B-220630, B-220642, DEC 26, 1985, 85-2 CPD 719

B-220630, B-220642, DEC 26, 1985, 85-2 CPD 719

BONDS - BID - SURETY - UNACCEPTABLE - NONDISCLOSURE OF OTHER BOND OBLIGATIONS DIGEST: 1. A CONTRACTING AGENCY REASONABLY MAY DETERMINE THAT THE SURETIES ON A BID BOND ARE UNACCEPTABLE AND, CONSEQUENTLY, FIND THE BIDDER NONRESPONSIBLE, BASED ON A CONTINUING PATTERN OF NONDISCLOSURE BY THE SURETIES OF THEIR OUTSTANDING BOND OBLIGATIONS. BONDS - BID - SURETY - OBLIGATION TO GOVERNMENT - ABSENCE OF AUTHORIZED SIGNATURE ON BOND 2. BID BOND IS NOT DEFECTIVE EVEN THOUGH THE INDIVIDUAL SURETIES DID NOT SIGN THE SAME BOND FORM, SINCE BOTH SURETIES SIGNED SEPARATE BID BONDS AND EXECUTED THE REQUIRED AFFIDAVITS.

ULYSSES PAINTING CO.; TRANS WORLD MAINTENANCE, INC.:

ULYSSES PAINTING CO. PROTESTS THE REJECTION OF ITS BID UNDER INVITATION FOR BIDS NO. N62474-85-B-1732, (IFB N. -1732) ISSUED BY THE NAVY FOR PAINTING AND REPAIRING FAMILY HOUSING AT THE NAVAL FOR PAINTING AND REPAIRING FAMILY HOUSING AT THE NAVAL AIR STATION, ALAMEDA, CALIFORNIA. TRANS WORLD MAINTENANCE, INC. (TWM), PROTESTS THE REJECTION OF ITS BID UNDER IFB NO. N62474-85-B-1815, (IFB NO. -1815), ALSO ISSUED BY THE NAVY, FOR REPLACEMENT AND REPAIR OF WINDOWS AND BALCONY DOORS AT THE DEPARTMENT OF DEFENSE HOUSING FACILITY, NOVATO, CALIFORNIA. THE NAVY DETERMINED THAT THE PROTESTERS WERE NOT RESPONSIBLE BIDDERS BASED ON ITS FINDING THAT THE INDIVIDUALS ACTING AS SURETIES FOR BOTH PROTESTER'S BID BONDS HAD FAILED TO DISCLOSE ALL THEIR OUTSTANDING BOND OBLIGATIONS UNDER OTHER PROCUREMENTS. WE DENY THE PROTESTS.

THE SAME TWO INDIVIDUALS ACTED AS SURETIES FOR ULYSSES' BID UNDER IFB NO. -1732 AND FOR TWM'S BID UNDER IFB NO. -1815. BIDDERS UNDER BOTH IFBS WERE REQUIRED TO SUBMIT BID BONDS EQUAL TO 20 PERCENT OF THEIR BID PRICES. BECAUSE THE PROTESTERS WERE BONDED BY INDIVIDUALS RATHER THAN CORPORATE SURETIES, A COMPLETED AFFIDAVIT OF INDIVIDUAL SURETY (STANDARD FORM 28) FOR EACH OF THE TWO INDIVIDUALS WAS REQUIRED. ITEM 10 OF THE AFFIDAVIT SPECIFICALLY REQUIRED THE INDIVIDUAL SURETIES TO DISCLOSE ALL OTHER BONDS ON WHICH THEY WERE LISTED AS SURETIES AT THE TIME THEY EXECUTED THE BID BONDS FOR THE PROTESTERS.

