The Federal Register has issued a proposed rule to conform the regulations governing the Surety Bond Program to certain provisions of the 2013 National Defense Authorization Act (“NDAA”). Specific changes proposed are:

  1. Increasing the contract amount which the Small Business Administration (“SBA”) is authorized to guarantee performance bonds from $2 million to $6 million.
  2. Increasing the contract amount which the SBA is authorized to guarantee bonds to $10 million with a Federal contracting officer’s certification that the guarantee is necessary for the small business to obtain surety bonding.
  3. Authorizing SBA to deny liability under its bond guarantee in whole or in part within its discretion.
  4. Prohibiting the SBA from denying liability based on material information that was provided as part of the guarantee application in the Prior Approval Program.

In addition to the proposed changes to conform the Surety Bond Program to the NDAA, there are other changes embedded within the proposed rule. Another change relates to when a bond is eligible for guarantee by the SBA. Currently, the SBA will not guarantee bonds for principals who are primarily brokers or who have effectively transferred control over the project to one or more subcontractors. The change will clarify eligibility requirements to require that the Principal retain full responsibility for the oversight and management of the bonded contract, including any work performed by any subcontractor, and that the principal may not subcontract the full scope of the statement of work.

Other changes in the proposed rule:

  • Revisws regulations governing the Quick Bond Guarantee Application and Agreement to eliminate a prohibition against using the Quick Performance Bond Guarantee Application and Agreement if a contract includes a warranty/maintenance period exceeding 12 months. Additionally, SBA Form 990A may not currently be used if a contract includes a provision for liquidated damages that exceed $250 per day. The proposed rule would increase the liquidated damages limit to $1,000 per day.
  • Changws the dollar threshold for determining when a change in the contract or performance bond amounts may result in denial of liability or requires certain action. Currently, the provisions provide the thresholds are met when the Contract or bond amount changes by 25% or $50,000. The proposed rule would change the dollar threshold to $100,000 under several provisions of the Code of Federal Regulations (“CFR”) Section 115.
  • Reducws timeframes associated with crediting the SBA with its share of salvage and recovery, when SBA pays its share of losses to both the Prior Approval Surety and PSB Surety, and when the Prior Approval Surety and the PSB Surety must submit to SBA a claim for reimbursement of losses.

Comments related to this matter are due on or before September 30, 2013.

National surety leader, Surety One, Inc. focuses on supporting the performance bonding needs of the commercial, highway, heavy industrial and construction contracting industries.  We offer performance bonds to construction and commercial service contractor applicants small and large. Visit SuretyOne.com, call (787) 333-0222 or (800) 373-2804, or email Underwriting@SuretyOne.com for a performance bond application package or information about any surety bonding need. Recuérde que le asesoramos en SU idioma, así que comuníquese con nosotros, SU compañía afianzadora preferida para la fianza.