B-175458(2), JUN 28, 1972

B-175458(2): Jun 28, 1972

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IT IS NEVERTHELESS A PROPER MEANS OF INSURING THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS. SINCE IT WAS A MATERIAL REQUIREMENT OF THE SOLICITATION. AMERICAN'S BID WAS PROPERLY REJECTED AS NONRESPONSIVE. WAS ISSUED ON FEBRUARY 29. WAS REJECTED BECAUSE IT INCLUDED AN EXCEPTION TO THE BOND REQUIREMENT. THE OTHER TWO BIDS RECEIVED WERE NONRESPONSIVE FOR OTHER REASONS AND THE REQUIREMENT WILL BE RESOLICITED. IT IS YOUR CONTENTION THAT THE 100 PERCENT PERFORMANCE BOND REQUIREMENT IS UNREASONABLE. PARTICULARLY WHERE SMALL BUSINESS FIRMS ARE CONCERNED. AS IT IS DIFFICULT TO FIND A SURETY WILLING TO UNDERWRITE IT. YOU CONTEND THAT SINCE PREVIOUS SOLICITATIONS HAVE NOT INCLUDED IT. THE REQUIREMENT MUST HAVE BEEN PUT IN TO FAVOR A PARTICULAR FIRM.

B-175458(2), JUN 28, 1972

BID PROTEST - RESPONSIVENESS - ALLEGED RESTRICTIVE PERFORMANCE BOND REQUIREMENT DECISION DENYING THE PROTEST OF AMERICAN MARINE & MACHINERY COMPANY, INC; AGAINST REJECTION OF ITS BID AS NONRESPONSIVE TO A SOLICITATION ISSUED BY THE BUREAU OF RECLAMATION FOR TAKING EXCEPTION TO A 100 PERCENT BID BOND REQUIREMENT. WHILE THE REQUIREMENT FOR A PERFORMANCE BOND MAY TEND TO RESTRICT COMPETITION, IT IS NEVERTHELESS A PROPER MEANS OF INSURING THE FULFILLMENT OF CONTRACTUAL OBLIGATIONS. SEE THE MILLER ACT, 40 U.S.C. 270A, ET SEQ; AND FPR 1-10.104. ACCORDINGLY, SINCE IT WAS A MATERIAL REQUIREMENT OF THE SOLICITATION, AMERICAN'S BID WAS PROPERLY REJECTED AS NONRESPONSIVE.

TO AMERICAN MARINE & MACHINERY COMPANY, INCORPORATED:

SENATOR WILLIAM E. BROCK, III, TRANSMITTED TO OUR OFFICE YOUR LETTER OF APRIL 10, 1972, WITH ENCLOSURES, PROTESTING AGAINST THE REQUIREMENT FOR A 100 PERCENT PERFORMANCE BOND INCLUDED IN SOLICITATION NO. (D) J 33,404-A, ISSUED BY THE BUREAU OF RECLAMATION, DEPARTMENT OF THE INTERIOR, FOR THE PROCUREMENT OF A 12-INCH CUTTER-HEAD DREDGE FOR USE ON REACH 1 OF THE TEHAMA-COLUSA CANAL, CENTRAL VALLEY PROJECT, CALIFORNIA.

THE SUBJECT SOLICITATION, A SMALL BUSINESS TOTAL SET-ASIDE, WAS ISSUED ON FEBRUARY 29, 1972, WITH OPENING SCHEDULED FOR MARCH 28, 1972, SUBSEQUENTLY EXTENDED TO JUNE 6, 1972. THE SOLICITATION INCLUDED A PROVISION TO THE EFFECT THAT THE CONTRACTOR MAY BE REQUIRED TO FURNISH A PERFORMANCE BOND WITH APPROVED SURETY IN THE PENAL SUM OF 100 PERCENT OF THE CONTRACT PRICE. PRIOR TO THE EXTENDED TIME FOR SUBMISSION OF BIDS YOU ADVISED THE CONTRACTING OFFICER OF YOUR INTENTION TO TAKE EXCEPTION TO THIS REQUIREMENT, AND HE INFORMED YOU THAT SUCH EXCEPTION WOULD RENDER YOUR BID NONRESPONSIVE. WE UNDERSTAND THAT YOUR BID SUBMITTED ON JUNE 6, 1972, WAS REJECTED BECAUSE IT INCLUDED AN EXCEPTION TO THE BOND REQUIREMENT. THE OTHER TWO BIDS RECEIVED WERE NONRESPONSIVE FOR OTHER REASONS AND THE REQUIREMENT WILL BE RESOLICITED.

IT IS YOUR CONTENTION THAT THE 100 PERCENT PERFORMANCE BOND REQUIREMENT IS UNREASONABLE, PARTICULARLY WHERE SMALL BUSINESS FIRMS ARE CONCERNED, AS IT IS DIFFICULT TO FIND A SURETY WILLING TO UNDERWRITE IT. YOU ALSO STATE THAT YOU HAD PLANNED TO FINANCE THE CONTRACT THROUGH A SMALL BUSINESS ADMINISTRATION GUARANTEED LOAN AND SBA RULES OUT ANY SURETY PUTTING UP A 100 PERCENT BOND. FINALLY, YOU CONTEND THAT SINCE PREVIOUS SOLICITATIONS HAVE NOT INCLUDED IT, THE REQUIREMENT MUST HAVE BEEN PUT IN TO FAVOR A PARTICULAR FIRM.

