B-233027, Jan 4, 1989, 89-1 CPD 7
B-233027: Jan 4, 1989
While financial acceptability of an individual surety is a matter of responsibility. Contracting officer's erroneous use of word "nonresponsive" in rejecting protester's bid is of no legal consequence where contracting officer's actions and decision were plainly based on a determination of protester's responsibility. A corrected rejection letter was sent to protester. Protester was properly found not responsible where it failed to provide sufficient information to permit a finding that the individual sureties on its bid bond were acceptable and the record shows the contracting officer's nonresponsibility determination was reasonably based. An agency is not required to delay award indefinitely until a bidder cures the causes of its nonresponsibility.
B-233027, Jan 4, 1989, 89-1 CPD 7
PROCUREMENT - Contractor Qualification - Responsibility/ responsiveness/distinctions - Sureties - Financial capacity DIGEST: 1. While financial acceptability of an individual surety is a matter of responsibility, contracting officer's erroneous use of word "nonresponsive" in rejecting protester's bid is of no legal consequence where contracting officer's actions and decision were plainly based on a determination of protester's responsibility, and a corrected rejection letter was sent to protester. PROCUREMENT - Contractor Qualification - Responsibility - Contracting officer findings - Negative determination - Criteria 2. Protester was properly found not responsible where it failed to provide sufficient information to permit a finding that the individual sureties on its bid bond were acceptable and the record shows the contracting officer's nonresponsibility determination was reasonably based. PROCUREMENT - Contractor Qualification - Responsibility - Information - Submission time periods 3. An agency is not required to delay award indefinitely until a bidder cures the causes of its nonresponsibility. Rejection of protester's bid is proper where the agency set a reasonable deadline for receipt of information concerning the bidder's responsibility and protester's supplemental information is insufficient to support a finding of responsibility.
Aceves Construction and Maintenance, Inc.:
Aceves Construction and Maintenance, Inc., protests the award of a contract to Single Ply Systems, Inc., under invitation for bids (IFB) No. DACA65-88-B-0028, issued by the Norfolk District, Army Corps of Engineers, for the reroofing of six warehouses in Richmond, Virginia. Aceves contends that its low bid was improperly rejected based on an unwarranted finding that its bid bond, using individual sureties, was unacceptable.
We deny the protest.
The IFB required each bidder to provide a bid bond in an amount equal to 20 percent of its bid price and Aceves submitted a bid bond naming two individual sureties. Following bid opening, the agency, in reviewing the affidavits of individual surety, Standard Form (SF) 28, that Aceves submitted with its bond, noted that neither surety listed outstanding bond obligations and instead stated that a current list would be provided upon successful award. In addition, the first surety referred to an "attached list" in Block 8 of his SF 28 (location and description of solely owned real estate) yet did not attach such a list and in Block 9 (description of solely owned property other than real estate) he listed assets totaling $80,000 less than the figure stated in Block 7 (list of assets, liabilities, and net worth). In Block 9, the second surety failed to list any of the $1,104,000 in personal property stated in Block 7 and instead listed the values of his real estate detailed in Block 8 of his SF 28.
Based upon the unsubstantiated information in both sureties' SF 28s, the contracting officer was unable to make an affirmative determination of the sureties' or Aceves' responsibility. To obtain further information, the contracting officer sent Aceves a telegram on Friday, September 16, 1988, which was received by Aceves on Monday, September 19. The telegram requested that Aceves furnish additional information about the sureties' net worth and specifically requested proof of ownership and value of all assets, realty, and personalty listed in Blocks 7, 8, and 9 of the sureties' SF 28s. As examples of the types of documentation that might demonstrate ownership and valuation, the telegram listed "copies of mortgages and deeds, letters from the title companies, copies of recent tax assessments, statements of net worth compiled by certified public accountants, and recent appraisals by certified estimators." The required information was to be provided to the Norfolk District Contracts Branch not later than 2 p.m. on Friday, September 23. Aceves provided a variety of documentation for each surety on September 21.
