TITLE:   E.D.P. Enterprises, Inc., B-282232, June 17, 1999
BNUMBER:  B-282232
DATE:  June 17, 1999
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E.D.P. Enterprises, Inc., B-282232, June 17, 1999

Decision

Matter of: E.D.P. Enterprises, Inc.

File: B-282232

Date: June 17, 1999

Keith L. Baker, Eckert Seamans Cherin & Mellott, for the protester.

John Richardson, Esq., and David H. Brunjes, Esq., Department of the
Treasury, for the agency.

Christina Sklarew, Esq., and Paul I. Lieberman, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Solicitation bonding requirements are unobjectionable where the agency
reasonably required bonds in an amount designed to ensure continuous
provision of on-site food services for students in federal training
programs, and where contractor will have the use of government-furnished
facility and equipment in order to provide the required food services.

DECISION

E.D.P. Enterprises, Inc., a small business, protests the bonding
requirements in request for proposals (RFP) No. FTC 99-3, issued by the
Department of the Treasury, Federal Law Enforcement Training Center, for the
provision of food services at its training center in Glynco, Georgia. EDP
asserts that the bonding requirements are unreasonable and unduly restrict
competition.

We deny the protest.

The RFP, issued on January 27, 1999 and amended three times, calls for
offers to provide three meals per day in support of center training programs
in a cafeteria-style dining facility on the center grounds. The center
offers a variety of training programs that range from a single week to 18
weeks in duration, and typically employs approximately 2,000 staff and
contract support personnel to provide training for 2,000 students. The
students receive all their meals in the dining facility, and many staff
members eat some of their meals in the facility. The agency states that
although there

are restaurants in the surrounding area, none of them are able to provide
meals for the student population within the time available during training
sessions. Contracting Officer's Statement at 2.

The RFP contemplated the award of a contract for a 1-year base period, with
four 1-year option periods. The RFP, in Sections L.17 and L.18, required
offerors to submit a bid bond equal to 20 percent of the bid amount for the
base period, not to exceed $3,000,000, and to furnish within 10 days after
receipt of award a performance bond equal to 20 percent of the amount
awarded for each contract year.

EDP protests that the performance bond requirement is unreasonable and
should either be eliminated or reduced to approximate the current,
depreciated value of the government-furnished property under the
contemplated contract. [1] Protest at 7. The protester argues that the
bonding requirements unduly restrict competition because the substantial
additional expense of obtaining the bonds makes it difficult for small
businesses to compete. The agency explains that its decision to include a
performance bond requirement was "based upon an overriding Government
interest in the performance of an uninterrupted contract," and that this, in
turn, is based on both the need to ensure uninterrupted performance and the
need to protect government property entrusted to the contractor for the
performance of the required services. Agency Report, Memorandum of Law,
at 3.

Under FAR sect. 28.103-2, the contracting officer has the discretion to
determine whether bonds are needed to protect the government's interest in a
particular procurement. Space Servs. Int'l Corp., B-215402.2, Oct. 22, 1984,
84-2 CPD para. 430 at 1. This regulation lists four examples of situations that
may warrant a performance bond, one of which is where government property or
funds are to be provided to the contractor for use in performing the
contract. FAR sect. 28.103-2(a)(1). In addition, as the agency correctly points
out, the contracting officer is permitted to require a performance bond to
protect the government's interest whether or not the rationale for imposing
the requirement falls within the four examples listed in the FAR. See Cobra
Techs., Inc., B-238031 et al., Feb. 27, 1990, 90-1 CPD para. 242 at 3. Although
a bond requirement may result in a restriction of competition by excluding
some small businesses, it nevertheless can be a necessary and proper means
of securing to the government the fulfillment of the contractor's obligation
under the contract in appropriate situations.

Id.; Govern Serv., Inc., B-233365, Jan. 27, 1989, 89-1 CPD para. 92 at 2. This
is so even where a small business set-aside solicitation is involved. Aspen
Cleaning Corp., B-233983, Mar. 21, 1989, 89-1 CPD para. 289 at 2-3.

While generally contracting agencies should not require performance bonds
for other than construction contracts, the FAR recognizes that there are
situations in which bonds may be necessary for nonconstruction contracts in
order to protect the government's interests. FAR sect.sect. 28.103-1, 28.103-2. In
reviewing a challenge to the imposition of a bonding requirement, we
consider whether the requirement was reasonable and was imposed in good
faith. IBI Sec., Inc., B-235857, Sept. 27, 1989, 89-2 CPD para. 277 at 3. Here,
the record provides a reasonable basis for the agency's imposition of the
bonding requirements.

The agency explains that the performance bonds were required to ensure the
continuous provision of food services during training courses, and that the
government property that will be entrusted to the care of the contractor for
use in performing the contract also independently justifies the bonding
requirement. The training center typically has a population of 2,000
students, who receive all their meals in the dining facility and who will
rely on the food services being procured under this RFP. While EDP suggests
that this situation is unlike the situation in D.E.W. Management Servs.,
Inc., B-246955, Apr. 10, 1992, 92-1 CPD para. 358, in which we found reasonable
a requirement for a performance bond because of the agency's need for
uninterrupted performance of a mess attendant service contract in a remote
Alaskan location, Protester's Comments at 3, the protester does not dispute
the agency's statement that the restaurants in the area surrounding the
training center are not sufficiently equipped to provide meals for all the
students within the time constraints inherent in its training schedule. In
these circumstances, the agency reasonably determined that a suspension of
contract performance would seriously impede the training center in the
accomplishment of its mission. Further, we have recognized that an agency's
requirement for continuous operations in its food service facilities may
provide a reasonable basis for a bonding requirement, even in locations that
are not remote. See, e.g., Renaissance Exch., Inc., B-216049, Nov. 14, 1984,
84-2 CPD para. 534. In short, we see no basis to question the reasonableness of
the agency's determination to require bonding here.

