes to the Quick Bond
Guarantee Application and Agreement; (4) increase the dollar threshold
for determining when a change in the Contract or bond amounts may
result in denial of liability or require certain actions; (5) reduce
the timeframes for taking certain actions related to claims; and (6)
eliminate references to the provisions of the American Recovery and
Reinvestment Act of 2009 (Recovery Act) that have expired. See 78 FR
46528.
The comment period was open until September 30, 2013. SBA received
two comments, both from trade associations, that expressed their
support for the proposed rule and indicated that the changes are
favorable to small businesses. With respect to the proposed increases
in the dollar thresholds, one commenter noted that a Surety may not be
in a position to notify SBA or seek SBA's approval when a change order
exceeds the specified dollar threshold because a Surety may be required
contractually to waive notice of contract amount changes. Under section
115.32(d), a Prior Approval Surety is required to notify SBA of any
required changes in the Contract or bond amount that aggregate 25% or
$50,000 (to be increased to $100,000 under this final rule) ``as soon
as the Surety acquires knowledge of the change''. Thus, the Surety is
required to provide notice to SBA under this provision upon acquiring
knowledge of
[[Page 2085]]
these aggregated changes. It is important to note that, under section
115.15(b), the Surety is required to monitor the Principal's progress
on bonded Contracts guaranteed by SBA and, accordingly, SBA would
expect the Surety to be aware of changes in the Contract or bond
amounts. Moreover, for increases in the original bond amount as a
result of a single change order of at least 25% or $50,000 (to be
increased to $100,000 by this final rule), the Surety must, under
section 115.32(d), obtain SBA's prior written approval of such increase
(and such approval is conditioned upon payment by the Surety of the
increase in the Principal's guarantee fee).
In addition, as the commenter observed, SBA now has the discretion,
under section 115.19, to deny liability in whole or in part. The
commenter suggested that SBA propose regulations to address the use of
such discretion where the Surety does not obtain approval or notify SBA
of the change in the Contract or bond amount. However, the exercise of
this discretion must be based on the circumstances of each case and
will be determined on a case-by-case basis.
SBA is adopting the rule as proposed and as described in the
section-by-section analysis below.
II. Section By Section Analysis
Section 115.10. SBA is revising the definition of ``Applicable
Statutory Limit'' to include the maximum amounts of any Contract or
Order for which SBA is authorized by the NDAA to guarantee, or commit
to guarantee, a Bid Bond, Payment Bond, Performance Bond, or Ancillary
Bond. The statutory limits set by the NDAA are (1) $6.5 million (as
adjusted for inflation in accordance with 41 U.S.C. 1908); and (2) $10
million if a contracting officer of a Federal agency certifies that
such guarantee is necessary. In addition, SBA is including a reference
in the definition to the maximum amounts of any Contract or Order when
SBA guarantees the bond in connection with a procurement related to a
major disaster pursuant to section 12079 of Public Law 110-246. Under
this provision, which was enacted on June 18, 2008, the maximum amounts
are: (1) $5 million; and (2) $10 million on Federal Contracts or Orders
at the request of the Head of any Federal agency involved in
reconstruction efforts in response to a major disaster. The authority
to guarantee bonds under this provision is subject to the availability
of funds appropriated in advance specifically for the purpose of
guaranteeing bonds for any Contract or Order related to a major
disaster. SBA does not expect this authority to be often used, given
NDAA's increase in the maximum amounts for any Contract or Order up to
$6.5 million (and $10 million if a Federal contracting officer
certifies that such guarantee is necessary) and the requirement that
funds be appropriated in advance specifically for guaranteeing bonds
related to a major disaster. No changes have been made to this
provision as proposed.
Section 115.12(b). SBA is deleting the reference to the ``Contract
Bonds'' section of the current ``Manual of Rules, Procedures and
Classifications of the Surety Association of America'' and is replacing
this reference with two specific types of bonds, Commercial and
Fidelity bonds, which are not eligible for an SBA guarantee. No changes
have been made to this provision as proposed.
Section 115.12(e)(3). This provision is being deleted in its
entirety, as it relates to requirements imposed by the Recovery Act
that expired on September 30, 2010. No changes have been made to this
provision as proposed.
Section 115.12(e)(4). This provision is being renumbered as (e)(3),
and now reflects the authority to guarantee bonds on Federal Contracts
or Orders greater than $6.5 million, but not exceeding $10 million,
upon a signed certification of a Federal contracting officer, as
authorized by the NDAA. No changes have been made to this provision as
proposed.
Section 115.12(e)(5). This provision has been renumbered as (e)(4),
and implements an alternative statutory authority provided SBA under
Public Law 110-246 for guaranteeing bonds for procurements related to a
major disaster. References to requirements imposed by the Recovery Act
that expired on September 30, 2010, have been deleted. No changes have
been made to this provision as proposed.