For the first surety, Aceves provided an October 1987 unaudited financial statement prepared by the surety's staff and signed by a certified public accountant (CPA) who expressed no opinion regarding the statement. The CPA noted that the statement covered the surety's individual as well as business assets and liabilities and that the surety did business as an entity comprised of himself and three business concerns. The surety's net worth on the statement was listed as $6,425,443, while his SF 28 listed a net worth of $5,255,000. A list of outstanding bond obligations detailed a total of $3,697,770 in obligations in addition to the Aceves bid bond. Other documents included a May 1985 appraisal of a building, still in the process of renovation, which had a leased fee interest, assuming completion of the renovation, of $5,300,000; a February 1986 appraisal of a proposed 64 unit apartment building, valued at $4,300,000, assuming a stabilized occupancy of 95 percent; a July 1986 appraisal of the leasehold value of an office building and garage, valued at $39,000,000, assuming that certain conditions agreed to by the current owner (not the surety) in a sale agreement were to run with the realty and were not personal; a June 1984 appraisal of a 1912 hotel, valued at $3,525,000, assuming renovation as planned and a stabilized operating basis; an October 1986 appraisal of the leasehold value of business property, held by a limited partnership of which the surety served as one of the general partners (holding a 70 percent interest), valued at $6,350,000, subject to specific lease agreements; and a partial copy of the limited partnership agreement dated in December 1986. The limited partnership agreement specifically prohibited any partner from pledging, mortgaging, or otherwise encumbering the property, except in accordance with a particular provision of the agreement. Neither that provision or any documentation indicating authority to pledge the partnership assets was submitted.
Upon reviewing these documents, the contracting officer found that there was a reasonable doubt as to the present financial status of the first surety. This determination was based on the lack of any documentation of ownership or value of the first surety's personal assets of $1,173,000; the lack of any documents, apart from the appraisals, to substantiate the surety's claim of sole ownership of the real estate; the speculative nature and age of the real estate appraisals; and the apparent inability to pledge the assets of the limited partnership.
For the second surety, Aceves provided an unaudited financial statement, compiled by a CPA, who expressed no opinion regarding the statement. The statement, dated July 31, 1987, listed the assets and liabilities of the surety, along with a net worth of $12,557,574 (the net worth listed on his SF 28 was $13,732,083). According to a list, the second surety had $9,026,677 in outstanding bond obligations, in addition to the Aceves bid bond. Aceves also submitted three warranty deeds and appraisals of in progress and proposed real estate developments. The first development, a proposed 480 unit apartment complex, was appraised in January 1986 as having an "income approach" value of $24,500,000, and a market value of $22,000,000, subject to completion of the project according to plans and specifications to be prepared by the architect. The second specifications to be prepared by the architect. The second development, a shopping center project, was appraised in August of 1987 as worth $10,161,000, when capitalized at an overall rate of 10 percent, assuming the building was completely finished and occupied and that certain existing and proposed leases were in effect. The same appraisal letter valued an apparently undeveloped perimeter site at $543,400 based on market sales. /1/ The third tract of land was appraised in April 1987 at $11,386,583 based upon present zoning and apparent plans to develop it for shopping center, general retail, and multi-family uses. No documentation was submitted to verify the ownership or value of the non-realty assets of the second surety, or to establish the current value or percentage of completion of the real estate developments.
After reviewing these documents, the contracting officer concluded that he was unable to pinpoint enough present assets of the second surety to justify relying on his claimed net worth. His conclusion was based on the lack of any documentation corroborating how the values of the SF 28 listed assets were calculated, the conditional nature of the various real estate developments, and the lack of any proof verifying the sureties' percentage ownership of the real estate ventures. /2/ Accordingly, since the contracting officer was unable to make an affirmative determination of responsibility, he rejected Aceves bid as "nonresponsive" by letter dated September 23. The letter, received by Aceves on September 27, explained that "the documentation supplied on behalf of the sureties in support of your SF 28 affidavit neither confirms ownership of the assets allegedly held nor substantiates the claimed value of such property." Single Ply was awarded the contract on October 3; by letter of October 5, the contracting officer corrected his previous rejection letter to indicate that Aceves had been found "nonresponsible."
