A-25344, DECEMBER 18, 1928, 8 COMP. GEN. 310

A-25344: Dec 18, 1928

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CONTRACTS - PROPOSALS - BONDS - OCEAN CARRIAGE OF THE MAIL THERE IS NOTHING IN THE MERCHANT MARINE ACT OF 1928. THAT EVERY PROPOSAL FOR THE CARRIAGE OF MAIL BE ACCOMPANIED BY A GUARANTEE TO ENTER INTO AN OBLIGATION WITH GOOD AND SUFFICIENT SURETIES FOR PERFORMANCE THEREOF IN EVENT THE BID IS ACCEPTED. THERE IS NO BASIS IN THE LAW FOR ANY ADMINISTRATIVE PRACTICE WHICH WOULD REQUIRE BIDDERS TO ACCOMPANY THEIR PROPOSALS WITH BONDS CONDITIONED ON THE PERFORMANCE OF CONTRACTS IN THE EVENT THEIR BID IS ACCEPTED. THE BONDS ACCOMPANYING PROPOSALS SHOULD BE CONDITIONED ON THE ENTERING INTO A CONTRACT AND THE GIVING OF GOOD AND SUFFICIENT SURETIES FOR PERFORMANCE THEREOF IN THE EVENT THE BID IS ACCEPTED.

A-25344, DECEMBER 18, 1928, 8 COMP. GEN. 310

CONTRACTS - PROPOSALS - BONDS - OCEAN CARRIAGE OF THE MAIL THERE IS NOTHING IN THE MERCHANT MARINE ACT OF 1928, 45 STAT. 692, 697, FOR THE OCEAN CARRIAGE OF MAIL INCONSISTENT WITH THE REQUIREMENT IN SECTION 3945, REVISED STATUTES, THAT EVERY PROPOSAL FOR THE CARRIAGE OF MAIL BE ACCOMPANIED BY A GUARANTEE TO ENTER INTO AN OBLIGATION WITH GOOD AND SUFFICIENT SURETIES FOR PERFORMANCE THEREOF IN EVENT THE BID IS ACCEPTED, AND SAID SECTION SHOULD BE COMPLIED WITH. THERE IS NO BASIS IN THE LAW FOR ANY ADMINISTRATIVE PRACTICE WHICH WOULD REQUIRE BIDDERS TO ACCOMPANY THEIR PROPOSALS WITH BONDS CONDITIONED ON THE PERFORMANCE OF CONTRACTS IN THE EVENT THEIR BID IS ACCEPTED. THE BONDS ACCOMPANYING PROPOSALS SHOULD BE CONDITIONED ON THE ENTERING INTO A CONTRACT AND THE GIVING OF GOOD AND SUFFICIENT SURETIES FOR PERFORMANCE THEREOF IN THE EVENT THE BID IS ACCEPTED.

COMPTROLLER GENERAL MCCARL TO THE POSTMASTER GENERAL, DECEMBER 18, 1928:

THERE HAS BEEN RECEIVED YOUR LETTER OF DECEMBER 3, 1928, AS FOLLOWS:

TITLE 4 OF THE MERCHANT MARINE ACT, 1928 (45 STAT. 692-697), RELATING TO OCEAN MAIL SERVICE, PROVIDES IN PART AS FOLLOWS:

"/404) THE POSTMASTER GENERAL IS AUTHORIZED TO ENTER INTO CONTRACTS WITH CITIZENS OF THE UNITED STATES WHOSE BIDS ARE ACCEPTED, FOR THE CARRYING OF MAILS BETWEEN PORTS (EXCLUSIVE OF PORTS IN THE DOMINION OF CANADA OTHER THAN PORTS IN NOVA SCOTIA) BETWEEN WHICH IT IS LAWFUL UNDER THE NAVIGATION LAWS FOR A VESSEL NOT DOCUMENTED UNDER THE LAWS OF THE UNITED STATES TO CARRY MERCHANDISE. HE SHALL INCLUDE IN SUCH CONTRACTS SUCH REQUIREMENTS AND CONDITIONS AS IN HIS BEST JUDGMENT WILL INSURE THE FULL AND EFFICIENT PERFORMANCE THEREOF AND THE PROTECTION OF THE INTERESTS OF THE GOVERNMENT. PERFORMANCE UNDER ANY SUCH CONTRACT SHALL BEGIN NOT MORE THAN THREE YEARS AFTER THE CONTRACT IS LET, AND THE TERM OF THE CONTRACT SHALL NOT EXCEED TEN YEARS.'

