B-155837, FEB. 17, 1965, 44 COMP. GEN. 495

B-155837: Feb 17, 1965

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BONDS - BID - PRINCIPAL NOT BIDDER A BID BOND NAMING A PRINCIPAL DIFFERENT FROM THE COMPANY SUBMITTING THE BID IS PRIMA FACIE DEFICIENT. NOTWITHSTANDING THE BIDDER IS AN AFFILIATE OF THE COMPANY NAMED IN THE BOND. REJECTION OF THE BID AS NONRESPONSIVE IS REQUIRED. THE SURETY'S OBLIGATION UNDER THE PROPOSED CONTRACT WOULD HAVE TO BE ESTABLISHED AFTER BID OPENING. AN ACTION WHICH IF PERMITTED WOULD HAVE TO BE ESTABLISHED AFTER BID OPENING. BIDS UNDER THIS INVITATION WERE SOLICITED FOR THE UNLOADING. BIDS WERE OPENED ON DECEMBER 15. 207.40 FOR ALL OF THE TIMES IN THE INVITATION WAS LOW. WAS RECEIVED FROM KENNEDY CONTRACTING COMPANY. ITEM 6 ON PAGE 5 OF THE INVITATION PROVIDED: A BID GUARANTEE IN THE AMOUNT OF 25 PERCENT OF THE BID IS REQUIRED. * * ITEM 7 ON PAGE 5 OF THE INVITATION STATED: FAILURE TO FURNISH A REQUIRED BID GUARANTEE IN THE PROPER AMOUNT.

B-155837, FEB. 17, 1965, 44 COMP. GEN. 495

BONDS - BID - PRINCIPAL NOT BIDDER A BID BOND NAMING A PRINCIPAL DIFFERENT FROM THE COMPANY SUBMITTING THE BID IS PRIMA FACIE DEFICIENT, NOTWITHSTANDING THE BIDDER IS AN AFFILIATE OF THE COMPANY NAMED IN THE BOND, AND PURSUANT TO SECTION 1 10.103-4 OF THE FEDERAL PROCUREMENT REGULATION, REJECTION OF THE BID AS NONRESPONSIVE IS REQUIRED, AND THE BIDDER AND THE BID BOND PRINCIPAL BEING SEPARATE CORPORATE ENTITIES, THE BID BOND DEFICIENCY MAY NOT BE WAIVED AS A MINOR TECHNICALITY, AS THE SURETY'S OBLIGATION TO THE PRINCIPAL ON THE BOND MAY NOT BE IMPUTED TO THE BIDDER, THE BOND SUBMITTED WITH THE BID NOT OBLIGATING THE SURETY TO PAY A DEBT OF THE BIDDER, AND, THEREFORE, THE SURETY'S OBLIGATION UNDER THE PROPOSED CONTRACT WOULD HAVE TO BE ESTABLISHED AFTER BID OPENING, AN ACTION WHICH IF PERMITTED WOULD HAVE TO BE ESTABLISHED AFTER BID OPENING, AN ACTION WHICH IF PERMITTED WOULD TEND TO COMPROMISE THE INTEGRITY OF THE COMPETITIVE BID SYSTEM BY MAKING IT POSSIBLE FOR A BIDDER TO DECIDE AFTER BID OPENING WHETHER OR NOT TO MAKE HIS BID ACCEPTABLE AND, THEREFORE, CORRECTION OF THE BID BOND MAY NOT BE AUTHORIZED.

TO ANTHONY J. GENOVESI, FEBRUARY 17, 1965:

WE REFER TO YOUR LETTER OF DECEMBER 30, 1964, WITH ENCLOSURE, AND TELEGRAM OF DECEMBER 23, 1964, FROM MARITIME MAINTENANCE AND LABOR SUPPLIERS, INCORPORATED, 17 BATTERY PLACE, NEW YORK, NEW YORK, PROTESTING THE AWARD OF A CONTRACT UNDER INVITATION FOR BIDS NO. 1787 DMS-NY, ISSUED BY THE GENERAL SERVICES ADMINISTRATION, DEFENSE MATERIALS SERVICE, 30 CHURCH STREET, NEW YORK, NEW YORK.