In its original protest, Aceves argued that it was improper to reject its bid as "nonresponsive," since the financial acceptability of an individual surety is a matter of responsibility. Aceves requested that the agency be directed to make an appropriate responsibility determination based upon review of supplemental information to be submitted by Aceves. After the contracting officer corrected his September 23 letter, Aceves amended its protest and acknowledged that it had already submitted supplemental information to the contracting officer which had received only a "cursory review." Aceves maintains that the original, erroneous determination of nonresponsiveness makes the award to Single Ply void and contends that the negative determination of responsibility lacks a reasonable basis.
As a preliminary matter, we note that while the financial acceptability of an individual surety is a matter of responsibility and not responsiveness, see, e.g., Transcontinental Enterprises, Inc., 66 Comp.Gen. 549 (1987), 87-2 CPD Para. 3, the contracting officer's use of the word "non-responsive" in rejecting Aceves' bid is of no legal consequence. /3/ See Singleton Contracting Corp., B-216536, Mar. 27, 1985, 85-1 CPD Para. 355 at 4. It is plain from the record that the contracting officer was making a responsibility determination, regardless of his erroneous use of the word nonresponsive.
A bid guarantee's purpose is to secure the liability of a surety to the government in the event the bidder fails to fulfill its obligation to execute a written contract and to provide payment and performance bonds. When, as here, a required bid bond is found to be proper on its face, the bid itself is responsive.
The accuracy of the information contained in the SF 28, which is the issue here, is a matter of responsibility. See Transcontinental Enterprises, Inc., supra. A determination of nonresponsibility based upon the financial acceptability of an individual surety may be based upon information submitted any time prior to award, and no award may be made without an affirmative determination of responsibility. T&A Painting, Inc., 66 Comp.Gen. 214 (1987), 87-1 CPD Para. 86.
The contracting officer's obligation to investigate individual sureties is set out at Federal Acquisition Regulation (FAR) Sec. 28.202 2 (1984), which requires the contracting officer to "determine the acceptability of individuals proposed as sureties." The regulation states that "the information provided in SF 28 is helpful in determining the net worth of proposed individual sureties." In making this determination, the contracting officer therefore is not limited to the consideration of information contained in SF 28 and may go beyond that information where necessary in making his decision. Transcontinental Enterprises, Inc., supra. Moreover, the contracting officer is vested with a wide degree of discretion and business judgment in making this determination. Therefore, we will defer to this judgment unless the protester shows that the decision was without a reasonable basis. See Eastern Metal Products & Fabricators, Inc., B-220549.2 et al., Jan. 8, 1986, 86-1 CPD Para. 18. our view, the record here reflects a reasonable basis for the nonresponsibility determination.
In view of the missing items and discrepancies on the sureties' SF 28 affidavits, the agency reasonably sought information beyond that on the face of the affidavits to establish the responsibility of the sureties. Neither surety provided proof of the value or sole ownership of his personal assets and the first surety failed to supply any documentation, such as deeds, to establish his sole ownership of his claimed real estate holdings. Further, both sureties submitted appraisals of real estate, ranging in age from 1 to 4 years, which were based on certain contingencies, but failed to submit any evidence that those contingencies occurred. We agree that the totality of the evidence submitted justified the contracting officer's decision to reject Aceves' bid.
Aceves, however, raises a number of criticisms regarding the thoroughness and fairness of the contracting officer's review. First, it complains that it was provided insufficient guidance on acceptable documentation and suggests that the contracting officer failed to follow the agency's internal guidelines for a thorough review. We believe that the telegram sent by the agency contained sufficiently detailed guidance and find that it was the protester's decision to not furnish some evidence and to provide dated and speculative evidence which prevented a finding of responsibility. Further, Aceves has not shown that the agency failed to provide a complete review of its submissions in accordance with agency internal guidelines.
