surety bond guarantees

surety bond guarantees Sec. 911. (a) Title IV of the Small Business Investment Act of 1958 is amended— (1) by striking out the title heading and inserting in lieu thereof the following: “TITLE IV—GUARANTEES “Part A—Lease Guarantees”; (2) by striking out “this title”, wherever it appears in sections 401 and 402, and inserting in lieu thereof “this part”; (3) by amending section 403 thereof to read as follows: “Sec. 403. There is hereby established a revolving fund for use by the Administration in carrying out the provisions of this part and part B of this title. Initial capital for such fund shall consist of not to exceed $10,000,000 transferred from the fund established under section 4(c) of the Small Business Act: Provided, That the last sentence of such section 4(c) shall not apply to any amounts so transferred. Into the fund established by this section there shall be deposited all receipts from the guarantee programs authorized by this title. Moneys in such fund not needed for the payment of current operating expenses or for the payment of claims arising under such programs may be invested in bonds or other obligations of, or bonds or other obligations guaranteed as to principal and interest by, the United States; except, that moneys provided as initial capital for such fund shall not be so invested but shall be returned to the fund established by section 4(c) of the Small Business Act, in such amounts and at such times as the Administration determines to be appropriate, whenever the level of the fund herein established is sufficiently high to permit the return of such moneys without danger to the solvency of the programs under this title. The. Administration shall pay into miscellaneous receipts of the Treasury, as of the close of each fiscal year, interest, on the net outstanding disbursements of the initial capital from the fund, at rates determined by the Secretary of the Treasury, taking into consideration the average yield on outstanding long-term, interest-bearing marketable public debt, obligations of the United States as of the month of June preceding such fiscal year.”; and (4) by adding at the end thereof the following: 84 Stat. 1813 “Part B—Surety Bond Guarantees “definitions “Sec. 410. As used in this part— “(1) The term ‘bid bond’ means a bond conditioned upon the bidder on a contract entering into the contract, if he receives the award thereof, and furnishing the prescribed payment bond and performance bond. “(2) The term ‘payment bond’ means a bond conditioned upon the payment by the principal of money to persons under contract with him. “(3) The term ‘performance bond’ means a bond conditioned upon the completion by the principal of a contract in accordance with its terms. “(4) The term ‘surety’ means the person who (A) under the terms of a hid bond, undertakes to pay a sum of money to the obligee in the event the principal breaches the conditions of the bond, (B) under the terms of a performance bond, undertakes to incur the cost of fulfilling the terms of a contract in the event the principal breaches the conditions of the contract, or (C) under the terms of a payment bond, undertakes to make payment to all persons supplying labor and material in the prosecution of the work provided for in the contract if the principal fails to make prompt payment. “(5) The term ‘obligee’ means (A) in the case of a bid bond, the person requesting bids for the performance of a contract, or (B) in the case of a payment bond or performance bond, the person who has contracted with a principal for the completion of the contract and to whom the obligation of the surety runs in the event of a breach by the principal of the conditions of a payment bond or performance bond. “(6) The term ‘principal’ means (A) in the case of a bid bond, a person bidding for the award of a contract, or (B) the person primarily liable to complete a contract for the obligee, or to make payments to other persons in respect of such contract, and for whose performance of his obligation the surety is bound under the terms of a payment or performance bond. A principal may be a prime contractor or a subcontractor. “(7) The term ‘prime contractor’ means the person with whom the obligee has contracted to perform the contract. “(8) The term ‘subcontractor’ means a person who has contracted with a prime contractor or with another subcontractor to perform a contract. “authority of the administration “Sec. 411. (a) The Administration may, in consultation with the Secretary of Housing and Urban Development and upon such terms and conditions as it may prescribe, guarantee and enter into commitments to guarantee any surety against loss, as hereinafter provided, as the result of the breach of the terms of a bid bond, payment bond, or performance bond by a principal on any contract up to $500,000 in amount, subject to the following conditions: “(1) The person who would be the principal of the bond is a small business concern. “(2) The bond is required in order for such person to bid on a contract, or to serve as a prime contractor or subcontractor thereon. “(3) Such person is not able to obtain such bond on reasonable terms and conditions without a guarantee under this section. “(4) The Administration determines that there is a reasonable 84 Stat. 1814expectation that such person will perform the covenants and conditions of the contract with respect to which the bond is required. “(5) The contract meets requirements established by the Administration for feasibility of successful completion and reasonableness of cost. “(6) The terms and conditions of any bond guaranteed under the authority of this part are reasonable in light of the risks involved and the extent of the surety’s participation. “(b) Any contract of guarantee under this section shall obligate the Administration to pay to the surety a sum not to exceed 90 per centum of the loss incurred by the surety in fulfilling the terms of his contract as the result of the breach by the principal of the terms of a bid bond, performance bond, or payment, bond. “(c) The Administration shall fix a uniform annual fee which it deems reasonable and necessary for any guarantee issued under this section, to be payable at such time and under such conditions as may be determined by the Administration. Such fee shall be subject to periodic review in order that the lowest fee that experience under the program shows to be justified will be placed into effect. The Administration shall also fix such uniform fees for the processing of applications for guarantees under this section as it determines are reasonable and necessary to pay administrative expenses incurred in connection therewith. Any contract of guarantee under this section shall obligate the surety to pay the Administration such portions of the bond fee as the Administration determines to be reasonable in the light of the relative risks and costs involved. “(d) The provisions of section 402 shall apply in the administration of this section.” (b) (1) The Secretary of Housing and Urban Development is authorized to take such steps and carry out such activities as he determines to be necessary or desirable to provide, either directly or by contract or other arrangement, technical assistance to any contractor or subcontractor for whom a bid, payment, or performance bond is guaranteed under part B of title IV of the Small Business Investment Act of 1958 in connection with any construction contract, in order to assist such contractor or subcontractor in obtaining or carrying out. such contract. (2) There are authorized to be appropriated for each of the first three fiscal years ending after the date of the enactment of this Act such sums, not to exceed $1,500,000, as may be necessary to enable the Secretary to carry out his functions under paragraph (1).