
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 15USC694b]

 
                      TITLE 15--COMMERCE AND TRADE
 
             CHAPTER 14B--SMALL BUSINESS INVESTMENT PROGRAM
 
                       SUBCHAPTER IV-A--GUARANTEES
 
                     Part B--Surety Bond Guarantees
 
Sec. 694b. Surety bond guarantees


(a) Authority of Administration to guarantee surety against loss from 
        principal's breach of bond

    (1) The Administration may, upon such terms and conditions as it may 
prescribe, guarantee and enter into commitments to guarantee any surety 
against loss resulting from a breach of the terms of a bid bond, payment 
bond, performance bond, or bonds ancillary thereto, by a principal on 
any contract up to $2,000,000.
    (2) The terms and conditions of said guarantees and commitments may 
vary from surety to surety on the basis of the Administration's 
experience with the particular surety.
    (3) The Administration may authorize any surety, without further 
administration approval, to issue, monitor, and service such bonds 
subject to the Administration's guarantee.
    (4) No such guarantee may be issued, unless--
        (A) the person who would be principal under the bond is a small 
    business concern;
        (B) the bond is required in order for such person to bid on a 
    contract, or to serve as a prime contractor or subcontractor 
    thereon;
        (C) such person is not able to obtain such bond on reasonable 
    terms and conditions without a guarantee under this section; and
        (D) there is a reasonable expectation that such principal will 
    perform the covenants and conditions of the contract with respect to 
    which such bond is required, and the terms and conditions of such 
    bond are reasonable in the light of the risks involved and the 
    extent of the surety's participation.

    (5)(A) The Administration shall promptly act upon an application 
from a surety to participate in the Preferred Surety Bond Guarantee 
Program, authorized by paragraph (3), in accordance with criteria and 
procedures established in regulations pursuant to subsection (d) of this 
section.
    (B) The Administration is authorized to reduce the allotment of bond 
guarantee authority or terminate the participation of a surety in the 
Preferred Surety Bond Guarantee Program based on the rate of 
participation of such surety during the 4 most recent fiscal year 
quarters compared to the median rate of participation by the other 
sureties in the program.

(b) Indemnification of surety against loss from avoiding breach

    Subject to the provisions of this section, in connection with the 
issuance by the Administration of a guarantee to a surety as provided by 
subsection (a) of this section, the Administration may agree to 
indemnify such surety against a loss sustained by such surety in 
avoiding or attempting to avoid a breach of the terms of a bond 
guaranteed by the Administration pursuant to subsection (a) of this 
section: Provided, however--
        (1) prior to making any payment under this subsection, the 
    Administration shall first determine that a breach of the terms of 
    such bond was imminent;
        (2) a surety must obtain approval from the Administration prior 
    to making any payments pursuant to this subsection unless the surety 
    is participating under the authority of subsection (a)(3) of this 
    section; and
        (3) no payment by the Administration pursuant to this subsection 
    shall exceed 10 per centum of the contract price unless the 
    Administrator determines that a greater payment should be made as a 
    result of a finding by the Administrator that the surety's loss 
    sustained in avoiding or attempting to avoid such breach was 
    necessary and reasonable.

In no event shall the Administration pay a surety pursuant to this 
subsection an amount exceeding the guaranteed share of the bond 
available to such surety pursuant to subsection (a) of this section.

(c) Limitation of liability

    Any guarantee or agreement to indemnify under this section shall 
obligate the Administration to pay to the surety a sum--
        (1) not to exceed 70 per centum of the loss incurred and paid by 
    a surety authorized to issue bonds subject to the Administration's 
    guarantee under subsection (a)(3) of this section;
        (2) not to exceed 90 per centum of the loss incurred and paid in 
    the case of a surety requiring the Administration's specific 
    approval for the issuance of such bond, but in no event may the 
    Administration make any duplicate payment pursuant to subsection (b) 
    of this section or any other subsection;
        (3) equal to 90 per centum of the loss incurred and paid in the 
    case of a surety requiring the administration's \1\ specific 
    approval for the issuance of a bond, if--
---------------------------------------------------------------------------
    \1\ So in original. Probably should be capitalized.
---------------------------------------------------------------------------
            (A) the total amount of the contract at the time of 
        execution of the bond or bonds is $100,000 or less, or
            (B) the bond was issued to a small business concern owned 
        and controlled by socially and economically disadvantaged 
        individuals as defined by section 637(d) of this title, or to a 
        qualified HUBZone small business concern (as defined in section 
        632(p) of this title); or

