TITLE: B-311305, Tip Top Construction Corporation, May 2, 2008
BNUMBER: B-311305
DATE: May 2, 2008
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B-311305, Tip Top Construction Corporation, May 2, 2008

   Decision

   Matter of: Tip Top Construction Corporation

   File: B-311305

   Date: May 2, 2008

   Michael A. Gordon, Esq., and Fran Baskin, Esq., Michael A. Gordon, PLLC,
   for the protester.

   Julia L. Perry, Esq., Department of Transportation, for the agency.

   Kenneth Kilgour, Esq., and Christine S. Melody, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest that agency improperly rejected bid as nonresponsive for lack of a
   valid bid bond is denied where the contracting officer reasonably
   determined that the assets pledged by the surety, which were incapable of
   being placed in escrow, were unacceptable.

   DECISION

   Tip Top Construction Corporation protests the rejection of its apparent
   low bid as nonresponsive for lack of a valid bid bond, under invitation
   for bids (IFB) No. DTFH71-08-B-00002, issued by the Department of
   Transportation, Federal Highway Administration (FHWA), for construction of
   a five-leg roundabout on the island of St. John, U.S. Virgin Islands. Tip
   Top contends that the FHWA unreasonably concluded that its bid bond was
   defective.

   We deny the protest.

   The IFB, issued November 1, 2007, required each bidder to submit with its
   bid a bid guarantee, or bid bond,[1] in the amount of not less than 20
   percent of the bid price or $3 million, whichever is less. After bid
   opening, the protester was the apparent low bidder. The protester's bid
   contained an individual surety bid bond in the amount of $1.8 million,
   with E.C. Scarborough identified as the individual surety.[2] The assets
   were described as an "allocated portion of $191,350,000.00 of previously
   mined, extracted, stockpiled and marketable coal, located on the property
   of E.C. Scarborough, [followed by a precise description of the property
   location]." Bid Bond, Certificate of Pledged Assets. The contracting
   officer determined that the surety's assets did not meet the requirements
   of the FAR, Statement of Facts at 1, and notified the protester that its
   bid was rejected because the assets were unacceptable. The protester and
   the surety argue that the contracting officer abused her discretion when
   she rejected the bid bond on the basis that the surety's assets were
   unacceptable.[3]

   The contracting officer is vested with a wide degree of discretion and
   business judgment in determining the acceptability of an individual
   surety, including the adequacy of the surety's assets, and we will not
   question such a determination so long as it is reasonable. Santurce
   Constr. Corp., B-240728, Dec. 10, 1990, 90-2 CPD para. 469 at 4. We see no
   basis to question the contracting officer's determination here.

   The FAR states in pertinent part:

     28.203-1 Security interests by an individual surety.
     (a) An individual surety is acceptable for all types of bonds except
     position schedule bonds. . . .
     (b) The value at which the contracting officer accepts the assets
     pledged must be equal to or greater than the aggregate penal amounts of
     the bonds required by the solicitation and may be provided by one or a
     combination of the following methods:
       (1) An escrow account[4] with a federally insured financial
       institution in the name of the contracting agency. . . . Acceptable
       securities for deposit in escrow are discussed in [FAR sect.] 28.203-2
       [below]. While the offeror is responsible for establishing the escrow
       account, the terms and conditions must be acceptable to the
       contracting officer. . . .
       (2) A lien on real property, subject to the restrictions in [FAR
       sections] 28.203-2 and 28.203-3.

     28.203-2 Acceptability of assets
     (a) The Government will accept only cash, readily marketable assets, or
     irrevocable letters of credit from a federally insured financial
     institution from individual sureties to satisfy the underlying bond
     obligations.
     (b) Acceptable assets include--
       (1) Cash, or certificates of deposit, or other cash equivalents with a
       federally insured financial institution;
       (2) United States Government securities at market value. (An escrow
       account is not required if an individual surety offers Government
       securities held in book entry form at a depository institution. . . );
       (3) Stocks and bonds actively traded on [eight named U.S. security
       exchanges] with certificates issued in the name of the individual
       surety. . . ;
       (4) Real property owned in fee simple [with various restrictions];
       (5) Irrevocable letters of credit (ILC) issued by a federally insured
       financial institution in the name of the contracting agency. . . .

     (c)Unacceptable assets include but are not limited to --

                       *        *        *        *        * 

       (4) Personal property other than that listed in paragraph (b) of this
       subsection (e.g., jewelry, furs, antiques).

   FAR sections 28.203-1, 28.203-2 (emphasis added).

   The FAR also specifies that when a bidder is using an individual surety,
   the bidder must submit a standard form (SF) 28, Affidavit of Individual
   Surety. FAR sect. 28.106-1(e). Where an individual surety is pledging
   assets "other than real estate" to back the bond, the SF 28 requires the
   surety to "describe the assets, the details of the escrow account, and
   attach evidence thereof."[5] See SF 28, block 7(b) (emphasis added).

   The protester and the surety offered several arguments in support of the
   protest, both during the teleconference and in their briefs. Because the
   protester most succinctly summed up the arguments, we will refer to them
   as the protester's, though the surety incorporated the protester's
   arguments by reference. We have considered all of the protester's and
   surety's arguments and find them without merit; we address here primarily
   those that concern the adequacy of the bid bond, specifically, the
   reasonableness of the agency's finding that the assets were unacceptable.