Section 115.13(a)(5). SBA is revising this provision to clarify
that, to be eligible for a bond guaranteed by SBA, the Principal must
retain full responsibility for the oversight and management of the
Contract, including any work performed by any subcontractor, and may
not subcontract the full scope of the statement of work. No changes
have been made to this provision as proposed.
Section 115.17(b)(2). SBA is reducing the time frame allowed for a
Surety to reimburse or credit SBA for salvage and recovery from 90 days
to 45 days after the Surety receives any salvage and recovery. No
changes have been made to this provision as proposed.
Section 115.19. SBA is revising the introductory paragraph of this
provision to conform it to current law by deleting the time frame
reference required by the Recovery Act, which has expired, and by
inserting the relevant requirements of the NDAA, including the
authority of SBA to deny liability, in whole or in part, within its
discretion if any of the circumstances in paragraphs (a) through (h) of
this section exist, and the prohibition on denying liability based on
material information that was provided to SBA as part of the Surety's
guarantee application in the Prior Approval Program. SBA made one minor
clarification to the provision as proposed by revising the introductory
language in section 115.19 to make it clear that the material
information must have been provided to SBA in the Surety's application.
SBA is also amending section 115.19(c)(1) by increasing the dollar
threshold for determining whether the Surety has committed a material
breach of one or more terms or conditions of its Prior Approval or PSB
Agreement from $50,000 to $100,000. In addition, SBA is amending
section 115.19(d) by increasing the dollar threshold for determining
whether the Surety has committed a substantial violation of SBA
regulations from $50,000 to $100,000, and is amending section
115.19(e)(2) by increasing the dollar threshold for determining whether
a Prior Approval Surety has agreed to or acquiesced in any material
alteration in the terms, conditions, or provisions of the bond from
$50,000 to $100,000. In each of these sections, the phrase ``whichever
is less'' is being added after the $100,000 to clarify the meaning of
this requirement. No other changes have been made to this provision as
proposed.
Section 115.30(d)(2). SBA is deleting the phrase ``or the warranty/
maintenance period'' from this provision to allow the Quick Bond
Application and Agreement (SBA Form 990A) to be used for a Contract
that includes a maintenance period of 2 years or less (for defective
workmanship or materials only), and with SBA's approval, for longer
maintenance periods and broader coverage, as provided in section 115.10
under the definition of ``Contract''. In addition, SBA is increasing
the allowable liquidated damages provision from $250.00 per day to
$1,000.00 per day. No changes have been made to this provision as
proposed.
Section 115.31(d). SBA is revising the final sentence of this
provision by basing the example on the current statutory limit of $6.5
million. No
[[Page 2086]]
changes have been made to this provision as proposed.
Section 115.32(d). SBA is amending this provision by changing the
dollar threshold for determining when the Prior Approval Surety must
notify SBA of the change and/or obtain SBA's approval from at least
$50,000 to $100,000. The phrase ``whichever is less'' has been added to
clarify the meaning of this requirement. No changes have been made to
this provision as proposed.
Section 115.35(c)(1). SBA is reducing the time frame allowed for a
Prior Approval Surety to submit a claim to SBA from one year to 90 days
after the Surety pays the claim. In addition, the title of the SBA Form
994H, ``Default Report, Claim for Reimbursement and Record of
Administrative Action,'' has been changed to ``Default Report, Claim
for Reimbursement and Report of Recoveries,'' to reflect the current
version of the form. No changes have been made to this provision as
proposed.
Section 115.35(c)(4). SBA is reducing the time frame for SBA to pay
a claim submitted by a Surety in the Prior Approval Program from 90
days to 45 days after receipt of the requisite information. No changes
have been made to this provision as proposed.
Section 115.36(a)(3). SBA is reducing the time frame allowed for a
Surety to reimburse SBA its share of a settlement from 90 days to 45
days after receipt. No changes have been made to this provision as
proposed.
Section 115.67(a). SBA is increasing the dollar threshold for
determining when a PSB Surety must present checks for additional fees
due from the Principal and Surety from $50,000 to $100,000. The phrase
``whichever is less'' has been added to clarify the meaning of this
requirement. No changes have been made to this provision as proposed.
Section 115.69. For imminent breach payments that exceed 10% of the
Contract amount, SBA is revising this provision to give the PSB Surety
the opportunity to request SBA to approve the amount prior to the
Surety making the Imminent Breach payment. SBA will approve such
payment if SBA finds that the payment is necessary and reasonable. If
the Surety does not request prior SBA approval for such payments, SBA
may refuse to reimburse the Surety if SBA finds that the payment that
exceeds 10% of the Contract amount was not necessary and reasonable. No
changes have been made to this provision as proposed.