AFTER BID OPENING UNDER IFB NO. -1732 ON AUGUST 13, 1985, ULYSSES WAS THE APPARENT LOW BIDDER. BY LETTER OF SEPTEMBER 26, HOWEVER, THE NAVY NOTIFIED ULYSSES THAT ITS BID HAD BEEN REJECTED BASED ON THE FACT THAT ITS INDIVIDUAL SURETIES HAD FAILED TO DISCLOSE ALL THEIR OUTSTANDING BOND OBLIGATIONS. SPECIFICALLY, WHILE EACH SURETY'S AFFIDAVIT DID LIST SEVERAL OTHER CONTRACTS FOR WHICH EACH HAD EXECUTED PERFORMANCE AND PAYMENT BONDS, THE NAVY FOUND THAT IN BOTH THE CURRENT AND PRIOR IFBS, THE SURETIES HAD FAILED TO DISCLOSE SEVERAL OTHER OUTSTANDING OBLIGATIONS.

WITH REGARD TO IFB NO. -1815, BIDS WERE OPENED ON SEPTEMBER 6. AFTER THE APPARENT LOW BIDDER WAS ALLOWED TO WITHDRAW ITS BID, TWM, THE SECOND LOW BIDDER, WAS IN LINE FOR AWARD. BY LETTER DATED SEPTEMBER 26, HOWEVER, THE NAVY ADVISED TWM THAT ITS BID HAD BEEN REJECTED BASED ON ITS SURETIES' FAILURE TO DISCLOSE ALL THEIR OUTSTANDING BOND OBLIGATIONS. AS DISCUSSED IN DETAIL BELOW, THE NONDISCLOSURES CITED BY THE NAVY ARE THE SAME UNDER BOTH THE ULYSSES AND TWM BIDS.

A SURETY MUST DISCLOSE ALL OUTSTANDING BOND OBLIGATIONS, REGARDLESS OF THE ACTUAL RISK OF LIABILITY ON THE OBLIGATIONS, TO ENABLE THE CONTRACTING OFFICER TO MAKE AN INFORMED DETERMINATION OF THE SURETY'S FINANCIAL SOUNDNESS. DAN'S JANITORIAL SERVICE, INC., 61 COMP.GEN. 592 (1982), 82-2 CPD PARA. 217. ITEM 10 OF THE STANDARD SURETY'S AFFIDAVIT ADVISES SURETIES OF THIS DUTY BY REQUIRING THAT THEY LIST ALL OTHER BONDS ON WHICH THEY ARE SURETIES. MOREOVER, A CONTRACTING AGENCY MAY CONSIDER A SURETY'S FAILURE TO DISCLOSE FULLY ALL OUTSTANDING BOND OBLIGATIONS AS A FACTOR IN ITS RESPONSIBILITY DETERMINATION. SINGLETON CONTRACTING CORP., B-216536, MAR. 27, 1985, 85-1 CPD PARA. 355.

HERE, THE PROTESTERS CONCEDE THAT BOTH SURETIES FAILED TO MAKE THE FOLLOWING DISCLOSURES: (1) IN THE AFFIDAVITS SUBMITTED UNDER BOTH CURRENT IFBS, THEY FAILED TO DISCLOSE OUTSTANDING PERFORMANCE AND PAYMENT BONDS UNDER A CONTRACT AT FORT SHAFTER, HAWAII (DAHC77-85-D 0587); AND (2) IN BID BONDS SUBMITTED FOR A PROCUREMENT AT GEORGE AIR FORCE BASE (AFB) (F04609-85-D-0014), THEY FAILED TO DISCLOSE OUTSTANDING PERFORMANCE AND PAYMENT BONDS UNDER A CONTRACT AT MCCLELLAN AFB (F04699-84-C-0576). THE PROTESTERS MAINTAIN THAT THE OMISSION OF THE FORT SHAFTER BONDS WAS INADVERTENT IN BOTH CASES AND WAS IMMATERIAL IN ANY EVENT, SINCE THE SURETIES' NET WORTH WELL EXCEEDS ALL THEIR OUTSTANDING BOND OBLIGATIONS. WITH REGARD TO THE BID BONDS SUBMITTED IN CONNECTION WITH THE PROCUREMENT AT GEORGE AFB, THE PROTESTERS STATE THAT THE SURETIES OMITTED THE PERFORMANCE AND PAYMENT BONDS UNDER THE MCCLELLAN AFB CONTRACT BECAUSE PERFORMANCE UNDER THAT CONTRACT WAS NEARLY COMPLETE AND THEY VIEWED THEIR POTENTIAL LIABILITY AS SMALL.

