B-137791, NOVEMBER 19, 1958, 38 COMP. GEN. 376

B-137791: Nov 19, 1958

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

IN THE EVENT THE CONTRACT AND PERFORMANCE AND PAYMENT BONDS ARE NOT EXECUTED WITHIN THE TIME PRESCRIBED. THE CONTRACTOR IS LIABLE FOR EXCESS COSTS INCURRED UNDER THE REPLACEMENT CONTRACT WITHOUT REGARD TO THE BID BOND LIMITATION. A LETTER WHICH ADVISES A BIDDER THAT HIS BID IS ACCEPTED BUT THAT THE ACCEPTANCE WILL NOT BE CONSTRUED AS AN AWARD BEFORE THE PERFORMANCE AND PAYMENT BONDS ARE FURNISHED IS AMBIGUOUS SINCE AN AWARD OCCURS UPON ACCEPTANCE OF THE BID AND THE USE OF SUCH AMBIGUOUS LANGUAGE IN AN ACCEPTANCE LETTER SHOULD BE AVOIDED. 429 WAS SUBMITTED BY THE HINTZ CONSTRUCTION COMPANY. WAS NOT ACCOMPANIED BY A BID BOND. THE LOW BIDDER WAS ADVISED AS FOLLOWS: YOUR BID * * * IS ACCEPTED.

B-137791, NOVEMBER 19, 1958, 38 COMP. GEN. 376

CONTRACTS - DEFAULT - EXCESS COST LIABILITY - BID BOND LIMITATION THE FAILURE OF A BIDDER TO SUBMIT A BID BOND AND THE WAIVER OF THE BOND REQUIREMENT BY THE CONTRACTING OFFICER UNDER AN INVITATION WHICH PROVIDES FOR FORFEITURE OF THE BID BOND, IN THE EVENT THE CONTRACT AND PERFORMANCE AND PAYMENT BONDS ARE NOT EXECUTED WITHIN THE TIME PRESCRIBED, HAS THE EFFECT OF ELIMINATING THE BOND FORFEITURE PROVISION IN THE DETERMINATION OF THE CONTRACTOR'S LIABILITY UPON ACCEPTANCE OF THE CONTRACT AND SUBSEQUENT DEFAULT; THEREFORE, THE CONTRACTOR IS LIABLE FOR EXCESS COSTS INCURRED UNDER THE REPLACEMENT CONTRACT WITHOUT REGARD TO THE BID BOND LIMITATION. A LETTER WHICH ADVISES A BIDDER THAT HIS BID IS ACCEPTED BUT THAT THE ACCEPTANCE WILL NOT BE CONSTRUED AS AN AWARD BEFORE THE PERFORMANCE AND PAYMENT BONDS ARE FURNISHED IS AMBIGUOUS SINCE AN AWARD OCCURS UPON ACCEPTANCE OF THE BID AND THE USE OF SUCH AMBIGUOUS LANGUAGE IN AN ACCEPTANCE LETTER SHOULD BE AVOIDED.

TO THE SECRETARY OF COMMERCE, NOVEMBER 19, 1958:

WE REFER TO A LETTER OF OCTOBER 27, 1958, SIGNED BY THE ASSISTANT SECRETARY ( ADMINISTRATION), REQUESTING A DECISION AS TO THE EXTENT OF LIABILITY OF A DEFAULTING CONTRACTOR UNDER THE CIRCUMSTANCES SET OUT BELOW.

THE CIVIL AERONAUTICS ADMINISTRATION ISSUED INVITATION FOR BIDS NO. 4-57- 960A ON JULY 1, 1957, FOR CONSTRUCTION OF A DESIGNATED COMMUNICATIONS FACILITY AT REDMOND, OREGON. THE LOW BID IN THE AMOUNT OF $37,429 WAS SUBMITTED BY THE HINTZ CONSTRUCTION COMPANY; THE BID, HOWEVER, CONTRARY TO THE REQUIREMENTS OF THE INVITATION, WAS NOT ACCOMPANIED BY A BID BOND. LETTER ACCOMPANYING THE BID THE LOW BIDDER EXPLAINED THAT THE BID BOND HAD BEEN ORDERED BUT HAD NOT BEEN RECEIVED IN TIME AND THAT IT WOULD BE FURNISHED TO THE CONTRACTING OFFICER UPON RECEIPT FROM THE INSURANCE BROKERS.

