B-235170, Jul 20, 1989, 89-2 CPD 69

B-235170: Jul 20, 1989

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Were unacceptable because of their association with another principal in the brokerage firm who allegedly had previously repudiated two of his own bonds. Because both individual sureties are under criminal investigation by the federal government. The Corps determined that SPACE was nonresponsible because its individual sureties lacked sufficient integrity. Whichever was less. Because SPACE was bonded by individual sureties. It also was required to submit a completed Affidavit of Individual Surety (Standard Form 28) for each surety. He failed to establish to the Corps' satisfaction how the bonds were executed with his signature. How other vital information was submitted. The Corps concluded that it would not be sound business practice to conduct business with a brokerage firm who had as one of its principals an individual who is an unacceptable surety.

B-235170, Jul 20, 1989, 89-2 CPD 69

PROCUREMENT - Sealed Bidding - Bid guarantees - Sureties - Acceptability DIGEST: Contracting officer reasonably determined that both individual sureties, principals in the bond brokerage firm furnishing the bid bond guarantees, were unacceptable because of their association with another principal in the brokerage firm who allegedly had previously repudiated two of his own bonds, and because both individual sureties are under criminal investigation by the federal government, thus reasonably calling into question their integrity, credibility, and financial acceptability.

Surface Preparation and Coating Enterprises, Inc.:

Surface Preparation and Coating Enterprises, Inc. (SPACE), protests the rejection of its apparent low bid under invitation for bids (IFB) No. DACA63-89-B-0062, issued by the Fort Worth District of the United States Army Corps of Engineers for construction of a vehicle maintenance shop at Brooks Air Force Base, San Antonio, Texas. The Corps determined that SPACE was nonresponsible because its individual sureties lacked sufficient integrity, credibility, and financial resources to be deemed financially acceptable sureties.

We deny the protest.

The IFB, issued as a total small disadvantaged business set-aside, required each bidder to submit with its bid a bid guarantee (Standard Form 24) equal to 20 percent of the bid or $3 million, whichever was less. Because SPACE was bonded by individual sureties, it also was required to submit a completed Affidavit of Individual Surety (Standard Form 28) for each surety.

At bid opening on March 15, 1989, SPACE submitted the apparent low bid of $2,199,000, and furnished the required standard forms along with certified financial statements of net worth for each individual surety. Following an investigation of the individual sureties and the information on their financial statements, the Corps concluded that neither individual surety possessed sufficient integrity, credibility, and financial resources to be deemed financially acceptable sureties. Therefore, by letter dated April 5, the Corps rejected SPACE's apparent low bid as nonresponsible, citing the unacceptability of SPACE's individual sureties.

The record indicates that the Corps' investigation revealed that the individual sureties, principals in the bond brokerage firm supplying them as sureties to SPACE, had as an associate in the brokerage firm an individual who allegedly had previously repudiated two of his own bonds to the Corps' Wilmington district. While this individual has stated that he did not authorize, execute, or issue bonds to the Corps' Wilmington district, and hence did not repudiate any bonds, he failed to establish to the Corps' satisfaction how the bonds were executed with his signature, and how other vital information was submitted, including notarized affidavits of individual surety, signed certificates of sufficiency, and balance sheets and financial statements. The Corps concluded that it would not be sound business practice to conduct business with a brokerage firm who had as one of its principals an individual who is an unacceptable surety.

Furthermore, the Corps' investigation revealed that the individual sureties appeared to overvalue the assets which they reported on their affidavits of individual surety and financial statements. Briefly, the principal asset claimed by both sureties, and the individual who allegedly repudiated two of his own bonds, is 83.87 acres of real property in Dallas, Texas, which is owned by the bond brokerage firm furnishing these individual sureties to SPACE. The sureties claimed the property was worth approximately $44 million to $68 million, based on future value for using the property as a limestone quarry and then using the property as a landfill. However, the 1987 tax assessment for the property was $100,930, and the previous owners sold the property in 1988 for $439,010. The Corps concluded that these lower values were more realistic.

The Corps' investigation also revealed information which had raised the issue of whether the brokerage firm even had marketable title to the property because of prior encumbrances, a prior owner's declaration of bankruptcy and failure to pay an underlying mortgage. Further, an illegal dumping suit brought by the City of Dallas and State of Texas against former owners of the property which, to the extent these defendants do not satisfactorily remove the debris from the property, could be the responsibility of the brokerage firm. And finally, with respect to the property and the question of the sureties' integrity and credibility, the Corps found that a letter from an engineering company to the brokerage firm describing the results of a preliminary field sampling test concerning the property's value for mining, which was relied upon by the bank officer who signed the sureties' certificates of sufficiency, was altered without permission from the engineering company by the addition of a paragraph at the end of the letter suggesting the worth of the limestone.

Other problems were found to exist with the information on the sureties' affidavits and financial statements. For example, the Corps concluded that the values of stock claimed by the sureties were highly speculative due to limited trading of the stock. Furthermore, the corporate status of the companies whose stock the sureties hold was questionable due to various corporate actions and inactions. For example, one company has been suspended for failing to file an annual report; another company is not registered in the alleged state of incorporation. Also, one of the sureties claimed as an asset a $150,000 certificate of deposit without listing as a liability the loan he secured in order to purchase the certificate. Finally, the Corps reports that these sureties are under criminal investigation by the government.

The protester challenges the Corps' determination of nonresponsibility of the sureties. The protester, in some detail, attempts to rebut the Corps' investigative findings and asserts that both sureties have adequate assets to act as sureties under this contract.

A bid guarantee is a firm commitment to assure the government that a successful bidder will execute contractual documents and provide payment and performance bonds required under the contract. Its purpose is to secure the surety's liability to the government for excess reprocurement costs in the event the bidder fails to honor its bid in these respects. The key question in determining the sufficiency of a bid guarantee is whether the government will be able to enforce it. Ware Window Co., et al., B-233367 et al., Feb. 6, 1989, 89-1 CPD Para. 122. In the case of an individual surety, the question of acceptability is a matter of responsibility; in making the determination, the contracting officer is vested with a wide degree of discretion and business judgment and this Office will defer to the contracting officer's decision unless the protester shows there was no reasonable basis for the determination. Id.

Here, SPACE has failed to show that the contracting officer acted unreasonably in finding the individual sureties unacceptable. The record shows that there was an abundance of information which legitimately cast doubt on and raised serious questions concerning the integrity, credibility, and financial acceptability of the sureties. In particular, while the individual sureties themselves may not have been involved in the repudiation of bonds to the Corps' Wilmington district, they presently share a business relationship, and own property in common with, the individual who allegedly did repudiate these bonds. While the individual sureties may not have been directly responsible for particular bid bond irregularities, as principals now associated with another principal in a brokerage firm who has engaged in questionable business practices, we find that the agency had a reasonable basis to question the accuracy of the individual sureties' financial representations and to make a nonresponsibility determination. See, e.g., Gem Constr Co., Inc., B-232271, Nov. 29, 1988, 88-2 CPD Para. 530. Moreover, we have held that officials of a bond brokerage firm who are under criminal investigation by the federal government, as in this case, may properly be rejected by an agency largely on the basis that this information legitimately casts doubt on the integrity of the sureties and raises a serious question concerning their credibility. See Ware Window Co., et al., B-233367 et al., supra, citing Carson & Smith Constructors, Inc., B-232537, Dec. 5, 1988, 88-2 CPD Para. 560. Therefore, based on this information, and despite the sureties' attempt to rebut the information relied upon, we find the Corps acted reasonably in rejecting SPACE's individual sureties and in finding SPACE nonresponsible.

Accordingly, the protest is denied.