IN OUR VIEW, THE PROTESTERS' EXPLANATIONS DO NOT JUSTIFY THE SURETIES' FAILURE TO DISCLOSE THEIR OTHER BOND OBLIGATIONS. AS NOTED ABOVE, THE STANDARD AFFIDAVIT PUT THE SURETIES ON NOTICE OF THEIR OBLIGATION TO DISCLOSE ALL OUTSTANDING OBLIGATIONS. THE PURPOSE OF THE REQUIREMENT IS TO PERMIT THE CONTRACTING OFFICER TO PROPERLY DETERMINE THE SURETIES' FINANCIAL SOUNDNESS; THE IMPACT OF OUTSTANDING OBLIGATIONS ON THEIR FINANCIAL CONDITION IS A DECISION TO BE MADE BY THE CONTRACTING OFFICER, NOT BY THE SURETIES THEMSELVES THROUGH SELECTIVE DISCLOSURE OF THEIR POTENTIAL LIABILITIES. SEE CONSOLIDATED MARKETING NETWORK, INC.-- REQUEST FOR RECONSIDERATION, B-218104.2, JUNE 12, 1985, 85-1 CPD PARA. 675.

THE NAVY ALSO FOUND THAT THE SURETIES FAILED TO DISCLOSE THE FOLLOWING ADDITIONAL OUTSTANDING PERFORMANCE AND PAYMENT BONDS: (1) IN CONNECTION WITH THE BID BONDS SUBMITTED UNDER THE CURRENT IFBS, THEY DID NOT DISCLOSE OUTSTANDING BONDS UNDER A CONTRACT AT VANDENBERG AFB; AND (2) IN CONNECTION WITH BID BONDS UNDER THE FORT SHAFTER PROCUREMENT, DISCUSSED ABOVE, AND UNDER THE CURRENT IFB NO. -1815 AT NOVATO, THEY DID NOT DISCLOSE OUTSTANDING OBLIGATIONS UNDER THE MCCLELLAN AFB CONTRACT, ALSO DISCUSSED ABOVE.

THE PROTESTERS STATE THAT THE SURETIES DECIDED THAT THEY WERE NOT REQUIRED TO DISCLOSE THE PERFORMANCE BONDS BECAUSE, IN EACH CASE MENTIONED, PERFORMANCE HAD BEEN COMPLETED BEFORE SUBMISSION OF THE BID BONDS INVOLVED. ACCORDING TO THE NAVY, HOWEVER, ALL THE CONTRACTS ON WHICH THE SURETIES HAD EXECUTED PERFORMANCE BONDS WERE SUBJECT TO 1 YEAR WARRANTIES WHICH EXTENDED BEYOND THE BID OPENING DATES FOR THE IFBS UNDER WHICH THE BID BONDS WERE EXECUTED AND, AS A RESULT, THE SURETIES HAD OUTSTANDING OBLIGATIONS ON THE PERFORMANCE BONDS UNTIL EXPIRATION OF THE WARRANTIES. WE AGREE WITH THE NAVY THAT THE SURETIES HAD A CONTINUING OBLIGATION UNDER THE PERFORMANCE BONDS FOR THE DURATION OF THE WARRANTIES. SURETIES REMAIN OBLIGATED FOR THE LIFE OF ANY GUARANTEE REQUIRED UNDER THE CONTRACT AND ARE SPECIFICALLY PUT ON NOTICE OF THEIR CONTINUING OBLIGATION BY THE TERMS OF THE PERFORMANCE BOND (STANDARD FORM 25). SEE SINGLETON CONTRACTING CORP., B-216536, SUPRA. ACCORDINGLY, THE SURETIES SHOULD HAVE DISCLOSED THE PERFORMANCE BONDS CITED BY THE NAVY IN CONNECTION WITH THE BID BONDS THEY EXECUTED DURING THE WARRANTY PERIODS.