SINCE THERE APPEARED TO BE NO QUESTION CONCERNING THE ABILITY OF THE LOW BIDDER TO PERFORM THE CONTRACT OR TO QUALIFY FOR A BID BOND AND SINCE THE LOW BIDDER HAD ALREADY SUCCESSFULLY PERFORMED CONTRACTS OF A SIMILAR TYPE, THE CONTRACTING OFFICER DETERMINED TO WAIVE THE FAILURE TO SUBMIT THE BID BOND AS AN INFORMALITY IN ACCORDANCE WITH THE DECISIONS OF OUR OFFICE. ACCORDINGLY, BY LETTER OF JULY 24, 1957, THE LOW BIDDER WAS ADVISED AS FOLLOWS:

YOUR BID * * * IS ACCEPTED. THIS ACCEPTANCE, HOWEVER, IS NOT TO BE CONSTRUED AS AN AWARD SINCE IT IS NECESSARY THAT PERFORMANCE AND PAYMENT BONDS BE FURNISHED IN ACCORDANCE WITH THE MILLER ( DUAL BOND) ACT BEFORE A CONTRACT MAY BE AWARDED. ( ITALICS SUPPLIED.)

NO BID BOND WAS EVER SUBMITTED BY THE BIDDER AND BY LETTER OF AUGUST 7, 1957, THE CONTRACTING OFFICER ADVISED THE LOW BIDDER THAT THE TIME FOR SUBMISSION OF THE REQUIRED BONDS WAS EXTENDED TO AUGUST 14, 1957, AND AFFIRMED THAT THE LETTER OF JULY 24, 1957, CONSTITUTED AN ACCEPTANCE OF THE BID. THE LOW BIDDER WAS FURTHER ADVISED THAT FAILURE TO SUBMIT THE BONDS WOULD RESULT IN TERMINATION OF THE CONTRACT FOR DEFAULT AND ANY EXCESS COSTS INCURRED BY THE GOVERNMENT AS A RESULT WOULD BE ASSESSED AGAINST HIM.

ON AUGUST 14, 1957, THE BIDDER SUBMITTED A DOCUMENT HEADED " NOTICE OF RESCISSION AND OFFER OF RESTORATION" IN WHICH IT WAS ALLEGED THAT THE BIDDER HAD MADE A UNILATERAL MISTAKE OF FACT IN CALCULATING HIS BID RESULTING IN A LOWER PRICE THAN INTENDED; THAT HE WAS UNABLE TO SECURE THE REQUIRED PERFORMANCE BOND; AND, THEREFORE, THAT HE WAS RESCINDING THE PURPORTED CONTRACT. BASED ON THIS LETTER THE CONTRACTING OFFICER DECLARED THE CONTRACTOR IN DEFAULT AND SUBSEQUENTLY AWARDED A REPLACEMENT CONTRACT TO THE SECOND LOW BIDDER. THAT CONTRACT HAS BEEN SUCCESSFULLY COMPLETED AND IT HAS BEEN DETERMINED THAT THE GOVERNMENT HAS INCURRED EXCESS COSTS OF $14,019.30.

BECAUSE OF THE FOLLOWING PROVISION IN THE TERMS OF THE INVITATION A QUESTION HAS ARISEN AS TO THE DEGREE OF LIABILITY OF THE HINTZ COMPANY. THAT PROVISION, PARAGRAPH 2 OF THE GENERAL CONDITIONS, PROVIDES IN PERTINENT PART AS FOLLOWS:

THE BIDDER AGREES THAT, IF AWARDED THIS CONTRACT, HE WILL ENTER INTO A FORMAL CONTRACT WITH THE GOVERNMENT * * * AND WILL FURNISH A PERFORMANCE BOND * * * AND A PAYMENT BOND * * *. THE CONTRACT AND BONDS SHALL BE EXECUTED WITHIN THE TIME PRESCRIBED ON THE BID FORM; OTHERWISE THE BID BOND MAY BE FORFEITED AND THE CONTRACT COMPLETED BY OTHERS * * *. ( ITALICS SUPPLIED.)

IN ADDITION TO THE FOREGOING THE INVITATION PROVIDED FOR THE INCLUSION IN THE RESULTING CONTRACT OF PARAGRAPH 5 (A) OF STANDARD FORM 23 (A) WHICH STATES IN GENERAL THAT IF THE CONTRACTOR REFUSES OR FAILS TO PROSECUTE THE WORK WITH SUFFICIENT DILIGENCE TO INSURE ITS COMPLETION WITHIN THE SPECIFIED TIME THE GOVERNMENT MAY TERMINATE HIS RIGHT TO PROCEED, IN WHICH EVENT THE DEFAULTING CONTRACTOR SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COSTS OCCASIONED THEREBY.