BIDS UNDER THIS INVITATION WERE SOLICITED FOR THE UNLOADING, STOWING AND OUTLOADING OF VARIOUS TYPES OF STRATEGIC AND CRITICAL MATERIALS AT GSA DEPOTS AT BELLE MEAD, NEW JERSEY; SOMERVILLE, NEW JERSEY AND BETHLEHEM, PENNSYLVANIA. BIDS WERE OPENED ON DECEMBER 15, 1964, AND THE BID OF MARITIME MAINTENANCE WHICH QUOTED AN ESTIMATED PRICE OF $73,207.40 FOR ALL OF THE TIMES IN THE INVITATION WAS LOW. ONE OTHER BID, WHICH QUOTED AN ESTIMATED PRICE OF $98,295 FOR ALL OF THE ITEMS IN THE INVITATION, WAS RECEIVED FROM KENNEDY CONTRACTING COMPANY, INCORPORATED, 4461 W. JEFFERSON, DETROIT, MICHIGAN.

ITEM 6 ON PAGE 5 OF THE INVITATION PROVIDED:

A BID GUARANTEE IN THE AMOUNT OF 25 PERCENT OF THE BID IS REQUIRED. * *

ITEM 7 ON PAGE 5 OF THE INVITATION STATED:

FAILURE TO FURNISH A REQUIRED BID GUARANTEE IN THE PROPER AMOUNT, BY THE TIME SET FOR OPENING OF BIDS, MAY BE CAUSE FOR REJECTION OF THE BID.

A BID GUARANTEE SHALL BE IN THE FORM OF A FIRM COMMITMENT, SUCH AS A BID BOND, POSTAL MONEY ORDER, CERTIFIED CHECK, CASHIER'S CHECK, IRREVOCABLE LETTER OF CREDIT OR, IN ACCORDANCE WITH TREASURY DEPARTMENT REGULATIONS, BONDS OR NOTES OF THE UNITED STATES. BID GUARANTEES, OTHER THAN BID BONDS, WILL BE RETURNED (A) TO UNSUCCESSFUL BIDDERS AS SOON AS PRACTICABLE AFTER THE OPENING OF BIDS, AND (B) TO THE SUCCESSFUL BIDDER UPON EXECUTION OF SUCH FURTHER CONTRACTUAL DOCUMENTS AND BONDS AS MAY BE REQUIRED BY THE BID AS ACCEPTED.

THE BID OF MARITIME MAINTENANCE WAS ACCOMPANIED BY A BOND WHICH NAMED MARITIME SHIPWATCH SERVICE CORPORATION, 17 BATTERY PLACE, NEW YORK, NEW YORK, AS PRINCIPAL UNDER THE INSTANT INVITATION. THE ORIGINAL BID BOND BORE THE SEAL: "MARITIME SHIPWATCH SERVICE CORPORATION, INCORPORATED VIRGINIA, 1962.' THE BID BOND SPECIFICALLY STATES THAT THE PRINCIPAL AND SURETY NAMED THEREIN ARE FIRMLY BOUND TO THE UNITED STATES IN THE PENAL SUM MENTIONED IN THE BOND. GSA ADVISES THAT MARITIME MAINTENANCE IS A NEW YORK STATE CORPORATION.

GSA REJECTED THE BID OF MARITIME MAINTENANCE PURSUANT TO FEDERAL PROCUREMENT REGULATION SEC. 1-10.103-4 WHICH PROVIDES THAT WHERE AN INVITATION FOR BIDS REQUIRES THAT A BID BE SUPPORTED BY A BID GUARANTEE AND NONCOMPLIANCE OCCURS, THE BID SHALL BE REJECTED. ON DECEMBER 17, 1964, AWARD WAS MADE TO KENNEDY CONTRACTING COMPANY. BY TELEGRAM OF DECEMBER 23, 1964, MARITIME MAINTENANCE PROTESTED THE REJECTION OF ITS BID ALLEGING THAT THE BID BOND AS SUBMITTED WAS NOT DEFECTIVE SINCE MARITIME MAINTENANCE IS A DIVISION OF MARITIME SHIPWATCH. IT IS ASSERTED THAT EVEN IF THE BID BOND WAS DEFECTIVE, ANY DEFICIENCY WAS A MINOR INFORMALITY; THEREFORE, MARITIME MAINTENANCE SHOULD HAVE BEEN GIVEN AN OPPORTUNITY TO CORRECT THE DEFICIENCY PURSUANT TO FPR 1 2.406. SOME MENTION IS ALSO MADE IN THE TELEGRAM FROM MARITIME MAINTENANCE THAT THE PRICE IN KENNEDY'S BID MAY BE UNREASONABLE. YOUR LETTER OF DECEMBER 30, 1964, ADVISES THAT GSA IN THE PAST HAS PAID MARITIME MAINTENANCE FOR CONTRACTS PERFORMED BY MARITIME SHIPWATCH. APPARENTLY, THESE PAYMENTS WERE MADE PURSUANT TO A LETTER OF AUGUST 20, 1964, ADVISING GSA THAT MARITIME MAINTENANCE WAS AN AFFILIATE OF MARITIME SHIPWATCH.