EDP also objects that the magnitude of the bond requirement is excessive,
alleging that the value of the government property to be furnished is too
low to justify a bond in the amount required here. The protester asserts
that the equipment to be furnished consists primarily of used kitchen
equipment with a relatively low value, particularly since much of the
equipment is fully depreciated, as listed on the agency-furnished inventory
list. EDP contends that while the equipment is valued at approximately
$308,000 on the agency's list, its actual current value is closer to
$63,000. Protest

at 5-6. In contrast, EDP argues that a performance bond equal to 20 percent
of the base-year bid price will amount to approximately $1.2 million, which
it argues is excessive and unreasonable. Protester's Comments at 2-3.

We find these arguments unpersuasive. With respect to the value of the
equipment to be furnished by the government, we do not think the
"depreciation dates" included in the inventory list provided in the RFP are
probative as to the value of the equipment. RFP sect. J, Technical Exh. 9.
Presumably, the equipment to be furnished is currently functional, whether
the theoretical depreciation date is passed or not, and would need to be
replaced if damaged during the course of contract performance. In these
circumstances, the government has a protectable interest in the equipment at
its replacement value since the RFP explicitly provides that aging equipment
will be replaced on an ongoing basis, as needed during the contract term.
RFP para. C.13.3,

at C-20. Thus, as any equipment reaches the end of its useful life during
the contract term, it is replaced and the value of the equipment may
reasonably be considered by the agency to be equal to the cost to supply
similarly functional equipment. The agency report states that the government
has set aside $400,000 for the purchase of such equipment under the
contract. Contracting Officer's Statement at 3.

Regarding the nature of the equipment being furnished, EDP's premise that it
involves only kitchen equipment is inaccurate. As the agency report points
out, the property to be furnished includes the dining facility itself and
its furnishings. While EDP argues that the contractor will not be
responsible for major maintenance of the building, since the RFP para. C.12,
"Responsibility of the Government," at C-19, provides that the government
will repair and maintain the building structure, this clause includes the
following exceptions: that the contractor bears the expense of repairs
necessary because of its own or its employees' negligence, and "except as
otherwise specified in paragraph C.15." Paragraph C.15 provides that the
contractor must provide everything necessary to "efficiently manage,
operate, inspect, maintain and repair the facilities of the FLETC Dining
Hall . . . ." RFP para. C.15, "Buildings, Systems and Dining Hall Equipment:
Maintenance, Inspection and Repair," at C-21. Thus, under the terms of the
RFP, the contractor's responsibility will extend well beyond EDP's
characterization of it as "ensur[ing] that the tables are wiped clean and
the artwork dusted." Protester's Comments at 2. While EDP attempts to
distinguish the situation here from facilities maintenance contracts (for
which we have found performance bond requirements to be reasonable), we find
the distinction unpersuasive, both because the contractor here will have
some responsibility for maintenance of the provided facility, and because we
see no significance in the distinction in any case: the building, equipment
and furnishings all represent "Government property . . . to be provided to
the contractor for use in performing the contract," listed in FAR

sect. 28.103-2(a) as one of the four examples of situations that may warrant a
performance bond.

With respect to the amount of the bond required, we do not think 20 percent
of the base year is unreasonable. EDP cites our decision in Bara-King
Photographic, Inc., B-226408.2, Aug. 20, 1987, 87-2 CPD para. 184, in which we
found unreasonable the requirement for a performance bond in the amount of
$1.9 million to protect the government's interest in a contract under which
the government-furnished equipment was valued at approximately $102,000.
EDP's reliance on that decision is misplaced. First, in Bara-King, the
performance bond requirement was based solely on the value of the
government-furnished equipment, whereas here the agency is also requiring
the performance bond based on its need to ensure uninterrupted performance.
Moreover, in Bara-King, the bond amount was to be equal to the contract
price for the base period and the first option year, while here the
government is requiring a bond equal to only 20 percent of the base year
contract price. In our view, this level of performance guarantee-which would
cover approximately 10 weeks of performance, allowing the training center
time to replace a defaulting or otherwise terminated contractor-is not
unreasonable. In this connection, FAR sect. 28.102-2(a)(1) specifically provides
that the penal amount of the performance bond shall be 100 percent of the
original contract price unless the contracting officer determines that a
lesser amount would be adequate to protect the government. Where there is a
necessity for continued performance of services essential to the operation
of an installation, we have found nothing inherently unreasonable in an
agency's determination to require a 100 percent performance bond. See J & J
Maintenance, Inc., B-239035, July 16, 1990, 90-2 CPD para. 35 at 3.

The protest is denied. [2]

Comptroller General
of the United States

Notes

1. Although EDP initially protested against both the bid bond and the
performance bond requirements, it provided no specific support for its
objections to the bid bond requirement, nor did it mention this basis of
protest in its comments on the agency report. Since Federal Acquisition
Regulation (FAR) sect. 28.101-1(a) provides that, except under circumstances not
present here, bid guarantees shall be required whenever a performance bond
is required, we need not address this basis of protest separately as the
propriety of the bid bond requirement depends on the validity of the
performance bond requirement.

2. As a supplemental issue, EDP also protested that the agency had replaced
certain equipment prior to the issuance of the RFP but had not added it to
the schedule of equipment in the RFP, allegedly placing offerors at a
disadvantage by the omission. Since the agency responded by taking the
corrective action of appropriately amending the solicitation and extending
the deadline for submission of proposals, this issue has become academic and
is not for consideration on the merits.