        (4) determined pursuant to subsection (b) of this section, if 
    applicable.

(d) Regulations

    The Administration may establish and periodically review regulations 
for participating sureties which shall require such sureties to meet 
Administration standards for underwriting, claim practices, and loss 
ratios.

(e) Reimbursement of surety; conditions

    Pursuant to any such guarantee or agreement, the Administration 
shall reimburse the surety, as provided in subsection (c) of this 
section, except that the Administration shall be relieved of all 
liability if--
        (1) the surety obtained such guarantee or agreement, or applied 
    for such reimbursement, by fraud or material misrepresentation,
        (2) the total contract amount at the time of execution of the 
    bond or bonds exceeds $2,000,000,
        (3) the surety has breached a material term or condition of such 
    guarantee agreement, or
        (4) the surety has substantially violated the regulations 
    promulgated by the Administration pursuant to subsection (d) of this 
    section.

(f) Procedure for reimbursement

    The Administration may, upon such terms and conditions as it may 
prescribe, adopt a procedure for reimbursing a surety for its paid 
losses billed each month, based upon prior monthly payments to such 
surety, with subsequent adjustments after such disbursement.

(g) Audit

    (1) Each participating surety shall make reports to the 
Administration at such times and in such form as the Administration may 
require.
    (2) The Administration may at all reasonable times audit, in the 
offices of a participating surety, all documents, files, books, records, 
and other material relevant to the Administration's guarantee, 
commitments to guarantee, or agreements to indemnify any surety pursuant 
to this section.
    (3) Each surety participating under the authority of paragraph (3) 
of subsection (a) of this section shall be audited at least once each 
year by examiners selected and approved by the Administration.

(h) Administrative provisions

    The Administration shall administer this part on a prudent and 
economically justifiable basis and establish such fee or fees for small 
business concerns and premium or premiums for sureties as it deems 
reasonable and necessary, to be payable at such time and under such 
conditions as may be determined by the Administration.

(i) Powers of Administration respecting loans

    The provisions of section 693 of this title shall apply in the 
administration of this section.

(Pub. L. 85-699, title IV, Sec. 411, as added Pub. L. 91-609, title IX, 
Sec. 911(a)(4), Dec. 31, 1970, 84 Stat. 1813; amended Pub. L. 93-386, 
Secs. 6(a)(3), 11, Aug. 23, 1974, 88 Stat. 747, 749; Pub. L. 95-507, 
title I, Sec. 111, Oct. 24, 1978, 92 Stat. 1758; Pub. L. 96-302, title 
I, Sec. 115, July 2, 1980, 94 Stat. 839; Pub. L. 99-272, title XVIII, 
Sec. 18014, Apr. 7, 1986, 100 Stat. 370; Pub. L. 100-590, title II, 
Secs. 202-204, Nov. 3, 1988, 102 Stat. 3007-3009; Pub. L. 104-208, div. 
D, title II, Sec. 206(a), Sept. 30, 1996, 110 Stat. 3009-738; Pub. L. 
105-135, title VI, Sec. 604(d), Dec. 2, 1997, 111 Stat. 2633; Pub. L. 
106-554, Sec. 1(a)(9) [title VIII, Sec. 805(a)], Dec. 21, 2000, 114 
Stat. 2763, 2763A-705.)

                    Termination of Subsection (a)(3)

        For termination of subsection (a)(3) of this section, see 
    Effective and Termination Dates of 1988 Amendment note below.


