50 45 2
SBA SOP 50 45 2
______
The Surety Bond Guarantee Program
Office of Surety Guarantees
U.S. Small Business Administration
Effective Date: Page 2
50 45 2
1/ SMALL BUSINESS ADMINISTRATION
STANDARD OPERATING PROCEDURE
National
SUBJECT: / S.O.P. / REV
The Surety Bond Guarantee Program / SECTION
50 / NO.
45 / 2
INTRODUCTION
1. Purpose. To establish an updated SOP for the Surety Bond Guarantee (SBG) Program; to provide requirements and guidelines for SBG Program performance; to incorporate controls; and to conform SBG Program practices with other SBA activities.
2. Personnel Concerned. All personnel in SBA Headquarters and field offices involved in Surety Bond Guarantee activities.
3. Directives Canceled. SOP 50 45 1.
4. Originator. Office of Surety Guarantees.
AUTHORIZED BY: / EFFECTIVE DATE
3/8/99
Robert J. Moffitt
Associate Administrator
for Surety Guarantees / PAGE
1
SBA Form 989 (5-90) Ref: SOP 00 23
Federal Recycling Program Printed on Recycled Paper
This form was electronically produced by Elite Federal Forms, Inc.
Table of Contents
Paragraph Page
Chapter 1. General Overview of the Surety Bond Guarantee (SBG) Program
1. What is the General Scope and Purpose of this Standard Operating
Procedure (SOP)? 15
2. What is a Surety? 15
3. What is a Surety Bond? 15
4. When is a Surety Bond Needed? 16
5. Who Needs a Surety Bond Guarantee? 16
6. What is the Purpose of the SBG Program? 16
7. How Does the SBG Program Work? 16
8. What Laws and Regulations Govern the SBG Program? 16
9. Who Administers the SBG Program? 17
a. Responsibilities of Headquarters Staff 17
b. Responsibilities of SBG Area Office Staff 18
c. Responsibilities of District Office Staff 18
10. Who Has the Authority to Approve Surety Bond Guarantee Agreements? 19
a. Delegation of Authority for Approval of Surety Bond Guarantee Agreements 19
b. Rule of Two 19
c. Oral Approvals 19
d. Prerequisite to Approval or Decline 19
e. SBG Claim Payments and Recovery Settlements 20
Chapter 2. SBA’s Surety Bond Guarantee Agreement
1. What is a Guarantee Agreement? 21
2. What are the Terms and Conditions? 21
a. Responsibilities of the Surety 21
b. Surety’s Reaction to Problems or Disputes 21
c. Requirements of the Surety 21
d. Other Conditions of the SBA 990 22
3. What is the Maximum Contract Amount Eligible for the Program? 22
4. What are the Guarantee Percentages? 22
a. Ninety Percent (90%) Guarantee 22
b. Eighty Percent (80%) Guarantee 23
c. Subsequent Increases and Decreases 23
5. What is the Cost to the Surety? 24
a. Amount of Fee Charged to the Surety 24
b. Basis for the Amount of Bond Premium Charged by the Surety 24
c. Non-Premium Charges by the Surety to the Contractor 24
d. Other Requirements by the Surety to the Contractor 24
6. What is the Cost to the Contractor? 25
a. Amount of Fee Charged to the Contractor 25
b. Payment of Contractor’s Fee 25
c. Unpaid Fees 25
7. How Do Changes in the Contract/Bond Amount Affect the Fees? 25
a. Notification of Increases and Decreases 25
b. Additional Fees Due as a Result of Increases 25
c. Refunds Due as a Result of Decreases 25
Chapter 3. Surety Eligibility and Participation Requirements
1. How Does a Surety Apply to Participate in the SBG Program? 27
2. What Criteria Must the Surety Meet to Participate in the SBG Program? 27
a. Treasury Requirements 27
b. State Licensing Requirements 28
c. Certification of Surety About Debarment 28
3. What are the Conditions of a Surety’s Participation in the SBG Program? 28
a. General Conditions of Participation 28
b. Surety Industry General Practices and Procedures 28
c. Powers-of-Attorney 29
d. Transfers or Sales by Surety 29
4. How Do Reinsurance and Co-Suretyship Affect a Surety’s Participation? 29
a. Reinsurance 29
b. Co-Suretyship 29
c. How Reinsurance Affects Recovery Due to SBA 30
5. Can SBA Limit a Surety’s Program Involvement? 30
a. Actions That SBA Can Take to Limit a Surety’s Program
Involvement 30
b. Grounds for Action 31
c. Actions Taken by SBA to Impose Sanctions 33
d. Effect of Sanctions on Guarantee 33
Chapter 4. Contractor Eligibility Requirements
1. What Certifications Does SBA Require From the Contractor? 35
a. It Needs a Bond 35
b. A Bond is Not Available 35
c. It Will Limit its Subcontracts 35
d. It Has Not Been Debarred 35
2. What SBA Size Standards Must a Contractor Meet? 35
a. General SBG Rule 35
b. Rule for Minority Enterprise Development (MED) Participants 36
c. Affiliates 36
d. Joint Ventures 36
e. Initial Determination of Size Eligibility 36
f. Request for a Formal Size Determination 37
g. Appeal of Size Determination 37
