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Dismissal of SBA Surety Bond Guarantee Claim Reversed

A dismissal of a surety's request for reimbursement for failure to state a claim was reversed and remanded by the Court of Appeals for the Federal Circuit because the government did not establish the Small Business Administration's obligation to make reimbursement was voided under SBA 115.19(e). The surety bond guarantee agreement with the SBA incorporated SBA 115.19 and SBA 115.19(e) relieves the SBA of the obligation to reimburse the surety for losses on SBA-approved bonds if the surety agreed to, or acquiesced in, an increase in the bond amount of at least 25% or $50,000, prior to SBA approval of the increase. The Court of Federal Claims dismissed the surety's complaint seeking recovery under the agreement because the effective date of a $240,000 increase in the amount of the bond predated the SBA's approval (52 CCF 78,933).
 
Industry Practice

According to the Federal Circuit, the effective date of the increase was not determinative because it was not necessarily the date the parties agreed to or acquiesced in the increase. As the SBA acknowledged in the notice and comment process for SBA 115.19, it was common industry practice to backdate bonds to conform to the date of the bonded obligation, so that an agreement could result in retroactive issuance of a bond with an earlier effective date. SBA 115.19(e) on its face does not prohibit sureties from agreeing to an effective date before SBA approval and, thus, the mere existence of an earlier effective date did not establish a violation of SBA 115.19(e). (American Contractors Indemnity Co. v. U.S., CA-FC, 53 CCF 79,133)
 




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )

     
  
 

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