B-163581, MAY 14, 1968

B-163581, MAY 14, 1968

TO SMITH, CURRIE AND HANCOCK:

FURTHER REFERENCE IS MADE TO YOUR LETTERS OF FEBRUARY 20 AND 22, 1968, ON BEHALF OF CROWN CONSTRUCTION COMPANY, PROTESTING ANY AWARD OF A CONTRACT BY THE HOUSING AUTHORITY OF THE CITY OF MILLEDGEVILLE, GEORGIA, TO LAKE MCDONALD, INC., WITH RESPECT TO LOW RENT HOUSING PROJECT NO. GA. 200-4, MILLEDGEVILLE, GEORGIA.

IT IS REPORTED THAT ON DECEMBER 21, 1967, DAVID W. KNIGHT, D/B/A SOLAR HOMES, GENERAL CONTRACTOR FOR THE CONSTRUCTION OF THE SUBJECT PROJECT, ADVISED THE HOUSING AUTHORITY OF THE CITY OF MILLEDGEVILLE,GEORGIA (THE LOCAL AUTHORITY) THAT THEY WERE UNABLE TO CONTINUE WITH THE WORK UNDER ITS CONTRACT FOR CONSTRUCTION OF THE PROJECT. THE CONTRACTOR ACKNOWLEDGED THAT IT WAS IN DEFAULT AND WAIVED WHATEVER NOTICE IT MIGHT BE ENTITLED TO UNDER THE CONTRACT. FOLLOWING INSTRUCTIONS OF THE HOUSING ASSISTANCE ADMINISTRATION, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD), ATLANTA, GEORGIA, THE LOCAL AUTHORITY CONTACTED THE SURETY FOR SOLAR HOMES, THE FIDELITY AND DEPOSIT COMPANY OF MARYLAND, ADVISING IT OF THE CONTRACTOR'S DEFAULT AND REQUESTING THAT THE SURETY COMPANY IMMEDIATELY TAKE STEPS TO ARRANGE FOR THE COMPLETION OF THE PROJECT.

SHORTLY THEREAFTER, A CROWN CONSTRUCTION COMPANY REPRESENTATIVE VISITED MILLEDGEVILLE FOR THE PURPOSE OF INSPECTING THE PREMISES AND DETERMINING THE WORK NECESSARY TO COMPLETE THE PROJECT. THEREAFTER, THE SURETY COMPANY ADVISED THE LOCAL AUTHORITY THAT IT WAS WILLING TO BOND THE CROWN CONSTRUCTION COMPANY UNDER A CONTRACT TO BE ENTERED INTO WITH THE LOCAL AUTHORITY FOR THE COMPLETION OF THE PROJECT FOR THE AMOUNT OF $434,918.25.

IT IS REPORTED THAT DURING THE PERIOD OF NEGOTIATION BETWEEN THE LOCAL AUTHORITY AND THE SURETY COMPANY, LAKE MCDONALD, INC., REQUESTED THAT IT BE PERMITTED TO BID FOR THE COMPLETION OF THE PROJECT. IN VIEW OF THE FACT THAT THE ARCHITECT FOR THE PROJECT HAD ADVISED THE LOCAL AUTHORITY THAT HE FELT THE PROPOSAL OF THE CROWN CONSTRUCTION COMPANY, INC., WAS AT LEAST 10 PERCENT TOO HIGH AND THE APPARENT CONCERN OF THE LOCAL AUTHORITY THAT THERE WAS SOME NECESSITY ON ITS PART TO ESTABLISH BEYOND DOUBT THAT THEY HAD TAKEN EVERY PRECAUTION TO MINIMIZE THE COST TO THE DEFAULTING CONTRACTOR AND ITS SURETY, THE LOCAL AUTHORITY RECOMMENDED ADVERTISING FOR BIDS FOR THE COMPLETION OF THE PROJECT.

AN INVITATION FOR BIDS WAS ISSUED ON JANUARY 31, 1968, BY THE LOCAL AUTHORITY FOR THE FURNISHING OF ALL LABOR, MATERIALS, EQUIPMENT AND SERVICES REQUIRED TO COMPLETE CONSTRUCTION OF LOW RENT HOUSING PROJECT NO. GA. 200-4. THE INVITATION REQUIRED THAT:

"EACH BIDDER WILL SPECIFY THE NUMBER OF DAYS REQUIRED TO COMPLETE THE PROJECT, EXCLUSIVE OF LANDSCAPING, NO BID IN EXCESS OF 180 CALENDAR DAYS WILL BE CONSIDERED.' THE SPECIFICATIONS ALSO ESTABLISHED THE FOLLOWING BID REQUIREMENTS:

