State Legislative Reports (Comprehensive and Priority) for Bail, Commercial, Contract and Fidelity posted for Members.

State Legislative Reports (Comprehensive and Priority) for Bail, Commercial, Contract and Fidelity posted for Members.

State Legislative Reports (Comprehensive and Priority) for Bail, Commercial, Contract and Fidelity posted for Members.

State Legislative Reports (Comprehensive and Priority) for Bail, Commercial, Contract and Fidelity posted for Members.

End-of-Session Legislative reports for 2020 have been posted for DC, Delaware, Illinois, Massachusetts, Maine, Michigan, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and South Carolina for Members only.

Previous reports posted for Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Indiana, Kansas, Kentucky, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, North Carolina, Oklahoma, Oregon, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming

Access the New Bonding Opportunities now (Advocacy -> New Bonding Opportunities)

January 4, 2021

William F. Clark
Director, Office of Government-wide Acquisition Policy,
Office of Acquisition Policy, Office of Government-wide Policy
General Services Administration (GSA)
1800 F Street NW
Washington, DC 20405

Re: OMB Control No. 9000–0001, Standard Form 28, Affidavit of Individual Surety

Dear Director Clark:

As a leading representative of the surety bond industry, The Surety & Fidelity Association of America (“SFAA”)¹ is writing in response to the information collection notice published on November 4, 2020, concerning OMB Control No. 9000-0001, Standard Form (SF) 28, Affidavit of Individual Surety. We appreciate the opportunity to comment on whether the proposed collection of information is necessary for the proper performance of the functions of Federal Government acquisitions. We strongly believe much of the information currently included in this November 4 notice will be out of compliance with proposed FAR regulations for the following reasons:

• Earlier this year the FAR proposed new regulations under FAR Case 2017-003, limiting acceptable assets pledged by noncorporate sureties, as mandated under Section 874 of the FY 2016 National Defense Authorization Act (NDAA).
• The SF 28 Affidavit referred to in the November 4, 2020 Federal Register notice would implement regulations based on the old, pre-amendment statute.
• The November 4, 2020 notice regarding SF 28 does not take into account the changes articulated through FAR Case 2017-003 to ensure compliance with Section 874 of the FY 2016 NDAA.
  

For the reasons stated above, SFAA strongly recommends the FAR agencies wait to update SF 28 until the FAR finalizes its rules regarding individual sureties, articulated in the proposed FAR Case 2017-003. Importantly, Section 874 of the FY 2016 NDAA instructs the FAR to make changes to the assets that must be pledged by individual sureties. SFAA strongly supported the changes outlined in the proposed FAR Case 2017-003 which would update Individual surety’s “eligible obligations,” which is defined in 31 CFR Part 225, “Acceptable Collateral for Pledging to Federal Agencies.” SFAA believes the proposal will provide important improvements to strengthen the integrity of the federal bonding process by making certain that the assets supporting non-corporate surety bonds are sufficient and in the care of knowledgeable authorities protecting small businesses and taxpayer funds. To date, however, the FAR Council has yet to issue a final rule concerning FAR Case 2017-003.

The renewal/revision of SF 28 is premature because it is uncertain what types of information should be solicited on SF 28, given the asset rule changes proposed in FAR Case 2017-003, are not yet finalized. SFAA strongly opposes the three-year adoption articulated in this notice as it will be outdated once the FAR agencies finalize FAR Case 2017-003. The information requested in the SF 28 as proposed will have little relevance to the information needed under the adopted FAR Case 2017-003. SFAA urges that the FAR Council implement FAR Case 2017-003, Individual Sureties as soon as possible, considering that it is the implementation of a four-year old statute. Once implemented, FAR should create the necessary reporting requirements that will potentially eliminate instances where individual surety bonds are accepted with worthless assets or with assets that are beyond the control of contracting officials.

SFAA appreciates the opportunity to provide input into the FAR’s process to update SF 28 and welcomes any questions you may have with respect to SF 28 after the adoption of a final rule based on FAR Case 2017-003.

Sincerely,


Julie Alleyne,
General Counsel and Director of Policy
____________________
¹ SFAA is a trade association of more than 425 insurance companies that write 98 percent of surety and fidelity bonds in the U.S. SFAA is licensed as a rating or advisory organization in all states and it has been designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience.

