Matter of: Hugo Key & Son, Inc.; Alco Environmental Services, Inc. File: B-251053.4; B-251053.5 Date: July 15, 1993

Matter of: Hugo Key & Son, Inc.; Alco Environmental Services, Inc. File: B-251053.4; B-251053.5 Date: July 15, 1993

PROCUREMENT Sealed Bidding Bid guarantees Validity Agency properly rejected as nonresponsive a bid accompanied by a defective bid bond, where the penal amount of the bond had been typewritten over a whited-out amount, without evidence in the bid documents or the bond itself that the surety had consented to the alteration. PROCUREMENT Sealed Bidding Bids Bid guarantees Omission Responsiveness Agency properly rejected as nonresponsive bid which did not comply with solicitation requirement for a bid guarantee where none of the exceptions for rejection provided in the Federal Acquisition Regulation apply. PROCUREMENT Bid Protests GAO procedures Interested parties Direct interest standards Protesters whose bids were properly rejected as nonresponsive under canceled solicitation are not interested parties under the General Accounting Office's Bid Protest Regulations eligible to challenge the cancellation, since protesters would not be in line for award were the protests sustained.

Attorneys

DECISION Hugo Key & Son, Inc. protests the decision of the Department of the Navy to rescind a contract awarded to the firm, reject its bid as nonresponsive, and cancel invitation for bids (IFB) No. N62472-93-B-0814, for demolishing and removing a wood framed structure on Gould's Island, in Narragansett Bay. Alco Environmental Services, Inc. also protests the cancellation.

We deny in part and dismiss in part Hugo Key's protest; we dismiss Alco's protest.

The IFB, issued on August 24, 1992, contemplated the award of a combination firm, fixed-price/indefinite quantity contract for the required work. Bidders were required to submit a firm, fixed price for dismantling, demolishing, and removing the building, contract line item number (CLIN) 0003, and unit and extended prices for the indefinite quantity work, CLIN 0005AA (asbestos removal inside building) and CLIN 0005AB (demolition and removal of bulk wastes, and steel masonry), based on estimated quantities set forth in the IFB for each of those CLINs. The schedule provided a space for bidders to insert the sum total of indefinite quantity line items, and a grand total bid price for all line items. The IFB required bidders to submit a bid bond in the amount of 20 percent of the bid price. Award was to be made on an "all or none" basis to the firm submitting the lowest total price for all CLINs.

Three firms submitted bids by the September 23 bid opening date, with the following total prices: Hugo Key ($474,747); Alco ($665,553); and Safe Environment of America ($745,891). The Navy awarded the contract to Hugo Key on January 12, 1993, and on January 14, Alco protested the award to our Office. Subsequent to filing its protest, in a letter to the agency dated February 25, Alco asserted, based upon its inspection of the Hugo Key's bid documents, that the bid bond Hugo Key submitted with its bid was defective.

The agency subsequently informed us that upon reexamining Hugo Key's bid documents, the Navy discovered that the bid bond Hugo Key submitted with its bid was defective, and that, as such, its bid should have been rejected as nonresponsive. See Fort Steuben Enters., B-233746, Dec. 22, 1988, 88-2 CPD Para. 621 (when a bidder supplies a defective bond, the bid itself is rendered defective and must be rejected as nonresponsive). The agency also informed us that damage caused by a severe storm since the IFB was issued had materially changed the government's requirements. In view of Hugo Key's defective bid bond, which required rejection of the firm's bid as nonresponsive, and in light of the changed requirements, the Navy decided to rescind the award, cancel the IFB, and resolicit for the requirement. Accordingly, we dismissed Alco's protest as academic. On March 9, Hugo Key filed the instant protest in our Office, challenging the agency's decision to rescind the contract, reject its bid as nonresponsive, and resolicit; on March 12, Alco protested the cancellation.

HUGO KEY'S PROTEST

Hugo Key provided a Standard Form (SF) 24 bid bond, indicating that the surety was guaranteeing 20 percent of the bid price, providing also that the penal sum of the bond was in an amount not to exceed $100,000, as follows:

PERCENT OF BID PENAL SUM OF BOND PRICE AMOUNT NOT TO EXCEED MILLION(S) THOUSAND(S) HUNDRED(S) CENTS 20% --- 100 000 00

Upon examining Hugo Key's bond the agency determined that the numeral "100," i.e., the three digits under the thousands column, was in a different type face from that on the remainder of the bid bond and had obviously been typed over a whited-out figure. The agency states that upon close scrutiny it appeared that the obliterated original penal sum on the bid bond was $50,000, an amount that matched the "AMOUNT OF BOND" inserted by the surety on the power of attorney accompanying Hugo Key's bid bond, which remained unchanged. In the absence of evidence in either the bid or the bid bond that the surety had consented to the alteration of the bond amount, the agency decided that Hugo Key's bid should have been rejected as nonresponsive.

