Arlington Construction, Inc. B-252535 July 9, 1993 72 Comp.Gen. 282

B-252535: Jul 9, 1993

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Procurement Sealed Bidding Bid guarantees Responsiveness Signatures Authority Where the penal sum of the protester's bid bond was listed as 20 percent of its total evaluated bid price. The attorney-in-fact executing the bid bond on behalf of the protester's corporate surety did not have authority to execute the bid bond for this amount. The contracting officer reasonably determined that the protester's bid bond was defective on its face and of questionable enforceability since. In the event of a default by the protester if the firm were awarded the contract. It was not clear that the surety would be liable on the bid bond in any amount. 51 Comp.Gen. 802 (1972) will no longer be followed.

Arlington Construction, Inc. B-252535 July 9, 1993 72 Comp.Gen. 282

Procurement Sealed Bidding Bid guarantees Responsiveness Signatures Authority Where the penal sum of the protester's bid bond was listed as 20 percent of its total evaluated bid price, but the attorney-in-fact executing the bid bond on behalf of the protester's corporate surety did not have authority to execute the bid bond for this amount, the contracting officer reasonably determined that the protester's bid bond was defective on its face and of questionable enforceability since, in the event of a default by the protester if the firm were awarded the contract, it was not clear that the surety would be liable on the bid bond in any amount. 51 Comp.Gen. 802 (1972) will no longer be followed.

Attorneys

DECISION Arlington Construction, Inc. protests the rejection of its apparent low bid as nonresponsive under invitation for bids (IFB) No. GS- 11P-92-MQD-0112, issued by the General Services Administration for general construction and asbestos removal work. The protester essentially argues that the contracting officer improperly determined that its bid bond was defective.

We deny the protest.

The IFB was issued on September 10, 1992, for an indefinite quantity contract for the base year and 1 option year. Under the IFB, delivery orders would be issued specifying the work to be performed. The IFB provided an extensive list of pre-priced line items for which bidders were required to bid a percentage factor for the base year and a percentage factor for the option year. The percentage factor basically represented a discount for the pre-priced line items. Under this pricing methodology, in arriving at a bidder's total evaluated bid price, the contracting officer would multiply the estimated total contract amount-- $4 million--by the firm's percentage factor for the base year and its percentage factor for the option year. The contracting officer would then add these two figures together.

In addition, the IFB required bidders to submit a bid bond for 20 percent of the firm's total evaluated bid price. The IFB specifically included the provision at Federal Acquisition Regulation (FAR) Sec. 52.228-1, captioned "Bid Guarantee," which advised that the failure of a bidder to furnish a bid guarantee in the proper form and amount, by the time set for bid opening, may be cause for rejection of the bid.

Six bids were received by bid opening on October 15. The protester submitted the apparent low bid of minus 29.5 percent for the base year and minus 30 percent for the option year. The protester's total evaluated bid price was $5,620,000 (the sum of $4 million times .705 for a base year bid of $2,820,000 and $4 million times .70 for an option year bid of $2,800,000). Juniper Construction Co., Inc. submitted the apparent second low bid of minus 27 percent for the base year and minus 25 percent for the option year. Juniper's total evaluated bid price was $5,920,000 (the sum of $4 million times .73 for a base year bid of $2,920,000 and $4 million times .75 for an option year bid of $3,000,000).

The protester submitted with its bid a bid bond on Standard Form 24. The penal sum of the bid bond was listed as 20 percent of the protester's total evaluated bid price. No specific penal sum was otherwise stated. The bid bond was signed by Julia B. Taylor, attorney-in-fact, on behalf of Intercargo Insurance Company, the protester's corporate surety. However, attached to the bid bond was an Intercargo form, captioned "LIMITED POWER OF ATTORNEY," which showed that Ms. Taylor only had authority to execute this bid bond on behalf of Intercargo for "up to $300,000."

Based on the bid bond and limited power of attorney documentation, the contracting officer determined that the protester's bid bond was not acceptable because, while the penal sum of the protester's bid bond was for 20 percent of the protester's total evaluated bid price (equal to $1,124,000), the attorney-in-fact signing the bid bond on behalf of the surety only had authority to execute the bid bond for an amount not exceeding $300,000. The contracting officer concluded that the bid bond was defective on its face and not clearly enforceable. He rejected the protester's bid as nonresponsive, and subsequently awarded a contract to Juniper as the low, responsive and responsible bidder.

