B-233365, Jan 27, 1989, 68 Comp.Gen. 204

B-233365: Jan 27, 1989

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Procurement - Sealed Bidding - Invitations for bids - Terms - Performance bonds Procurement - Sealed Bidding - Bids - Bid guarantees Justification Bonding requirements for laundry services contract are justifiably imposed to protect the government's interest where the government will provide the contractor with a considerable amount of equipment for the performance of the contract and the continuous provision of laundry services is essential to the operation of two medical centers including operating rooms. GSI contends that the bonding requirements are unreasonable and unduly restrictive of competition. The IFB was issued pursuant to Office of Management and Budget (OMB) Circular No. A-76 in order to provide VA with a cost comparison for the purpose of determining whether it will be more economical to perform the required work in-house or by contract. /1/ The IFB.

B-233365, Jan 27, 1989, 68 Comp.Gen. 204

Procurement - Sealed Bidding - Invitations for bids - Terms - Performance bonds Procurement - Sealed Bidding - Bids - Bid guarantees Justification Bonding requirements for laundry services contract are justifiably imposed to protect the government's interest where the government will provide the contractor with a considerable amount of equipment for the performance of the contract and the continuous provision of laundry services is essential to the operation of two medical centers including operating rooms.

Govern Service, Inc.:

Govern Service, Inc. (GSI), a small business, protests the bonding requirements under invitation for bids (IFB) No. 594-88-28, issued by the Veterans Administration (VA) for laundry services at medical centers in Lake City and Gainesville, Florida. GSI contends that the bonding requirements are unreasonable and unduly restrictive of competition.

We deny the protest.

The IFB was issued pursuant to Office of Management and Budget (OMB) Circular No. A-76 in order to provide VA with a cost comparison for the purpose of determining whether it will be more economical to perform the required work in-house or by contract. /1/ The IFB, which was amended to eliminate a small business restriction, requires bids for a base year and four 1-year option periods for an estimated annual workload of 3,542,050 pounds of laundry. The IFB advises that the laundry services will be provided at a government-owned/contractor operated (GOCO) laundry facility located at the Lake City medical center. The IFB requires a bid guarantee in an amount not less than 20 percent of the bid price, but not to exceed $3,000,000, by the time set for bid opening, and a performance bond for 100 percent of Bid Item 1, which covers laundry services for the contract's base year. Performance bonds are also required for each of the option years, if the option is exercised.

GSI contends that the bonding requirements will eliminate 99 percent of potential small business bidders who lack the $500,000 in liquid assets which bonding companies require for this solicitation. GSI maintains that notwithstanding 35 years of experience in providing laundry services to the government and GSI's ongoing satisfactory performance of two GOCO service contracts, its firm will be precluded from submitting a bid in response to the IFB because of the restrictive bonding requirements.

Although a bond requirement may result in a restriction of competition, it nevertheless can be a necessary and proper means of securing to the government the fulfillment of the contractor's obligation under the contract in appropriate situations. D.J. Findley, Inc., B-221096, Feb. 3, 1986, 86-1 CPD Para. 121. While generally contracting agencies should not require performance bonds for other than construction contracts, the Federal Acquisition Regulation (FAR) recognizes that there are situations in which bonds may be necessary for nonconstruction contracts in order to protect the government's interest. See FAR Secs. 28.103-1, 28.103-2(a). A bid bond may be required where a performance bond is required. FAR Sec. 28.101-1.

We find that VA's decision to impose the bonding requirements was reasonable. The use of government property by the contractor is one of the specifically enumerated justifications for requiring a performance bond for nonconstruction contracts. FAR Sec. 28.103-2(a)(1). Here, VA states that the performance bond is required to protect the government's interest in approximately 90 pieces of equipment, valued in excess of $900,000, which will be provided to the contractor for the performance of the contract.

Bonds also may be required where the continuous operation of critically needed services is absolutely necessary. Galaxy Custodial Services Inc., et al., 64 Comp.Gen. 593 (1985), 85-1 CPD Para. 658. In this case, the agency states that the bond is required to ensure the continuous provision of laundry services critical to the operation of the two medical centers. Specifically, VA states that operating rooms and surgical service at the medical centers would have to shut down if clean surgical drapes, scrubs and uniforms were not available, and the lack of clean pajamas, sheets, blankets and towels would directly affect the physical well-being of the patients.

GSI argues that the bonding requirements are unreasonable because seven Department of Defense activities have acquired virtually identical laundry services under GOCO contracts without requiring performance or bid bonds. GSI's assertion does not establish the unreasonableness of the VA's imposition of the bonding requirements here, given our conclusion that they were justified to protect the government's interest in its equipment and ensure continuity of a critical service.

GSI also argues that the bonding requirements are unreasonable because there is no history of contractor defaults or nonperformance justifying the imposition of bonds since VA has not previously awarded a contract for laundry services at the two medical centers. We disagree, since there is no requirement that there be a history of performance problems before bonds may be required. Intelcom Support Services, Inc., B-222560, July 18, 1986, 86-2 CPD Para. 82.

Finally, GSI argues that the bonding requirements contravene the intent and purpose of OMB Circular No. A-76, which GSI maintains is designed to assist small businesses in obtaining contracting opportunities. The protester has misstated the OMB Circular's purpose, which is to encourage agencies to rely on commercially available sources, rather than just small businesses, if a product or service can be procured more economically from a commercial source. In any event, given that VA reasonably determined that the bonding requirements are necessary to protect the government's interest, there is no merit to GSI's contention that the agency's decision represents an improper attempt to retain performance of the services in- house.

The protest is denied.

/1/ OMB Circular No. A-76 establishes federal policy regarding the operation of commercial activities and sets forth the procedures for determining whether commercial activities should be operated under contract with commercial sources or in-house using government facilities and personnel.