SBA 115.70(a). SBA is reducing the time frame allowed for a PSB
Surety to submit a claim to SBA from one year to 90 days after the
Surety pays the claim. SBA is also reducing the time frame for SBA to
pay a claim submitted by a Surety in the PSB Program from 90 days to 45
days after receipt of the requisite information. No changes have been
made to this provision as proposed.
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)
Executive Order 12866
The Office of Management and Budget (OMB) has determined that this
final rule does not constitute a significant regulatory action under
Executive Order 12866. This is also not a ``major rule'' under the
Congressional Review Act, 5 U.S.C. 800.
Executive Order 12988
This action meets applicable standards set forth in Sections 3(a)
and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden. The action does not
have retroactive or preemptive effect.
Executive Order 13132
SBA has determined that this final rule will not have substantial,
direct effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government. Therefore, for
the purposes of Executive Order 13132, SBA has determined that this
final rule has no federalism implications warranting preparation of a
federalism assessment.
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.
Regulatory Flexibility Act, 5 U.S.C. 601-612
The Regulatory Flexibility Act (RFA) 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. There are twenty-one Sureties that
participate in the SBA program, and no part of this final rule would
impose any additional cost or any significant burden on them.
Consequently, this final rule does not meet the substantial number of
small businesses criterion anticipated by the Regulatory Flexibility
Act.
List of Subjects in 13 CFR Part 115
Claims, Reporting and recordkeeping requirements, Small businesses,
Surety bonds.
For the reasons stated in the preamble, SBA amends 13 CFR part 115
as follows:
PART 115--SURETY BOND GUARANTEE
0
1. The authority citation for part 115 is revised to read as follows:
Authority: 5 U.S.C. app 3; 15 U.S.C. 687b, 687c, 694a, 694b
note; and Pub. L. 110-246, Sec. 12079, 122 Stat. 1651.
0
2. In Sec. 115.10, revise the definition of ``Applicable Statutory
Limit'' to read as follows:
Sec. 115.10 Definitions.
* * * * *
Applicable Statutory Limit means the maximum amount, set forth
below, of any Contract or Order for which SBA is authorized to
guarantee, or commit to guarantee, a Bid Bond, Payment Bond,
Performance Bond, or Ancillary Bond:
(1) $6.5 million (as adjusted for inflation in accordance with 41
U.S.C. 1908);
(2) $10 million if a contracting officer of a Federal agency
certifies, in accordance with section 115.12(e)(3), that such guarantee
is necessary; or
(3) if SBA is guaranteeing the bond in connection with a
procurement related to a major disaster pursuant to section 12079 of
Pub. L. 110-246, see section 115.12(e)(4).
* * * * *
0
3. Amend Sec. 115.12 as follows:
0
a. Revise paragraph (b);
0
b. Remove paragraph (e)(3);
0
c. Redesignate paragraphs (e)(4) and (5) as paragraphs (e)(3) and (4),
respectively;
0
d. In newly redesignated paragraph (e)(3), revise the heading and the
first sentence;
0
e. Revise newly redesignated paragraph (e)(4) introductory text, remove
newly redesignated paragraph (e)(4)(iii), and redesignate paragraph
(e)(4)(iv) as paragraph (e)(4)(iii);
[[Page 2087]]
0
f. In newly redesignated paragraph (e)(4)(iii), remove ``paragraph
(e)(5)'' and add in its place ``paragraph (e)(4)''.
The revisions read as follows:
Sec. 115.12 General program policies and provisions.
* * * * *
(b) Eligibility of bonds. Bid Bonds and Final Bonds are eligible
for an SBA guarantee if they are executed in connection with an
eligible Contract, as defined in Sec. 115.10, Definitions. Commercial
and Fidelity bonds are not eligible for SBA guarantees. Ancillary Bonds
may also be eligible for SBA's guarantee. A performance bond must not
prohibit a Surety from performing the Contract upon default of the
Principal.
* * * * *
(e) * * *
(3) Federal Contracts or Orders in excess of $6,500,000 (as
adjusted for inflation in accordance with section 1908 of title 41,
United States Code). SBA is authorized to guarantee bonds on Federal
Contracts or Orders greater than $6,500,000 (as adjusted for inflation
in accordance with 41 U.S.C. 1908), but not exceeding $10,000,000, upon
a signed certification of a Federal contracting officer. * * *
(4) Alternative authority to guarantee bonds for Contracts and
Orders related to a major disaster area. Subject to the availability of
funds appropriated in advance specifically for the purpose of
guaranteeing bonds for any Contract or Order related to a major
disaster, SBA may, as an alternative to the authority otherwise set
forth in this Part, guarantee bonds on any Contract or Order under the
following terms and conditions:
* * * * *
0
4. In Sec. 115.13, amend paragraph (a)(5) by revising the second
sentence and adding a third sentence to read as follows:
Sec. 115.13 Eligibility of Principal.
