B-241565, Feb 19, 1991, 70 Comp.Gen. 273

B-241565: Feb 19, 1991

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Where the bid bond is sufficient. The agency should give the bidder the opportunity to have his sureties provide satisfactory explanations or pledge sufficient and acceptable assets. Quigley's sureties were unacceptable. Quigley was the low bidder for item No. 2. Which indicate that a total of three parcels of real property were pledged individually by the sureties as security for the bond. 000 was still due on that note. There also was $952.52 in taxes due and payable. The certificate of title indicated that the mortgage company was the owner of the property. Quigley's sureties were unacceptable for several reasons and rejected the bid. Then determined that all otherwise acceptable bids for item No. 2 were unreasonable as to price and canceled this item of the IFB.

B-241565, Feb 19, 1991, 70 Comp.Gen. 273

PROCUREMENT - Bid Protests - GAO procedures - Protest timeliness - Significant issue exemptions - Applicability 1. The General Accounting Office (GAO) considers untimely protest to raise a significant issue under the Bid Protest Regulations, where the issue of the protest, pertaining to the obligations of contracting officers under the newly promulgated regulations on individual sureties, has not been previously considered by GAO and may affect future procurements. PROCUREMENT - Contractor Qualification - Responsibility/responsiveness distinctions - Sureties - Financial capacity PROCUREMENT - Sealed Bidding - Bid guarantees - Sureties - Acceptability 2. Agency may not automatically reject a bidder for unacceptable individual sureties, where the bid bond is sufficient, even though the Standard Form 28, "Affidavit of Individual Surety," and supporting documents of the individual sureties submitted with the bid contain minor defects that might easily be remedied. Since these matters concern bidder responsibility, absent any evidence that the sureties lacked integrity or credibility or an unreasonable delay in the procurement, the agency should give the bidder the opportunity to have his sureties provide satisfactory explanations or pledge sufficient and acceptable assets.

Attorneys

Gene Quigley, Jr.:

Gene Quigley, Jr. protests the rejection of his bid under invitation for bids (IFB) No. R6-1-90-0309 issued by the Forest Service, Department of Agriculture, for thinning and removing trees from various tracts in Deschutes National Forest. The contracting officer rejected Mr. Quigley's bid based on his determination that Mr. Quigley's sureties were unacceptable.

We sustain the protest.

The IFB, a set-aside for small businesses agreeing to perform as labor surplus area concerns, requested unit prices for thinning and removing trees from six tracts of forest. The IFB provided that award would be made for the item or combination of items that resulted in the lowest aggregate cost to the government. The IFB also required each bidder to provide a bid guarantee in an amount equal to 20 percent of its bid price.

Mr. Quigley was the low bidder for item No. 2, consisting of thinning and removing trees from 561 acres. Mr. Quigley submitted with his bid a sufficient and properly executed bid bond in the amount of $23,674.10 from two individual sureties. He also provided completed Affidavits of Individual Surety, Standard Form (SF) 28, for each surety, which indicate that a total of three parcels of real property were pledged individually by the sureties as security for the bond. The protester also provided with his bid a "certificates of title" and other related documentation for each parcel as required by Federal Acquisition Regulation (FAR) Sec. 28,203-3(a) (1).

Mr. Quigley's first surety listed as pledged assets two properties with a current tax assessed value of $23,050 and $6,900. /1/ The title certificate showed a deed of trust, which secured a note in the amount of $22,000 encumbering the properties. The SF 28 indicated that only $13,000 was still due on that note. There also was $952.52 in taxes due and payable. The second surety listed one property with a tax assessed value of $14,290 with a mortgage of $2,784.85. The certificate of title indicated that the mortgage company was the owner of the property. The certificates of title provided by both sureties showed liens recorded in the proper amounts in favor of the government for this procurement as required by FAR Sec. 28.203-3(b)(2).

The contracting officer determined that Mr. Quigley's sureties were unacceptable for several reasons and rejected the bid, and then determined that all otherwise acceptable bids for item No. 2 were unreasonable as to price and canceled this item of the IFB.

Mr. Quigley was notified on September 18 that its individual sureties were unacceptable. On September 19, Mr. Quigley sent a letter to the contracting officer requesting a hearing before the "GAO (General Accounting Office)." After receiving no reply, Mr. Quigley sent a second letter dated September 26 again requesting a "GAO" hearing and detailing the reasons he felt his bid should be accepted. Mr. Quigley advises us that on September 28 he called the agency's regional office for assistance and was only then given information concerning the GAO's address and procedures required for filing a protest. Mr. Quigley's protest, dated October 1, 1990, was received by our Office on October 9.

It appears that Mr. Quigley's September 19 and 26 letters were not agency -level protests of the rejection of its bid. Consequently, the first effective protest of this matter was filed in our Office on October 9, more than 10 working days after he was apprised of the rejection of his bid. Thus, the protest is untimely. Bid Protest Regulations, 4 C.F.R. Sec. 21.2(a)(2) (1990).