HERETOFORE IN PROVIDING REQUIREMENTS TO INSURE FULL AND EFFICIENT PERFORMANCE OF THE CONTRACTS, THIS DEPARTMENT INCLUDED WITH THE PROPOSAL THE FURNISHING OF A BOND WITH TWO CONDITIONS, ONE RUNNING TO THE EXECUTION OF THE FORMAL CONTRACT (ON WHICH SURETIES ARE REQUIRED), AND THE OTHER RUNNING TO THE PERFORMANCE OF THE CONTRACT. DIFFICULTY IS BEING EXPERIENCED IN OBTAINING SURETIES ON SUCH PROPOSAL BONDS BECAUSE OF THE FACT THAT SURETY COMPANIES ARE UNWILLING TO ENTER UPON AN UNDERTAKING WHICH MAY EVENTUALLY REQUIRE THEM TO CARRY OUT THE CONTRACTS OF THEIR PRINCIPALS THAT WOULD INVOLVE THE BUILDING OF SHIPS AS WELL AS THE OPERATION OF STEAMSHIP LINES. FULL AND EFFICIENT PERFORMANCE MAY BE REQUIRED WITH A CONDITION OF THE PROPOSAL BOND RUNNING ONLY TO THE EXECUTION OF THE FORMAL CONTRACT AND WITH SUCH SURETY AS MAY BE DEEMED NECESSARY BY SURETIES ON THE CONTRACT.

IN VIEW OF THE DISCRETION VESTED IN THE POSTMASTER GENERAL BY THE ABOVE ACT, A RULING IS DESIRED ON THE FOLLOWING QUESTIONS:

1. WHETHER THE QUOTED PROVISIONS OF THE ACT ELIMINATE THE NECESSITY OF PROPOSAL BONDS AS SET FORTH IN SECTION 3945 OF THE REVISED STATUTES. THIS CONNECTION SEE ALSO THE ACT OF MARCH 3, 1891, 26 STAT. 830, WHICH WAS SPECIFICALLY REPEALED BY THE MERCHANT MARINE ACT, 1928.

2. IF YOUR RULING ON THE FIRST QUESTION IS IN THE NEGATIVE, WHETHER, IN VIEW OF THE PROVISIONS OF THE MERCHANT MARINE ACT, 1928, IT WILL BE NECESSARY TO HAVE THE CONDITIONS OF THE PROPOSAL BONDS RUN TO THE EXECUTION OF THE CONTRACT AND THE PERFORMANCE OF THE SERVICE AS WELL, OR WHETHER THE DEPARTMENT WOULD HAVE THE AUTHORITY TO REQUIRE A SEPARATE PROPOSAL BOND CONDITIONED ONLY UPON THE EXECUTION OF THE CONTRACT WITH SURETIES ON THE CONTRACT, AND

3. WHETHER THE POSTMASTER GENERAL WOULD HAVE THE AUTHORITY TO DEPART FROM THE PRACTICE ADOPTED UNDER SECTION 3945 OF THE REVISED STATUTES IN CONNECTION WITH THE BONDS OF INDIVIDUAL SURETIES ON CONTRACTS FOR CARRYING THE MAIL; THAT IS, BY REQUIRING MORE THAN ONE SURETY, OR WHETHER, IN VIEW OF THE DISCRETION VESTED IN HIM BY THE TERMS OF THE MERCHANT MARINE ACT, 1928, HE WOULD HAVE THE AUTHORITY TO ACCEPT ONE INDIVIDUAL SURETY ON SUCH BONDS.