AS THE BASIS FOR INCLUDING THE REQUIREMENT IN THE SUBJECT SOLICITATION, THE BUREAU OF RECLAMATION CITES THE FOLLOWING PROVISIONS FROM ITS INSTRUCTIONS SUPPLEMENTING THE FEDERAL PROCUREMENT REGULATIONS (FPR), AND FROM THE FPR, RESPECTIVELY:

14S-10.104-2 "IT IS THE GENERAL POLICY OF THE BUREAU OF RECLAMATION TO REQUIRE A PERFORMANCE BOND FOR MAJOR SUPPLY CONTRACTS, EXCEPT THE PERFORMANCE BOND REQUIREMENT MAY AND SHOULD BE WAIVED WHEN AWARD IS TO BE MADE TO A DOMESTIC FIRM OF DEMONSTRATED ABILITY AND FINANCIAL RESPONSIBILITY. PENAL SUMS FOR SUCH BONDS SHALL BE PRESCRIBED IN ACCORDANCE WITH 1-10.104-1(B).

"WHEN THE REQUIREMENT IS WAIVED, AN AMOUNT EQUAL TO $2 PER $1,000, OR ANY FRACTION THEREOF, OF CONTRACT PRICE WILL BE DEDUCTED FROM THE CONTRACT AMOUNT AT THE TIME OF AWARD.

1-10.104-1(B) "(B) GENERALLY, THE PENAL AMOUNT OF THE PERFORMANCE BONDS SHALL BE EQUAL TO 100 PERCENT OF THE CONTRACT PRICE AT THE TIME OF AWARD. HOWEVER, IF THE CONTRACTING OFFICER FINDS THAT SUCH A REQUIREMENT WOULD BE DISADVANTAGEOUS TO THE GOVERNMENT, HE MAY PRESCRIBE AN AMOUNT WHICH IS LESS THAN 100 PERCENT OF THE CONTRACT PRICE (E.G; IN A VERY LARGE CONTRACT, AVAILABLE SURETY CREDIT MIGHT BE INSUFFICIENT)."

IN ADDITION, THE BUREAU POINTS OUT THAT RECENTLY THE SMALL BUSINESS ADMINISTRATION INSTITUTED A PROGRAM, DETAILS OF WHICH WERE PUBLISHED ON APRIL 6, 1972, AT PAGES 6922-24 OF THE FEDERAL REGISTER, TO -

" ***STRENGTHEN THE COMPETITIVE FREE ENTERPRISE SYSTEM BY ASSISTING QUALIFIED SMALL BUSINESS CONCERNS TO OBTAIN CERTAIN BID, PAYMENT OR PERFORMANCE BONDS THAT ARE OTHERWISE NOT OBTAINABLE BY AUTHORIZING THE SMALL BUSINESS ADMINISTRATION TO GUARANTEE SURETY COMPANIES UP TO 90 PERCENT OF THEIR LOSSES INCURRED BY REASON OF THE BREACH OF CERTAIN SURETY BONDS EXECUTED ON BEHALF OF SUCH SMALL BUSINESS CONCERNS ON CONTRACTS UP TO $500,000 IN AMOUNT."

WHILE THE REQUIREMENT FOR A PERFORMANCE BOND MAY IN SOME CIRCUMSTANCES RESULT IN A RESTRICTION OF COMPETITION, IT IS NEVERTHELESS A NECESSARY AND PROPER MEANS OF SECURING TO THE GOVERNMENT FULFILLMENT OF A CONTRACTOR'S OBLIGATIONS UNDER HIS CONTRACT. SEE THE MILLER ACT, 40 U.S.C. 270A, ET SEQ; AND FPR 1-10.104. FURTHERMORE, THE REQUIREMENT IS A MATERIAL PROVISION OF THE SOLICITATION AND A BID WHICH RESERVES TO THE BIDDER AN OPTION NOT TO COMPLY IS NONRESPONSIVE.

PAST DIFFICULTY EXPERIENCED BY SMALL BUSINESS FIRMS IN MEETING THE 100 PERCENT PERFORMANCE BOND REQUIREMENT SHOULD BE MEASURABLY AMELIORATED BY SBA'S PROGRAM TO ASSIST QUALIFIED SMALL BUSINESS CONCERNS BY GUARANTEEING SURETY COMPANIES UP TO 90 PERCENT OF THEIR LOSSES UNDER SUCH BONDS.

IN VIEW OF THE FOREGOING, THERE IS NO BASIS FOR OUR OFFICE TO OBJECT TO THE INCLUSION OF SUCH PROVISION IN THE SUBJECT SOLICITATION AND REJECTION OF YOUR BID FOR TAKING EXCEPTION THERETO.