Nevertheless, we will consider the protest under the significant issue exception to our timeliness requirements, 4 C.F.R. Sec. 21.2(b). The FAR requirements pertaining to individual sureties were extensively revised effective February 26, 1990, to require that such sureties pledge and provide security interests in certain specified assets. /2/ We have not addressed the extent to which a contracting officer should request further information from a bidder under the new FAR provisions, where, as here, an individual surety's pledges are deficient in some way. Since the resolution of this issue may affect many procurements in the future, we consider it to be a significant issue. See Discount Machinery & Equipment, Inc., B-240525, Nov. 23, 1990, 70 Comp.Gen. , 90-2 CPD Para. 420; DynCorp, B-240980.2, Oct. 17, 1990, 70 Comp.Gen. , 90-2 CPD Para. 310.

The record shows that the contracting officer found Mr. Quigley's sureties unacceptable because he determined that (1) there was no evidence that the lien required by FAR Sec. 28.203-3(d) had been filed on the properties, (2) the certificates of title used by the title companies contained a standard form disclaimer that the agency felt negated the legitimacy of these certificates, (3) the title to the second surety's property was in the name of the mortgage holder, and (4) the net value of the combined pledged assets of the sureties was less than required when the recorded liens of the properties were considered.

From our review of the record, it appears that some of the contracting officer's reasons for questioning the sureties' pledged assets have merit. However, since it should have been evident to the contracting officer that these objections might easily have been remedied if the protester were given the opportunity to do so, we think the contracting officer had an obligation to allow Mr. Quigley to obtain further explanations from the individual sureties regarding the pledged assets or to allow the sureties to pledge additional assets.

The purpose of a bid guarantee is to secure the liability of a surety (in this case sureties) in the event that the bidder fails to fulfill his obligation to execute a written contract and provide proper bonds under the contract. The sufficiency of a bid guarantee depends on whether the surety is clearly bound by its terms, see O.V. Campbell Sons Indus., Inc., B-229555, Mar. 14, 1988, 88-1 CPD Para. 259, and a bid which does not provide a sufficient bid guarantee must generally be rejected as nonresponsive. FAR Sec. 28.101-4. In this case, there is no question that the bid guarantee was sufficient in amount and form.

On the other hand, the SF 28 and related supporting documentation, such as the certificates of title and pledges of assets, serve solely as an aid in determining the responsibility of an individual surety. FAR Sec. 28.203(c); Burtch Constr., B-240695; B-240696, Nov. 23, 1990, 90-2 CPD Para. 423; E.C. Development, Inc., B-231523, Sept. 26, 1988, 88-2 CPD Para. 285. Consequently, uncertainties or defects in these documents do not warrant the automatic rejection of a bidder. Norse Inc., B-233534, Mar. 22, 1989, 89-1 CPD Para. 293. This is so because information bearing on responsibility may generally be provided at any time prior to award. Burtch Constr., B-240695; B-240696, supra. For example, we have expressly found a bid may not be rejected because it did not include the pledge of assets. Id.; R.C. Benson & Sons, Inc., B-240251.2, July 31, 1990, 90-2 CPD Para. 92. An inflexible policy that permits an agency to automatically reject bidders because of uncertainties relating to their sureties' pledged assets is tantamount to converting that which is clearly a matter of responsibility to a matter of bid responsiveness. E.C. Development, Inc., B-231523, supra.

On matters of responsibility that are susceptible to reasonable resolution, the contracting officer should ordinarily solicit and consider information on the issue before proceeding to award. N.G. Simonowich, B-240156, Oct. 16, 1990, 70 Comp.Gen. ***, 90-2 CPD Para. 298; National Hazard Control Corp., B-237194, Feb. 9, 1990, 90-1 CPD Para. 168. For example, a contracting officer may reject a bidder as nonresponsible without further inquiries for having unacceptable sureties where there is doubt as to the integrity of the sureties and the credibility of their representations. See Santurce Constr. Corp., B-240728, Dec. 10, 1990, 70 Comp.Gen. ***, 90-2 CPD Para. 469; Seaworks, Inc., B-226631.2, Dec. 22, 1989, 89-2 CPD Para. 581. Nor is a procuring agency required to unreasonably delay an award to allow a bidder to show its sureties are responsible. See Hewlett-Packard Co., Medical Prods. Group, B-216125.2, May 24, 1985, 85-1 CPD Para. 597.

