Pub. L. 95-507, tit. I, ch. 2, sec. 111

Sec. 111. Section 411 of the Small Business Investment Act of 1958 is amended to read as follows: “Sec. 411. (a) The Administration may, upon such terms and con ditions as it may prescribe, guarantee and enter into commitments to guarantee any surety (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) against loss, as hereinafter provided, as the result of a breach of the terms of a bid bond, payment bond, performance bond, or bonds ancillary and coterminous therewith, by a principal on any contract up to $1,000,000, 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 expectation 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 a cost; and 92 STAT. 1759 “(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) 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), 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): 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) 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; and “(3) no new agreements to indemnify shall be entered into pursuant to this subsection subsequent to two years after the date of its enactment. “(c) 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 per centum of the loss incurred and paid by the surety to or on behalf of the obligee, or to labor and materialmen, in fulfilling the terms of the contract as the result of the breach; or (2) in a case to which subsection (b) applies, the amount determined under subsection (b). “(d) 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) 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, or “(2) the total contract amount at the time of execution of the bond or bonds exceeds $1,000,000. “(f) 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) 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. “(h) 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) The provisions of section 402 shall apply in the administration of this section.”.