Hugo Key does not deny altering the penal sum on its bond from $50,000 to $100,000. Hugo Key argues, however, that it was authorized by its surety to change the amount on its bond, thus maintaining that its bond was "a valid and enforceable document on its face." In support of its position, Hugo Key offers as evidence what appears to be a photocopy of a letter over the signature of the attorney-in-fact who signed the bond Hugo Key submitted with its bid, which purports to authorize Hugo Key to change the penal amount on the bond from $50,000 to $100,000. Hugo Key also contends that since the Navy did not question its bid bond at bid opening, and since the agency subjected the firm to certificate of competency (COC) procedures, and ultimately made award to the firm, the Navy is estopped from questioning the validity of its bond.

A bid guarantee is a material part of a bid and when a bond is required, it must be furnished with the bid package. Baucom Janitorial Serv., Inc., B-206353, Apr. 19, 1982, 82-1 CPD Para. 356. The Federal Acquisition Regulation (FAR) requires rejection of a bid that does not comply with a solicitation requirement for a bid guarantee. FAR Sec. 14.404-2(i). Since a material alteration of a bid bond made without evidence of the surety's consent discharges the surety from liability, the bond is not enforceable and the bid it accompanies therefore is nonresponsive. Giles Mgmt. Constrs., Ltd., B-227982, Sept. 14, 1987, 87-2 CPD Para. 248. Here, we find that the agency properly concluded that Hugo Key's bid bond was defective, requiring rejection of the firm's bid as nonresponsive.

Although the letter purportedly authorizing Hugo Key to alter the bond amount is dated September 21, 1992, the same date that appears on Hugo Key's bond and 2 days before bid opening, Hugo Key did not submit that letter with its bid. It is thus of no significance that the alteration was made with the surety's consent if there is no evidence on the face of the bid or the bond that the surety agreed to the change. See Maytal Constr. Corp., B-241501; B-241501.2, Dec. 10, 1990, 90-2 CPD Para. 476. Since Hugo Key did not submit any evidence with its bid showing that the surety had consented to the alteration on the bid bond, the firm's assertion that it was authorized by the surety to change the bond amount has no effect on the agency's determination that its bid bond was defective. A material defect in a bid bond cannot be explained or corrected after opening since this would place the surety in a position to disavow its obligation, thus compromising the integrity of the sealed bidding system by permitting the bidder to decide after bid opening whether or not to make its bid acceptable. Southland Constr. Co., B-196297, Mar. 14, 1980, 80-1 CPD Para. 199.

The fact that the Navy did not question Hugo Key's bond at bid opening, invoked COC procedures, and subsequently made award to Hugo Key, does not alter our conclusion. An agency's failure to reject a bid as nonresponsive immediately at the time of bid opening does not constitute a waiver of the bidder's failure to provide a proper bid guarantee or estop the agency from rejecting the bid later after the bid has been properly determined to be nonresponsive. See Asbestos Mgmt. Servs., B-236379, Aug. 25, 1989, 89-2 CPD Para. 180; Dean's Sec. Profs., B-224429, July 31, 1986, 86-2 CPD Para. 132. On the contrary, except under limited circumstances not present here, a contracting officer simply does not have the authority to accept a bid with a deficient bid bond. H.C. Transp. Co., Inc., B-219600, Aug. 21, 1985, 85-2 CPD Para. 207. Accordingly, since Hugo Key's bond was defective, we find that the agency properly rejected Hugo Key's bid as nonresponsive.[1]

Hugo Key also contends that the cancellation was improper. Under the Competition in Contracting Act of 1984, 31 U.S.C. Sec. 3551(2) (1988), and our Bid Protest Regulations, 4 C.F.R. Secs. 21.0(a), 21.1(a) (1993), a protest may be filed only by an "interested party," defined as an actual or prospective bidder or offeror whose direct economic interest would be affected by the award or failure to award the contract at issue. Since Hugo Key's bid was properly found nonresponsive under the canceled IFB, Hugo Key would not be in line for award even if its protest were sustained. The firm thus lacks the requisite direct economic interest necessary to be an "interested party" eligible to protest the cancellation.[2] See Trimarchi, Inc., B-231547.2, Oct. 14, 1988, 88-2 CPD Para. 352.

ALCO'S PROTEST

Alco's bid consisted of a firm, fixed price of $202,000 for CLIN 0003, and a total of $463,553 for the indefinite quantity work, for a grand total bid price of $665,553. With its bid, Alco submitted a bid bond on an SF 24 for 20 percent of the bid price, for an "amount not to exceed" $60,000. The agency argues that since 20 percent of Alco's total bid price is $133,110, Alco's bid bond for less than half that amount is insufficient, requiring rejection of its bid as nonresponsive. See Fort Steuben Enters., supra. The agency thus maintains that Alco is not an interested party to challenge the cancellation.