                               Amendments

    2000--Subsecs. (a)(1), (e)(2). Pub. L. 106-554 substituted 
``$2,000,000'' for ``$1,250,000''.
    1997--Subsec. (c)(3)(B). Pub. L. 105-135 inserted ``, or to a 
qualified HUBZone small business concern (as defined in section 632(p) 
of this title)'' before semicolon.
    1996--Subsec. (a)(5). Pub. L. 104-208 added par. (5).
    1988--Subsec. (a). Pub. L. 100-590, Secs. 202, 207, amended subsec. 
(a) generally, substituting pars. (1) to (4) for former pars. (1) to 
(6), and provided for the termination of par. (3). See Effective and 
Termination Dates of 1988 Amendment note below.
    Subsec. (b). Pub. L. 100-590, Sec. 203(c), added par. (2), 
redesignated former par. (2) as (3), struck out former par. (3) which 
prohibited the making subsequent to two years after Oct. 24, 1978, of 
new agreements to indemnify, and inserted concluding provision: ``In no 
event shall the Administration pay a surety pursuant to this subsection 
an amount exceeding the guaranteed share of the bond available to such 
surety pursuant to subsection (a) of this section.
    Subsec. (c). Pub. L. 100-590, Sec. 203(b), amended subsec. (c) 
generally. Prior to amendment, subsec. (c) read as follows: ``Any 
guarantee or agreement to indemnify under this section shall obligate 
the Administration to pay to the surety a sum not to exceed (1) in the 
case of a breach of contract, 90 percent of the loss incurred and paid 
by the surety as the result of the breach; or (2) in a case in which 
subsection (b) of this section applies, the amount determined under 
subsection (b) of this section.''
    Subsec. (e)(3), (4). Pub. L. 100-590, Sec. 203(c), added pars. (3) 
and (4).
    Subsec. (g). Pub. L. 100-590, Sec. 204, amended subsec. (g) 
generally. Prior to amendment, subsec. (g) read as follows: ``The 
Administration may at all reasonable times audit in the offices of a 
participating surety all documents, files, books, records, and other 
material relevant to the Administration's guarantee, commitments to 
guarantee, or agreements to indemnify any surety pursuant to this 
section.''
    1986--Subsecs. (a), (e)(2). Pub. L. 99-272 substituted 
``$1,250,000'' for ``$1,000,000''.
    1980--Subsec. (c). Pub. L. 96-302 struck out ``to or on behalf of 
the obligee, or to labor and materialmen, in fulfilling the terms of the 
contract'' after ``paid by the surety'' in cl. (1).
    1978--Subsec. (a). Pub. L. 95-507 amended subsec. (a) generally, 
striking out requirement that the Administration consult with the 
Secretary of Housing and Urban Development, and inserting authority to 
vary the terms and conditions of guarantees on the basis of experience 
with a particular surety and authority to guarantee bonds ancillary and 
conterminous with the other named bonds.
    Subsec. (b). Pub. L. 95-507 substituted provisions relating to 
indemnification of a surety against loss sustained in attempting to 
avoid or avoiding breach for provisions relating to the extent of 
liability of the Administration for loss incurred by a surety.
    Subsec. (c). Pub. L. 95-507 substituted provisions relating to the 
limitation of the Administration's guarantee liability for provisions 
relating to the administration of the program and a study and report to 
Congress regarding the economic soundness of the program.
    Subsec. (d). Pub. L. 95-507 substituted provisions relating to 
regulations for participating sureties for provisions relating to the 
application of section 693 of this title in the administration of this 
section.
    Subsecs. (e) to (i). Pub. L. 95-507 added subsecs. (e) to (i).
    1974--Subsec. (a). Pub. L. 93-386, Sec. 6(a)(3), substituted 
``$1,000,000'' for ``$500,000''.
    Subsec. (c). Pub. L. 93-386, Sec. 11, inserted provisions relating 
to the administration of the program on a prudent and economically 
justifiable basis and provisions requiring the Administration to publish 
the cost of the program to the Administration, to conduct a study of the 
program in order to determine what must be done to make the program 
economically sound, and to transmit a report to Congress of the 
findings, conclusions, and recommendations of the study.


