B-195484, OCT 24, 1979

B-195484, OCT 24, 1979

DIGEST: 1. AGENCY PROPERLY REJECTED BID AS NONRESPONSIVE FOR FAILING TO PROVIDE BID GUARANTEE IN FORM OF FIRM COMMITMENT WHERE BIDDER SUBMITTED LETTER FROM ITS BANK WHICH MERELY STATED BIDDER HAD CREATED SECURITY DEPOSIT AND FUNDS WOULD BE AVAILABLE UPON BIDDER'S REQUEST, SINCE AGENCY DID NOT HAVE IRREVOCABLE ACCESS TO DEPOSITED FUNDS IN EVENT BIDDER FAILED TO EXECUTE REQUIRED DOCUMENTS. 2. FAILURE TO PROVIDE BID GUARANTEE IN PROPER FORM CANNOT BE CORRECTED, WAIVED OR EXCUSED UNLESS ONE OF NARROW EXCEPTIONS SPECIFIED BY FPR SEC. 1- 10.103-4 IS APPLICABLE, SINCE OTHERWISE INTEGRITY OF COMPETITIVE BIDDING SYSTEM WOULD BE COMPROMISED. NONE OF THE SPECIFIED EXCEPTIONS IS APPLICABLE.

LARRY E. JONES:

LARRY E. JONES (JONES) D/B/A LARRY E. JONES EXCAVATING, PROTESTS THE REJECTION OF HIS BID AS NONRESPONSIVE FOR FAILING TO PROVIDE A BID GUARANTEE IN THE FORM OF A FIRM COMMITMENT AS REQUIRED BY INVITATION FOR BIDS NO. SCS-13-OR-79 ISSUED BY THE SOIL CONSERVATION SERVICE OF THE DEPARTMENT OF AGRICULTURE (AGRICULTURE).

THE IFB WAS ISSUED FOR EMERGENCY FLOOD REPAIR WORK ALONG VARIOUS WATERWAYS IN WALLOWA COUNTY, OREGON, AND REQUIRED EACH BIDDER TO SUBMIT A BID GUARANTEE IN AN AMOUNT NOT LESS THAN 20 PERCENT OF THE TOTAL BID PRICE, IN ACCORDANCE WITH CLAUSE 7 OF THE "SPECIAL INSTRUCTION TO BIDDERS." CLAUSE 7 PROVIDED:

"WHERE A BID GUARANTEE IS REQUIRED BY THE INVITATION FOR BIDS FAILURE TO FURNISH A BID GUARANTEE IN THE PROPER FORM AND 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, CASHIERS CHECK, IRREVOCABLE LETTER OF CREDIT OR, IN ACCORDANCE WITH TREASURY DEPARTMENT REGULATIONS, CERTAIN BONDS OR NOTES OF THE UNITED STATES."

BIDS WERE OPENED ON JUNE 11, 1979, AND JONES WAS THE APPARENT LOW BIDDER. ACCOMPANYING JONES' BID WAS A LETTER FROM A LOCAL BANK, DATED JUNE 11, 1979, WHICH WAS INTENDED TO BE AN IRREVOCABLE LETTER OF CREDIT AND WHICH READ AS FOLLOWS:

"RE: LARRY JONES

EXCAVATING

TO WHOM IT MAY CONCERN:

THIS IS TO CONFIRM THAT THE ABOVE ACCOUNT HAS ARRANGED FOR A SECURITY DEPOSIT IN THE AMOUNT OF $26,000.00 TWENTY SIX THOUSAND AND NO/100. THE FUNDS ARE AND WILL BE IMMEDIATELY AVAILABLE UPON RECEIPT OF HIS REQUEST."

THE LETTER WAS SIGNED BY THE BANK'S VICE PRESIDENT AND WAS ACCOMPANIED BY A PERSONAL CHECK DRAWN ON THE ACCOUNT OF "LARRY E. OR MURIEL M. JONES" AT THE BANK IN THE AMOUNT OF $25,868 AND SIGNED BY MURIEL M. JONES. THE PAYEE WAS NOT SPECIFIED BY THE CHECK.

