B-183847, OCT 2, 1975

B-183847: Oct 2, 1975

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PERFORMANCE AND PAYMENT BONDS IS DISCRIMINATORY AND RESTRICTIVE AGAINST SMALL BUSINESS CONCERNS IS WITHOUT MERIT SINCE CONTRACTING OFFICER HAS DISCRETION TO DETERMINE WHETHER NEED EXISTS FOR BONDING REQUIREMENT AND RECORD SHOWS THAT BONDS WERE CONSIDERED NECESSARY TO PROTECT GOVERNMENT FROM FINANCIAL LOSS. ABBOTT CONTENDS THAT ON ACCOUNT OF THE UNAVAILABILITY TO SMALL BUSINESSES OF BONDING COMMITMENTS THE BONDING REQUIREMENTS ARE DISCRIMINATORY AND RESTRICT SMALL BUSINESS FIRMS FROM COMPETITION. THE PROTESTER BELIEVES THAT A PRIOR DEFAULT BY A SMALL BUSINESS MANUFACTURER ON AN EARLIER PHASE OF THE PROJECT IS INSUFFICIENT JUSTIFICATION FOR IMPOSING THE REQUIREMENT HERE. " BUT THAT THEY MAY BE REQUIRED WHEN THE CONTRACTING OFFICER DETERMINES THAT "FOR FINANCIAL REASONS A PERFORMANCE BOND IS NECESSARY TO PROTECT THE INTERESTS OF THE GOVERNMENT.".

B-183847, OCT 2, 1975

ALLEGATION THAT IFB REQUIREMENT FOR BID, PERFORMANCE AND PAYMENT BONDS IS DISCRIMINATORY AND RESTRICTIVE AGAINST SMALL BUSINESS CONCERNS IS WITHOUT MERIT SINCE CONTRACTING OFFICER HAS DISCRETION TO DETERMINE WHETHER NEED EXISTS FOR BONDING REQUIREMENT AND RECORD SHOWS THAT BONDS WERE CONSIDERED NECESSARY TO PROTECT GOVERNMENT FROM FINANCIAL LOSS.

ABBOTT POWER CORPORATION AND UNITED POWER:

ABBOTT POWER CORPORATION (ABBOTT) AND UNITED POWER (UNITED), BOTH SMALL BUSINESSES, PROTEST THE REQUIREMENT OF A 20 PERCENT BID GUARANTEE, 100 PERCENT PERFORMANCE AND 50 PERCENT PAYMENT BOND UNDER INVITATION FOR BIDS (IFB) DACW41-75-B-0070 ISSUED BY THE KANSAS CITY DISTRICT ARMY CORPS OF ENGINEERS FOR CERTAIN ELECTRICAL EQUIPMENT REQUIRED BY THE HARRY S. TRUMAN RESERVOIR POWERHOUSE NEAR WARSAW, MISSOURI. ABBOTT CONTENDS THAT ON ACCOUNT OF THE UNAVAILABILITY TO SMALL BUSINESSES OF BONDING COMMITMENTS THE BONDING REQUIREMENTS ARE DISCRIMINATORY AND RESTRICT SMALL BUSINESS FIRMS FROM COMPETITION. FURTHERMORE, THE PROTESTER BELIEVES THAT A PRIOR DEFAULT BY A SMALL BUSINESS MANUFACTURER ON AN EARLIER PHASE OF THE PROJECT IS INSUFFICIENT JUSTIFICATION FOR IMPOSING THE REQUIREMENT HERE.

IN REFERENCE TO THE REQUIREMENT OF A BID GUARANTEE, ARMED SERVICES PROCUREMENT REGULATION (ASPR) 10-102.4 (1974 ED.) STATES THAT "BID GUARANTEES SHALL NOT BE REQUIRED UNLESS THE SOLICITATION SPECIFIES THAT THE CONTRACT MUST BE SUPPORTED BY A PERFORMANCE BOND OR PERFORMANCE AND PAYMENT BONDS." SECTION 10-104.2(A) (1974 ED.) PROVIDES THAT "PERFORMANCE BONDS SHALL NOT BE USED AS A SUBSTITUTE FOR DETERMINATIONS OF CONTRACTOR RESPONSIBILITY ***," BUT THAT THEY MAY BE REQUIRED WHEN THE CONTRACTING OFFICER DETERMINES THAT "FOR FINANCIAL REASONS A PERFORMANCE BOND IS NECESSARY TO PROTECT THE INTERESTS OF THE GOVERNMENT." ASPR 10- 104.3 (1974 ED.) STIPULATES THAT "PAYMENT BONDS FOR CONTRACTS OTHER THAN CONSTRUCTION MAY BE REQUIRED ONLY IF A PERFORMANCE BOND IS ALSO REQUIRED. IF A PERFORMANCE BOND IS REQUIRED, A PAYMENT BOND SHOULD ALSO BE REQUIRED IF IT CAN BE OBTAINED AT NO ADDITIONAL EXPENSE."

