own form if such form is approved by SBA no later than one year from disbursement. Loss will be determined as of the date of receipt by SBA of such claim for reimbursement, or as of such later date as additional information or documents requested by SBA are received. SBA may request additional information or documents. Subject to part 140 of this chapter, SBA shall pay its share of loss within ninety (90) days of receipt of the requisite information. The PSB surety shall reimburse or credit SBA (in the same proportion as SBA's share of loss) within ninety (90) days of any recovery or salvage by surety. Claims for reimbursement and any additional information provided are subject to review and audit by SBA.

(b) Imminent breach. A PSB surety may make payments to avoid imminent breach without prior SBA approval whether or not such payment exceeds 10 per centum (10%) of the contract price, but SBA's guaranteed share of the aggregate of such payments and of indemnification against loss shall be limited to SBA's guaranteed share of the bond penalty. In no event shall SBA make any duplicate payment pursuant to this paragraph (b) or any other provision of these regulations. A PSB surety making payments to avoid imminent breach shall keep records concerning such payments that will enable SBA to ensure that its payments do not exceed its guaranteed share of the bond penalty, and that SBA's total payments under its guarantee of a given bond do not include a share of duplicate payments under such bond.

§ 115.62 Qualifications of surety.

(a) Improper surety bond guarantee practices. SBA at its sole discretion may suspend the preferred status of a PSB surety pursuant to paragraph (d) of this section, where SBA finds that the surety, in its underwriting of surety bonds guaranteed by SBA, or in its efforts to minimize loss, or in its claims practices, or its documentation related to such bonds, has failed to adhere to prudent underwriting standards or other prudent surety practices, as compared to those of other PSB sureties participating in the SBA

Surety Bond Guarantee Program. Acts of wrongdoing such as fraud, material misrepresentation, breach of the guarantee agreement or regulatory violation (as defined in § 115.13 above) shall constitute adequate grounds for refusal to continue preferred status. SBA may also require the renegotiation of the percentage of its loss guarantee under § 115.64(a) and/or its charge to surety under § 115.60(c)(3), with a surety which experiences excessive losses on SBA-guaranteed bonds, relative to those of other PSB sureties participating in the program to a comparable degree. Such sanctions will be issued by SBA's Associate Administrator for Finance and Investment. Any surety that has been so sanctioned may file a petition for review of the sanction in accordance with § 134.11(a) of this chapter. Proceedings concerning such petition shall be conducted in accordance with the provisions of part 134 of this chapter. The Assistant Administrator of the Office of Hearings and Appeals or an Administrative Law Judge of such office shall be the reviewing official for purposes of § 134.34 of this chapter.

(b) Business integrity. Any person qualifying as a PSB surety, including any officer, director, individual partner, other individual holding twenty or more percent of the surety's voting securities, and any agent, independent agent, underwriter or individual empowered to act on behalf of such person shall be deemed to have good character: Provided, however, That good character shall be presumed absent in the following circumstances:

(1) When a State or other authority regulating insurance (including the surety industry) has revoked or cancelled the license required of such person to engage in the surety business, the right of such person to participate in the program may be denied or terminated as applicable. When such authority has suspended such license, the right to participate in the PSB program in any capacity may be suspended for the duration of such suspension.

(2) When such person has been indicted or otherwise formally charged with a misdemeanor or felony bearing on such person's fitness to participate

in the program, the participation of such person may be suspended until the charge is disposed of. Upon conviction, participation may be denied or terminated.

(3) When such person has suffered an adverse final civil judgment holding that such person has committed a breach of trust or violation of a law or regulation protecting the integrity of business transactions or relationships, participation may be denied or terminated.

(4) When such person has made a material misrepresentation or willfully false statement in the presentation of oral or written information to SBA in connection with an application for a surety bond guarantee or the presentation of a claim thereon, or committed a material breach of the guarantee agreement or a material violation of the regulations (all within the meaning of § 115.13), the participation may be denied or terminated.

(5) When such person is debarred, suspended, voluntarily excluded from or declared ineligible for participation in Federal programs, participation may be denied or terminated.

(c) SBA proceedings. The PSB surety shall notify SBA if and when any of the above mentioned persons does not, or ceases to, qualify as a surety under this section. SBA may require submission of SBA Form 912, Statement of Personal History (OMB Approval No. 3245-0178) from any of these individuals. The Administrator may, pending a hearing and decision pursuant to part 134 of this chapter, suspend the participation of any surety for any of the causes listed in paragraphs (b)(1) through (5) of this section. A guarantee issued by SBA before a suspension or termination under this section shall remain in effect.