IN ADDITION TO THESE NONDISCLOSURES, THE NAVY ORIGINALLY ADVISED THE PROTESTERS THAT, IN EXECUTING A BID BOND FOR THE PROCUREMENT AT GEORGE AFB, THE SURETIES HAD FAILED TO DISCLOSE AN EXISTING OBLIGATION UNDER A GENERAL SERVICES ADMINISTRATION (GSA) CONTRACT. IN ITS REPORTS ON THE PROTESTS, HOWEVER, THE NAVY CONCEDES THAT THE BOND OBLIGATION UNDER THE GSA CONTRACT WAS NOT OUTSTANDING AT THE TIME THE BID BONDS WERE EXECUTED UNDER THE CURRENT IFBS. THE NAVY ALSO MAINTAINS THAT THE SURETIES FAILED TO DISCLOSE AN OBLIGATION UNDER THE CONTRACT AT GEORGE AFB WHEN THEY EXECUTED A BID BOND IN CONNECTION WITH THE MCCLELLAN AFB PROCUREMENT. THE PROTESTERS DISPUTE THIS FINDING, STATING THAT THE MCCLELLAN BID WAS DUE AND SUBMITTED IN SEPTEMBER 1984, 7 MONTHS BEFORE BIDS WERE DUE IN THE GEORGE AFB PROCUREMENT; ACCORDINGLY, THE PROTESTERS STATE THAT NO BOND OBLIGATION EXISTED UNDER THE GEORGE AFB CONTRACT WHEN THE BOND WAS EXECUTED FOR THE MCCLELLAN PROCUREMENT. EVEN DISCOUNTING BOTH THESE ALLEGED NONDISCLOSURES BY THE SURETIES, HOWEVER, WE FIND THAT THE OTHER NONDISCLOSURES CITED BY THE NAVY, WHICH THE PROTESTERS DO NOT DISPUTE, DEMONSTRATE A CONTINUING PATTERN OF NONDISCLOSURE AND, THEREFORE, PROVIDED A REASONABLE BASIS FOR THE CONTRACTING OFFICER TO FIND THE PROTESTERS NONRESPONSIBLE. SEE CONSOLIDATED MARKETING NETWORK, INC.-- REQUEST FOR RECONSIDERATION, B-218104.2, SUPRA.

ULYSSES ARGUES THAT THE SURETIES SHOULD NOW BE GIVEN AN OPPORTUNITY TO AMEND THEIR AFFIDAVITS AND THUS CORRECT THE OMISSIONS IN THEIR AFFIDAVITS. THE PROTESTER'S ARGUMENT FOCUSES SOLELY ON THE FINANCIAL CONDITION OF THE SURETIES, HOWEVER, AND IGNORES THE SIGNIFICANCE OF THEIR ORIGINAL NONDISCLOSURE. EVEN ASSUMING, AS THE PROTESTERS CONTEND, THAT THE SURETIES' ASSETS WERE FOUND SUFFICIENT TO MEET ALL THEIR OUTSTANDING BOND OBLIGATIONS, A SUBSEQUENT AMENDMENT TO THE AFFIDAVITS WOULD NOT CURE THE BASIC DEFECT, I.E., THE ORIGINAL NONDISCLOSURE ITSELF, WHICH, STANDING ALONE AND WITHOUT REGARD TO THE SURETIES' FINANCIAL CONDITION, WAS A SUFFICIENT BASIS ON WHICH TO REJECT THE SURETIES. SEE SATELLITE SERVICES, INC., B-220071, NOV. 8, 1985, 85-2 CPD PARA. ***.