Alco challenges the agency's conclusion that its bid is nonresponsive. Alco asserts that rather than using the total bid price as a basis to calculate the amount of the bond, the penal amount of the bond should be calculated based only upon the firm, fixed-price portion of its bid, i.e., CLIN 0003, the minimum amount for which the government would be obligated under the resultant contract. Alco maintains that since its bid price for CLIN 0003 is $202,000, its bond for more than 20 percent of that amount satisfies the IFB's bid bond requirement.

We disagree. The cover sheet of the IFB initially informed bidders that:

"[A] BID BOND IS REQUIRED IN THE AMOUNT OF 20 [percent] OF THE TOTAL OF THE FIRM FIXED-PRICE PORTION OF THE CONTRACT. BID BOND MUST BE SUBMITTED WITH THE BID. FAILURE TO SUBMIT BID BOND WITH THE BID SHALL BE CAUSE FOR REJECTION OF THE BID AS NONRESPONSIVE."

Amendment No. 0001 to the IFB, however, specifically deleted that requirement and instructed bidders to replace the quoted language with the following: "A BID BOND IN THE AMOUNT OF 20 [percent] IS REQUIRED TO BE SUBMITTED WITH THE BID. SEE PARAGRAPH H.11."[3] Given these specific instructions, since bidders were required to submit a grand total price, and since award was to be made on an "all or none" basis to the overall lowest priced bidder, the only reasonable interpretation of the bid guarantee requirement is that, as amended, the IFB required a bid bond in the amount of 20 percent of the total bid price, including both the firm, fixed-price portion and the indefinite quantity work. That interpretation is reasonable and further supported by the following specific IFB instructions:

"LOT III INDEFINITE QUANTITY WORK

"Price for all labor, material, and equipment to provide . . . the unit price tasks listed below as specified in Section C. The quantities listed below are realistic estimates provided solely for the purpose of bid evaluation and for establishing penal sums of bonds (if required). The price for this bid item is the total of the subline items 0005AA -0005AB listed in the schedule of indefinite quantity work." [Emphasis added.]

The protester's argument that the penal amount of the bond should be based on only CLIN 0003 is simply without merit. Amendment No. 0001 to the IFB specifically deleted the instruction that bid bonds should be based on only the firm, fixed-price portion of the bid; and the IFB instructed bidders to include in their calculations, the estimates provided under the indefinite quantity portion of the IFB to establish the penal sum of any bond required. The only reasonable interpretation of the bid guarantee requirement is that in establishing a figure upon which to base the penal amount of the bond, bidders were required to include the prices bid of all CLINs, including the indefinite quantity work.

Alco's reliance on our decision in Haag Elec. and Constr. Inc., 70 Comp. Gen. 180 (1991), 91-1 CPD Para. 29, to argue that basing the penal sum of the bond on any price other than the bid price for CLIN 0003 would be "too speculative," is misplaced. Unlike in the present case, the IFB in Haag Elec. and Constr. Inc. (for an indefinite quantity construction contract) did not solicit firm, fixed prices; rather, bidders were requested to bid a single multiplier to be applied to an exhaustive list of pre-priced work items in performing the contract.[4] Thus, there was no bid price upon which to base the penal sum of the bid bond. The agency rejected Haag Electric's low bid, because the firm had submitted with its bid a bond on an SF 24 in the amount of 20 percent of the bid price. In response to the protest that followed, the agency argued unsuccessfully that since the bid bond was expressed in terms of a percentage of bid price, and since there was no "bid price" in the IFB, Haag Electric's bid bond was defective. We rejected that argument, finding that bidders (and their sureties) were cognizant that the IFB's guaranteed minimum price of $50,000 would be paid under the contemplated contract, such that a bid bond expressed as 20 percent of the bid price would be enforceable based on that amount.[5]

While the calculation of the surety's liability in Haag Elec. and Constr. Inc. was made difficult by the requirement for coefficient multipliers and by the absence of unit or total prices for the indefinite quantity work, those obstacles to determining the penal amount of the bid bond are not present here. The IFB included the government's good faith estimates of the volume of the indefinite quantity work the government anticipated ordering under the contract; the IFB specifically called for unit and total prices based on those estimates; and bidders were required to submit a grand total bid price upon which award on an "all or none" basis was to be made. Unlike the situation in Haag Elec. and Constr. Inc., where, in the absence of a "bid price" or any realistic dollar value estimates of the government's needs, we established the putative value of the contract based upon the guaranteed minimum value of the contract, the IFB here provides an amount certain that can be used as a base, the grand total bid price, upon which the contract price--and the sureties' liability--could be calculated with mathematical certainty.