(d) Suspension and termination of preferred status. SBA reserves the right to suspend the preferred status of a surety by written notice stating SBA's reason(s) for such suspension and the effective date. Any bonds issued under SBA's guarantee prior to the effective date of such suspension shall remain covered by SBA's guarantee. Reasons for such suspension, in addition to the defenses listed in § 115.13, shall include, but not be lim

ited to, an excessive loss experience as compared to other PSB surety companies participating with SBA to a comparable degree, a finding of violation of the PSB surety's approved underwriting or claims procedures, or of SBA's regulations, or that the surety no longer meets the qualification for preferred status (§ 115.10(d)). Any surety that has been so suspended may file a petition for review of such suspension in accordance with § 134.11(a) of this chapter. Proceedings concerning such petition shall be conducted in accordance with the provisions of part 134 of this chapter and may result in the surety's termination from surety bond program participation (§ 134.3(i)). The Assistant Administrator of the Office of Hearings and Appeals or an Administrative Law Judge of such office shall be the reviewing official for purposes of § 134.34.

[54 FR 47169, Nov. 9, 1989, as amended at 55 FR 10226, Mar. 20, 1990]

§ 115.63 Audits and investigations.

(a) Records and reports. Each PSB surety shall be audited at least once each year by examiners selected and approved by the Administration. At all reasonable times, SBA may audit in the office of either a PSB surety, its attorneys, or the contractor or subcontractor completing the bonded contract all documents, files, books, records, tapes, disks and other material relevant to the Administration's surety bond guarantee, or agreements to indemnify the PSB surety. Failure of a PSB surety to consent to such audit or maintain such records shall be grounds for SBA to suspend such PSB surety from participation or to honor claims until such time as the surety consents to such audit: Provided, however, That when SBA has so refused to issue further guarantees, the surety may file a petition for review of such refusal in accordance with § 134.11(a) of this chapter. Proceedings concerning such appeal shall be conducted in accordance with the provisions of part 134. The Assistant Administrator of the Office of Hearings and Appeals or an Administrative Law Judge of such office shall be the re

(b) Time period. The relevant time period and the records subject to such audit are those listed in § 115.40(b).

(c) Investigation. SBA may conduct such investigations as it deems necessary to inquire into the possible violation by any person of the Small Business Act and the Small Business Investment Act of 1958, as amended, or of any rule or regulation issued under these Acts, or of any order issued under these Acts, or of any Federal law applicable to programs or operations of the SBA.

(d) Authority. Authority for this section is contained in sections 310(a) and 411(g) of the Small Business Investment Act of 1958, as amended (15 U.S.C. 687b(a) and 694b(g)), and in the Inspector General Act of 1978 (5 U.S.C., App. I).

§ 115.64 Liability of SBA.

(a) Percentage of Indemnification. SBA shall indemnify a surety operating under PSB in an amount not to exceed seventy percent (70%) of its loss as that term is defined in § 115.11.

(b) Grounds for denial of indemnification. SBA may deny liability to a PSB surety if:

(1) The total contract amount at the time of approval of the bond or bonds exceeds $1,250,000, whether or not the liability under the bond(s) exceeds that amount;

(2) The principal on the bonded contract is not a small business, as defined in part 121 of this chapter;

(3) The bond is not required under the bid solicitation or the contract;

(4) The SBA guarantee of the bond has been obtained, or the surety has applied for indemnification against losses, by fraud or material misrepresentation, as these terms are defined in § 115.13;

(5) The bond was not eligible for guarantee by SBA because the bonded contract did not comply with the definition of contract in § 115.11;

(6) The loss occurred under a bond that was not guaranteed by SBA;

(7) The loss incurred by the PSB Surety does not fall within the definition of eligible loss in § 115.11;

(8) The loss incurred by the PSB Surety occurred under a final bond for which the check(s) for the contractor's guarantee fee had not been received with the related bordereau(x) by SBA;

(9) The PSB surety's guaranteed bond was approved without SBA's consent after work under the contract had begun, as defined in § 115.10(g);

(10) The PSB surety's guaranteed bond was issued in an amount which, together with all other such bonds, exceeded the allotment for the period during which such bond was approved and no prior SBA approval had been obtained;

(11) The bond under which the PSB Surety incurred a loss was not listed on the bordereau for the period during which it was approved;

(12) The PSB Surety's loss did not result from the principal's breach of the contract for which the guaranteed payment or performance bond were approved;

(13) The loss incurred by the PSB Surety under an ancillary bond is not attributable to the particular contract for which SBA-guaranteed payment or performance bonds were approved.

[54 FR 47169, Nov. 9, 1989, as amended at 55 FR 10226, Mar. 20, 1990]

As used in this subpart:

(a) The term veteran means a person who served in the active military, naval or air service, and who was discharged or released therefrom under conditions other than dishonorable.