November 13, 2020
Via Electronic Mail: secretary@fmc.gov

Secretary Rachel E. Dickon
Federal Maritime Commission
800 North Capitol St N.W.
Washington, DC 20573

Re: Federal Maritime Commission Docket No. 20-15
PVO Financial Responsibility Rulemaking

Dear Secretary Dickon,

As a leading representative of the surety bond industry, The Surety & Fidelity Association of America (“SFAA”)¹ is writing to provide comments on the potential regulatory changes to the Federal Maritime Commission’s (“Commission”) passenger vessel operator (PVO) financial responsibility requirements. SFAA appreciates the opportunity to provide input to the Commission as it considers updating its financial responsibility requirements. Although the changes articulated in the proposed rule would provide added clarity to the definition of nonperformance of transportation, the proposed revisions would significantly broaden the obligation, particularly if the Commission allows consumers a direct right of action on the bond. Some of the changes articulated in the proposed rulemaking, namely the strengthening of the definition of nonperformance and potentially allowing consumers a direct right of action on the surety bond, would adversely impact the availability of surety credit for this type of obligation. The following are SFAA’s full comments on each section of the proposed rulemaking.

Defining Nonperformance of Transportation

Under this section of the proposed rulemaking, the Commission is specifically seeking input on:

• Necessary changes to the Commission's regulations, including the financial responsibility instrument forms, to implement the revised definition of nonperformance of transportation;
• Whether this change will increase or decrease claims for refunds against PVO financial responsibility instruments (i.e., bond, insurance, guaranty, or escrow agreement), and if so, the magnitude of the increase or decrease (including number of claims and total dollar amounts paid to passengers); and
• Whether this change will increase or decrease the cost to PVOs of obtaining compliant financial responsibility instruments (e.g., higher or lower premiums or collateral requirements), and if so, the magnitude of the increase or decrease (i.e., dollar amount);

The change in the definition of nonperformance proposed by the Commission is overly stringent and will increase the number of claims against this obligation, thereby increasing the likelihood of exposure under the surety bond. A universal standard of requiring refunds if boarding is delayed by 24 hours would add a significant burden on PVOs, particularly during a period of great uncertainty around travel given the impact of the COVID-19 virus. Not only would this likely increase the amount of full refunds issued but it would also add compliance costs to operationalize procedures to process refunds based on a 24-hour delay to the voyage. This would inevitably increase nuisance claims against PVOs adding time and cost which would ultimately be reflected in how sureties underwrite the obligation. For example, sureties likely will require PVOs to have stronger balance sheets, specifically more cash on hand or larger lines of credit, thereby narrowing the universe of PVOs eligible to receive a surety bond guaranteeing this obligation.

SFAA recommends relaxing the definition of nonperformance to a period of time greater than 24 hours, a minimum of 72 hours, to ensure PVOs are not inundated with claims, particularly during a period of great uncertainty for travel that we are currently experiencing.

Furthermore, there is uncertainty about what specifically is covered under the bond in response to a claim based on the new definition of nonperformance. Specifically, a passenger’s unilateral cancellation should be excluded from coverage under the bond. SFAA also requests clarity around what passenger expenses are specifically covered as part of the refund as a result of the PVOs nonperformance.

Process for Obtaining Refunds

Under this section of the proposed rulemaking, the Commission is specifically seeking input on:

• To whom passengers should submit requests for refunds under the revised procedures.
• Should passengers submit refund claims to the financial responsibility instrument providers directly (e.g., surety company, insurer, guarantor, or escrow agent)? Alternatively, should passengers submit refund claims to the PVO, and the PVO in turn authorizes payment from the financial responsibility instrument (similar to the current procedure for escrow agreements)?

SFAA strongly believes that the PVO should continue to serve as the primary party designated to receive and handle claims submitted by passengers. If the PVO goes into liquidation or if there is no response from the PVO, then claims could be submitted to the surety. Currently, sureties in this line of business do not generally have the claims handling capability to process individual claims against the financial responsibility instrument. Implementing a system to allow a direct right of action against the surety bond, without requiring a judgment, will make claim handling much more involved, expensive, and tedious. If sureties are designated as the direct claims handling entity with an investigatory requirement under the new regulatory regime, many will likely exit the market.

SFAA recommends two alternative approaches to the recommended process:

(1) Claims be submitted directly to the Federal Maritime Commission as the obligee and beneficiary of said surety bonds, and the FMC may then submit verified requests for payment to the sureties based on its review of the claim; or

(2) Claimants be required to obtain adjudication of its claim before submitting their claims to the surety.

The net effect of the proposed changes referenced above would likely lead to increased premium costs or a lack of availability for surety bonds. It is unclear to what extent this would increase the cost of a surety bond as increased liabilities or losses under the bonds play a role in pricing and each surety’s cost structure varies based on its costs associated with managing any expected increase in evaluation time and the number of claims on said bonds. In general, sureties set rates for a particular obligation, in part, based on the company’s financial position. Furthermore, the sureties will likely increase collateral requirements for issuing bonds under the proposed rules given the increased risk and increased claims likely to arise under said bonds.