TWM ALSO CHALLENGES THE ACCEPTABILITY OF THE INDIVIDUAL SURETIES WHO EXECUTED THE BID BOND FOR USA PRO CO., INC., THE PROPOSED AWARDEE UNDER IFB NO. -1815. WE FIND TWM'S ARGUMENTS TO BE WITHOUT MERIT. TWM INITIALLY CONTENDS THAT THE FIRST SURETY FAILED TO SIGN THE BID BOND AS REQUIRED; A SIMPLE EXAMINATION OF THE BID BOND AND AFFIDAVIT, HOWEVER, SHOWS THAT THEY ARE SIGNED BY THE SURETY.

TWM NEXT STATES THAT THERE IS A DISCREPANCY BETWEEN THE SIGNATURES ON THE BID BOND AND THE SURETIES' AFFIDAVITS. SPECIFICALLY, ONLY ONE OF THE TWO SURETIES WHO EXECUTED AFFIDAVITS ALSO SIGNED THE BID BOND; THE SECOND SIGNER ON THE BOND IS A THIRD PARTY WHO DID NOT SUBMIT AN AFFIDAVIT. THE NAVY REPORT INDICATES, HOWEVER, PRO CO. SUBMITTED TWO BID BOND FORMS WITH ITS BID; THE FIRST WAS SIGNED BY ONE SURETY WHO ALSO SUBMITTED AN AFFIDAVIT AND BY THE THIRD PARTY WHO DID NOT SUBMIT AN AFFIDAVIT; THE SECOND BOND WAS SIGNED BY THE OTHER SURETY WHO SUBMITTED AN AFFIDAVIT. THUS, BOTH SURETIES IN FACT SIGNED A BID BOND FOR PRO CO.'S BID. THE FACT THAT A THIRD PARTY ALSO SIGNED ONE BOND FORM DOES NOT AFFECT THE SUFFICIENCY OF THE BOND SINCE THE TWO ACTUAL SURETIES SIGNED THE BID BOND FORMS AND THE REQUIRED AFFIDAVITS AND THUS AGREED TO BE BOUND BY THE BOND. SEE SPHERE MANAGEMENT, INC., B-200267, MAY 1, 1981, 81-1 CPD PARA. 334.

TWM ALSO ARGUES THAT, BECAUSE THEY FAILED TO SIGN THE SAME BID FORM, PRO CO.'S SURETIES DID NOT AGREE TO BE JOINTLY AND SEVERALLY LIABLE UNDER THE BOND AS REQUIRED. THE PURPOSE OF THE BID BOND IS TO SECURE THE LIABILITY OF THE SURETY TO THE GOVERNMENT IF THE BIDDER FAILS TO FULFILL ITS OBLIGATIONS UNDER THE BOND. SEE O.V. CAMPBELL AND SONS INDUSTRIES, INC., B-216699, DEC. 27, 1984, 85-1 CPD PARA. 1. THAT PURPOSE IS MET HERE DESPITE THE SUBMISSION OF SEPARATE BOND FORMS, SINCE, BY SIGNING THE BOND FORMS AS INDIVIDUALS, EACH SURETY ASSUMED LIABILITY FOR THE ENTIRE AMOUNT OF THE BOND. WHETHER THE SURETIES ALSO HAVE AGREED TO JOINT AND SEVERAL LIABILITY AS BETWEEN THEMSELVES IS NOT SIGNIFICANT, SINCE THAT DOES NOT AFFECT THE LIABILITY OF EACH TO THE GOVERNMENT FOR THE FULL AMOUNT OF THE BOND.