(b) The term Armed Forces includes the Army, Navy (with the Marine Corps), and Air Force; the Coast Guard; a unit of the National Guard when called into the service of the United States; and Environmental Science Services Administration, Public Health Service, and other organizations when assigned to and serving with armed forces.

(e) The term child shall include dependent children, whether a legitimate child, a legally-adopted child, a stepchild who is a member of the veteran's household, or an illegitimate child if so acknowledged in writing by the veteran or determined to be such by a court of competent jurisdiction.

§ 116.3 Special consideration.

(a) Special consideration as defined below, is available only to the veteran himself, or to one dependent or survivor. That is, it will apply first to the veteran himself or herself if not permanently disabled, and then to a dependent if the veteran does not choose to seek SBA assistance. In the case of a deceased or totally and permanently disabled veteran, the benefit would apply to either the unremarried or supporting spouse, or child, or dependent parent. This policy does not preclude the veteran or other dependents or survivors from later applying for SBA assistance under normal procedures and criteria.

(b) Special consideration will include the following:

(1) In depth management assistance counseling on first interviews. Action will be taken to insure that our management assistance people advise veterans of SBA's programs and the potential benefits to them.

(2) Emphasize to SBA personnel designated as Veterans Affairs Officers the need for close cooperation with the local VA offices and organizations having direct interest in veterans' affairs.

(3) Direct SBA procurement personnel designated as Veterans Procurement Affairs Advisers to emphasize how veterans can obtain procurement contracts from the Government.

(4) Local media campaigns to inform the veteran about SBA ability and desire to help.

(5) Special workshops and training. (6) Prompt processing of loan applications of any type.

(7) Particular attention to giving maximum loan maturity to veterans.

(8) Loans will not be declined solely because of the lack of collateral, providing the veteran, dependent, or sur

vivor will provide any worthwhile collateral.

(9) On all direct loans, place a liberal interpretation on present deferment policy.

(10) In the awarding of 8(a) contracts, veteran status may be a contributing factor in establishing eligibility as socially or economically disadvantaged.

(11) In all district offices there shall be one or more loan specialists designated as veterans loan officers.

Subpart B-Flood Insurance Protection

AUTHORITY: Sec. 205(b) of Pub. L. 93-234, 87 Stat. 983.

§116.10 Purpose and scope.

This subpart is established by the SBA to implement the Agency's responsibilities under section 102(a) of the Flood Disaster Protection Act of 1973, which prohibits Federal financial assistance for acquisition or construction purposes in special flood hazard areas (as designated by the Federal Emergency Management Administration, formerly by the Secretary of Housing and Urban Development), when persons in such areas are eligible for flood insurance which has been made available under the National Flood Insurance Act of 1968, and have not obtained such insurance. The following programs are subject to the legislation: 7(a) Business loans, 7(b) disaster loans, Sections 501, 502 and 503 development company loans, lease guarantees, small business investment companies and pollution control guarantees.

[48 FR 39048, Aug. 29, 1983]

§116.11 Requirements.

(a) General. Flood insurance is required of a recipient of SBA direct or indirect assistance for construction purposes as defined in paragraph (d) of this section on the basis of its availability at the time of approval of a loan.

(b) Community Participation in Insurance Program. On and after July 1, 1975, no financial assistance will be authorized by which SBA would provide direct or indirect assistance to an ap

of

plicant located in an identified special hazard area, including an area mudslides and flood-related erosion as defined in Title 44, Code of Federal Regulations, § 59.1, unless (1) the community in which said applicant is located is participating in the flood insurance program or (2) less than a year has elapsed since the community was formally notified of the identification of a special flood hazard area within its boundaries.

(c) Amount of coverage required. The amount of flood insurance required is the maximum flood insurance available under the National Flood Insurance Act of 1968, as amended, but not to exceed the insurable value of the property.

(d) Covered loan uses. For the purpose of this subpart, construction is defined to include the acquisition, construction, reconstruction, repair or improvement of any building or mobile home on a foundation, and any machinery, equipment, inventory, fixtures or furnishings contained or to be contained therein.

(e) Policy requirements. For the purpose of this subpart, any flood insurance policy shall be deemed satisfactory if it meets the following requirements:

(1) Is a standard flood insurance policy; or

(2) Is a policy issued by an insurer licensed to do business in the jurisdiction where the property is located; and

(3) The flood insurance policy issued by the insurer includes an endorsement which:

(i) Requires that the insurer give 30 days written notice of cancellation or non-renewal to the insured with respect to the flood insurance coverage. Such notice must be mailed to both the insured and the lender and must include information as to the availability of flood insurance coverage under the National Flood Insurance Program, and

(ii) Guarantees that the flood insurance coverage offered by the insurer is at least as broad as the coverage offered by the Standard Flood Insurance Policy, and

(iii) Contains a mortgage interest clause similar to that contained in the Standard Flood Insurance Policy.