B-235474, Sep 6, 1989, 68 Comp.Gen. 666

B-235474: Sep 6, 1989

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

PROCUREMENT - Sealed Bidding - Bid guarantees - Sureties - Acceptability - Information submission Individual sureties on a bid bond were properly found unacceptable where. That they thus were unacceptable. The low bidder was found to have made a mistake in its bid and was later allowed to withdraw. Both sureties listed several other bonds on which they are sureties. Which revealed that three of the deeds to real property that the first surety listed as solely-owned were either not recorded in his name or were held jointly by him and another party. addition. The agency was unable to confirm ownership of certain real property allegedly owned by the second surety. Since the contracting officer was unable to make an affirmative determination of responsibility.

B-235474, Sep 6, 1989, 68 Comp.Gen. 666

PROCUREMENT - Sealed Bidding - Bid guarantees - Sureties - Acceptability - Information submission Individual sureties on a bid bond were properly found unacceptable where, in their Affidavits of Individual Surety (standard form 28), they misstated and omitted essential information needed to verify their net worths, thereby casting doubt on their integrity and ability to fulfill the surety obligation.

Farinha Enterprises, Inc.:

Farinha Enterprises, Inc. (FEI), protests its rejection as nonresponsible under invitation for bids (IFB) No. F04666-89-B0013, issued by the Department of the Air Force for repair and ventilation of the gym at Beale Air Force Base in California. The Air Force rejected FEI based on its determination that the two individual sureties on FEI's bid bond failed to submit sufficient evidence of ownership and value of the assets claimed in support of surety net worth, and that they thus were unacceptable.

We deny the protest.

The Air Force received eight bids by bid opening on March 24, 1989. The low bidder was found to have made a mistake in its bid and was later allowed to withdraw, thereby establishing FEI as the low bidder. The IFB required bidders to submit a bid bond or guaranty in the amount of 20 percent of the bid price; 20 percent of FEI's base bid amounted to $99,012. FEI submitted a bid bond naming two individual sureties and provided a completed Affidavit of Individual Surety, standard form (SF) 28, for each surety.

The SF 28 completed by the first surety indicated a net worth of $772,323, and listed as assets five parcels of real estate, four of them solely owned by him, a video store, cash, notes receivable, and equipment. The second surety indicated a net worth of $774,080, and listed as assets solely-owned real property, cash, and vehicles. Both sureties listed several other bonds on which they are sureties.

As part of its review of the SF 28s submitted with FEI's bid, the agency undertook a title search, which revealed that three of the deeds to real property that the first surety listed as solely-owned were either not recorded in his name or were held jointly by him and another party. addition, the agency was unable to confirm ownership of certain real property allegedly owned by the second surety. As a result of these apparent misstatements, the contracting officer sent FEI a letter on March 31, requesting that FEI furnish by April 6 additional, specific documentation verifying the ownership and value of both sureties' assets.

FEI responded by providing some, but not all, of the requested information 1 day after the April 6 deadline, and the agency found that the documents furnished only confirmed its doubts as to the ownership and value of the assets claimed in the sureties' SF 28s. Since the contracting officer was unable to make an affirmative determination of responsibility, he rejected FEI's bid by letter dated April 18. On April 27, FEI filed an agency-level protest challenging the rejection of its bid on the basis that its sureties' net worth exceeded the amount required; although FEI did not provide any new documentation with respect to the credibility or financial status of its sureties, it promised to subsequently submit additional evidence in support of its protest. When FEI failed to do so by May 2, the contracting officer rejected the firm's bid and denied the protest. FEI thereupon filed this protest with our Office.

The acceptability of an individual surety is a matter of responsibility and may be established at anytime prior to contract award. The contracting officer is vested with a wide degree of discretion and business judgment in making an acceptability determination, and this Office will defer to the contracting officer's decision unless the contracting officer lacked reasonable basis for the determination. Carson & Smith Constr., Inc., B-232537, Dec. 5, 1988, 88-2 CPD Para. 560. have recognized that because the purpose of the bonding requirement is to provide the government with a financial guarantee, information which calls into question the sureties' integrity and the credibility of their representations in connection with the procurement diminishes the likelihood that this guarantee will be enforceable, and may be considered by the agency in determining the sureties' acceptability. Ware Window Co., et al., B-233367, B-233168, Feb. 6, 1989, 89-1 CPD Para. 122.

Under this standard, we find the Air Force had a reasonable basis for rejecting both sureties based on the deficiencies and discrepancies in the information furnished concerning their net worths. As discussed above, contrary to their representations in the SF 28s, the sureties did not solely own certain real property, and when the contracting officer requested specific, additional documentation from the sureties to verify their ownership and the values of these and other listed assets, the sureties responded only selectively; the record still contains none of the requested information on certain of the sureties' properties, and no explanation as to why this information is missing or was inaccurate in the first place.

Further, the first surety furnished documentation showing that nearly all of the "notes receivable" listed in his SF 28 were in fact unsecured loans to a corporation that he solely owned, with no terms of repayment specified, and none of the information submitted verified the claimed value of his video store inventory. The second surety furnished a statement explaining that the cash assets he listed in his SF 28 as solely owned were actually in his name and the name of a person who was not a surety to this contract, and he failed to furnish references, as requested by the contracting officer, or other documentation to verify the amount of the claimed cash assets.

We think the agency reasonably determined that these substantial misstatements, omissions, and inconsistencies called into doubt the sureties' integrity and the credibility of their representations, thereby diminishing the likelihood that the sureties' financial guarantee would be enforceable. This determination provided a proper basis for rejecting the sureties. See id.; Carson & Smith Constr., Inc., B-232537, supra.

FEI contends that, despite the informational problems concerning certain assets, its sureties possessed other unquestioned assets establishing adequate worth. It is our view, however, that once a surety's integrity reasonably has been called into question, then notwithstanding the alleged adequacy of any unmisstated assets, the agency is justified in rejecting the sureties. Again, this reflects the nature of the surety obligation as a financial guarantee and the importance we think an agency is entitled to place on the accuracy, thoroughness, and verity of surety financial information. In any case, it is not clear that both sureties in fact possessed an adequate net worth. For example, the first surety did not submit proof that he was the sole title holder to four of the five pieces of real estate listed (and did not apportion the claimed equity among the five properties); could not satisfactorily document the claimed value of the video shop inventory; listed as notes receivable unsecured loans to his own corporation with no terms of repayment specified; and was already a surety for another $411,571 in bonds. /1/

The protest is denied.

/1/ FEI also argues that we should sustain its protest on the basis that the contracting officer improperly rejected FEI's bid as "nonresponsive" when the bid bond was proper on its face. However, while the financial acceptability of an individual surety is a matter of responsibility and not responsiveness, the contracting officer's use of the word "nonresponsive" rather than "nonresponsible" in rejecting FEI's bid is of no legal consequence. See Aceves Constr. and Maintenance, Inc., B-233027, Jan. 4, 1989, 89-1 CPD Para. 7. It is plain from the record that the contracting officer in effect made a nonresponsibility determination when rejecting FEI's bid.