We appreciate the opportunity to comment on the proposed changes to the Commission’s PVO financial responsibility requirement and stand ready to answer any questions you may arising from our comments.

Sincerely,


Julie Alleyne,
General Counsel and Director of Policy
____________________
¹ SFAA is a trade association of more than 425 insurance companies that write 98 percent of surety and fidelity bonds in the U.S. SFAA is licensed as a rating or advisory organization in all states and it has been designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience.

Congress Must Prevent Surface Transportation Project Delays and Protect Jobs

The Transportation Construction Coalition (TCC), the Americans for Transportation Mobility (ATM) Coalition, and the American Association of State Highway and Transportation Officials (AASHTO) represent public entities, businesses, and millions of individuals that provide a vital service to their communities by helping to improve the efficiency and safety of America’s surface transportation system and delivering essential goods and services. The members of the TCC, ATM, and AASHTO can be found in virtually every congressional district. However, many of these members are facing an unstable future because of COVID-19 pandemic-related reductions in federal and state transportation and other revenues that fund critical highway, bridge, and public transit projects. In addition, the current surface transportation law expires on September 30, 2020, creating further uncertainty. To prevent cuts in transportation investments and spur the nation’s economic recovery, the TCC, ATM, and AASHTO urge Congress to:

1. Pass a growth-oriented and turn-key extension of current surface transportation law for one year;
2. Provide backstop federal funding to state departments of transportation (DOTs) and public transit agencies; and
3. Ensure the solvency of the Highway Trust Fund.

Pass a growth-oriented and turn-key extension of current surface transportation law for one year

The Fixing America’s Surface Transportation Act – the current surface transportation law – will expire on September 30, 2020. A year-long extension of federal surface transportation programs with increased investment levels would provide the stability necessary to enable the planning, letting, and building of projects through the 2021 construction season, putting Americans to work. The extension would also bolster market certainty for businesses in 2021, making them more likely to hire workers while investing in new equipment and technologies. The extension should be “turn-key,” by avoiding the inclusion of new policies and programs, which may delay the critical distribution of federal funding. At the same time, enabling state DOTs and public transit agencies to address the impacts of the pandemic may require specific flexibilities in the extension.

Provide backstop federal funding to state DOTs and public transit agencies

State DOTs and public transit agencies are facing severe losses in state transportation and other revenues due to state and local stay-at-home orders. As a result, the ability of state DOTs and public transit agencies to carry out their core functions, including capital construction programs, is threatened. Many state DOTs and public transit agencies have imposed furloughs, while delaying or cancelling more than $8 billion in surface transportation projects, threatening the viability of many businesses. AASHTO estimates that state DOTs need $37 billion through fiscal year 2024 to offset state transportation revenue losses. Similarly, the American Public Transportation Association estimates that public transit agencies require an additional $32 billion of federal funding to offset pandemic-related costs and revenue losses as they continue providing this critical lifeline for essential workers. These infusions of emergency federal funding for state DOTs and public transit agencies will forestall public and private sector job losses and prevent further disruptions to projects that provide long-term benefits to the economy.

Ensure the solvency of the Highway Trust Fund

Federal surface transportation programs are supported by motor fuels and trucking user fee revenues, which are deposited into the Highway Trust Fund (HTF). Prior to the pandemic, the revenue from these user fees was estimated to fall approximately $195 billion short of supporting even current funding levels for surface transportation programs over the next 10 years. The stay-at-home orders also reduced revenue for the HTF, further exacerbating the impending cash shortfall. The HTF’s shortfall must be addressed for the duration of a year-long extension at a minimum.

To learn more about the TCC, the ATM, and AASHTO, please visit:
https://www.transportationconstructioncoalition.org/, https://www.fasterbettersafer.org/, and
https://www.transportation.org/, respectively.

August 31, 2020

Via Federal eRulemaking Portal


Re:    FAR Case 2019-013
Federal Acquisition Regulation: Indexing Payment Bond Threshold

Dear Administrator:

The Surety & Fidelity Association of America (“SFAA”)¹ is writing in strong opposition to the Federal Acquisition Regulation (FAR) Case 2019-013, which proposes to increase the Miler Act construction payment bond threshold from $35,000 to $40,000 as delineated in FAR Part 28, titled Bonds and Insurance (28.102-1(b)(1), 28-102-2(c) and 28-102-3(b). While we understand indexing certain “acquisition-related” contract thresholds can play a role in streamlining regulations to create a better environment for the private sector, particularly small businesses, to conduct business with the federal government, we fundamentally believe the bonding threshold was not intended to be and should not be considered an “acquisition-related threshold” and the increase actually would be harmful to the small business subcontractors and suppliers Congress intended to help.

