These regulations prescribe the policies, procedures, and authorizations for providing guaranties to sureties to encourage them to provide surety bonds to Maryland contractors. The basic objective of the Program is to guaranty surety bonds to sureties licensed to do business in Maryland to enable small Maryland businesses to obtain the bid, payment, and performance surety bonds necessary to perform local, State, and federal government and public utility contracts. In this chapter, the following terms have the meanings indicated. Terms Defined. “Act” means Economic Development Article, Title 5, Subtitle 5, inclusive, Annotated Code of Maryland, as amended. "Authority" means the Maryland Small Business Development Financing Authority. “Bond” means a bid, payment, or performance bond of not more than $1 million for each bond guarantied under the Program. “Contract” means the federal, State, or local government or public utility contract requiring a surety bond for which a guaranty under the Program is being requested. Contract Term. “Contract term” means the term of the contract. “Contract term” includes the: Maintenance or warranty period required by the contract; and Period during which the surety may be liable for latent defects. “Department” means the Department of Commerce, a principal department of the State. “Fund” means the Small Business Surety Bond Guaranty Fund. “Guaranty” means a surety bond guaranty made under the Program. “Principal” means a small business entity that: Needs a surety bond to perform a contract; and Employs fewer than 500 full-time employees or has annual gross sales of less than $50 million. “Program” means the Small Business Surety Bond Guaranty Program, as authorized by the Act. “Secretary” means the Secretary of Commerce. “Surety” means a properly licensed surety bond company issuing a bond. Principals shall meet the following requirements to qualify for a bond guaranty: The principal shall be of good moral character, or, if the principal is not an individual, the principal shall be owned by individuals of good moral character; As determined from creditors, employers, and other individuals who have personal knowledge of the principal: The principal shall have a reputation for financial responsibility, or If the principal is not an individual, a majority of the principal shall be owned by individuals with a reputation for financial responsibility; The principal shall: Be a resident of Maryland or have its principal place of business in Maryland, Be unable to obtain adequate bonding on reasonable terms through normal channels, Demonstrate creditworthiness and contract performance capability acceptable to the Authority, Agree in writing not to subcontract more than 75 percent of the dollar value of the contract, and Never have defaulted on any loan or financial assistance made or guarantied by the Authority. Guarantied bonds shall meet the requirements in §§B—K of this regulation. Maximum Bond and Guaranty Amount. The Authority may guaranty up to 90 percent of all loss, cost, and reasonable expenses incurred by a surety as a result of its writing bonds for a principal on a contract. The amount of a single bond may not exceed $1,000,000. Surety Bonding Line. The Authority may establish a surety bonding line in order to guaranty multiple bonds to a principal within pre Guaranty Fees. As a precondition to the effectiveness of the guaranty, the Authority may require the principal to pay to the Authority a fee of 1/2 of 1 percent of the bond amount and the surety to pay to the Authority 20 percent of the bond premium it charges to the principal. The Authority may, however, in its sole and absolute discretion, set the premiums and fees to be paid to it for providing bonding assistance under this Program. The Authority may also require the principal to reimburse the Authority for expenses incurred in providing the guaranty. Security. The bond shall be secured by a reimbursement or similar agreement including an indemnification by the principal, as well as by such other security (including any form of insurance) as may be required by the Authority. Insurance. Before providing a guaranty, the Authority may require the principal to obtain hazard, casualty, liability, vehicle, business interruption, flood, workers' compensation, or other insurance. The Authority also may require that the principal or the principal's owners and managers obtain and assign to the surety and the Authority key person life insurance in an amount not to exceed the amount of the guaranty. Term. The term of each guaranty may not exceed the contract term. Timeliness. The Authority may not honor a guaranty of a bond that is issued before the guaranty has been approved by the Authority. The Authority may not honor a guaranty of a bond that is issued after work under the contract has actually begun without the Authority's consent. The Authority may consent to the guaranty of a bond to be issued after work under the contract has begun if the Authority receives satisfactory evidence that: The contract has been satisfactorily performed to date; and All suppliers and subcontractors have been paid to date. Bond Terms. The terms and conditions of the bond shall be in accord with those generally established and accepted by the surety industry for the type of contract for which the bond is required. Guaranty Terms. The Authority may vary the terms and conditions of the guaranty from surety to surety, based upon the Authority's history of experience with that surety and upon any other factor that the Authority considers relevant. Economic Impact. The Authority may not approve a bond guaranty unless the Authority considers the economic impact of the contract, for which a bond is sought to be guaranteed, to be substantial. To determine the economic impact of a contract, the Authority may consider: The amount of the guaranty obligation; The terms of the bond to be guaranteed; The number of new jobs that will be created by the contract to be bonded; and Any other factor that the Authority considers relevant. Bond Guaranty Application. Bond guaranty applications