B-148036, MAR. 27, 1962

B-148036: Mar 27, 1962

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THE GOVERNMENT WILL NOT BE PARTY TO THE CONSTRUCTION CONTRACT ENTERED INTO BETWEEN THE MUNICIPALITY AND A PRIVATE COMPANY. THE MAYOR OF PELLA SOLICITED SEALED BIDS FOR THE PROJECT WHICH WERE OPENED ON JANUARY 9. FIVE BIDS WERE RECEIVED. THE TWO LOWEST OF WHICH WERE AS FOLLOWS: TABLE NAME OF BIDDER BID PRICE BID CHECK L*A WATER CONDITIONING. 774 $300 YOUR LOW BID WAS REJECTED BY THE CITY BECAUSE A CERTIFIED CHECK IN THE AMOUNT OF 5 PERCENT OF THE BID PRICE. WAS NOT RECEIVED UNTIL THE DAY FOLLOWING BID OPENING. YOU CONTEND THAT FAILURE TO SUBMIT THE BID CHECK AT BID OPENING WAS A MINOR IRREGULARITY WHICH THE CITY SHOULD WAIVE. SINCE THE MUNICIPALITY IS FINANCING THIS PROJECT WITH A LOAN WHICH MUST BE REPAID TO REA WITH INTEREST.

B-148036, MAR. 27, 1962

TO L*A WATER CONDITIONING, INC.:

YOUR TELEGRAM OF JANUARY 24, 1962, AS SUPPLEMENTED BY LETTER OF JANUARY 29, 1962, PROTESTS THE AWARD OF CONTRACT IOWA-87-PELLA FOR THE ADDITION OF A DEAERATING FEEDWATER HEATER TO THE MUNICIPAL POWER PLANT OF PELLA, IOWA, TO ANYONE OTHER THAN YOUR COMPANY, THE LOW BIDDER.

THE CITY OF PELLA PROPOSES TO PAY FOR THE CONSTRUCTION OF THIS ADDITION PARTLY WITH FUNDS BORROWED FROM THE RURAL ELECTRIFICATION ADMINISTRATION, HEREINAFTER REFERRED TO AS REA, PURSUANT TO THE RURAL ELECTRIFICATION ACT OF 1936, 49 STAT. 1363, AS AMENDED, 7 U.S.C. 901, ET SEQ. HOWEVER, THE GOVERNMENT WILL NOT BE PARTY TO THE CONSTRUCTION CONTRACT ENTERED INTO BETWEEN THE MUNICIPALITY AND A PRIVATE COMPANY.

THE MAYOR OF PELLA SOLICITED SEALED BIDS FOR THE PROJECT WHICH WERE OPENED ON JANUARY 9, 1962. FIVE BIDS WERE RECEIVED, THE TWO LOWEST OF WHICH WERE AS FOLLOWS:

TABLE

NAME OF BIDDER BID PRICE BID CHECK L*A WATER CONDITIONING, INC.

$5,215 NONE CHICAGO HEATER COMPANY $5,774 $300

YOUR LOW BID WAS REJECTED BY THE CITY BECAUSE A CERTIFIED CHECK IN THE AMOUNT OF 5 PERCENT OF THE BID PRICE, AS REQUIRED BY THE INVITATION FOR BIDS, WAS NOT RECEIVED UNTIL THE DAY FOLLOWING BID OPENING. YOU CONTEND THAT FAILURE TO SUBMIT THE BID CHECK AT BID OPENING WAS A MINOR IRREGULARITY WHICH THE CITY SHOULD WAIVE.

