B-172937, MAY 11, 1972, 51 COMP GEN 733

B-172937: May 11, 1972

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THE GENERAL BOND CONDITION WAS MET ALBEIT IN A LESSER PERCENTAGE AMOUNT WITH THE VALUABLE CONSIDERATION OF A PRICE REDUCTION MOVING TO THE GOVERNMENT. THE PROCUREMENT SHOULD HAVE BEEN RESOLICITED TO REFLECT THE LESSER PENAL AMOUNT. 1972: REFERENCE IS MADE TO LETTER ENGGC-M DATED SEPTEMBER 17. THE CLOSING DATE FOR RECEIPT OF PROPOSALS WAS APRIL 28. PAYMENT AND PERFORMANCE BONDS: WITHIN FIVE DAYS AFTER THE PRESCRIBED FORMS ARE PRESENTED TO THE OFFEROR TO WHOM AWARD IS MADE FOR SIGNATURE. THE PENAL SUMS OF SUCH BONDS WILL BE AS FOLLOWS: (1) PERFORMANCE BOND. THE PENAL SUM OF THE PERFORMANCE BOND SHALL EQUAL 100 PERCENT (100%) OF THE CONTRACT PRICE. *** . (3) ANY BONDS FURNISHED WILL BE FURNISHED BY THE CONTRACTOR TO THE GOVERNMENT PRIOR TO COMMENCEMENT OF CONTRACT PERFORMANCE.

B-172937, MAY 11, 1972, 51 COMP GEN 733

BONDS - PERFORMANCE - REDUCTION - CONSIDERATION THE FAILURE OF THE LOW OFFEROR TO SUBMIT A PERFORMANCE BOND EQUAL TO 100 PERCENT OF THE CONTRACT PRICE BY THE TIME OF CONTRACT AWARD UNDER A REQUEST FOR PROPOSALS TO CONSTRUCT A MAIL FACILITY THAT MADE THE FURNISHING OF THE BOND A CONDITION OF THE CONTRACT AND NOT A CONDITION PRECEDENT TO AWARD DOES NOT AFFECT THE VALIDITY OF THE CONTRACT SINCE THE ACCEPTANCE OF THE LATE PERFORMANCE BOND REFLECTS THE LONGSTANDING PRACTICE THAT PERMITS THE FURNISHING OF MILLER ACT BONDS UP TO TIME OF CONTRACT PERFORMANCE, AND THE GENERAL BOND CONDITION WAS MET ALBEIT IN A LESSER PERCENTAGE AMOUNT WITH THE VALUABLE CONSIDERATION OF A PRICE REDUCTION MOVING TO THE GOVERNMENT. HOWEVER, THE PROCUREMENT SHOULD HAVE BEEN RESOLICITED TO REFLECT THE LESSER PENAL AMOUNT, AND FUTURE PROCUREMENTS SHOULD CONSIDER ALL STATUTORY AND REGULATORY BONDING REQUIREMENTS, AS WELL AS THE PROPOSED GUARANTEE PROVISIONS IN PARAGRAPHS 18-801 AND 10-102.4 OF THE ARMED SERVICES PROCUREMENT REGULATION.

TO THE SECRETARY OF THE ARMY, MAY 11, 1972:

REFERENCE IS MADE TO LETTER ENGGC-M DATED SEPTEMBER 17, 1971, AND PRIOR CORRESPONDENCE, FROM THE GENERAL COUNSEL, OFFICE OF THE CHIEF OF ENGINEERS, REPORTING ON THE KIDDE-BRISCOE JOINT VENTURE PROTEST AGAINST THE AWARD OF CONTRACT NO. DACW51-71-C-9005 TO TERMINAL CONSTRUCTION CORPORATION AND ASSOCIATES, UNDER REQUEST FOR PROPOSALS (RFP) NO. DAW51 71 -R-0001 ISSUED BY THE NEW YORK DISTRICT, CORPS OF ENGINEERS.

THE RFP, AS AMENDED, REQUESTED PROPOSALS FOR THE CONSTRUCTION OF THE NEW YORK METROPOLITAN BULK AND FOREIGN MAIL FACILITY AT JERSEY CITY, N.J. THE CLOSING DATE FOR RECEIPT OF PROPOSALS WAS APRIL 28, 1971. WITH RESPECT TO THE FURNISHING OF BONDS BY OFFERORS, THE RFP PROVIDED:

I. PAYMENT AND PERFORMANCE BONDS: WITHIN FIVE DAYS AFTER THE PRESCRIBED FORMS ARE PRESENTED TO THE OFFEROR TO WHOM AWARD IS MADE FOR SIGNATURE, A WRITTEN CONTRACT ON THE FORM PRESCRIBED BY THE SPECIFICATIONS SHALL BE EXECUTED AND TWO BONDS, EACH WITH GOOD AND SUFFICIENT SURETY OR SURETIES ACCEPTABLE TO THE GOVERNMENT, FURNISHED; NAMELY A PERFORMANCE BOND (STANDARD FORM 25) AND A PAYMENT BOND (STANDARD FORM 25A). THE PENAL SUMS OF SUCH BONDS WILL BE AS FOLLOWS:

(1) PERFORMANCE BOND. THE PENAL SUM OF THE PERFORMANCE BOND SHALL EQUAL 100 PERCENT (100%) OF THE CONTRACT PRICE. *** .