shall be made upon standard forms prescribed by the Authority and shall be executed by the principal and the surety. Each application shall include: A detailed description of the government or utility project, including a copy of the contract; An itemization of known and estimated costs; The total amount of investment required to perform the contract; The funds available to the principal for working capital; The amount of bonding assistance sought from the Authority; Information that relates to the inability of the principal to obtain adequate bonding on reasonable terms through normal channels, or an affidavit certifying rejection by a surety; Information that relates to the financial status of the principal, including: A balance sheet dated within 90 days of the application, A profit and loss statement dated within 90 days of the application, and Credit references; A schedule of all existing and pending contracts to be performed by the principal and the current status of each contract; A copy of the filed articles of incorporation, bylaws, partnership agreement, or other organizational documents; A copy of the financial statements of the principal dated within 90 days of the application; and Any other relevant information that the Authority requests. Processing of Application. To make a preliminary determination of the eligibility of the principal and the contract in accordance with these regulations, the Authority's staff shall perform an initial review of each application and may also perform a preliminary audit investigation of the principal's books and records. After receipt of an application for assistance from the Program, the Authority may determine that a principal shall provide audited financial statements that include a balance sheet and a profit and loss statement before the Authority makes its decision on the application. Application Approval. Approval of an application shall be evidenced by a resolution of the Authority. Bonding Documents. Upon approval of an application, the Authority's staff shall deliver to the surety the resolution and an unexecuted surety bond guaranty agreement. The surety shall return to the Authority: A surety bond guaranty agreement signed by the surety; A copy of the bid, payment, or performance bond to be issued by the surety; A copy of the executed contract (or if a bid bond, a copy of the solicitation requiring the bid bond); A reimbursement or indemnity agreement; and Other documents the Authority may require. Surety Bond Guaranty Agreement. Upon review and approval of the bonding documents, the Authority shall issue a fully executed surety bond guaranty agreement to the surety. The surety shall provide the Authority with a copy of the executed bonds within 30 days after the guaranty agreement is issued. Principals may not discriminate against any person on the basis of race, color, religion, national origin, sex, marital status, physical or mental handicap, or age in any aspect of the Program. Each principal shall comply with all applicable federal, State, and local laws and Departmental policies and programs regarding discrimination and equal opportunity in employment, housing, and credit practices including: Title VII of the Civil Rights Act of 1964; The provisions of the Governor's Code of Fair Employment Practices, as amended; and The Department's Minority Business Enterprise Program, as amended. An action or decision required or permitted to be taken or made by the Authority pursuant to the Act or these regulations may be taken by the Authority or the Secretary, or their designees, or, to the extent authority is properly delegated by the Authority or the Secretary, by the Executive Director of the Authority. The Secretary may delegate to the Executive Director of the Authority or to any other official or employee of the Department or Authority the authority to review and execute any Program documents. A person may not knowingly make or cause any false statement or report to be made: In any application or in any document furnished to the Authority; For the purpose of influencing the action of the Authority on an application for assistance or for the purpose of influencing any action of the Authority affecting bonding assistance whether or not the assistance may have already been extended. A person who violates any provision of this regulation is guilty of a misdemeanor and on conviction is subject to a fine not exceeding $1,000, or imprisonment not exceeding 6 months, or both. In addition, any surety that knowingly makes or causes to be made any material misstatement of fact, whether in the nature of an understatement or overstatement of financial condition or any other fact material to the Authority's action in any statement or report in or regarding an application for a bond guaranty or affecting a bond guaranty already made, shall be subject to immediate termination of the bond guaranty. The Authority may waive or vary particular provisions of these regulations to the extent that the waiver is not inconsistent with the Act if: Conformance to the requirements of any federal, State, or local programs in connection with a bond guaranty necessitates waiver or variance of a regulation; or In the determination of the Authority, the application of a regulation in a specific case or in an emergency situation would be inequitable or contrary to the purposes of the Act. The provisions of these regulations are severable. A judgment by any court of competent jurisdiction finding or declaring that any provisions of these regulations or the application of any provision to any person or circumstance is invalid does not affect the validity of the remaining provisions of the regulations or any other application of these regulations, and the remaining regulations shall have full force and effect as if no judgment had been entered. Economic Development Article, §2-108 and Title 5, Subtitle 5, Annotated Code of Maryland Effective date: April 3, 1989 (16:6 Md. R. 730) Regulation .03B amended effective April 16, 1990 (17:7 Md. R. 853) Regulation .05 amended effective August 3, 1992 (19:15 Md. R. 1394)