4. IF YOUR RULING ON THE FIRST QUESTION IS IN THE AFFIRMATIVE AND YET THE DEPARTMENT DECIDES AS A MATTER OF ADMINISTRATIVE POLICY THAT IT WILL STILL REQUIRE BONDS IN THESE CASES, WHETHER IT WILL BE NECESSARY THAT THE CONDITIONS OF THE PROPOSAL BONDS RUN TO THE EXECUTION OF THE CONTRACT AND THE PERFORMANCE OF THE SERVICE AS WELL, OR WHETHER THE DEPARTMENT WOULD HAVE THE AUTHORITY TO REQUIRE PROPOSAL BONDS WITH CONDITION RUNNING ONLY TO THE EXECUTION OF THE FORMAL CONTRACT; ALSO WHETHER THE POSTMASTER GENERAL WOULD HAVE THE AUTHORITY TO ACCEPT ONE INDIVIDUAL SURETY ON SUCH BONDS AND ON THE FORMAL CONTRACTS.

SECTION 3945, REVISED STATUTES, PROVIDED THAT---

EVERY PROPOSAL FOR CARRYING THE MAIL SHALL BE ACCOMPANIED BY A WRITTEN GUARANTEE, SIGNED BY ONE OR MORE RESPONSIBLE PERSONS, AND UNDERTAKING THAT WITHIN SUCH TIME AFTER THE BID IS ACCEPTED AS THE POSTMASTER GENERAL MAY PRESCRIBE, THE BIDDER WILL ENTER INTO AN OBLIGATION, WITH GOOD AND SUFFICIENT SURETIES, TO PERFORM THE SERVICE PROPOSED; AND NO PROPOSALS SHALL BE CONSIDERED UNLESS ACCOMPANIED BY SUCH GUARANTEE.

SECTION 3952, REVISED STATUTES, PROVIDES THAT NO BIDDER FOR CARRYING THE MAIL SHALL BE RELEASED FROM HIS OBLIGATION UNDER HIS BID OR PROPOSAL, NOTWITHSTANDING THE AWARD MADE TO A LOWER DDER,"UNTIL A CONTRACT FOR THE DESIGNATED SERVICE SHALL HAVE BEEN DULY EXECUTED BY SUCH LOWER BIDDER AND HIS SURETIES, AND ACCEPTED, AND THE SERVICE ENTERED UPON BY THE CONTRACTOR TO THE SATISFACTION OF THE POSTMASTER GENERAL.'

THE FIRST QUESTION MUST BE ANSWERED IN THE NEGATIVE BECAUSE SECTION 3945, REVISED STATUTES, WAS NOT SPECIFICALLY REPEALED BY THE MERCHANT MARINE ACT OF 1928, AS WAS THE ACT OF MARCH 3, 1891, 26 STAT. 830, AND THERE IS NOTHING INCONSISTENT BETWEEN THE TERMS OF SAID SECTION AND THE MERCHANT MARINE ACT OF 1928. IT HAS LONG BEEN THE POLICY OF THE LAW TO REQUIRE A BOND TO BE SUBMITTED TO GUARANTEE THE ENTERING INTO A CONTRACT WITH GOOD AND SUFFICIENT SURETIES, PROVIDED A BID FOR OCEAN CARRIAGE OF MAIL WAS ACCEPTED, AND IN VIEW OF THIS LONG-SETTLED POLICY IT WOULD REQUIRE SPECIFIC LANGUAGE TO NEGATIVE COMPLIANCE WITH THE REQUIREMENTS OF SECTION 3945, REVISED STATUTES.

IN ANSWER TO THE SECOND QUESTION I HAVE TO ADVISE THAT THE REQUIREMENT OF SECTION 3945 IS THAT THE BID BE ACCOMPANIED BY A GUARANTEE TO ENTER INTO AN OBLIGATION TO PERFORM THE SERVICE AND SUCH OBLIGATION IS TO BE "WITH GOOD AND SUFFICIENT SURETIES.' THESE ARE SEPARATE REQUIREMENTS -- THE GUARANTEE BEING AN ACCOMPANIMENT OF THE BID AND THE SURETIES BEING A PART OF THE OBLIGATION TO BE ENTERED INTO UPON ACCEPTANCE OF THE BID. THERE IS NOT ONLY NO REQUIREMENT THAT A BOND CONDITIONED ON THE ENTERING INTO A CONTRACT WITH GOOD AND SUFFICIENT SURETIES IN EVENT A BID IS ACCEPTED SHALL ALSO BE CONDITIONED ON THE PERFORMANCE OF THE CONTRACT BUT SUCH REQUIREMENT IS EXPRESSLY NEGATIVED BY THE TERMS OF SECTIONS 3945 AND 3952, REVISED STATUTES. IT IS BUT REASONABLE TO ASSUME THAT IT WOULD BE MORE DIFFICULT AND MORE EXPENSIVE TO SECURE BONDS WITH SUCH DOUBLE CONDITIONS, WITH THE POSSIBLE RESULT OF RESTRICTED COMPETITION IN RESPONSE TO ADVERTISEMENTS FOR OCEAN CARRIAGE OF MAIL, AND PROSPECTIVE BIDDERS SHOULD NOT BE PUT TO THE EXPENSE OF SECURING SURETIES FOR THE PERFORMANCE OF A CONTRACT WHICH THEY MAY NEVER RECEIVE.