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-135 effective Oct. 1, 1997, see section 3 
of Pub. L. 105-135, set out as a note under section 631 of this title.


                    Effective Date of 1996 Amendment

    Section 206(b) of div. D of Pub. L. 104-208 provided that: ``The 
amendments made by subsection (a) [amending this section] shall apply 
with respect to applications received (or pending substantive 
evaluation) on or after October 1, 1995.''


            Effective and Termination Dates of 1988 Amendment

    Section 207 of Pub. L. 100-590, as amended by Pub. L. 101-574, title 
II, Sec. 216(a), Nov. 15, 1990, 104 Stat. 2822; Pub. L. 103-403, title 
III, Sec. 302, Oct. 22, 1994, 108 Stat. 4188; Pub. L. 104-36, Sec. 7, 
Oct. 12, 1995, 109 Stat. 297; Pub. L. 105-135, title V, Sec. 503, Dec. 
2, 1997, 111 Stat. 2624; Pub. L. 106-554, Sec. 1(a)(9) [title VIII, 
Sec. 805(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A-706, provided that: 
``The provisions contained in section 411(a)(3) of the Small Business 
Investment Act of 1958 (15 U.S.C. 694b(a)(3)) shall cease to be 
effective after September 30, 2003.''
    Section 209 of title II of Pub. L. 100-590 provided that: ``Except 
as otherwise provided in this title, the provisions of this title 
[amending this section and section 694c of this title and enacting 
provisions set out as notes under this section], shall become effective 
upon expiration of one hundred and eighty days after the date of its 
enactment [Nov. 3, 1988].''


                    Effective Date of 1980 Amendment

    Amendment by Pub. L. 96-302 effective Oct. 1, 1980, see section 507 
of Pub. L. 96-302, set out as a note under section 631 of this title.


                               Regulations

    Section 205 of title II of Pub. L. 100-590 provided that: ``The 
Administration shall promulgate final regulations to implement the 
amendments made by this title [amending this section and section 694c of 
this title] not later than one hundred and eighty days after the date of 
the enactment of this Act [Nov. 3, 1988].''


             Small Business Access to Surety Bonding Survey

    Pub. L. 102-366, title III, subtitle A, Sept. 4, 1992, 106 Stat. 
1002-1005, known as the Small Business Access to Surety Bonding Survey 
Act of 1992, directed Comptroller General to conduct a comprehensive 
survey of business firms, from a statistically valid sample of business 
firms developed from the most recent list of construction firms 
maintained by Dun and Bradstreet Company and using a questionnaire with 
specifically designated questions, to obtain data on the experiences of 
such firms, and especially the experiences of small business concerns, 
in obtaining surety bonds from corporate surety firms and to submit a 
report to Congress, not later than 18 months after Sept. 4, 1992, which 
report was to contain a summary of responses of business firms to the 
survey and a description of any trends found by Comptroller General in 
such responses, which specific information on responses and trends of 
small business concerns, small business concerns owned and controlled by 
women, and small business concerns owned and controlled by socially and 
economically disadvantaged individuals.


      Evaluation of Preferred Surety Bond Guarantee Program; Report

    Section 206 of title II of Pub. L. 100-590, as amended by Pub. L. 
101-574, title II, Sec. 216(b), Nov. 15, 1990, 104 Stat. 2823, directed 
Comptroller General, not later than 3 years after Nov. 3, 1988, to 
transmit a report to Congress evaluating the preferred surety bond 
guarantee program, with such report to be transmitted not later than 
Mar. 1, 1994, and cover the period Oct. 1, 1990, through Sept. 30, 1993.

                  Section Referred to in Other Sections

    This section is referred to in section 644 of this title; title 25 
section 1497a.