Second, Aceves claims that the agency failed to determine whether its sureties had sufficient net worth equal to the difference between Aceves' bid and the next low bid. Aceves is correct that individual sureties need only have net worth equal to the difference between the bidder's price and the next low acceptable bid. See FAR Sec. 28.101 4(b) (FAC 84-32); Argus Services, Inc., B-226164, Apr. 21, 1987, 87-1 CPD Para. 429. However, we note that the difference in bids ($586,423) is only 7.3 percent less ($46,313) than the penal sum of Aceves' bid bond ($632,736). Since the contracting officer was unable to verify any of the net worth claimed by either surety, he implicitly determined that there was insufficient evidence of net worth equal to the difference in bids. Third, Aceves takes issue with the agency's criticism that its sureties submitted unaudited financial statements when it had not requested such statements. While Aceves is correct that the agency only suggested financial statements compiled by a CPA, we do not find that the contracting officer was thereby prevented from recognizing the relative unreliability of the information contained in such statements. The agency's telegram suggested documents that "might" demonstrate ownership and value. It was Aceves' decision to submit the information it did. In fact, we note that the second surety possessed an audited financial statement for the same period as the unaudited statement Aceves previously submitted. Further, even though the agency criticized the unaudited form of the statements, it nonetheless considered them. The contracting officer simply accorded them the weight due unaudited, year old financial statements, in the absence of more recent corroborating evidence.
Fourth, Aceves contends that the agency should have accepted the values given in the real estate development appraisals it submitted. The protester explains that such appraisals, which are necessarily speculative, are accepted in the commercial world in that banks regularly lend money based on the future value of a development. However, we note that if the government needed to reach the assets of a surety to satisfy a bid guarantee, it is the current value of the assets that matters, not what the assets will be worth when developed or completed. Thus, we think it was reasonable for the contracting officer to reject the future value of these assets and not to speculate on their current value in the absence of any evidence regarding their current value. This is especially so when the combined developed value of the real estate claimed by the sureties is $63,795,583 with outstanding mortgages of $45,637,500, while the assessed tax value is only $13,508,310. Even assuming the properties' undeveloped or incomplete value exceeds the tax assessed value, there is no evidence in the record that such real estate possesses a current value sufficient to satisfy the mortgages and a bid guarantee, where the sureties already have combined outstanding bond obligations of $12,724,447.
Aceves also takes issue with the contracting officer's reliance on the first surety's inability to pledge the assets of a limited partnership. Aceves argues that the agency cannot require that a security interest in an individual surety's assets be furnished as part of a bid bond. See Altex Enterprises, Inc., B-228200, Jan. 6, 1988, 88-1 CPD Para. 7. find Aceves' reliance on this case misplaced. Even though, as we held in Altex, an agency may not require a surety to grant it a security interest in an asset, an agency is entitled to know that, if necessary, assets on which an individual surety relies to satisfy a guarantee can be reached in the event of a default. Where an individual surety is one of several partners in a particular asset and cannot legally pledge the asset, an agency may reasonably not consider the value of that asset in determining the surety's net worth.
In its comments to the agency report, Aceves for the first time raises two issues regarding the time for submission of proof of responsibility. First, it argues that the 4-1/2 days it was provided to respond to the contracting officer's request for documents was unreasonably short. Second, it claims its bid bond broker was led to believe that he had an extension in which to submit additional information.
An agency is not required to delay award indefinitely while a bidder attempts to cure a problem of responsibility and it may set a reasonable deadline for receipt of information concerning the bidder's responsibility. See Eastern Maintenance and Services, Inc., B-229734, Mar. 15, 1988, 88-1 CPD Para. 266; Dock Express Contractors, B-227865.3, Jan. 13, 1988, 88-1 CPD Para. 23.