THE ANSWER TO THE THIRD QUESTION WOULD APPEAR TO BE SUFFICIENTLY EMBODIED IN THE ANSWER TO THE SECOND QUESTION BUT IT MAY BE ADDED THAT ANY PRACTICE SHOULD BE DISCONTINUED OF REQUIRING BIDDERS TO SUBMIT BIDS CONDITIONED ON THE ENTERING INTO A CONTRACT WITH GOOD AND SUFFICIENT SURETIES IN EVENT THEIR PROPOSAL IS ACCEPTED AND PERFORMANCE OF THE CONTRACT WHEN IT HAS BEEN ENTERED INTO. THE OBLIGATION IN THE BOND SUBMITTED WITH THE PROPOSAL TO ENTER INTO A CONTRACT WITH GOOD AND SUFFICIENT SURETIES IN EVENT THAT THE BID IS ACCEPTED WILL ORDINARILY PROTECT THE UNITED STATES IN EVENT THE ACCEPTED BIDDER FAILS TO ENTER INTO SUCH CONTRACT AND TO FURNISH GOOD AND SUFFICIENT SURETIES FOR THE PERFORMANCE THEREOF. THE LAW RECOGNIZES INDIVIDUAL SURETIES, CORPORATE SURETIES, AND THE DEPOSIT OF UNITED STATES LIBERTY LOAN BONDS IN LIEU OF EITHER INDIVIDUAL OR CORPORATE SURETIES. (SEE SEC. 6, ACT OF JULY 2, 1918, 40 STAT. 753, AND SEC. 1320, ACT OF FEB. 24, 1919, 40 STAT. 1148.) ALSO, SECTION 3955, REVISED STATUTES, PROVIDED THAT:

THE POSTMASTER GENERAL, WHENEVER HE MAY DEEM IT CONSISTENT WITH THE PUBLIC INTEREST, MAY ACCEPT NEW SURETY UPON ANY CONTRACT EXISTING OR HEREAFTER MADE FOR CARRYING THE MAILS, IN SUBSTITUTION FOR AND RELEASE OF ANY EXISTING SURETY.

THE LAW REQUIRES GOOD AND SUFFICIENT SURETIES BUT LEAVES IT TO THE ADMINISTRATIVE DISCRETION OF THE POSTMASTER GENERAL WHETHER SUCH GOOD AND SUFFICIENT SURETIES SHALL CONSIST OF ONE OR MORE INDIVIDUALS, OR A CORPORATE SURETY, OR THE DEPOSIT OF LIBERTY BONDS IN SUFFICIENT AMOUNT.

THE FOURTH QUESTION SUBMITTED HAS BEEN ANSWERED IN CONNECTION WITH THE OTHER THREE QUESTIONS BUT IT MAY BE REPEATED THAT THERE IS NO BASIS FOR ANY ADMINISTRATIVE POLICY WHICH WOULD REQUIRE A BIDDER TO SUBMIT WITH HIS PROPOSAL A BOND CONDITIONED ON THE FAITHFUL DISCHARGE OF A CONTRACT IN EVENT HIS BID IS ACCEPTED. A PROPOSAL BOND SHOULD BE CONDITIONED ON THE ENTERING INTO A CONTRACT AND THE FURNISHING OF GOOD AND SUFFICIENT SURETIES FOR THE PERFORMANCE OF THAT CONTRACT IN EVENT THE BID IS ACCEPTED.