THEREAFTER, AGRICULTURE REJECTED JONES' BID AS NONRESPONSIVE BECAUSE IT DETERMINED THAT THE LETTER FROM THE BANK AND THE PERSONAL CHECK SIGNED BY JONES' WIFE DID NOT CONSTITUTE A "FIRM COMMITMENT" AS REQUIRED BY THE IFB SINCE IT DID NOT PROVIDE IT WITH "DIRECT, NONCOMPETITIVE AND IRREVOCABLE ACCESS TO THE DEPOSITED FUNDS." SPECIFICALLY, AGRICULTURE WAS CONCERNED ABOUT THE AUTHORITY OF MRS. JONES TO AUTHORIZE A WITHDRAWAL OF THE FUNDS UNDER THE TERMS OF THE LETTER SINCE THE "SECURITY DEPOSIT" WAS IN THE NAME OF LARRY JONES EXCAVATING AND THERE WAS NO EVIDENCE OF MRS. JONES' AUTHORITY, AS WELL AS THE FACT THAT PAYMENT UNDER THE CHECK COULD BE STOPPED BY JONES OR MRS. JONES. ADDITIONALLY, AGRICULTURE WAS CONCERNED THAT THE FUNDS COULD BE WITHDRAWN FOR PURPOSES OTHER THAN THE BID GUARANTEE THEREBY RAISING THE POSSIBILITY OF INSUFFICIENT FUNDS TO COVER THE CHECK.

JONES MAINTAINS THE LETTER FROM HIS BANK WAS INTENDED TO CONSTITUTE AN IRREVOCABLE LETTER OF CREDIT AND AS SUCH A FIRM COMMITMENT IN ACCORDANCE WITH THE TERMS OF THE IFB. JONES FURTHER STATES THE WORDING OF THE LETTER WAS ARRIVED AT AFTER CONSULTATION WITH HIS BANK AND ANY ERROR AS TO THE FORM OF THE LETTER WAS DUE TO A GOOD FAITH ERROR ON THE PART OF THE BANK. JONES CONTENDS THAT THE FUNDS WERE AVAILABLE AND AGRICULTURE VERIFIED THIS BY CONTACTING THE BANK AFTER BID OPENING. JONES BELIEVES THAT SINCE CLAUSE 7 OF THE "SPECIAL INSTRUCTIONS TO BIDDERS" MERELY STATES THAT "FAILURE TO FURNISH A BID GUARANTEE IN THE PROPER FORM AND AMOUNT MAY BE CAUSE FOR REJECTION OF THE BID", RATHER THAN "WILL BE CAUSE FOR REJECTION" THAT HIS BID SHOULD HAVE BEEN ACCEPTED.

OUR OFFICE HAS LONG HELD THAT WHERE A SOLICITATION REQUIRES A BID GUARANTEE TO BE SUBMITTED WITH A BID, THE FAILURE OF A BIDDER TO PROVIDE A GUARANTEE PRIOR TO BID OPENING IN THE PROPER FORM AND AMOUNT RENDERS ITS BID NONRESPONSIVE. ALPHA SIGMA INVESTMENT CORPORATION, B-194629.2, MAY 17, 1979, 79-1 CPD 360; 38 COMP.GEN. 532 (1959). THIS FAILURE CANNOT BE CORRECTED, WAIVED OR EXCUSED UNLESS ONE OF THE NARROW EXCEPTIONS CONTAINED IN FEDERAL PROCUREMENT REGULATIONS (FPR) SEC. 1 10.103-4 (1964 ED. AMEND 184) IS APPLICABLE BECAUSE IT WOULD TEND TO COMPROMISE THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM BY MAKING IT POSSIBLE FOR A BIDDER TO DECIDE AFTER BID OPENING WHETHER OR NOT TO HAVE ITS BID REJECTED, BY CAUSING UNDUE DELAY IN EFFECTING PROCUREMENTS, AND BY CREATING INCONSISTENT TREATMENT OF BIDDERS. NEWPORT SHIPYARD, INC., B-191703, MAY 25, 1978, 78-1 CPD 400; 38 COMP.GEN. 536, SUPRA. NONE OF THE EXCEPTIONS CONTAINED IN FPR SEC. 1-10.103 4 IS APPLICABLE HERE.