We believe that the agency set a reasonable deadline for receipt of information and Aceves was able to provide supporting documents by September 21, 1-1/2 days prior to the deadline. Further, we note that Aceves did not complain about the deadline until its comments to the agency report. Thus, we find its first argument without merit.
With regard to its second argument, the affidavit of Aceves' bond broker relates that he spoke by telephone with an attorney at the agency who stated that the agency would accept additional information regarding the sureties. /4/ The broker informed the attorney that he would obtain the information and forward it to her. Although the broker understood he had an extension of time, he does not state that any new deadline was set. Further, the broker failed to submit any supplemental information, after he learned that Aceves bid had been rejected, until October 26, when he submitted 30 documents to the agency. The agency attorney denies that the broker requested additional time or that she granted any extension beyond the September 23 deadline.
In view of protester's delay in raising this issue, as well as the lack of specificity with regard to the date of the telephone call and the length of any extension, we find the agency's version more credible. However, were we to accept protester's version of the alleged conversation, it would not change the outcome of this decision. Under the circumstances presented we find the broker's belief in an extension unreasonable. Protester was informed in writing of the time and date of the original deadline by the contracting officer. The "extension," however, was nonspecific, oral, and provided by one other than the contracting officer, to one other than the protester. Protester's subsequent actions cast substantial doubt on the reasonableness of its belief in an extension.
Although we were not provided a copy of the supplemental documents, we do have a list of them. We note that nine of the 30 documents apparently had been submitted on September 21 and all of them are dated well before September 21. The most recent document is a June 1988 unaudited financial statement for the second surety; the remaining documents are all dated prior to November 1987. Protester neither alleged an extension nor proffered the documents with its protest on October 3. Only in conjunction with its second submission, approximately 1 month after contract award, did it submit the documents to the agency, still failing to raise the issue before our Office. Given the dates of these documents and their nature (e.g., deeds, appraisals, sales contracts, agreements, evidence of title insurance), we fail to understand why they could not have been submitted on September 21 or at some point sooner than October 26. Further, in view of the age of the documents we fail to see how these documents would significantly improve the contracting officer's ability to determine the sureties' current net worth.
This case is distinguishable from those where we have found the agency failed to give a bidder an adequate opportunity to meet a responsibility requirement. For example, in Tomko, Inc., B-210023.2, B-212217, Feb. 15, 1984, 84-1 CPD Para. 202, the contracting officer had explicitly agreed to consider new evidence of responsibility, yet we found that the agency was unreasonable when it refused to accept the evidence when it was delivered 5 minutes after the deadline, especially since contract award was not made for another month and a half. Here, however, there is no evidence of an explicit extension or new deadline. Contract award was made on September 26, and protester did not submit its new evidence for another month. Hewlett-Packard Company, Medical Products Group, B-216125.2, May 24, 1985, 85-1 CPD Para. 597, the protester had failed a performance test and we found that the agency had not provided the protester an adequate opportunity to show it was capable of meeting certain requirements. Here, however, Aceves was provided guidance and 4-1/2 days to submit evidence of ownership and value of the property listed by the individual sureties on their SF 28s.
As to protester's request for its costs of pursuing the protest, we permit the recovery of such costs only where it is shown that an agency's action is contrary to law or regulation. 4 C.F.R. Sec. 21.6(d) (1988). Since we find the agency's actions unobjectionable, there exists no basis for an award of costs.
The protest is denied.
/1/ An earlier appraisal, dated in November 1985 and addressed to a bank, reports a larger square foot area for the perimeter tract and values it at $800,000 as "a vacant tract available for development."
/2/ The contracting officer also was aware of other information concerning the sureties which the Corps has submitted to our Office, but withheld from the protester. That information, however, is not essential to our conclusion.
/3/ As such, his reason for issuing a second letter to correct the error- - on his own or in response to the protest-- is irrelevant to the decision of the issues in this protest. .FOOT: /4/ The affidavit states the telephone call as occurring "sometime during the week of September 19," while Aceves' original protest sets the date of the telephone call as September 23, and its comments set the date as September 22.