(3) ANY BONDS FURNISHED WILL BE FURNISHED BY THE CONTRACTOR TO THE GOVERNMENT PRIOR TO COMMENCEMENT OF CONTRACT PERFORMANCE.

HOWEVER, THE RFP DID NOT REQUIRE OFFERORS TO FURNISH A BID (PROPOSAL) GUARANTEE AS REQUIRED BY ARMED SERVICES PROCUREMENT REGULATION (ASPR) 18- 801.

THERE PROPOSALS WERE RECEIVED ON SCHEDULE IX, THE SCHEDULE ON WHICH THE CONTRACT IN QUESTION WAS AWARDED. THE LOWEST PROPOSAL IN THE AMOUNT OF $84,844,000 WAS SUBMITTED BY THE TERMINAL CONSTRUCTION CORPORATION AND ASSOCIATES. THE NEXT LOWEST PROPOSAL IN THE AMOUNT OF $95,613,000 WAS SUBMITTED BY KIDDE-BRISCOE. THE THIRD PROPOSAL IN THE AMOUNT OF $102,896,000 WAS SUBMITTED BY GROVE, SHEPARD, WILSON & KRUGE, INC. THE GOVERNMENT'S ESTIMATE WAS IN THE AMOUNT OF $77,084,000. A CONTRACT FOR THE WORK COVERED BY SCHEDULE IX WAS AWARDED, WITHOUT DISCUSSIONS, TO TERMINAL CONSTRUCTION CORPORATION AND ASSOCIATES ON MAY 7, 1971. TERMINAL RECEIVED ITS LETTER OF AWARD, INCLUDING THE PRESCRIBED FORMS OF REQUIRED PERFORMANCE AND PAYMENT BONDS AND CONTRACT DOCUMENT ON MAY 10, 1971. TERMINAL EXECUTED AND RETURNED THE CONTRACT DOCUMENT WHICH WAS THEN SIGNED BY THE CONTRACTING OFFICER; HOWEVER, TERMINAL DID NOT AT THAT TIME FURNISH THE REQUIRED PERFORMANCE AND PAYMENT BONDS. ON MAY 13, 1971, THE CONTRACTING OFFICER RECEIVED A TELEGRAM FROM THE ATTORNEY FOR KIDDE- BRISCOE PROTESTING THE MAKING OF AN AWARD TO TERMINAL ON THE GROUND THAT IT HAD NOT FURNISHED A PERFORMANCE BOND IN THE AMOUNT OF 100 PERCENT OF THE CONTRACT PRICE AS REQUIRED BY THE RFP.

THEREAFTER, BY LETTER DATED MAY 27, 1971, TERMINAL SUBMITTED A REQUEST TO THE CONTRACTING OFFICER TO REDUCE THE PENAL AMOUNT OF THE PERFORMANCE BOND FROM 100 PERCENT TO 55 PERCENT OF THE CONTRACT PRICE AND OFFERED TO REDUCE THE CONTRACT PRICE BY $300,000 IN RETURN FOR THE REDUCTION. ON MAY 28, 1971, THE CONTRACTING OFFICER FORWARDED THE REQUEST OF TERMINAL TO HIGHER AUTHORITY FOR DECISION. TERMINAL'S OFFER OF A $300,000 PRICE REDUCTION FOR LOWERING OF THE BOND REQUIREMENT WAS ACCEPTED AND A NOTICE TO PROCEED WAS ISSUED ON JUNE 16, 1971.

THE QUESTION PRESENTED IS WHETHER THE AWARD MADE UNDER THESE CIRCUMSTANCES RESULTED IN A VALID CONTRACT NOTWITHSTANDING TERMINAL'S INABILITY TO FURNISH THE REQUIRED 100-PERCENT PERFORMANCE BOND. UPON REVIEW OF THE RECORD AS SUPPLEMENTED BY ARGUMENT OF COUNSEL, WE CONCLUDE THAT THE AWARD IS NOT SUBJECT TO LEGAL OBJECTION BY OUR OFFICE SINCE, BY THE TERMS OF THE RFP, THE 100-PERCENT BOND WAS NOT A CONDITION PRECEDENT TO THE AWARD BUT, RATHER, WAS A CONDITION OF THE CONTRACT. COMPARE 47 COMP. GEN. 1, 2 (1967). THE GENERAL BOND CONDITION WAS MET BY TERMINAL ALBEIT IN A LESSER PERCENTAGE AMOUNT THAN THAT SOLICITED BUT WITH VALUABLE CONSIDERATION ($300,000) MOVING TO THE GOVERNMENT TO SUPPORT THE PENAL SUM REDUCTION TO 55 PERCENT.