"B-09. DATA ON SPECIALTY ITEMS: "A. EACH GENERAL BIDDER WHO INCLUDES IN HIS BID THE COSTS OF THE MECHANICAL BRANCHES OF THE CONTRACT WORK SHALL SUBMIT, WITH HIS BID, IN A SEPARATE SEALED ENVELOPE IDENTIFIED ON THE OUTSIDE BY HIS NAME, PROJECT NUMBER, AND MARKED -DATA ON SPECIALTY ITEMS,- A BREAKDOWN OF HIS OVERALL BID SHOWING THE AMOUNTS INCLUDED THEREIN FOR THE FOLLOWING SUBCONTRACTS AND WORK:

"AMOUNT OF PLUMBING BID $---------------

AMOUNT OF HEATING BID $----------------

AMOUNT OF ELECTRIC

WIRING BIDS $---------------

ALL REMAINING WORK $----------------

TOTAL OVERALL BID PRICE $---------------- "B. THIS INFORMATION IS REQUIRED FOR ANALYTICAL PURPOSES, SHALL HAVE NO BEARING UPON THE DETERMINATION OF THE LOWEST RESPONSIVE BIDDER, AND WILL NOT BE DIVULGED TO THE PUBLIC AT BID OPENING.'

BIDS WERE OPENED ON FEBRUARY 15, 1968, AND OF THE TWO BIDS RECEIVED, YOU CONTEND THAT THE BID OF CROWN CONSTRUCTION COMPANY, INC., IN THE AMOUNT OF $436,550 WAS THE ONLY RESPONSIVE BID. THE ONLY OTHER BIDDER WAS LAKE MCDONALD WHOSE BID WAS IN THE AMOUNT OF $427,000. YOU CONTEND THAT THE BID OF LAKE MCDONALD, INC., WAS NOT RESPONSIVE IN THAT IT FAILED TO SPECIFY THE NUMBER OF DAYS REQUIRED TO COMPLETE THE PROJECT AND ALSO FAILED TO PROVIDE THE "DATA ON SPECIALTY ITEMS" AS REQUIRED ABOVE. NUMEROUS DECISIONS OF OUR OFFICE AND OTHER AUTHORITIES ARE CITED TO SUPPORT YOUR POSITION. HOWEVER, THESE CITATIONS AND REFERENCES ARE INAPPLICABLE HERE FOR THE REASONS STATED BELOW.

YOU STATE THAT SINCE THE UNITED STATES GOVERNMENT AND ITS AGENCIES ARE SO INVOLVED IN THE HOUSING PROJECT -- FROM A FINANCIAL, STATUTORY, REGULATORY, ADMINISTRATION, AND POLICY STANDPOINT -- THE MATTER HAS SUFFICIENT FEDERAL INTEREST AS TO JUSTIFY APPLICATION OF FEDERAL LAW. IS YOUR VIEW THAT THE DECISIONS ON THE RESPONSIVENESS OF BIDS SHOULD BE APPLIED TO THIS PROCUREMENT AND THAT UNDER THE DECISIONS CITED BY YOU, THE BID OF LAKE MCDONALD, INC., MUST BE CONSIDERED NONRESPONSIVE. UPON REVIEW, WE MUST CONCLUDE THAT THE ALLEGED NONRESPONSIVENESS OF THE BID IS NOT SUBJECT TO QUESTION BY OUR OFFICE.

UNDER THE PROVISIONS OF THE UNITED STATES HOUSING ACT OF 1937, AS AMENDED, 42 U.S.C. 1401 ET SEQ., HUD PROVIDES FINANCIAL ASSISTANCE TO THE LOCAL HOUSING AUTHORITIES (LHAS) THROUGH LOAN AGREEMENTS AND ANNUAL CONTRIBUTIONS CONTRACTS. THE ACT PROVIDES FOR A PROGRAM OF LOCALLY OWNED AND OPERATED LOW-RENT PUBLIC HOUSING UNDER WHICH LOCAL GOVERNMENTS HAVE ESTABLISHED LOCAL HOUSING AUTHORITIES (LHAS) PURSUANT TO STATE ENABLING LEGISLATION.