WE AGREE WITH AGRICULTURE THAT THE LETTER FROM JONES' BANK TOGETHER WITH THE PERSONAL CHECK SIGNED BY MRS. JONES DID NOT CONSTITUTE A "FIRM COMMITMENT" AS REQUIRED BY THE IFB. ALTHOUGH THE LETTER FROM THE BANK WAS INTENDED TO BE AN IRREVOCABLE LETTER OF CREDIT AND SUCH A "FIRM COMMITMENT", WE DO NOT BELIEVE IT CONSTITUTES SUCH A DOCUMENT. IRREVOCABLE LETTER OF CREDIT IS ESSENTIALLY A THIRD-PARTY BENEFICIARY CONTRACT BY WHICH A CUSTOMER OF A FINANCIAL INSTITUTION INDUCES THAT INSTITUTION TO ISSUE A LETTER TO A THIRD PARTY (THE BENEFICIARY) PROMISING TO HONOR, WITHOUT EXCEPTION, THE DRAFTS OR OTHER DEMANDS FOR PAYMENT MADE BY THE BENEFICIARY IN ACCORDANCE WITH THE TERMS OF THE LETTER. SEE JUANITA H. BURNS AND GEORGE M. SOBLEY, 55 COMP.GEN. 587 (1975), 75-2 CPD 400; CHEMICAL TECHNOLOGY INC., B-192893, DECEMBER 27, 1978, 78-2 CPD 438. SEE ALSO 39 COMP.GEN. 619 (1960). HERE, THE LETTER FROM THE BANK MERELY STATES THAT JONES HAD CREATED A "SECURITY DEPOSIT" AND THAT THE FUNDS WERE AVAILABLE UPON HIS REQUEST. IT DOES NOT SPECIFY THE CONDITIONS UPON WHICH THE FUNDS WOULD BE AVAILABLE AND, MORE IMPORTANTLY, INDICATES THAT JONES IS TO REQUEST PAYMENT AND NOT AGRICULTURE. UNDER THESE CIRCUMSTANCES WE DO NOT BELIEVE AGRICULTURE HAD IRREVOCABLE ACCESS TO THE DEPOSITED FUNDS OR ASSURANCE THAT THE FUNDS WOULD BE AVAILABLE IF JONES FAILED TO EXECUTE THE NECESSARY DOCUMENTS. AT BEST JONES WAS OFFERING TO ACT AS A PERSONAL SURETY WITH THE BANK MERELY VOUCHING THAT JONES HAD FUNDS IN HIS ACCOUNT AT THE TIME THE LETTER WAS ISSUED. CF. CHEMICAL TECHNOLOGY INC., SUPRA.

FURTHERMORE, EVEN IF WE WERE TO CONSTRUE THE LETTER FROM THE BANK AS MEANING THE FUNDS WOULD BE AVAILABLE UPON PRESENTATION OF A PERSONAL CHECK FROM JONES, I.E. "UPON HIS REQUEST", WE DO NOT BELIEVE IT WOULD CONSTITUTE A FIRM COMMITMENT. FIRST, AS NOTED BY AGRICULTURE, THE CHECK WAS SIGNED BY MRS. JONES WHILE THE "SECURITY DEPOSIT" WAS IN THE NAME OF LARRY JONES EXCAVATING OF WHICH JONES IS THE SOLE OWNER. NOWHERE IN JONES' BID OR THE LETTER IS MRS. JONES' AUTHORITY TO AUTHORIZE RELEASE OF THE SECURITY DEPOSIT INDICATED. ADDITIONALLY, BY ITS VERY NATURE WE DO NOT BELIEVE A PERSONAL CHECK IS AN ACCEPTABLE METHOD OF AUTHORIZING PAYMENT UNDER AN IRREVOCABLE LETTER OF CREDIT SINCE THE DRAWER COULD STOP PAYMENT ON THE CHECK.

ACCORDINGLY, WE BELIEVE AGRICULTURE PROPERLY DETERMINED JONES' BID WAS NONRESPONSIVE FOR FAILING TO PROVIDE A BID GUARANTEE IN THE PROPER FORM. ALTHOUGH IT IS UNFORTUNATE THAT JONES WAS MISINFORMED BY HIS BANK AS TO THE PROPER FORM OF AN IRREVOCABLE LETTER OF CREDIT, THE INTEGRITY OF THE COMPETITIVE BIDDING SYSTEM REQUIRES THAT HIS BID BE REJECTED. SEE NEWPORT SHIP YARD, INC., SUPRA.

THE PROTEST IS DENIED.