   The protester focuses on four passages from the FAR to support its
   assertion that the contracting officer unreasonably determined that its
   surety's asset was unacceptable. First, it argues that FAR sect.
   28.203-2(a)--"The Government will accept only cash, readily marketable
   assets, or irrevocable letters of credit"--makes any "readily marketable
   asset" acceptable. Second, the protester argues that paragraph (b) of FAR
   sect. 28.203-2 is not an all-inclusive list--"[a]cceptable assets
   include," (emphasis added)--and so the drafters of the FAR must have
   intended for other assets, not included in the list, to also be
   acceptable. Third, the statement in FAR sect. 28.203-2(c) that
   "[u]nacceptable assets include but are not limited to. . ." suggests that
   there must be acceptable assets other than those listed in paragraph (b).
   Finally, the protester argues that the asset offered, mined coal, is
   nothing like the assets that the FAR cites as examples of prohibited
   personal property--jewelry, furs and antiques. The protester argues that
   what distinguishes unacceptable assets from acceptable assets is the
   latter's identifiable value and ready marketability. Thus, the protester
   argues, an antique, more difficult to appraise and to liquidate, is
   unacceptable, while coal, which has an ascertainable value and a ready
   market, is acceptable.

   We disagree. The protester's interpretation of the FAR to permit the
   acceptance of coal as an asset reads out of the FAR the indispensable
   guarantee that the government can collect on the bond, namely, the fact
   that the personal property backing the bond has been placed in escrow.[6]
   Thus, to be an acceptable personal property asset under the FAR, an asset
   must be capable of being placed in an escrow account. See FAR
   sect. 28.203-1(b)(1). As noted above, SF 28 requires individual sureties
   to describe the escrow account into which the surety will place the
   personal property being pledged in support of the bond. The protester's
   arguments are inconsistent with the regulatory framework set forth in the
   FAR and the accompanying SF 28.

   The protester also asserts that it had a right to substitute assets under
   FAR sect. 28.203-4. Comments on Teleconference at 4. That provision gives
   a surety the right to request asset substitution, not the right to the
   substitution. See FAR sect. 28.203-4 (noting that an "individual surety
   may request the Government to accept a substitute asset. . . . The
   contracting officer may agree to the substitution of assets.").
   Furthermore, while agencies may not automatically reject a bidder for
   unacceptable individual sureties because the SF 28 and supporting
   documentation contain minor defects that might easily be remedied, Gene
   Quigley, Jr., B-241565, Feb. 19, 1991, 91-1 CPD para. 182 at 4, the
   wholesale substitution of assets is not one of the minor document defects
   that are contemplated in Quigley.

   The protest is denied.

   Gary L. Kepplinger
   General Counsel

   ------------------------

   [1] A bid guarantee is a form of security ensuring that a bidder will, if
   required, execute a written contract and furnish payment and performance
   bonds. Federal Acquisition Regulation (FAR) sect. 28.001; American Artisan
   Prods., Inc., B-292380, July 30, 2003, 2003 CPD para. 132 at 4. The
   guarantee is also available to offset the cost of reprocurement of the
   goods or services. Paradise Constr. Co., B-289144, Nov. 26, 2001, 2001 CPD
   para. 192 at 2. Where 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. Id. The surety for a bid bond can
   be either an individual surety or a corporate surety, although there are
   different requirements for each. See generally FAR Part 28, Bonds and
   Insurance.

   [2] We allowed the individual surety to participate in the protest, given
   his interest in the outcome. See Bid Protest Regulations, 4 C.F.R. sect.
   21.3(j) (2007). The surety was represented by Dennis C. Ehlers, Esq., of
   the law firm of McManus, Schor, Asmar & Darden, LLP. The surety
   participated in an April 10 teleconference conducted by GAO and submitted
   comments on the protest.

   [3] The protester also implies that the agency's rejection of its bid due
   to the inadequacy of its bid bond was pretextual, an improper rationale
   for the agency to avoid contract award to the protester. Comments at 4-5.
   Essentially, the protester is alleging that agency officials acted in bad
   faith. Government officials are presumed to act in good faith and any
   argument that contracting officials are motivated by bias or bad faith
   must be supported by convincing proof; we will not attribute unfair or
   prejudicial motives to procurement officials on the basis of inference or
   suppositions. ACC Constr. Co., Inc., B-289167, Jan. 15, 2002, 2002 CPD
   para. 21 at 4. Based on our review of the record, which as discussed below
   supports the reasonableness of the agency's rejection of the bid bond, we
   conclude that the protester has failed to establish bad faith. See
   Innovative Commc'ns Techs., Inc., B-291728, B-291728.2, Mar. 5, 2003, 2003
   CPD para. 58 at 10.

   [4] An escrow account is a "bank account, generally held in the name of
   the depositor and an escrow agent, that is returnable to depositor or paid
   to a third person on the fulfillment of specified conditions." Black's Law
   Dictionary 19 (8th ed. 2004).

   [5] The SF 28 submitted by the protester failed to include the details of
   an escrow account, instead stating, "Certificate of Pledged Assets,
   attached hereto." Protester's SF 28.

   [6] The surety incorrectly asserts that during the teleconference the GAO
   attorney stated that coal was not a readily marketable asset and that the
   surety had not given the agency a security interest in the coal. Coal is
   not an acceptable asset, and thus whether it is a readily marketable asset
   is immaterial to the protest resolution. As the discussion of the
   requirements of the FAR makes clear, the government's intent is not to
   obtain simply a security interest in personal property, but rather a
   security interest that it can then perfect through filing, rather than
   through taking possession of the asset. For a brief discussion of the
   difference between perfected and unperfected security interests, see
   Black's Law Dictionary, supra at 1173, 1387.