3. What Factors Determine “Good Character” of the Contractor? 37
a. Determination of Character 37
b. Illegal Activity 38
c. Probation, Parole, or Pending Criminal Charges 38
4. What Factors are Considered in Evaluating a Contractor’s “Capacity?” 38
5. What Types of Organizations are Eligible? 38
6. Are Non-Profit Institutions Eligible? 39
7. How Does Doing Business in Foreign Countries Affect Eligibility? 39
a. Firms Located in U.S.Territories and Possessions 39
b. Firms Located in a Foreign Country 39
c. Firms Partially Outside the United States 39
d. Businesses Owned by Resident Aliens 39
e. Businesses Owned by Nonresident Aliens 40
8. Are Contractors Who Obtain Bonds Without an SBA Guarantee Eligible? 40
9. How Does Graduation Affect a Contractor’s Eligibility? 40
10. How Does a Potential Conflict of Interest Affect a Contractor’s
Eligibility? 40
a. Known Conflict of Interest 41
b. Possible Conflict of Interest 41
c. Resolution of Possible Conflict of Interest 42
Chapter 5. Eligibility Requirements for Contracts and Bonds
1. What Types of Contracts are Eligible? 43
a. General Contract Requirements 43
b. Bonding Requirements 43
2. What Types of Contracts are Ineligible? 44
3. Are Indefinite Quantity Contracts (IDQ) Eligible? 44
a. Eligibility of an IDQ Contract 44
b. Calculation of Fees on an IDQ Contract 45
4. Are Design-Build Contracts Eligible? 45
5. Are Contracts That Include Maintenance Agreements Eligible? 45
a. Maintenance Agreements That Do Not Require SBA’s Approval 45
b. Maintenance Agreements That Require SBA’s Approval 45
6. How Do Multiple Bond Guarantees on a Single Project Affect the Contract Amount? 46
a. Meaning of “Single Project” 46
b. Aggregation of Contract Amounts 46
c. Determination of “Single Project” 46
7. What Types of Phased Projects are Eligible? 46
a. Meaning of “Phased Project” 46
b. Properly Phased Projects 47
c. Improperly Phased Projects 47
d. Instances in Which Improper Phasing Usually Occurs 47
e. Control Requirements 47
8. Which Contract Bonds are Eligible? 48
a. Bid and Final Bonds 48
b. Ancillary Bonds 48
c. Maintenance Bonds 48
d. Reclamation Bonds 48
9. Which Contract Bonds are Ineligible? 48
a. Ineligible Bonds Listed in the Manual of Rules, Procedures and Classifications Published by the Surety Association of
America (SAA) 48
b. Bonds That Do Not Comply With SBA Statutory/Regulatory Requirements 49
c. Other Situations Where Bonds are Ineligible 50
10. Are Dual Obligee Bonds Eligible? 51
a. Meaning of a Dual Obligee Bond 51
b. Eligible Dual Obligee Bonds 51
c. Savings Clause 51
Chapter 6. SBG Application Procedures
1. Who Can Submit an Application Package to SBA? 53
2. When the Surety Submits an Application Package to SBA, What Does
SBA Require the Surety to Certify? 53
3. How Does the Surety Order Forms from SBA for the Surety Bond
Guarantee (SBG) Program? 53
4. Where Does the Surety Send the Application Package? 54
5. What Happens When a Contractor Relocates? 54
6. Where Does the Contractor Send the SBA Contractor’s Fee? 54
7. When Does SBA Process the Contractor’s Fee? 54
8. What Happens When the Contractor’s Fee Has Not Been Paid? 54
9. How are Unpaid Surety Fees Collected? 54
10. What Information Must the Surety and/or Contractor Complete in a
Standard Application Package? 55
11. How is the Minority Code Classification Documented? 62
a. Where Do I Put the Documentation? 62
b. What Happens When a Contractor is Unresponsive? 62
c. When a Case Involves Multiple Principals, How Do I Document
the Minority Code Classification? 62
12. What is a NAME CHECK and How is it Conducted? 62
a. When Does SBA Require the SBA 912? 62
b. Who Must Submit an SBA 912? 63
c. Does SBA Require Inactive Spouses to Complete the SBA 912? 63
d. What Happens When the Applicant Indicates No Criminal Activity
on the SBA 912? 63
e. What Happens When the Applicant Identifies Criminal Activity
on the SBA 912? 63
f. What Does the SBG Area Office Do When it Receives Other
Adverse Information? 64
g. Where Does the SBG Area Office Report Suspected or Bonafide
False Representations? 64
h. What Effect Does Adverse Information Have on the Application
Process? 64
i. What Information May You Divulge to an Outside Source
Regarding an SBA 912 That Has Been Sent to OIG/OSO
for Clearance? 65
13. How Does SBA Process Applications for Surety Bond Guarantees? 65
14. How Does SBA Review Application Packages? 66
15. What Actions Does SBA Take When an Application Has Been Approved? 67
a. Bid Bonds 67
b. Final Bonds 67
16. What Procedures Does the SBG Area Office Follow When an Application
