BNUMBER:  B-278700 
DATE:  March 4, 1998
TITLE: Universal Coatings, Inc., B-278700, March 4, 1998
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Matter of:Universal Coatings, Inc.

File:     B-278700

Date:March 4, 1998

Peter J. Ippolito, Esq., Hillyer & Irwin, for the protester.
Joseph J. Cox, Esq., and Pat M. Falcigno, Esq., Department of the 
Army, for the agency.
Charles W. Morrow, Esq. and James A. Spangenberg, Esq., Office of the 
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Bid bond which mistakenly included language that stated that payment 
on the bond was contingent upon the bidder entering into the 
identified contract, instead of the standard condition that payment is 
contingent on the bidder submitting the bid on the identified 
solicitation, is nevertheless clearly enforceable against the surety 
in the event the bidder declines to execute the contract and provide 
acceptable performance and payment bonds, in view of the fact that the 
bond otherwise made clear the surety's intent to be bound. 

DECISION

Universal Coatings, Inc. protests the rejection of its bid under 
invitation for bids (IFB) No. DACA51-97-B-0043, issued by the United 
States Army Corps of Engineers, for reroofing certain buildings at the 
Defense Logistics Agency Depot, Warren, Ohio.  Universal contends that 
the Corps improperly determined its bid to be nonresponsive due to a 
defective bid bond.

We sustain the protest.

Section 000700, paragraph 105, of the IFB required each bidder to 
submit a bid guarantee, in the form of a bid bond or other security, 
in the amount of 20 percent of the bid price or $3,000,000, whichever 
is less, and noted that the failure to furnish a bid guarantee on a 
standard form (SF) 24 in the proper form and amount by the time set 
for opening of bids may be cause for rejection of a bid.  Paragraph 
109 of the same section required the contractor to furnish a 
performance bond on SF 25 and a payment bond on SF 25A within 10 days 
of award. 

At bid opening, the Corps received 14 bids.  Universal submitted the 
low bid of $818,500, which was accompanied by a bid bond issued by 
Amwest Surety Insurance Company on an SF 24-type form generated by the 
surety's bonding agent.  The computer-generated form was identical to 
the government's SF 24, except for language in the section entitled 
"CONDITIONS."  The standard language in this section of the SF 24 
states:

     The Principal has submitted the bid identified above.

However, the language in this section contained in Universal's bid 
bond stated:

     The Principal has entered into the contract identified above.

The submitted SF 24 was entitled "Bid Bond" and in all other respects 
used the term "bid," for example, "Bid Price," "Bid Identification," 
and "Bid Date."  Additionally, the submitted SF 24 properly identified 
this IFB in the appropriate section of the form.

The Corps concluded that the language on the computer-generated SF 24 
created a condition that rendered the bid bond unenforceable.  By this 
language, according to the Corps, the surety would be relieved of 
liability under the bond should Universal refuse to enter into the 
contract.  Therefore, the Corps rejected Universal's bid as 
nonresponsive.  This protest followed.  Award has been withheld 
pending our decision.

It appears that, in generating the bid bond, the "Conditions" language 
was mistakenly taken from the corresponding section of the SF 25.  
Universal submitted a letter from the agent, along with a corrected SF 
24, confirming that the surety intended to bind itself unconditionally 
in accordance with the standard terms of the SF 24 for this IFB.  
Universal contends that the erroneous language was a minor defect that 
did not render the bid bond unenforceable against the surety and that 
the error could not reasonably be construed to void the surety's 
responsibility, given the nature of the error and the remaining terms 
expressed on the submitted SF 24.  

A bid guarantee is a form of security ensuring that the bidder will 
not withdraw a bid within the period specified for acceptance, and 
will execute a written contract and furnish required bonds within the 
time specified in the bid.  Federal Acquisition Regulation (FAR)  sec.  
28.001.  A bond is a written instrument executed by a principal party, 
i.e., the bidder or contractor, and a surety or sureties to ensure 
fulfillment of the principal's obligations to a third party, i.e., the 
government.  Id.  A bid bond holds the surety liable to the government 
for the excess costs of awarding to the next eligible bidder in the 
event that the principal bidder fails to fulfill the obligations of 
its bid.  Johnson Controls, Inc., B-270036, Jan. 19, 1996, 96-1 CPD  para.  
94 at 2.  