IT IS CLEAR THAT WHERE AN INVITATION REQUESTS A BID BOND, THIS REQUIREMENT IS A MATERIAL PART OF THE BID. SEE 38 COMP. GEN. 532, ALSO FPR 1-10.103-4.

WITH RESPECT TO THE FIRST ALLEGATION, THAT THERE WAS NO DEFICIENCY IN THE BID BOND FURNISHED, SUFFICE IT TO SAY THAT WE CONSIDER A BID BOND WHEREIN THE NAMED PRINCIPAL IS DIFFERENT FROM THE COMPANY NAMED IN THE BID PRIMA FACIE DEFICIENT. THE QUESTION IS WHETHER THE DEFICIENCY IN THIS CASE CAN BE CONSIDERED AS A MINOR TECHNICALITY WHICH CAN BE WAIVED. THE ANSWER DEPENDS ON WHETHER THE SURETY'S OBLIGATION AS TO MARITIME SHIPWATCH, THE NAMED PRINCIPAL ON THE BOND AS SUBMITTED, CAN BE IMPUTED TO COVER ALSO MARITIME MAINTENANCE WHICH WAS NOT NAMED ON THE BOND. IN THIS CONNECTION IT IS SIGNIFICANT THAT MARITIME MAINTENANCE AND MARITIME SHIPWATCH ARE CORPORATIONS WHICH WERE SEPARATELY INCORPORATED IN DIFFERENT STATES.

THE LAW REGARDING THE NATURE OF CORPORATE ENTITIES AS IT PERTAINS TO THE INSTANT MATTER HAS BEEN ADEQUATELY SUMMARIZED IN 18 AM.JUR. 2D SEC. 17, PAGES 564 AND 565 AS FOLLOWS:

AS A GENERAL RULE, THE FACT THAT A CORPORATION OWNS ALL OR THE MAJORITY OF THE STOCK OF ANOTHER CORPORATION DOES NOT DESTROY THE IDENTITY OF THE LATTER AS A DISTINCT LEGAL ENTITY. A HOLDING OR PARENT CORPORATION HAS A SEPARATE CORPORATE EXISTENCE AND IS TO BE TREATED AS A SEPARATE ENTITY. IN THE ABSENCE OF CIRCUMSTANCES JUSTIFYING DISREGARD OF THE CORPORATE ENTITY. THE SUBSIDIARY CORPORATIONS, TOO, ARE ORDINARILY INDEPENDENT OF EACH OTHER. THE FACT THAT THE STOCKHOLDERS OR OFFICERS IN TWO CORPORATIONS MAY BE THE SAME PERSONS DOES NOT OPERATE TO DESTROY THE LEGAL IDENTITY OF EITHER CORPORATION; NOR DOES THE FACT THAT THE ONE CORPORATION EXERCISES A CONTROLLING INFLUENCE OVER THE OTHER THROUGH THE OWNERSHIP OF ITS STOCK OR THROUGH THE IDENTITY OF STOCKHOLDERS MAKE EITHER THE AGENT OF THE OTHER OR MERGE THE TWO CORPORATIONS INTO ONE.

SEE ALSO THE CASES CITED THEREIN. IT IS A GENERAL RULE OF THE LAW OF SURETYSHIP THAT NO ONE INCURS A LIABILITY TO PAY A DEBT OR PERFORM A DUTY FOR ANOTHER UNLESS HE EXPRESSLY AGREES TO BE SO BOUND, FOR THE LAW DOES NOT CREATE RELATIONSHIPS OF THIS CHARACTER BY MERE IMPLICATION. SURETYSHIP, THEREFORE, GENERALLY ARISES ONLY BY EXPRESS CONTRACT OF THE PARTIES.