is Returned/Withdrawn? 68
17. What Procedures Does the SBG Area Office Follow When an Application
is Declined? 69
18. What Process Does the SBG Area Office Follow When the Surety
Resubmits an Application That was Returned/Withdrawn? 69
19. What Process Does the SBG Area Office Follow When the
Surety Resubmits an Application That SBA Declined? 69
20. What Information Must the Surety Supply to SBA When There is a
Change of Surety, Agent, or Both? 70
21. What Information Must the Surety/Agent or Broker Submit to SBA When
There is a Change in the Ownership of a Principal’s Business? 70
22. What are the SBG Program’s Data Entry Procedures? 71
23. Where Can I Find Information on the Disposition of Non-Defaulted
Contractor Case Files for the Surety Bond Guarantee Program? 71
Chapter 7. Underwriting Considerations
1. What Requirements Must the Surety Adhere to in Its Underwriting of
SBA-Guaranteed Bonds? 73
2. Does SBA Have Any Underwriting Guidelines for the Surety Bond
Guarantee (SBG) Program? 73
a. Eligibility 73
b. Feasibility 74
c. Character 74
d. Capacity 74
e. Credit Factors/Special Requirements 77
f. Experience 80
g. Indemnity 81
3. How Does SBA Handle Applications for Asbestos and Hazardous
Waste Jobs? 82
4. What Certificates and Coverage are Required on Asbestos and
Hazardous Waste Jobs? 82
5. What Training Prerequisites are Required for Jobs Involving
Asbestos Work? 83
6. Does SBA Require a Contractor to Meet Any Statutory and/or
Regulatory Requirements for Asbestos and Hazardous Waste Jobs? 83
7. Does SBA Require a Contractor to Own Specialized Equipment
for Jobs Involving Asbestos and Hazardous Waste? 83
8. What Transportation and Disposal Requirements Must a
Contractor Meet for Asbestos and Hazardous Waste Jobs? 83
9. Are There Any Limitations to the SBA Guarantee on Asbestos
Abatement Bonds? 83
10. How Does SBA Handle Change Orders to Asbestos and
Hazardous Waste Contracts? 84
11. What Special Advice Must the Surety Give SBA on Asbestos
Projects? 84
12. Does SBA Accept “Post-Bid” Applications for Final Bonds? 84
13. Can SBA Decline to Provide a Final Bond Guarantee Even if It
Provided the Bid Bond Guarantee? 85
Chapter 8. Bonding Lines
1. What is a Bonding Line? 87
2. How Long Can a Bonding Line Last? 87
3. What Contractors are Eligible for Bonding Lines? 87
4. How Does a Surety Apply for a Bonding Line for a Contractor? 87
5. What Limitations and Restrictions Must the Surety Recommend? 88
6. How Do You Process a Surety's Application for a Bonding Line? 88
7. Who Can Approve a Bonding Line? 89
8. How is an Approved Bonding Line Recorded? 89
9. When is the Surety Required to Notify SBA of Bonds Issued Under
the Bonding Line? 89
a. Bid Bonds 89
b. Final Bonds 90
c. Lack of Notice 90
d. Timeliness of Bond Execution 90
10. What Must You Do if You Receive Notification of Bonds Issued
Under a Bonding Line? 90
11. Can Bonding Lines be Renewed? 90
12. Can a Contractor Get a Guarantee Outside of the Bonding Line? 91
13. Can a Bonding Line be Canceled? 91
a. Cancellation by SBA 91
b. Cancellation by the Surety 91
c. Effective Date of Cancellation 91
d. Effect of Cancellation on Outstanding Bonds 91
e. Notification to the Contractor 91
Chapter 9. Claims and Recovery Activities
1. Who is Responsible for Claims and Recovery Activities? 93
2. When is the Contractor's Case File Transferred to OSG? 93
3. When is the Contractor Ineligible for Additional Guarantees? 93
4. Is the Contractor Eligible for Additional Guarantees if His/Her File Has
Been Transferred to OSG? 94
5. What Should a Field Office Do if It Receives Adverse Information
About a Contractor? 94
6. What Does SBA Do When It Receives Notice of an Actual Default? 94
7. How Does SBA Handle Inquiries from Contractors and/or Their Representatives? 94
8. What Should the SBG Area Office Do if It Needs Information or
Clarification to Answer a Contractor’s Inquiry? 95
9. What are the Claims Reimbursement Processing Procedures? 95
10. What Guidelines Must SBA Follow for Recovery and Indemnity Pursuit? 95
11. What Happens When a Settlement Occurs? 95
12. How and When Does SBA Reinstate a Contractor’s File After a Default? 95
13. How Does SBA Handle Underwriting After Reinstatement? 96
Chapter 10. Preferred Surety Bond (PSB) Guarantee Program
1. How Does SBA Administer the Preferred Surety Bond (PSB) Guarantee Program? 97
2. How Does SBA Limit a Surety’s Participation? 97
Appendices
1. Index to Forms and Reports 99
2. Sample SBA Form 990, Surety Bond Guarantee Agreement 101
3. Regulations Governing Surety Companies Doing Business With the