ALTHOUGH ASPR 18-802 AND THE MILLER ACT (40 U.S.C. 270AA)) ARE INCONSISTENT AS TO THE TIME WHEN THE BOND MUST BE FURNISHED, WE NEED NOT RESOLVE THAT INCONSISTENCY SINCE THE LATE FURNISHING OF A PERFORMANCE BOND BY A CONTRACTOR NEED NOT BE REGARDED BY THE PROCUREMENT AGENCY AS A DEFAULT. CF. 47 COMP. GEN. 1,3 (1967). ALSO, ASPR 18-802 REFLECTS THE LONGSTANDING PRACTICE OF THE PROCUREMENT AGENCIES TO PERMIT THE FURNISHING OF MILLER ACT BONDS UP TO A TIME WHEN PERFORMANCE OF THE CONTRACT IS TO COMMENCE. WHILE THE CONCEPT OF FAIRNESS INHERENT IN COMPETITIVE PROCUREMENT WOULD ORDINARILY DICTATE A TERMINATION OF THE CONTRACT UPON DEFAULT ON THE OBLIGATION TO FURNISH A PERFORMANCE BOND IN THE PENAL AMOUNT OF $84,844,000, WE CANNOT CONCLUDE THAT THE AWARD WAS A NULLITY. THE POST-AWARD ACTIONS TAKEN WERE NOT BEYOND THE SCOPE OF NORMAL CONTRACT MANAGEMENT RESPONSIBILITIES NOR DID THEY REPRESENT PATENTLY ILLEGAL ACTS UNDER THE MILITARY PROCUREMENT STATUTE AND IMPLEMENTING REGULATIONS.

SINCE, AS APPEARS TO BE THE CASE, A PERFORMANCE BOND IN A PENAL AMOUNT LESS THAN THAT SOLICITED ADEQUATELY PROTECTS THE GOVERNMENT'S INTEREST, WE BELIEVE THAT UNDER THE PRINCIPLES OF COMPETITIVE NEGOTIATED PROCUREMENT IT WOULD HAVE BEEN BETTER PROCEDURE TO PROVIDE FOR A RESOLICITATION OF THE PROCUREMENT TO REFLECT A REDUCTION IN BOND PENAL SUM. THIS, WE FEEL, IS THE IMPORT OF ASPR 3-805.1(E) WHEREUNDER ALL INTERESTED FIRMS, INCLUDING THOSE WHO PARTICIPATED INITIALLY, WOULD BE INVITED TO SUBMIT OFFERS ON THE CONSTRUCTION REQUIREMENTS AS MODIFIED INSOFAR AS MILLER ACT BONDS ARE CONCERNED. IN THE INSTANT CASE, HOWEVER, IT APPEARS UNLIKELY THAT ANY COMPETING OFFEROR WAS PREJUDICED BY THE POST-AWARD EVENTS IN VIEW OF THE MORE THAN $10 MILLION DIFFERENCE BETWEEN THE TWO LOW OFFERS. THUS, FURTHER NEGOTIATION EFFORTS UNDER AMENDED BOND REQUIREMENTS COULD NOT REASONABLY BE EXPECTED TO HAVE AFFECTED THE COMPETITIVE STANDING OF THE OFFERORS.

FURTHERMORE, WE NOTE THAT THE PROCUREMENT ACTIVITY FAILED TO COMPLY WITH THE BID (PROPOSAL) GUARANTEE PROVISIONS OF ASPR 18-801 AND 10 102.4. HAD PROPOSAL GUARANTEES BEEN REQUIRED AND FURNISHED IN ALL PROBABILITY THIS PROTEST WOULD NOT HAVE RESULTED.

WHILE WE CONCLUDE THAT NO CORRECTIVE ACTION NEED BE TAKEN WITH RESPECT TO THE TERMINAL AWARD, WE STRONGLY RECOMMENDED THAT RESPONSIBLE PROCUREMENT OFFICIALS BE APPRISED OF THE CIRCUMSTANCES GIVING RISE TO THIS PROTEST AND OF THE NECESSITY TO COMPLY WITH ALL STATUTORY AND REGULATORY BONDING REQUIREMENTS IN FUTURE CONSTRUCTION SOLICITATIONS.