In this case, there is no indication in the record that Mr. Quigley's sureties lack integrity or credibility. To the contrary, it appears that they disclosed relevant facts pertaining to the pledged property in their SF 28s and other bid attachments. As discussed below, the problems in the individual sureties' pledged properties could easily have been cleared up if Mr. Quigley had been given the opportunity to do so. The contracting officer allowed the protester no opportunity to do this, even though there was no urgency associated with the procurement. Indeed, the agency considered only Mr. Quigley's bid price to be reasonable and proceeded to cancel the IFB when his bid was rejected. Thus, the contracting officer acted unreasonably in automatically rejecting Mr. Quigley's sureties.

First, the certificates of title submitted by Mr. Quigley clearly show that appropriate liens were recorded as required by FAR Sec. 28.203-3(d). While the liens were not submitted with the bid, the protester has provided our Office with copies of the recorded liens. This information should have been requested by the contracting officer from the bidder and should be sufficient to satisfy FAR requirements. See Burtch Constr., B-240695; B-240696, supra.

With respect to the standard form disclaimers /3/ in the certificates of title, FAR Sec. 28.203-3(a)(1) does require evidence of title in the form of a certificate of title (not title insurance) prepared by an approved title insurance company. While the FAR does not address the matter, we think there is some question whether title companies will provide such certificates without the disclaimers or do so at an acceptable cost. The protester asserts that such companies will not do so. In any case, we believe the contracting officer should have further investigated the matter to satisfy himself whether these were sufficient certificates of title. If the contracting officer ascertained that title companies allow this standard form disclaimer to be deleted at a reasonable cost and that such deletion is necessary, we think the protester should have been given the opportunity to resubmit certificates of title that comply with this requirement.

With respect to the problem of the mortgage company's appearing as the owner of record on one property, the agency asserts that this does not constitute fee simple title as required by FAR Sec. 28.203 3(a)(1). The protester responds that the mortgage company is the owner of record because the company used a land sales contract as a financing device, but that the surety has the requisite fee simple title in the property. The protester also claims that he was told by the contracting office that a land sales contract was acceptable provided the encumbrance was spelled out, the title certificate was furnished, and the lien in favor of the government was recorded. Mr. Quigley states further that his surety was willing to pay off the mortgage (less than $3,000) if that would resolve the problem. While the contracting officer is entitled to assure that only real estate in which the surety has fee simple title may be pledged, under the circumstances, the contracting officer should have made further inquiries to satisfy himself that the surety has or will obtain fee simple title in this property.

With respect to the value of the sureties' assets, it appears to us that the agency used incorrect tax assessment values, $6,320 and $21,150, instead of the most recent assessed values of $6,900 and $23,050, to calculate the value of the surety's assets. On the other hand, it appears that when the value of the recorded liens and owed taxes are considered, the unencumbered value of the three pledged properties totals $18,547.63, /4/ which is less than required to satisfy the $23,674.10 bond obligation. Although the protester contends that it only owes $12,889.12 on the $22,000 note encumbering the property, we think it reasonable to subtract the "recorded encumbrances" in calculating the value of the property without regard to the payments actually made. FAR Sec. 28.203- 3(a)(1); see also Altex Enters., Inc., 67 Comp.Gen. 184 (1988), 88-1 CPD Para. 7. We think the contracting officer should have given Mr. Quigley the opportunity to obtain from his sureties an agreement from the mortgage holder to lower the amount of the recorded lien, pay off the lien, or pledge additional assets. /5/ See Burtch Constr., B-240695; B-240696, supra (where no assets were pledged in the bid).

We recommend that the agency provide Mr. Quigley with the opportunity to obtain from his two individual sureties the pledge of acceptable assets of sufficient value to satisfy the bond requirements. If Mr. Quigley does so and if he is determined to be otherwise responsible, we recommend that the agency make award to him as the low bidder on item No. 2. Under the circumstances, Mr. Quigley is entitled to recover his costs of filing and pursuing the protests, including attorneys' fees. 4 C.F.R. Sec. 21.6(d). The protest is sustained.

/1/ The SF 28 claimed the second property had a market value of $15,000 rather than the tax assessed value $6,900. However, the bid only included tax assessment documentation and not a current appraisal. See FAR Sec. 28.203-3(a)(3).

/2/ Previously, individual sureties did not have to provide security interests in assets.

/3/ One disclaimer reads: "THIS IS NOT A TITLE REPORT, since no examination has been made of the record title to the above described property. Our search for apparent encumbrances was limited to our Tract Indices, and therefore the above listings do not include additional matters which might have been disclosed by an examination of the record title. The liability in connection with this report is expressly limited to the sum paid therefor, and the issuing company will not otherwise be responsible for errors and omissions therein."

The other disclaimer is substantially identical.

/4/ The record indicates that the first surety's unencumbered pledged assets total $7,042 ($29,950 tax assessed value minus the $22,000 recorded lien minus $952.52 in taxes) and the second surety's unencumbered pledged assets total $11,505.15 ($14,290 tax assessed value minus $2,784.85 lien).

/5/ Mr. Quigley may not substitute or add additional sureties.