WHILE PARAGRAPH 2 OF THE GENERAL CONDITIONS APPEARS TO BE AN UNUSUAL PROVISION FOR INCLUSION IN AN INVITATION FOR BIDS, IT DOES NOT APPEAR TO BE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS OF STANDARD FORM NO. 24 ( APPROVED 1926), THE STANDARD GOVERNMENT FORM OF BID BOND NORMALLY EXECUTED BY ANY BIDDER SUBMITTING A BID WHERE A BID BOND IS REQUIRED. THE BID FORM PROVIDES IN ESSENCE THAT IF THE BIDDER DOES NOT WITHDRAW HIS BID BEFORE THE TIME PERMITTED, AND IF UPON REQUEST HE ENTERS INTO A WRITTEN CONTRACT GIVING THE BOND REQUIRED, THE OBLIGATION ON THE BID BOND SHALL BE VOIDED, OTHERWISE IT REMAINS IN FULL FORCE AND EFFECT. IT IS CLEAR THAT IF THE BIDDER DOES NOT MEET ALL OF THE ABOVE CONDITIONS HIS BID BOND BECOMES SUBJECT TO FORFEITURE. THUS, IT APPEARS THAT THE LIABILITY OF A DEFAULTED CONTRACTOR UNDER THE PROVISIONS OF THE INVITATION IN QUESTION WOULD NOT BE MATERIALLY DIFFERENT FROM THE LIABILITY OF A DEFAULTED BIDDER UNDER AN INVITATION WITHOUT SUCH PROVISIONS WHERE THE BIDDER HAD EXECUTED THE BID BOND FORM. IN THE LATTER SITUATION A DEFAULTED CONTRACTOR'S LIABILITY IS NOT LIMITED TO THE BID BOND BUT EXTENDS TO ANY EXCESS COSTS IN ADDITION TO THE AMOUNT OF THE BOND. CONTI V. UNITED STATES. 158 F.2D 581.

ON THIS POINT THE CASE OF MIDDLETON V. CITY OF EMPORIA, 186 P 981, DECIDED BY THE SUPREME COURT OF KANSAS IN 1920, APPEARS PERTINENT. THAT CASE THE CITY OF EMPORIA ISSUED INVITATIONS FOR CONSTRUCTION WORK. BID SECURITY IN THE FORM OF A CASHIER'S OR CERTIFIED CHECK WAS REQUIRED TO BE POSTED FOR FAILURE TO ENTER INTO A FORMAL CONTRACT AND TO GIVE THE NECESSARY PERFORMANCE BOND. THE PLAINTIFF WAS AWARDED THE CONTRACT BUT REFUSED EITHER TO SIGN THE CONTRACT OR TO FURNISH THE BOND. THE BID SECURITY WAS DEPOSITED IN THE CITY TREASURY. THE PLAINTIFF BROUGHT SUIT TO RECOVER THE AMOUNT OF SECURITY WHILE THE CITY COUNTERCLAIMED FOR THE DIFFERENCE BETWEEN THE AMOUNT OF THE BID DEPOSIT AND THE EXCESS COSTS INCURRED IN RELETTING THE CONTRACT. THE COURT CONCLUDED THAT A CONTRACT CAME INTO EXISTENCE UPON AWARD TO THE PLAINTIFF AND THAT THE PURPOSE OF THE SECURITY WAS TO SECURE BIDS FROM BONA FIDE BIDDERS WHO WOULD UPON AWARD FURNISH PERFORMANCE BOND AND EXECUTE THE CONTRACT. CONCERNING THE BID DEPOSIT, THE COURT STATES AT PAGE 938:

IT IS IMMATERIAL WHETHER THE DEPOSIT SO MADE IS REGARDED AS A FORFEITURE OR LIQUIDATED DAMAGES. IT WAS COLLATERAL TO THE CONTRACT THAT WAS MADE, AND A GUARANTY THAT THE BIDDER WOULD OBSERVE THE SPECIFIED REQUIREMENTS *

THE DEFAULT OF THE PLAINTIFFS GIVING RISE TO THE FORFEITURE OF THE DEPOSIT IN THE PRELIMINARY AGREEMENT DID NOT RELIEVE THE PLAINTIFFS FROM LIABILITY FOR THE ACTUAL DAMAGES SUSTAINED FROM THEIR FAILURE TO CARRY OUT THE CONTRACT WHICH THEY HAD MADE. AS WE HAVE SEEN, THERE WAS A BINDING CONTRACT BETWEEN THE PARTIES AND A VIOLATION OF ITS PROVISIONS BY THE PLAINTIFFS, AND NO REASON IS SEEN WHY A PARTY WHO BREACHES A CONTRACT IS NOT ANSWERABLE IN DAMAGES FOR THE ACTUAL LOSS RESULTING FROM THE BREACH.