(a) * * *
(5) * * * SBA will not guarantee bonds for Principals who are
primarily brokers. In addition, the Principal must retain full
responsibility for the oversight and management of the Contract,
including any work performed by any subcontractor, and may not
subcontract the full scope of the statement of work.
* * * * *
Sec. 115.17 [Amended]
0
5. In Sec. 115.17, amend paragraph (b)(2) by removing ``90 days'' and
adding ``45 days'' in its place.
0
6. Amend Sec. 115.19 by revising the introductory text and by removing
``$50,000'' wherever it appears in paragraphs (c)(1), (d), and (e)(2)
and adding in its place ``$100,000, whichever is less''.
The revision reads as follows:
Sec. 115.19 Denial of liability.
In addition to equitable and legal defenses and remedies under
contract law, the Act, and the regulations in this Part, SBA is
relieved of liability in whole or in part within its discretion if any
of the circumstances in paragraphs (a) through (h) of this section
exist, except that SBA shall not deny liability on Prior Approval bonds
based solely upon material information that was provided to SBA as part
of the Surety's guarantee application.
* * * * *
Sec. 115.30 [Amended]
0
7. In Sec. 115.30, in paragraph (d)(2)(ii)(C), remove the phrase ``or
the warranty/maintenance period'', and in paragraph (d)(2)(ii)(D),
remove ``$250'' and add ``$1,000'' in its place.
0
8. Amend Sec. 115.31 by revising the final sentence of paragraph (d)
to read as follows:
Sec. 115.31 Guarantee percentage.
* * * * *
(d) * * * For example, if a contract amount increases to
$6,800,000, SBA's share of the loss under an 80% guarantee is limited
to 76.5% [6,500,000/6,800,000 = 95.6% x 80% = 76.5%].
* * * * *
Sec. 115.32 [Amended]
0
9. In Sec. 115.32, amend paragraph (d)(1) by removing ``$50,000'' and
adding ``$100,000, whichever is less'' in its place.
0
10. Amend Sec. 115.35 by revising paragraph (c)(1), and in paragraph
(c)(4), by removing ``90 days'' and adding ``45 days'' in its place.
The revision reads as follows:
Sec. 115.35 Claims for reimbursement of Losses.
* * * * *
(c) Claim reimbursement requests. (1) Claims for reimbursement for
Losses which the Surety has paid must be submitted (together with a
copy of the bond, the bonded Contract, and any indemnity agreements)
with the initial claim to OSG on a ``Default Report, Claim for
Reimbursement and Report of Recoveries'' (SBA Form 994H), within 90
days from the time of each disbursement. Claims submitted after 90 days
must be accompanied by substantiation satisfactory to SBA. The date of
the claim for reimbursement is the date of receipt of the claim by SBA,
or such later date as additional information requested by SBA is
received.
* * * * *
Sec. 115.36 [Amended]
0
11. In Sec. 115.36, amend paragraph (a)(3) by removing ``90 days'' and
adding ``45 days'' in its place.
Sec. 115.67 [Amended]
0
12. In Sec. 115.67, amend paragraph (a) by removing ``$50,000'' and
adding ``$100,000, whichever is less'' in its place.
0
13. Revise Sec. 115.69 to read as follows:
Sec. 115.69 Imminent Breach.
(a) No prior approval requirement. SBA will reimburse a PSB Surety
for the guaranteed portion of payments the Surety makes to avoid or
attempt to avoid an Imminent Breach of the terms of a Contract covered
by an SBA guaranteed bond. The aggregate of the payments by SBA under
this section cannot exceed 10% of the Contract amount, unless the
Administrator finds that a greater payment (not to exceed the
guaranteed portion of the bond penalty) is necessary and reasonable.
The PSB Surety does not need to obtain prior SBA approval to make
Imminent Breach payments, except that the PSB Surety may request SBA to
approve payments that exceed 10% of the Contract amount prior to the
Surety making the payment. In no event will SBA make any duplicate
payment under any provision of these regulations in this part.
(b) Recordkeeping requirement. The PSB Surety must keep records of
payments made to avoid Imminent Breach.
Sec. 115.70 [Amended]
0
14. In Sec. 115.70, amend paragraph (a) by removing the term ``1
year'' in the first sentence and adding ``90 days'' in its place and by
removing the term ``90 days'' in the third sentence and adding ``45
days'' in its place.
Jeanne A. Hulit,
Acting Administrator.
[FR Doc. 2014-00295 Filed 1-10-14; 8:45 am]
BILLING CODE 8025-01-P