SINCE THE MUNICIPALITY IS FINANCING THIS PROJECT WITH A LOAN WHICH MUST BE REPAID TO REA WITH INTEREST, ANY SAVINGS RESULTING FROM A REDUCTION OF THE CONSTRUCTION COST WOULD ACCRUE TO THE MUNICIPALITY AND NOT TO THE GOVERNMENT. CONSEQUENTLY, THE GOVERNMENT IS CONCERNED WITH THE CONSTRUCTION COST ONLY IN ITS ROLE AS CREDITOR, AND ITS PRIMARY INTEREST IS TO DETERMINE THAT THE PHYSICAL PROPERTIES ARE CONSTRUCTED ADEQUATELY ENOUGH TO SERVE AS RELIABLE SECURITY FOR THE LOAN. THEREFORE, WE HAVE HELD THAT THE COMPETITIVE BID PROCEDURES APPLICABLE TO PROCUREMENT BY GOVERNMENT AGENCIES DO NOT APPLY TO PROCUREMENT BY ONE WHO BORROWS FUNDS FROM THE REA UNDER TERMS AND CONDITIONS DETERMINED BY THE ADMINISTRATOR OF REA. B-132796, AUGUST 30, 1957.

THE ADMINISTRATOR OF REA HAS AUTHORITY UNDER SECTION 4 OF THE RURAL ELECTRIFICATION ACT OF 1936, 49 STAT. 1365, AS AMENDED, 7 U.S.C. 904, TO DETERMINE THE TERMS AND CONDITIONS RELATING TO EXPENDITURE OF THE MONIES LOANED. REA BULLETIN 40-6, DATED NOVEMBER 27, 1959, OUTLINES HIS POLICY WITH RESPECT TO FORMAL COMPETITIVE BIDDING. SECTION IV, PARAGRAPH F OF THIS BULLETIN PROVIDES ONE OF THE MAJOR CONSIDERATIONS IN CONDUCTING BID OPENINGS:

"REVIEW OF BIDS: AT THE TIME BIDS ARE OPENED, THE BORROWER'S ENGINEER AND ATTORNEY SHOULD REVIEW ALL BIDS FOR IRREGULARITIES, ERRORS, AND EXCEPTIONS. IF IT APPEARS TO THE BORROWER THAT MINOR IRREGULARITIES OR ERRORS WERE MADE THROUGH INADVERTENCE, THE BORROWER MAY (1) AUTHORIZE THE BIDDER TO MAKE CHANGES, OR (2) WAIVE THE ERRORS OR IRREGULARITIES. IN THE EVENT OF MAJOR IRREGULARITIES OR ERRORS, THE BID SHOULD BE REJECTED AND THE BID PRICE NOT DISCLOSED. THE BID BONDS OR CERTIFIED CHECKS SHOULD ALSO BE CHECKED FOR ADEQUACY PRIOR TO READING BIDS.'

SINCE THE PROVISION RELATING TO CERTIFIED CHECKS FOLLOWS THE SENTENCE DEALING WITH MAJOR IRREGULARITIES RATHER THAN THE SENTENCE DEALING WITH MINOR IRREGULARITIES, IT MAY BE THAT REA REGULATIONS CONSIDER THE FAILURE TO SUBMIT A BID CHECK BEFORE BID OPENING TO BE A MAJOR IRREGULARITY WHICH CANNOT BE WAIVED. THIS WOULD BE IN ACCORD WITH RULES SET FORTH BY THIS OFFICE WITH RESPECT TO PROCUREMENT BY GOVERNMENT AGENCIES UNDER COMPETITIVE BID PROCEDURES. 38 COMP. GEN. 532.

IN ANY EVENT, THE OFFICIALS OF THE CITY OF PELLA HAVE DETERMINED THAT THE BID WHICH YOU SUBMITTED APPEARED TO THEM TO CONTAIN A MAJOR IRREGULARITY. IN EXERCISING ITS JUDGMENT THE CITY DOES NOT APPEAR TO HAVE VIOLATED ANY OF THE COMPETITIVE BIDDING PROCEDURES AS SET FORTH IN REA BULLETIN 40-6. THE BIDDING PROCEDURES CONTAINED IN THIS BULLETIN WERE THE ONLY ONES WHICH THE MUNICIPALITY WAS REQUIRED TO FOLLOW. IT FOLLOWS THAT THERE IS NO BASIS UPON WHICH WE MAY CONCLUDE THAT THE CITY OF PELLA ACTED IMPROPERLY IN REJECTING YOUR BID.