WE HAVE LONG RECOGNIZED THAT IT IS WITHIN THE CONTRACTING OFFICER'S DISCRETION TO DETERMINE WHETHER A NEED EXISTS, IN A PARTICULAR PROCUREMENT, FOR A PERFORMANCE BOND REQUIREMENT. 52 COMP. GEN. 640. 644 (1973). ALTHOUGH A PERFORMANCE BOND REQUIREMENT "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." B 175458(2), JUNE 28, 1972.

THE ELECTRICAL EQUIPMENT BEING PROCURED IN THIS CASE WILL BE FURNISHED TO THE GOVERNMENT'S CONSTRUCTION CONTRACTOR FOR INSTALLATION. RECOMMENDING THAT THE PERFORMANCE AND ATTENDANT BID AND PAYMENT BONDS BE REQUIRED, THE CONTRACTING OFFICER REASONED THAT:

"A. ON THE STOCKTON LAKE POWERHOUSE, THE CONTRACTOR FOR THE MAIN CONTROL SWITCHBOARD, L.O.L. CONTROLS, WENT BANKRUPT AND DID NOT FINISH THE DRAWINGS OR THE EQUIPMENT. FORTUNATELY THE DRAWINGS AND THE EQUIPMENT WERE FAR ENOUGH ALONG THAT ALL WORK WAS COMPLETED WITH GOVERNMENT FORCES.

B. RECENTLY ON THE SUPPLY CONTRACT FOR TWO BRIDGE CRANES FOR THE TRUMAN POWERHOUSE THE CONTRACTOR REFUSED TO COMPLETE THE WORK BECAUSE OF THE HIGHER COST AND UNAVAILABILITY OF MATERIALS. THE GOVERNMENT WAS FORCED TO TERMINATE THE ORIGINAL CONTRACT AND AWARD A NEW CONTRACT AT A CONSIDERABLE INCREASE IN COST TO THE GOVERNMENT.

C. BASED UPON PRESENT UNSTABLE ECONOMIC CONDITIONS, SHORTAGE OF MATERIALS, AND LONG DELIVERY PERIODS OF SOME ITEMS, THE SMALL COST OF BONDING REQUIREMENTS ($1,000 TO 3,000 FOR $1,000,000 CONTRACT) APPEARS TO BE VERY REASONABLE INSURANCE FOR THE GOVERNMENT. INFORMATION RECEIVED FROM GC (GENERAL COUNSEL) ON 5 NOVEMBER 1974 INDICATES THAT BONDING WILL COVER BOTH THE ASSURANCE OF THE CONTRACT BEING COMPLETED; AND ANY ACTUAL DAMAGES INCURRED BY THE GOVERNMENT BECAUSE OF LATE DELIVERY OF EQUIPMENT TO STAGE V, EVEN IF THE WORK IS BEING COMPLETED UNDER THE RESPONSIBILITY OF THE BONDING COMPANY."

ABBOTT ALLEGES THAT TIMELINESS OF DELIVERY IS A SPECIOUS REASON FOR JUSTIFYING THE BONDING REQUIREMENTS WHICH ARE DESIGNED TO PROTECT THE GOVERNMENT FROM FINANCIAL HARDSHIP DUE TO THE DEFAULT OF A CONTRACTOR. FURTHERMORE, ABBOTT ARGUES THAT GIVEN THE ARMY'S DELIVERY SCHEDULE, ANY RESPONSIBLE BIDDER WOULD BE ABLE TO FURNISH THE PRODUCT WELL WITHIN THE TIME FRAME ALLOWED. IN THIS CONNECTION THE ARMY REPORTS THAT:

"DUE TO THE EXTENDED DELAY TO THIS PROJECT BECAUSE OF THE ENVIRONMENTAL LITIGATION WHICH DELAYED THE ADVERTISEMENT OF FOLLOW-ON STAGES OF THE CONSTRUCTION CONTRACT AND THE SUPPLY CONTRACTS FOR A NUMBER OF ELECTRICAL COMPONENTS, THE TIMELY DELIVERY OF THE ELECTRICAL APPARATUS EXPOSES THE GOVERNMENT TO THE POSSIBILITY OF INCURRING SUSPENSION OF WORK COSTS. THUS, THE GOVERNMENT DOES STAND TO SUFFER DAMAGES IF THE VARIOUS ITEMS OF ELECTRICAL APPARATUS WERE NOT DELIVERED ON TIME, SINCE THE FAILURE TO DELIVER OR THE LATE DELIVERY OF THE APPARATUS WOULD AFFECT OTHER CONTRACTS, PARTICULARLY THE CONSTRUCTION CONTRACTOR WHO HAS THE OBLIGATION OF INSTALLING THE EQUIPMENT."

ACCORDINGLY, THERE IS NO BASIS TO CONCLUDE THAT THE ARMY ACTED ARBITRARILY IN THE SELECTION OF A BONDING REQUIREMENT IN ORDER TO PROTECT ITSELF AGAINST DELAYED DELIVERIES AND POTENTIAL FINANCIAL LOSSES.