The submission of a required bid bond is a material condition with 
which a bid must comply at the time of bid opening to be responsive.  
The sufficiency of a bid bond depends on whether the surety is clearly 
bound by its terms; where the liability of the surety is not clear, 
the bond is defective.  If at the time of bid opening it is uncertain 
whether the bidder has furnished a legally binding bond, the bid must 
be rejected as nonresponsive.  R.P. Richards Constr. Co., B-260965, 
July 17, 1995, 95-2 CPD  para.  128 at 2.

We think that Universal's bid bond clearly binds the surety to the bid 
bond obligations, notwithstanding the mistakenly inserted language.  
Except for this language, Universal's SF 24 is identical to the 
standard form and otherwise in the proper form and amount.  For 
example, in the "OBLIGATION" clause the principal and surety 
acknowledge being firmly bound to the government for the penal sum 
denoted in the bid bond.  Further, the bond in the "THEREFORE" clause 
acknowledges that the obligation is only void if the principal 
fulfills its expected obligations, that is, executing the contract and 
providing acceptable performance and payment bonds.  Finally, the 
erroneous condition references a "contract identified above," although 
the bond in all other respects uses the term "bid" and only identifies 
this IFB for which Universal had submitted a bid.

Since the bid bond submitted was clearly intended to bind the surety 
in case the contract was not executed, it would be unreasonable to 
give legal effect to the obvious typographical error on the bid bond 
referencing the entering into of an unidentified contract, instead of 
the submission of a bid on an identified solicitation.  Such an 
interpretation would render the bid bond a complete nullity, which is 
a result that could not be reasonably intended by the surety and which 
therefore should not affect the enforceability of the bond.[1]  Thus, 
there is no basis to conclude that the surety could avoid the express 
purpose of the bond by resort to this language.

The Corps argued that the bid bond should be rejected because our 
decisions generally have found that conditions added in, or attached 
to, a bid bond limiting the surety's liability render the bond 
defective.  See, e.g., ERC Gen. Contracting Servs., Inc., B-261404.2, 
Oct. 11, 1995, 95-2 CPD  para.  170; LM Envtl., Inc., B-245388.3, June 30, 
1992, 95-2 CPD  para.  159; Cherokee Enters., Inc., B-252948, B-252950, June 
3, 1993, 93-1 CPD  para.  429.  In each of the cited cases, the bid bond 
evidenced that the surety expressly intended to limit its obligation 
by attaching a rider or language in the SF 24 denoting criteria 
limiting the government's rights which had to be met if the bond was 
to be enforced.  Here, it is apparent that the surety simply made a 
mistake in inserting the erroneous language from the SF 25, and the 
erroneous language, which would render the bond a nullity, was not 
intended to and in fact would not limit the surety's obligations under 
the bond.  See Kirila Contractors, Inc., 67 Comp. Gen. 455, 456 
(1988), 88-1 CPD  para.  554 at 2 (bid improperly rejected where sole defect 
was an obvious typographical error in the solicitation number of the 
bid bond).

Since the mistaken language in Universal's bid bond did not affect the 
bond's legal enforceability, it was in the nature of a correctable 
minor irregularity or an apparent clerical mistake that did not render 
Universal's bid nonresponsive.  See Daley Corp.-Cal. Commercial 
Asphalt Corp., J.V., B-274203.2, Dec. 9, 1996, 96-2 CPD  para.  217 at 4. 

We recommend that the Corps make award to Universal, if otherwise 
eligible.  We also recommend that the protester be reimbursed the 
reasonable costs of filing and pursuing the protest, including 
reasonable attorneys' fees.  4 C.F.R.  sec.  21.8(d)(1) (1997).  The 
protester should submit its certified claim for such costs, detailing 
the time expended and the costs incurred, directly to the contracting 
agency within 60 days after receipt of this decision.

The protest is sustained.

Comptroller General
of the United States

1. While it is true that a surety's liability is generally limited by 
the terms of its contract and that its liability will be measured by 
the conditions stated in the bond, 72 C.J.S. Principal and Surety  sec.  76 
(1987 ed.), bonds issued by a commercial surety should not be 
interpreted in a manner as to render the bond void.  Stearns Law of 
Suretyship  sec.  5.6 (5th ed. 1951); see also id.  sec.  2.4, 5.1.