TWM ALSO ARGUES THAT PRO CO. SHOULD HAVE BEEN FOUND NONRESPONSIBLE BECAUSE ITS SURETIES DID NOT DISCLOSE ALL THEIR OUTSTANDING BOND OBLIGATIONS. THE NAVY RECOGNIZES THAT THE SURETIES OMITTED THEIR OTHER OBLIGATIONS FROM THE BID BOND SUBMITTED UNDER IFB NO. -1815, BUT MAINTAINS THAT THIS ONE ACT OF NONDISCLOSURE DOES NOT IN ITS JUDGMENT REQUIRE THAT THE SURETIES BE FOUND UNACCEPTABLE. WE AGREE. AS DISCUSSED ABOVE, THE CONTRACTING AGENCY MAY REJECT A BIDDER WHOSE SURETIES ENGAGE IN A CONTINUING PATTERN OF NONDISCLOSURE, AS THE PROTESTERS' SURETIES DID HERE BY FAILING TO DISCLOSE THEIR OBLIGATIONS IN NUMEROUS PROCUREMENTS. CONTRAST, THE ONLY EVIDENCE OF NONDISCLOSURE BY PRO CO.'S SURETIES IS IN CONNECTION WITH THE BOND SUBMITTED UNDER IFB NO. -1815; SUCH NONDISCLOSURE IN A SINGLE CASE, STANDING ALONE, DOES NOT CONSTITUTE A PATTERN OF NONDISCLOSURE. IN ADDITION, THE NAVY STATES THAT, AFTER FULL DISCLOSURE WAS MADE, THE SURETIES' NET WORTH WAS DETERMINED TO BE SUFFICIENT TO COVER THEIR OUTSTANDING OBLIGATIONS, SO THAT THE NAVY HAD NO REASON TO REJECT THE SURETIES BASED ON THEIR FINANCIAL CONDITION.

IN ITS COMMENTS ON THE AGENCY REPORT, TWM FOR THE FIRST TIME CONTENDS THAT THE NAVY'S REFUSAL TO ALLOW TWM'S SURETIES TO AMEND THEIR BONDS WHILE ALLOWING PRO CO.'S SURETIES TO DO SO DEMONSTRATES BAD FAITH AND PREJUDICE ON THE PART OF THE CONTRACTING OFFICIALS. SINCE WE FIND THAT IT WAS REASONABLE TO REJECT TWM'S SURETIES BASED ON THEIR CONTINUING PATTERN OF NONDISCLOSURE AND TO ALLOW CORRECTION BY PRO CO.'S SURETIES, WE SEE NO EVIDENCE OF BAD FAITH OR PREJUDICE TOWARD TWM BY THE NAVY.

FINALLY, TWM CONTENDS THAT THERE IS A CONFLICT OF INTEREST AMONG PRO CO.'S SURETIES AND THE INDIVIDUALS WHO SIGNED THE REQUIRED CERTIFICATES ATTESTING TO THE SUFFICIENCY OF THE SURETIES' ASSETS. FIRST, TWM STATES THAT THE FIRST SURETY'S AFFIDAVIT WAS IMPROPERLY SIGNED BY ONE OF THE SURETY'S EMPLOYEES; THIS ALLEGATION IS BASED SOLELY ON THE FACT THAT THE INDIVIDUAL WHO SIGNED THE CERTIFICATE OF SUFFICIENCY LISTED THE SAME BUSINESS ADDRESS AS THE SURETY. AS THE CERTIFICATE OF SUFFICIENCY INDICATES, HOWEVER, THE SIGNER IS AN OFFICER OF A FINANCIAL INSTITUTION AND THERE IS NO EVIDENCE IN THE RECORD THAT THE SURETY IS AFFILIATED WITH THE SAME INSTITUTION. TWM ALSO ALLEGES THAT IT WAS IMPROPER FOR THE FIRST SURETY TO EXECUTE THE CERTIFICATE OF SUFFICIENCY FOR THE SECOND SURETY; THIS ALLEGATION LIKEWISE IS BASED ON THE PROTESTER'S ASSUMPTION THAT THE TWO SURETIES ARE PARTNERS IN A MORTGAGE COMPANY. THERE IS NO EVIDENCE SUPPORTING THIS ALLEGATION, HOWEVER; ON THE CONTRARY, PRO CO. SUBMITTED A STATEMENT FROM THE FIRST SURETY DISAVOWING ANY SUCH BUSINESS AFFILIATION WITH THE SECOND SURETY. THE PROTESTS ARE DENIED