IN REGARD TO THE PROTESTER'S CONTENTION THAT THE BONDING REQUIREMENT IS RESTRICTIVE AND DISCRIMINATORY AGAINST SMALL BUSINESS, ABBOTT SPECIFICALLY STATES THAT THE BONDS, ALTHOUGH NOT COSTLY, ARE SIMPLY UNAVAILABLE TO SMALL BUSINESSES ON ACCOUNT OF "THE MAGNITUDE OF THE BOND (ABOUT $700,000) AND THE EXPOSURE OF THE BONDING COMPANY FOR A PERIOD OF APPROXIMATELY TWO YEARS." THE RECORD ESTABLISHES THAT NINE BIDS WERE RECEIVED AND OPENED. SIX OF THE NINE BIDDERS WERE SMALL BUSINESS FIRMS AND FIVE OF THOSE SIX, INCLUDING ABBOTT, FURNISHED A PROPER BOND. ONLY UNITED FAILED TO FULFILL THE BONDING REQUIREMENT. THEREFORE, IT WOULD APPEAR, DESPITE ABBOTT'S ARGUMENTS TO THE CONTRARY, THAT A PROPER BOND WAS AVAILABLE TO SMALL BUSINESS BIDDERS AND DID NOT SERVE TO UNREASONABLY RESTRICT COMPETITION OR DISCRIMINATE AGAINST SMALL BUSINESSES. MOREOVER, WE NOTE THAT PURSUANT TO 15 U.S.C. 674B, (1970), THE SBA IS AUTHORIZED TO ASSIST QUALIFIED SMALL BUSINESS CONCERNS IN OBTAINING BID, PERFORMANCE AND PAYMENT BONDS THAT WOULD OTHERWISE BE UNOBTAINABLE. SEE ALSO SBA REGULATIONS, 13 CFR SEC. 115 (1975 ED.). THE SBA MAY GUARANTEE SURETY COMPANIES UP TO 90 PERCENT OF THEIR LOSSES INCURRED BY REASON OF THE BREACH OF THESE BONDS EXECUTED ON BEHALF OF SMALL BUSINESSES. ORIGINALLY, THE ADMINISTRATION'S AUTHORITY TO PROVIDE SUCH GUARANTEES WAS LIMITED TO CONTRACTS UP TO $500,000 IN AMOUNT, HOWEVER, PUBLIC LAW 93-386, SEC. 6(A)(3), 88 STAT. 742, 747, INCREASED THE COVERAGE TO CONTRACTS UP TO $1,000,000 IN AMOUNT.

ABBOTT MAKES TWO ADDITIONAL ARGUMENTS. THE PROTESTER CONTENDS THAT THE BONDING REQUIREMENT IS BEING USED BY THE CONTRACTING OFFICER AS A SHORT- CUT METHOD OF DETERMINING THE RESPONSIBILITY OF EACH BIDDER, SOMETHING THAT IS EXPRESSLY PRECLUDED BY ASPR 10-104.2(A) (1974 ED.) HOWEVER, THE RECORD DOES NOT SUPPORT THIS CONCLUSION. IN FACT, WE UNDERSTAND THAT ABBOTT WAS INFORMED BY THE CONTRACTING OFFICER THAT A PREAWARD SURVEY WOULD BE CONDUCTED IN ORDER TO ASCERTAIN THE RESPONSIBILITY OF THE PROSPECTIVE CONTRACTOR. IT MUST BE RECOGNIZED THAT ALTHOUGH BONDING REQUIREMENTS TEND TO ELIMINATE FROM COMPETITION THOSE BIDDERS WHO MIGHT BE UNABLE TO FURNISH THE BOND DUE TO A SURETY'S DETERMINATION THAT A PARTICULAR BIDDER APPEARS NONRESPONSIBLE, SUCH IS THE NATURAL AND PROBABLE CONSEQUENCE OF THE BONDING REQUIREMENT. YET, THAT FACT ALONE IS NOT ENOUGH TO INVALIDATE THE REQUIREMENT AS UNDULY RESTRICTIVE OR UNREASONABLE, ESPECIALLY IN CIRCUMSTANCES SUCH AS PRESENTED HERE, WHERE THE PROCUREMENT RESULTED IN ADEQUATE COMPETITION AND REASONABLE PRICES.

FINALLY, ALTHOUGH ABBOTT SUGGESTS THAT THE GOVERNMENT'S SMALL BUSINESS SPECIALIST WAS NOT CONSULTED CONCERNING THE RESTRICTIVENESS OF THE BONDING REQUIREMENTS, WE ARE NOT AWARE OF A REQUIREMENT FOR CONSULTATION REGARDING THIS IMPOSITION IN AN UNRESTRICTED PROCUREMENT. NEVERTHELESS, WE HAVE BEEN INFORMED THAT THE SMALL BUSINESS SPECIALIST DID DISCUSS WITH THE CONTRACTING OFFICER THE BONDING REQUIREMENT AND DID, IN FACT, SUPPORT ITS INCLUSION IN THE IFB.

ACCORDINGLY, SINCE THE PROTESTING PARTIES HAVE FAILED TO ESTABLISH THAT THE CONTRACTING OFFICER ABUSED HIS DISCRETION IN REQUIRING THAT BIDDERS FURNISH BID, PERFORMANCE AND PAYMENT BONDS, THE PROTEST MUST BE DENIED.