THE CITED ACT DOES NOT BY EXPRESS TERMS OR NECESSARY IMPLICATION REQUIRE THE LOCAL HOUSING AUTHORITIES TO FOLLOW FEDERAL COMPETITIVE BIDDING PROCEDURES IN MAKING PROCUREMENTS. MOREOVER, THE REGULATIONS OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT WHICH RELATE TO THE LOW-RENT HOUSING PROGRAM, 24 CFR 1520 ET SEQ., LIKEWISE DO NOT REQUIRE THAT COMPETITIVE BIDDING PROCEDURES BE UTILIZED IN PROCUREMENTS BY LOCAL HOUSING AUTHORITIES. OUR OFFICE HAS HELD THAT THE RATHER RIGID PROCEDURES APPLICABLE TO FORMALLY ADVERTISED PROCUREMENTS BY THE FEDERAL GOVERNMENT DO NOT APPLY TO NON-FEDERAL PROCUREMENTS WHEREIN THE FEDERAL GOVERNMENT PARTICIPATES MERELY AS A GRANTEE OF FUNDS TO PARTIALLY SUPPORT THE PROCUREMENTS WHICH ARE EFFECTED BY LOCAL AGENCIES OR INSTITUTIONS. SEE CLEMENT MARTIN V DICK CORP., 97 F.SUPP. 961, 964, WHERE THE COURT IN CONSIDERING A SOMEWHAT SIMILAR FEDERAL GRANT STATUTE HELD THAT THE REGULATIONS OF THE SURGEON GENERAL PROMULGATED UNDER 42 U.S.C. 291 ET SEQ., WERE ENACTED FOR THE BENEFIT OF THE GOVERNMENT AND NOT FOR THE BENEFIT OF PROSPECTIVE BIDDERS; AND THAT "THERE IS NO SECTION OF THE STATUTE OR ANY REGULATION WHICH IN EXPRESS TERMS CONFERS ANY RIGHT UPON BIDDERS TO AN AWARD OF A CONSTRUCTION CONTRACT.'

THE SUBJECT CONTRACT WAS AWARDED TO LAKE MCDONALD, INC., ON FEBRUARY 27, 1968, BY THE LOCAL AUTHORITY, A PUBLIC BODY ORGANIZED PURSUANT TO STATE LAW, FOR THE ACCOUNT OF THE SURETY FOR A DEFAULTING PRIME CONTRACTOR. THE FEDERAL GOVERNMENT WAS NOT A PARTY TO THE CONTRACT; NEITHER WAS THE CONTRACT AWARDED PURSUANT, OR SUBJECT, TO FEDERAL CONTRACTING LAWS OR REGULATIONS.

PURSUANT TO 42 U.S.C. 1410 (A) HUD IS AUTHORIZED TO ENTER INTO AN ANNUAL CONTRIBUTIONS CONTRACT TO ASSIST LHAS IN FINANCING THE DEVELOPMENT OF PUBLIC HOUSING PROJECTS AND MAINTAINING THEIR LOW-RENT CHARACTER AFTER COMPLETION. ANNUAL CONTRIBUTIONS CONTRACTS INCLUDE A PROVISION READING IN PART AS FOLLOWS:

"IN CONNECTION WITH EACH CONSTRUCTION OR EQUIPMENT CONTRACT, THE LOCAL AUTHORITY SHALL GIVE FULL OPPORTUNITY FOR OPEN AND COMPETITIVE BIDDING. THE LOCAL AUTHORITY SHALL GIVE SUCH PUBLICITY TO ADVERTISEMENTS FOR BIDS AS WILL ASSURE ADEQUATE COMPETITION. * * *"

HOWEVER, THESE REQUIREMENTS -- WHICH ARE NOT IMPOSED BY LAW OR REGULATION -- FOR COMPETITIVE BIDDING AND AWARD TO THE LOWEST RESPONSIBLE BIDDER ARE APPLICABLE ONLY IN THE CASE OF THE ORIGINAL BIDDING FOR THE CONSTRUCTION OF LOW-RENT HOUSING PROJECTS AND DO NOT GOVERN THE AWARD OF A CONTRACT FOR THE ACCOUNT OF A SURETY FOR A DEFAULTING PRIME CONTRACTOR. IN SUCH A SITUATION, THE LOCAL AUTHORITY IS UNDER AN OBLIGATION TO MITIGATE THE DAMAGES OF THE SURETY WHENEVER POSSIBLE. SINCE THE AWARD TO LAKE MCDONALD MINIMIZED THE DAMAGES CHARGEABLE TO THE SURETY, WE FIND NO BASIS TO DISAGREE WITH THE ACTIONS TAKEN.

ACCORDINGLY, AND SINCE THE AWARD OF THE REPLACEMENT CONTRACT WAS NOT SUBJECT TO THE FEDERAL STATUTES GOVERNING COMPETITIVE PROCUREMENT OR THE IMPLEMENTING REGULATIONS THEREUNDER, YOUR PROTEST MUST BE DENIED.