BNUMBER: B-267513
DATE: November 16, 1995
TITLE: Harvest Construction Company
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Matter of:Harvest Construction Company
File: B-267513
Date: November 16, 1995
William R. Potter, Esq., and Susan W. Gowan, Esq., Potter & Taylor,
for the protester.
Allen W. Smith, and Charles Hill, Jr., Department of Agriculture, for
the agency.
Behn Miller, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protester's bid was properly rejected as nonresponsive where it
contained a commercial bid bond form which extinguished the surety's
liability once the bidder paid costs associated with its default equal
to the penal sum of the bond, contrary to Federal Acquisition
Regulation 52.228-1(e) and standard form 24, which require the
surety to be liable for all costs associated with contractor default
up to the penal sum of the bond.
DECISION
Harvest Construction Company protests the rejection of its low bid as
nonresponsive under invitation for bids (IFB) No. R3-12-95-22, issued
by the Department of Agriculture for the excavation and construction
of various low water crossing sites in Tonto National Forest, Arizona.
Harvest contends that the agency improperly determined its submitted
bid bond was deficient.
We deny the protest.
The IFB was issued on May 17, 1995, and required that all bidders
submit a bid guarantee in the amount of 20 percent of the bid price,
or $3 million, whichever was the lesser amount. The IFB incorporated
and set forth Federal Acquisition Regulation (FAR) 52.228-1, which
provides that a bidder's failure to furnish the required bid guarantee
in the proper form and amount "may be cause for rejection of the bid"
and which further mandates at subparagraph 1(e) that:
"In the event the contract is terminated for default, the bidder
is liable for any cost of acquiring the work that exceeds the
amount of its bid, and the bid guarantee is available to offset
the difference." (Emphasis added.)
Additionally, the IFB advised bidders that the required bid guarantee
"should be on Standard Form (SF) 24" ( see FAR 53.301-24), which
provides in pertinent part that the surety's liability under the bond
is void if, in the event of contractor default, the bidder pays the
government "for any cost of procuring the work which exceeds the
amount of the bid." Thus, FAR 52.228-1 and SF 24 establish that the
bidder is liable to the government for all costs associated with its
default, and that the surety's liability is not extinguished unless
all such costs are paid by the bidder.
At the June 27 bid opening, eight bids were received. Harvest
submitted the apparent low bid. However, instead of providing its bid
guarantee on the requested SF 24 bid bond form, Harvest submitted a
commercial bid bond form. Unlike the language from the SF 24 quoted
above, Harvest's bid bond provided that the surety's liability under
the bond is void if, in the event of default, the bidder pays to the
government the costs associated with the default "not exceeding the
penalty of this bond."
The contracting officer viewed the commercial bid bond as unacceptable
and rejected Harvest's bid as nonresponsive. On August 11--after
learning that its agency-level protest was denied--Harvest filed this
protest with our Office.
A bid guarantee assures that a bidder will, if required, execute a
written contract and furnish payment and performance bonds. LM
Envtl., Inc., B-245388.3, June 30, 1992, 95-2 CPD 159. When the
guarantee is in the form of a bid bond, it secures the liability of
the surety to the government if the holder of the bond fails to
fulfill these obligations. Seither & Cherry Co., B-242220, Apr. 10,
1991, 91-1 CPD 365. The guarantee is also available to offset the
cost of reprocurement of the goods or services. See Kiewit W. Co., 65
Comp. Gen. 54 (1985), 85-2 CPD 497. A bidder's use of a commercial
bond form, rather than the standard government form (SF 24), is not
per se objectionable, since the sufficiency of the bond does not
depend on its form, but on whether it represents a significant
departure from the rights and obligations of the parties as set forth
in the IFB. Seither & Cherry Co., supra. Instead, the determinative
question as to the acceptability of a bid bond is whether the bid
documents establish that the bond is enforceable against the surety
for the required protection amount should the bidder fail to meet its
obligations. See ERC General Contracting Servs., Inc., B-261404.2,
Oct. 11, 1995, 95-2 CPD 170.
The commercial bid bond form submitted by Harvest significantly
deviated from the rights and obligations of the parties as set forth
in the IFB. The IFB incorporated FAR 52.228-1, which obligates the
bidder to pay the government "for any cost of procuring the work which
exceeds the amount of its bid." If the principal fails to reimburse
the government for all such costs, under the terms of the SF 24, the
government can collect the remaining balance of these costs from the
surety, up to the penal sum of the bond.
In contrast, in the event that Harvest does not pay all costs
associated with its default, Harvest's bid bond does not permit the
government to pursue the surety for the remaining costs. Whereas the
surety's obligation under SF 24 is not extinguished until the
principal has paid all costs, under the terms of Harvest's bid bond,
the surety's liability is extinguished as soon as the principal pays
costs equal to the penal amount of the bid bond. Harvest's bid bond
thus provides the government with less than the protection required by
FAR 52.228-1 and set forth in the SF 24 bid bond since, in the event
that the costs associated with contractor default exceed the penal
amount of the bid bond, the government will not be able to proceed
against the surety for the remaining balance. Since Harvest's
submitted commercial bid bond provides the government with less than
the required protection, the contracting officer properly rejected
Harvest's bid as nonresponsive. See W.R.M. Constr., Inc., 69 Comp.
Gen. 715 (1990), 90-2 CPD 227.
Harvest claims that the variance between its submitted commercial bid
bond and the IFB's bid guarantee requirement should be waived since
"[t]here is no reason to believe" that Harvest will not fully perform
its contract. When a bid is properly rejected as nonresponsive based
on an inadequate bid bond, the defective bond may not be waived or
corrected after bid opening; otherwise, a bidder would essentially
have the option, after bid opening, of accepting or rejecting the
award by either correcting or not correcting the bond deficiency,
which is inconsistent with the sealed bidding system.[1] See Tolman
Building Maint., B-243654, Apr. 29, 1991, 91-1 CPD 422.
The protest is denied.
Comptroller General
of the United States
1. To the extent Harvest contends that it should be allowed to correct
its bond because the government would save money by making award to
it, the importance of preserving the integrity of the competitive
bidding system outweighs the possibility that the government might
realize monetary savings if a material deficiency in a bid is
corrected or waived. See Blakelee Inc., B-239794, July 23, 1990, 90-2
CPD 65.