The exact requirement called for in the solicitation is for a bid bond in the amount of 20 percent of the total bid price. Since Alco's total bid price was $665,553, Alco was required to submit a bid bond in the amount of $133,110. Since Alco submitted a bid bond for less than half of that amount, the bond is insufficient, rendering its bid nonresponsive.

Alco asserts that its bid bond deficiency should be waived pursuant to FAR Sec. 28.101-4(c)(2), which provides several exceptions to the general rule that a bid accompanied by an insufficient bid bond requires rejection. One exception set forth in that provision applies to situations where the amount of the bid guarantee submitted, although less than that required by the IFB, is equal to or greater than the difference between the offered price and the next higher acceptable bid. Alco argues that the exception applies to its bid because the amount of its bid bond is greater than the difference between its bid price for CLIN 0003 and the bid price of the next higher bidder, Safe Environment of America, for that CLIN.

We disagree with the protester's contention that in determining whether its insufficient bond is waivable, the difference between prices to be calculated should be limited to the difference between the prices bid for CLIN 0003. Rather, the difference to be calculated is between Alco's and Safe Environment's total bid prices. See FAR Sec. 28.101-4(c)(2). Since Alco's bid bond in an amount not to exceed $60,000 is not equal to or greater than the difference between Alco's bid ($665,553) and Safe Environment's next higher bid ($745,891)--a difference of $80,338--the exception in FAR Sec. 28.101-4(c)(2) is inapplicable here.[6]

Since its own bid is nonresponsive, Alco would not be in line for award even if its protest challenging the cancellation were sustained. Accordingly, Alco is not an interested party eligible to protest the agency's decision to cancel the solicitation. See 4 C.F.R. Secs. 21.0(a) and 21.1(a); Trimarchi, Inc., supra.

Hugo Key's protest is denied in part and dismissed in part; Alco's protest is dismissed.

1. Hugo Key also alleges that the Navy's corrective action was inappropriate because Alco's allegation concerning Hugo Key's defective bid bond was not timely raised. The fact that a protest allegation is untimely raised, however, does not preclude the agency from taking corrective action to remedy the impropriety. See CST Envtl., Inc., B-241542.2, Mar. 13, 1991, 91-1 CPD Para. 429.

2. Since the cancellation of the IFB rendered academic Hugo Key's allegation that the Navy should have also rejected Alco's bid as nonresponsive, Morey Mach., Inc.--Recon., B-233793.2, Aug. 3, 1989, 89-2 CPD Para. 102, we will not consider this aspect of Hugo Key's protest.

3. Paragraph H.11 of the IFB contained Defense Federal Acquisition Regulation Supplement Sec. 252.228-7004, in full, which required bidders to furnish "a bid guarantee in the amount of 20 percent with their bids."

4. The IFB advised bidders to show the multiplier as a decimal. For example, if a bidder wanted to bid the same price as the schedule unit prices, the multiplier would be 1.00; if a bidder wanted to discount the schedule prices by 10 or 20 percent, the multiplier would be shown as either .90 or .80, respectively.

5. We further found that Haag Electric's bid bond in the amount of 20 percent of the bid price was insufficient to meet the IFB requirement for a $20,000 bid bond, since the IFB only provided for a $50,000 minimum guaranteed value and stated no estimate of the government's anticipated needs. Using the guaranteed minimum value of the contract as a basis for establishing the penal sum of the bond, the bid bond amount would only be $10,000, and was thus insufficient to satisfy the $20,000 bid bond requirement specified in the IFB. We found, however, that Haag Electric's low bid was acceptable under applicable regulations because the difference between the low bid price and the next higher price was less than the insufficient $10,000 bid bond amount. See FAR Sec. 28.101-4(c)(2) (where the amount of the bid guarantee submitted with the low bid, although less than that required by the IFB, is equal to or greater than the difference between the bid price and the next higher acceptable bid, the low bid is acceptable); American Roofing and Metal Co., Inc. and Port Enters., Inc., a Joint Venture, B-239457, Aug. 24, 1990, 90-2 CPD Para. 153.

6. Alco also argues that it based the bid bond amount on a conversation Alco's president had with a Navy official. Where, as here, a solicitation expressly cautions bidders against relying on the oral advice from agency personnel before award (see FAR Sec. 52.215-14, incorporated in full in the IFB), bidders who ignore that admonition and rely upon alleged erroneous advice which conflicts with specific terms of the IFB, do so at their own risk. Such advice does not operate to amend the solicitation or otherwise legally bind the agency. See Consolidated Bell, Inc., B-228492, Feb. 19, 1988, 88-1 CPD Para. 169.