As discussed more fully below, the payment bond threshold, as well as the performance bond threshold, should not be considered an “acquisition related” threshold for the following reasons:

1. As the FAR previously asserted, Congress never intended for insurance requirements to be “acquisition related”, and surety payment bonds are a regulated insurance product;
2. Increasing bond thresholds has no impact on the Congressional intent for and objective of indexing, which is to eliminate onerous, red tape requirements preventing small businesses from doing business with the federal government;
3. The payment bond requirement is remedial and protective in nature—as recognized by the Supreme Court–which is inherently different from the red-tape, government requirements Congress was trying to reduce; and
4. Indexing the payment bonds will work counter to the very purpose for which indexing was adopted—to help small businesses.

History and Use of Inflation Indexing for Procurement Acquisition-Related Thresholds

To understand Congress’s intent, it is helpful to understand where and why the indexing of acquisition- related thresholds is applied. According to the Federal Acquisitions Regulation Rule Release, 75 FR 53129, the most heavily-used thresholds are:

• The micro-purchase base threshold of (FAR 2.101)
• The simplified acquisition threshold (“SAT”)(FAR 2.101)
• The FedBizOpps pre-award and post-award notices (FAR part 5) (trade agreement)
• Commercial items test program ceiling (FAR 13.500)
• The cost or pricing data threshold (FAR 15.403-4)
• The prime contractor subcontracting plan and the construction threshold (FAR 19.702)

As set forth in the Federal Acquisitions Regulation Sect. 13.002, the purpose of indexing the SAT, and presumably the other regulations listed above, is to reduce administrative costs, open opportunities for small and disadvantaged enterprises to do business with the federal government, promote efficiency and economy in contracting and avoid unnecessary burdens for agencies and contractors. Unlike SAT and the other thresholds, as discussed above and below, the payment bond threshold was not the type of threshold that Congress intended to address to achieve its stated objectives.

When looking at the most commonly used statutes above where threshold indexing is used, the intent of Congress was focused on removing the full weight of extremely complicated, onerous, expensive federal procurement red-tape for certain sized contracts so small and disadvantaged businesses can do business with the federal government. For example, one commentator noted that the full menu of FAR Part 52 clauses come into play, with more than fifty government-unique clauses potentially applicable to even the simplest FAR Part 12 commercial transaction above the threshold. This commentator concluded that the end result of the Simplified Acquisition laws in FAR PART 13 is to create a $14B marketplace with its own set of statutes, regulations and procedures that operates very differently from the other 96% of the Federal spend, which are above the thresholds.

Unlike the other acquisition thresholds for furnishing supplies and materials and performing other contracts, bonding is not a complicated or onerous ‘red-tape’ requirement. It is a remedial requirement to protect small businesses working on and supplying federal construction contracts.

Payment Bond Threshold is Not “Acquisition-Related” and Should Not be Indexed
As set forth above, the payment bond threshold (as well as the performance bond threshold) should not be considered an “acquisition related” threshold and should not be indexed for the following reasons.

First, in the 2010 rulemaking notice, the Federal Acquisition Regulations acknowledged certain thresholds should not be viewed as “acquisition related.” The proposed rulemaking asserted, “examples of thresholds that are not viewed as ‘‘acquisition-related’’ as defined in this case are threshold relating to claims, penalties, withholding, payments, required levels of insurance, small business size standards, ….”² Surety bonds, including payment bonds, are a type of insurance provided by insurance companies and thus were not intended to fall within the indexing requirements. Unlike the Miller Act payment bond threshold, if the SAT and other true “acquisition-related” thresholds were not indexed, small businesses would have less and less access to government contracts over time because of inflation. The same is NOT true if the payment bond threshold remains the same—these small business contractors will have the same access to government contracts with no added government red-tape.

Second, increasing the payment bond threshold has no impact on the Congressional intent for and objective of indexing, which is to eliminate onerous, red tape requirements preventing small businesses from doing business with the federal government. The indexing requirement was enacted to make it easier to contract with the federal government and to bring efficiencies to working with the federal government by raising the thresholds above which the full weight of federal regulations would apply.
Contracts falling under these thresholds would increase opportunities for small businesses. This is plainly not the case when it comes to Miller Act payment bonds as raising the bond threshold does not increase opportunities to do business with the federal government—it only affects the amount above which the general contractor must provide a payment bond that protects small business subcontractors and ultimately federal tax dollars dedicated to the construction contracts. A static bonding threshold simply will not have the same negative impact as maintaining the levels of other thresholds that are actually “acquisition related.”