IN VIEW OF THE FOREGOING WE FIND THAT THE BOND AS SUBMITTED WITH THE MARITIME MAINTENANCE BID WOULD NOT ESTABLISH THAT THE SURETY HAD AN OBLIGATION UNDER THE INSTANT INVITATION TO PAY A DEBT OF MARITIME MAINTENANCE. THEREFORE, THE SURETY'S OBLIGATION AS TO MARITIME MAINTENANCE WOULD NECESSARILY HAVE TO BE ESTABLISHED AFTER BID OPENING. TO PERMIT A BIDDER TO ESTABLISH THE SURETY'S OBLIGATION ON A BID BOND AFTER BID OPENING WOULD TEND TO COMPROMISE THE INTEGRITY OF THE COMPETITIVE SYSTEM BY MAKING IT POSSIBLE FOR A BIDDER TO DECIDE AFTER OPENING WHETHER OR NOT TO MAKE HIS BID ACCEPTABLE. ALSO, UNDUE DELAYS COULD BE CAUSED IN EFFECTING PROCUREMENTS AND INCONSISTENCIES IN THE TREATMENT OF BIDDERS COULD BE CREATED BECAUSE OF THE SUBJECTIVE DETERMINATIONS BY DIFFERENT CONTRACTING OFFICERS. IT HAS OFTEN BEEN STATED THAT THE MAINTENANCE OF THE INTEGRITY OF THE SYSTEM IS INFINITELY MORE IN THE PUBLIC INTEREST THAN A FINANCIAL SAVING IN ANY INDIVIDUAL CASE. SEE 17 COMP. GEN. 554 AND 38 COMP. GEN. 532. IN THESE CIRCUMSTANCES WE FIND THAT GSA PROPERLY REJECTED THE BID OF MARITIME MAINTENANCE AS NONRESPONSIVE.

WITH RESPECT TO THE LETTER OF AUGUST 20, 1964, IN WHICH IT WAS BROUGHT TO GSA'S ATTENTION THAT MARITIME MAINTENANCE WAS AN AFFILIATE OF MARITIME SHIPWATCH, THIS WOULD NOT ESTABLISH THE SURETY'S LIABILITY ON THE BID BOND AS SUBMITTED IN THE INSTANT MATTER; CONSEQUENTLY, WE DO NOT FIND THIS INFORMATION RELEVANT TO THE ISSUE UNDER CONSIDERATION. THE FACT THAT GSA UNDER PRIOR CONTRACTS WITH MARITIME SHIPWATCH PAID MARITIME MAINTENANCE WOULD NOT ESTABLISH THE SURETY'S OBLIGATION FOR DEFAULT BY MARITIME MAINTENANCE UNDER THE BID BOND AS SUBMITTED; THEREFORE, THIS IS NOT RELEVANT TO THE ISSUE UNDER CONSIDERATION. IN REGARD TO THE CONTENTION THAT MARITIME MAINTENANCE SHOULD HAVE BEEN GIVEN AN OPPORTUNITY TO CORRECT THE BID BOND AFTER BID OPENING PURSUANT TO FPR 1-2.406, YOU ARE ADVISED THAT FPR 1 2.406.3LIMITS SUCH CORRECTIONS TO BIDS WHICH ARE RESPONSIVE AS SUBMITTED. IN VIEW OF THE FINDING THAT MARITIME MAINTENANCE'S BID AS SUBMITTED. SEE B-153728, JULY 7, 1964.

IN CONNECTION WITH YOUR ALLEGATION THAT THE PRICES KENNEDY'S BID WERE UNREASONABLE IF COMPARED WITH THE PRICES IN MARITIME MAINTENANCE'S BID, GSA HAS ADVISED THAT THE PRICES OF THE ITEMS IN THIS PROCUREMENT WERE CHECKED WITH PRICES UNDER PRIOR CONTRACTS FOR THIS TYPE OF PROCUREMENT AND IT WAS DETERMINED THAT THE PRICES IN KENNEDY'S BID WERE REASONABLE. ALSO, GSA HAD SOME QUESTION WHETHER A NUMBER OF MARITIME MAINTENANCE'S UNIT PRICES COULD BE CONSIDERED AS ITS INTENDED BID PRICES. PURSUANT TO OUR REVIEW WE FIND THAT GSA'S DETERMINATION REGARDING THE REASONABLENESS OF THE PRICES IN KENNEDY'S BID WAS NOT ERRONEOUS, ALTHOUGH WE BELIEVE IT WOULD HAVE BEEN PREFERABLE TO VERIFY THE PRICES OFFERED BY MARITIME MAINTENANCE BEFORE A DECISION WAS MADE TO ACCEPT THE KENNEDY BID.