WE ARE AWARE OF THE FACT THAT DICTA IN WILLIAM WINTERS AND COMPANY V. UNITED STATES, 114 C. CS. 394 (CERTIORARI DENIED 338 U.S. 903), WOULD APPEAR TO INDICATE THAT UNDER THE PRESENT FACTS A DIFFERENT CONCLUSION MIGHT BE REQUIRED IF A BID BOND HAD BEEN FURNISHED. HOWEVER, THE FAILURE OF THE BIDDER TO FURNISH THE BID BOND AND THE WAIVER OF THE REQUIREMENT BY THE CONTRACTING AGENCY WOULD APPEAR TO HAVE THE EFFECT OF ELIMINATING PARAGRAPH 2 FROM ANY AGREEMENT WHICH MAY OTHERWISE HAVE EXISTED. WE DO NOT DEEM IT NECESSARY THEREFORE TO CONSIDER WHETHER THE DICTA IN THE WINTERS CASE WOULD OTHERWISE APPLY. IN ACCORDANCE WITH THE OTHER DECISIONS CITED ABOVE WE MUST CONCLUDE THAT THE HINTZ COMPANY IS LIABLE FOR THE EXCESS COSTS INCURRED. THE CLAIM, IN ACCORDANCE WITH YOUR REQUEST, IS BEING SUBMITTED TO OUR CLAIMS DIVISION FOR APPROPRIATE HANDLING.

WHILE THE QUESTION RAISED IN YOUR LETTER DID NOT ENCOMPASS THEM, WE THINK IT APPROPRIATE TO COMMENT UPON TWO OTHER ASPECTS OF THE SUBJECT TRANSACTION. THE AWARD LETTER OF JULY 24, 1957, IS, OF COURSE, AMBIGUOUS SINCE WHILE IT PURPORTS TO ACCEPT THE OFFER OF THE LOW BIDDER IT SPECIFICALLY PROVIDES THAT NO AWARD WOULD BE MADE PRIOR TO THE FURNISHING OF THE REQUIRED BONDS. THE AWARD, OF COURSE, OCCURS UPON ACCEPTANCE OF THE BID. WHILE IT APPEARS THAT THE AMBIGUITY WAS SUFFICIENTLY CLARIFIED BY THE LETTER OF AUGUST 7, 1957, WITHIN THE TIME PERMITTED FOR AWARD UNDER THE TERMS OF THE INVITATION, THE USE OF THE INDICATED LANGUAGE IS CONFUSING AND WE ARE IN ACCORD WITH YOUR ACTION TO PREVENT ANY FURTHER USE OF SUCH LANGUAGE.

WITH REGARD TO THE WAIVER OF THE BID BOND REQUIREMENT BY THE CONTRACTING OFFICER, IT IS OUR POSITION THAT SUCH REQUIREMENT MAY BE WAIVED WHERE THE FAILURE TO SUBMIT THE BOND IS DUE TO AN OVERSIGHT OR SOME EXCUSABLE CAUSE, BUT THAT THE REQUIREMENT SHOULD NOT BE WAIVED WHERE THE FAILURE IS DUE TO THE CONTRACTOR'S INABILITY TO OBTAIN THE BOND. 31 COMP. GEN. 20. THE ENCLOSURES TO THE LETTER OF OCTOBER 27 APPEAR TO INDICATE THAT THE FAILURE OF THE LOW BIDDER TO SUBMIT THE BOND WAS DUE TO ONE OF THE CAUSES PERMITTING WAIVER. WHERE THE BID BOND REQUIREMENT HAS BEEN WAIVED THE BIDDER MAY NOT ASSERT HIS FAILURE TO SUPPLY THE BOND AS A BASIS FOR RELIEF FROM LIABILITY FOR DAMAGES FOR DEFAULT WHERE EXCESS COSTS ARE INCURRED UPON RELETTING. ADELHARDT CONSTRUCTION COMPANY V. UNITED STATES, 123 C. CLS. 456.