Third, the payment bonding requirement is remedial and protective in nature—which is inherently different from the other red-tape, government requirements that Congress was trying to reduce. In Clifford F. MacEvoy Company v. United States, 322 US 102 (1944), the US Supreme Court reinforced this fact characterizing the protections included in the Miller Act as “highly remedial in nature,” and emphasizing the “Congressional intent to protect those whose labor and materials go into public projects.” The current threshold has ensured small businesses who do business with the public sector, in the role of subcontractors and suppliers on public works projects, will receive payment for their work in the event the general contractor fails to make said payments under its contract with the subcontractors and suppliers. See also In K-Con, Inc. v. Secretary of the Army , 322 US 102 (1944), reinforced that the Miller Act is “highly remedial in nature,” as “Congress intend[ed] to protect those whose labor and materials go into public projects.” See also In K-Con, Inc. v. Secretary of the Army, 908 F.3d 719 (Fed. Cir. 2018) (“bond requirements [of the Miller Act] are ‘deeply ingrained’ in procurement policy”) and United States ex. Rel. Sunworks Division of Sun Collector Corp. vs. Insurance Co. of North America, 695 F.2d 455 (10th Cir. 1982), where the court established that the Miller Act provided suppliers under government contracts with an alternative remedy to a mechanic’s lien. Subcontractors on these contracts often have no other recourse to seek repayment outside of the payment bond, as they are not able to lien public property. Increasing this threshold would remove subcontractors only payment protection for contracts under $40,000 and unnecessarily expose more small businesses during a period of greater risk for the construction sector due to pandemic impacts and uncertainty in the broader economy.

Finally, unlike several other thresholds that are periodically indexed for inflation, increasing the payment bond threshold would work counter to the very purpose for which the indexing was adopted—to help small businesses. A small and emerging contractor will most often work as a subcontractor, rather than as a general contractor, on public projects to build up experience and qualify for increased surety credit over time. Increasing the payment bond threshold on federal construction projects would only serve to harm small and emerging contractors and suppliers by substantially increasing their risk of nonpayment if they operate as subcontractors without proper security in place. We strongly recommend retaining the current payment bond threshold because it requires nearly all federal construction projects to have payment bonds in place to protect those businesses should the prime contractor fail to meet its payment obligations.

In summary, the Miller Act payment bond threshold has been wrongly categorized as an “acquisition related threshold,” as it is clear Congress never intended to include the payment bond threshold in the indexing requirements. Furthermore, the payment bond threshold should not be indexed at the expense of removing protections for small businesses.

The SFAA therefore strongly opposes increasing the payment bond threshold from $35,000 to $40,000, as proposed in the FAR Case 2019-013 Part 28 Bonds and Insurance.

Thank you for your consideration of this request and for the support of the construction industry.


Respectfully submitted for your consideration,

Julie Alleyne
Vice President, Policy & General Counsel
Surety & Fidelity Association of America
JAlleyne@surety.org
202.778.3630

¹ SFAA is a trade association of more than 425 insurance companies that write 98 percent of surety and fidelity bonds in the U.S. SFAA is licensed as a rating or advisory organization in all states and it has been designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience.

² https://www.govinfo.gov/content/pkg/FR-2010-02-04/pdf/FR-2010-02-04.pdf Pg. 5717

May 11, 2020

Via Federal eRulemaking Portal

U.S. Department of Transportation
Docket Management Facility
West Building, Ground Floor
1200 New Jersey Avenue SE, Room W12-140
Washington, DC 20590-0001

Re: Registration and Financial Security Requirements for Brokers of Property and Freight Forwarders; Small Business in Transportation Coalition (SBTC) Exemption Application

Docket No.: FMCSA-2020-0239

Dear Federal Motor Carrier Safety Administrator,

I am writing on behalf of the Surety & Fidelity Association of America (SFAA)¹ in response to the Small Business in Transportation Coalition’s (SBTC) request to reconsider an August 14, 2013, application by the Association of Independent Property Brokers and Agents (AIPBA) for an exemption from the $75,000 bond requirement for all property brokers and freight forwarders. SFAA strongly urges the Federal Motor Carrier Safety Administration (FMCSA) to reject the Small Business in Transportation Coalition’s request. The bonds required under 49 U.S.C. §13906 are intended to ensure that commercial entities, such as motor carriers and shippers, are protected if the freight forwarder fails to pay freight charges under its contracts, agreements or arrangements for transportation. The protections for shippers and carriers, who may also be small businesses themselves, should not be sacrificed in the interest of the Small Business Transportation Coalition. The loss experience from this type of bond demonstrates it is serving its intended purpose, which Congress believed was necessary when it raised the bond requirement to $75,000.

AIBPA asserts that the increase in the required bond amount from $10,000 to $75,000 was unnecessary to protect shippers and was ultimately not in the public’s best interest. Before the bond amount was increased in 2014, there were a number of court cases demonstrating the $10,000 bond was insufficient to pay all claims in the full amount, thereby requiring the surety to deposit the bond with the court in an interpleader action. See, e.g. Owner-Operator Indep. Drivers Ass'n v. Pac. Fin. Ass'n, 241 Ariz. 406, 388 P.3d 556 (Ct. App. 2017); Drayage Express, LLC v. Int'l First Serv. USA, 2016 U.S. Dist. LEXIS 160377, *3 (D.N.J. November 18, 2016); Hudson Ins. Co.
v. Stich Family Logistics, LLC, 2019 U.S. Dist. LEXIS 76109 (S.D. Ohio May 6, 2019); and Ass'n of Indep. Prop. Brokers & Agents, Inc. v. Foxx, No. 5:15-cv-38-Oc-30PRL, 2015 U.S. Dist. LEXIS 91960 (M.D. Fla. July 15, 2015)

Furthermore, loss data from SFAA statistical reports indicates a steady increase in the total amount of losses for bonds classified as Transportation Broker Bonds, categorized in the statistical class code 964. In 2012 and 2013, losses categorized under this bond did not exceed $390,000 on an annual basis, meaning the amount obligees collected from surety bond companies likely did not cover the full amount they were owed under the agreement. Several other commenters have highlighted that the $10,000 limit was inadequate to cover the brokers financial obligations. Since the required bond amount increased in 2014, surety companies have made over $1.5M in claims payments to shippers and carriers on an annual basis (excluding 2015). Direct losses incurred reached $3M in 2017. The preliminary statistical analysis demonstrates that the increased bond amount was appropriate and efficiently accomplished Congress’s intent when it elected to increase the requirement in 2014.

The AIPBA also states that the surety bond does not protect the public interest and may unnecessarily disadvantage small businesses from accessing these bonds. SFAA strongly contends these bonds protect the public interest by ensuring the FMCSA licenses are provided to qualified, well-capitalized brokers and freight forwarders. A surety bond is an instrument by which an obligation owed by one party to another is secured by a third party, the surety. Such a guarantee is essential when a governmental agency confers a benefit upon an individual, such as a license to act as a freight forwarder or property broker. A part of its oversight activities, the governmental entity needs assurance that the entity is qualified to perform or conduct its activities properly. An assurance provided by the surety by virtue of its prequalification process before a company is approved and for whom a bond will be issued. Bonds are a valuable product used in a variety of ways to provide financial protection and protect the public treasury.

Surety bonds provide two valuable services. The better-known service of the surety is to perform its state bond obligation and provide financial protection in the event the bond principal defaults in its performance, as demonstrated by the loss data highlighted in the earlier section of the letter. In this circumstance, losses potentially can occur when a broker fails to pay freight charges when the same comes due. In such an event, the surety steps in to handle the claims on the bond and perform pursuant to the conditions of the bond and the applicable statutory or regulatory language.

While loss and claims handling is a critical function of the surety, another equally critical function is the surety’s prequalification of a principal before the surety will write a bond. A surety will review the capabilities and financial strength of bond applicants and provide bonds only to those entities that the surety has determined are capable of performing the underlying obligation. These services help facilitate the goal of having qualified brokers and freight forwarders operating in the market. The bond provides financial protection to shippers and carriers, which serves to reduce costs in the long run by eliminating the need for a carrier or shipper to include the risk of nonpayment in its pricing.

Additionally, SFAA does not believe that the $75,000 bond requirement has had an adverse impact on the availability of bonds for small businesses operating as forwarders or brokers. The surety market offers many and varied avenues for small businesses to obtain bond eligibility.

For the reasons stated above, SFAA strongly believes that the FMCSA should not move forward in approving the AIPBA’s request for exemption. Thank you for your consideration. We stand ready to answer any questions you may have with respect to SFAA’s comments.

Respectfully submitted for your consideration,

Julie Alleyne
Vice President, Public Policy & General Counsel
The Surety & Fidelity Association of America
JAlleyne@surety.org
202.778.3630

¹ The Surety & Fidelity Association of America (“SFAA”) is a non-profit corporation whose member companies collectively write the majority of surety and fidelity bonds in the United States. SFAA is also an advisory organization operating in all states and regularly provides input and education to local, state and federal governments and agencies on any and all issues relating to surety and fidelity insurance.

May 5, 2020

The President
The White House
1600 Pennsylvania Ave., NW
Washington, DC 20006

Dear Mr. President:

On behalf of the 17 signed associations, we thank you for your efforts related to covid-19 pandemic relief and to safely reopen the American economy. The Administration and Congress has taken swift measures to act on public health and economic needs amid the covid-19 pandemic. Critically among them is the Paycheck Protection Program (PPP) that helps provide needed capital to employers to prevent mass layoffs and continue safe and essential business operations.

However, a chaotic stream of PPP guidance from the U.S. Department of Treasury, U.S. Small Business Administration, and Internal Revenue Service has immensely confused and frustrated employers to strongly consider returning PPP loan funds, threatening the continued employment of many. Similarly, federal agencies have issued varying rules related to PPP loan funds. Some of these agencies have issued guidance only to turnaround an issue supplemental guidance that differs significantly.

As the deadline fast approaches for returning PPP funds, clarity surrounding PPP loan guidance is needed for employers to reevaluate their eligibility. As such, we respectfully ask that you extend the deadline of May 7th until clear guidance is issued and businesses can make informed decisions whether or not they should return PPP funds.

Businesses of all types, especially small businesses, are confronted with an unparalleled crisis that threatens them both financially as well as the health, safety, and welfare of themselves and employees. These businesses should not be burden or distracted with ambiguous regulations during this crisis which threaten criminal penalties should a business in good faith misinterpret its PPP eligibility. Again, we respectfully ask that you extend the deadline of May 7th until clear guidance is issued and businesses can make informed decisions whether or not they should return PPP funds.

Sincerely,

American Council of Engineering Companies
Associated General Contractors of America
American Society of Civil Engineers
American Subcontractors Association
Geospatial Equipment & Technology Institute
Independent Electrical Contractors
International Institute of Building Enclosure Consultants
National Association of Surety Bond Producers
National Electrical Contractors Association
National Society of Professional Surveyors
Professional Services Council
Sheet Metal & Air Conditioning Contractors National Association
Subsurface Utility Engineering Association
Surety & Fidelity Association of America
The Design-Build Institute of America
U.S. Geospatial Executives Organization
Women Construction Owners & Executives

CC: House Committee on Small Business
Senate Committee on Small Business and Entrepreneurship
Secretary of the U.S. Department of Treasury Administrator of the U.S. Small Business Administration Internal Revenue Services

May 1, 2020

Via Electronic Mail
Mr. William Manger
Associate Administrator
Office of Capital Access, Small Business Administration
409 3rd Street, S.W. Suite 8200
Washington, DC 20416

Re: SBA Paycheck Protection Program – Bail Bond Companies

Dear Administrator Manger:

I am reaching out to you on behalf of the SFAA¹ to provide comments and input in connection with recent actions taken by the Small Business Administration (“SBA”) under the Paycheck Protection Program (“PPP”) that has negatively impacted the surety bail bond industry. Be advised the SFAA supports the position taken by the American Bail Coalition (“ABC”) as set forth in its Notice dated April 10, 2020. A copy of that Notice is attached. 

Standard Operating Procedure (“SOP”) 5010 adopted by the SBA to implement the regulations governing the PPP program requirements has taken the very broad step of creating a rule that has rendered certain businesses to be ineligible to participate in the PPP loan program. The regulation in question, 13 CFR 120.110(b), identifies specific financial businesses engaged in lending and factoring. From this regulation the SOP further specifies that “Bail Bond Companies” are also ineligible under the lending exclusion. 

The action taken by the SBA is curious and overreaching in several respects. First, the PPP in the recently passed CARES Act does not set forth any businesses that are ineligible to apply for benefits. Nevertheless, the SBA excluded certain businesses as ineligible and adopted the regulation referenced above to define said ineligible businesses. The adopted regulation does not specifically include Bail Bond Companies in its definition of excluded “financial businesses.”  However, in contrast, the SOP inexplicably excludes Bail Bond Companies as a financial business eligible under the PPP.

Second, as pointed out by the ABC in its Notice, Bail Bond Companies, whether they are bail agents or the insurance companies that issue the bonds, are not lending institutions. Bail bonds are a product of the surety insurance industry and are, in fact, issued by several SFAA member The bonds are produced and underwritten by a nationwide network of agents that work closely with their local criminal court systems. The bonds themselves bear no resemblance to a “loan;” they act as security to assure a criminal defendant’s appearance at future court proceedings.

Nearly all of the agencies that produce bail bonds are small and most have fewer than 500
employees. As a result, this action by the SBA will create a financial hardship that may
overwhelm many of these small businesses. As set forth in the ABC’s Notice, the
misclassification of bail agents as lenders or financial institutions and the resulting inability of these businesses to avail themselves of the benefits of the PPP will place an enormous and unwarranted burden on these agents. Further, it is foreseeable that this burden could result in a negative and serious impact on the criminal justice system if bail agencies start to close their doors, making bail bonds unavailable.

The SFAA would ask that the SBA revisit the regulations and SOP in question in light of the
intent of the CARES Act. The goal of the Act was clearly to reach and assist as many small
businesses as possible. The actions taken by the SBA are contrary to those goals and corrective action needs to be taken as soon as possible.

We appreciate your consideration and are available if you need more information regarding bail bonds or the surety industry in general. Thank you.

Respectfully submitted for your consideration,

Julie Alleyne
Vice President, Public Policy & General Counsel
The Surety & Fidelity Association of America
JAlleyne@surety.org
202.778.3630

¹ The Surety & Fidelity Association of America (“SFAA”) is a non-profit corporation whose member companies collectively write the majority of surety and fidelity bonds in the United States. SFAA is also an advisory organization operating in all states and regularly provides input and education to local, state and federal governments and agencies on any and all issues relating to surety and fidelity insurance.

April 13, 2020

Via Federal eRulemaking Portal

Ms. Lesley A. Field
Acting Administrator
Office of Federal Procurement Policy
Office of Management and Budget
Washington, DC 20503

Re: RIN 9000-AN39
Federal Acquisition Regulation: Individual Sureties
Docket No.: FAR-2017-0003, Sequence No. 1

Dear Ms. Field:

As a leading representative of the surety bond industry, The Surety & Fidelity Association of America (“SFAA”)¹ strongly supports the proposed individual surety rule as outlined in FAR Case 2017-003.

The federal government has relied on surety bonds for prequalification of construction contractors and for performance and payment assurances since the late Nineteenth Century. Bid bonds assure that the contractor’s bid has been submitted in good faith and the contractor will enter into the construction contract at the bid price and provide the necessary performance and payment bonds. A performance bond protects the project owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions. The payment bond protects subcontractors and suppliers, which do not have direct contractual agreements with the public owner, and which would be left to legal recourse against the contractor should the contractor fail or refuse to satisfy its financial obligations. Often, small construction businesses must access the federal procurement marketplace as subcontractors and suppliers, and the payment bond is their primary recourse and protection in the event of prime contractor nonpayment or insolvency.

Sureties play a vital role in the federal construction process to ensure contractors are qualified to perform the public works projects. Use of individual sureties, in contrast, places a tremendous burden on procurement officers, who need to focus on the already complex tasks of efficiently procuring and administering the public construction projects. Under the current FAR requirements, procurement officers are required to determine the acceptability of individual sureties and to verify the existence and sufficiency of the assets pledged to support the individual surety's bond obligations. Furthermore, the pledged assets are supposed to be placed in an escrow arrangement by the individual surety, subject to the approval of the contracting officer. In sum, each contracting officer shoulders the burden of determining the acceptability of the individual surety, its documentation, the escrow or security arrangement, and the value and adequacy of pledged assets, and must do so within a relatively short timeframe to progress the contract procurement. A missed, incorrect, or forsaken step may mean the acceptance of a fraudulent or insufficient bond, rendering its much-needed protection worthless.

The changes suggested in this proposed rule will streamline the procurement process for federal contracting officers. Under the new requirements, federal contracting officers will no longer have to determine whether the assets that individual sureties pledge exist and/or are sufficient to cover the risk undertaken by the contractor. If adopted, individual sureties will be required to pledge more reliable assets, whose value is less speculative. This will bring additional assurance for subcontractors and suppliers who rely on the individual surety and its pledged assets for protection against default by the contractor.

Furthermore, SFAA believes that the proposed FAR rule will eliminate future instances where bond assets pledged by individual sureties prove to be illusory or insufficient, causing significant financial harm to the federal government, taxpayers, and subcontractors and suppliers. Small business downstream parties working on federal construction projects will benefit significantly from having greater confidence that individual sureties’ pledged assets are adequate and reliable to guarantee that they will be paid for their labor, equipment, and materials. Additionally, the proposed rule ensures federal tax revenue will be adequately protected in the event the contractor defaults by placing guidelines around individual sureties’ financial guarantees.

SFAA does not believe that the proposed rule will adversely impact the availability of bonds for small construction businesses. The surety market offers many and varied avenues for small contractors to obtain bond eligibility. The proposed rule also does not eliminate individual surety bonds as an option for surety credit; rather, it simply ensures that individual surety bonds will be backed by stable and secure assets in the control of the federal government.

We strongly encourage the adoption of the proposed rules and thank you for the opportunity to provide comments. We look forward to seeing the finalized rules in the near future and stand ready to answer any questions you may have with respect to SFAA’s comments or relative to streamlining implementation.

Respectfully submitted for your consideration,

Julie Alleyne
Vice President, Policy & General Counsel
Surety & Fidelity Association of America
JAlleyne@surety.org
202.778.3630


¹ SFAA is a trade association of more than 425 insurance companies that write 98 percent of surety and fidelity bonds in the U.S. SFAA is licensed as a rating or advisory organization in all states and it has been designated by state insurance departments as a statistical agent for the reporting of fidelity and surety experience.

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