The protester argues that the contracting officer improperly rejected its bid as nonresponsive. The protester maintains that its bid bond is partially enforceable to the extent of $300,000, the limit of the attorney -in-fact's authority to execute the bid bond on behalf of the surety. The protester believes that the failure of its bid bond to be enforceable in the amount of 20 percent of its bid price should be waived since, if the surety is held liable for $300,000, this would cover the difference in price between its low bid and Juniper's second low bid. In making this argument, the protester relies on FAR Sec. 28.101-4(c)(2), which provides that noncompliance with the bid guarantee requirement shall be waived when the amount of the bid guarantee submitted is less than required, but is equal to or greater than the difference between the low bid and the next low bid.

The determinative issue concerning the acceptability of a bid bond, a material part of a bid, is whether, in the event of a default by the bidder, the agency could be certain that the surety would be bound, based on the information in the possession of the agency at the time of bid opening. Global Eng'g, B-250558, Jan. 11, 1993, 93-1 CPD Para. 31. If the agency cannot determine definitely from the documents submitted with the bid that the surety would be bound, the bid is nonresponsive and must be rejected. Id.; see, e.g., Regional Dev. Corp.--Recon.; Ware's Van & Storage Co., Inc.--Recon., B-251299.2; B-251431.2, Mar. 16, 1993, 93-1 CPD Para. 238; Ameron, Inc. v. U.S. Army Corps of Eng'rs, et al., 607 F. Supp. 962 (D.N.J. 1985), 610 F. Supp. 750 (D.N.J. 1985), aff'd as modified, 787 F.2d 875 (3rd Cir. 1986), aff'd on rehearing, 809 F.2d 979 (3rd Cir. 1986), cert. granted, 485 U.S. 958 (1988), cert. dismissed, 488 U.S. 918 (1988). The underlying principle is that, under the law of suretyship, no one incurs a liability to pay the debts or to perform the duties of another unless that person expressly agrees to be bound. Anderson Constr. Co.; Rapp Constructors, Inc., 63 Comp.Gen. 248 (1984), 84-1 CPD Para. 279.

We believe the execution of a bid bond by an attorney-in-fact on behalf of a surety for an amount substantially in excess of the attorney-in- fact's authority and substantially less than the stated penal sum of the bid bond creates uncertainty as to the surety's liability on the bid bond for any amount--the surety could argue that the entire bid bond is unenforceable because it was executed by someone clearly exceeding his express grant of authority. See generally Hydro-Dredge Corp., B-214408, Apr. 9, 1984, 84-1 CPD Para. 400.

The protester argues that, under the "partial validity" doctrine, its bid bond is acceptable and enforceable up to $300,000, the express limit of the attorney-in-fact's authority to bind the surety. We disagree. The "partial validity" doctrine, contained in the Restatement (Second) of Agency Sec. 164 (1958), provides that where an agent exceeds his authority, a principal may still be held liable for a lesser amount which represents the express limit of the agent's authority to bind the principal. The protester cites one court case, DeBoer Constr., Inc. v. Reliance Ins. Co., 540 F.2d 486 (10th Cir. 1976), in which the Restatement's partial validity doctrine was discussed. In that case, where losses had already been incurred, the court held that the surety was obligated on a construction bond to the extent of its agent's express limited authority.

We do not regard either the Restatement or the DeBoer case as controlling here. The Restatement focuses on the obligation of one party to a contract, the principal, to the "other party" when the contract was entered into by the agent on behalf of the principal. The Restatement gives the "other party" the right to hold the principal liable upon the contract up to the amount of the agent's authority, provided the "other party seasonably manifests his willingness to accept the contract as it was authorized," and, according to the accompanying comment, provided the principal has not changed its position in reliance on the belief that the agent's action did not give rise to a binding contract. The purpose of the Restatement rule is to provide comparability to the rule allowing ratification by a principal. As explained by the court in DeBoer:

"If the principal has the option of accepting the contract in a greater amount [than what the agent was authorized to contract for on behalf of the principal], the third person dealing with the agent should be able to accept the contract for the lesser amount originally authorized."

540 F.2d at 493.

It is far from clear that this Restatement rule is applicable to federal contracting surety bond arrangements. Such bonding arrangements are regarded as three-party agreements, with the government being a "third party obligee." Balboa Ins. Co. v. U.S., 775 F.2d 1158 (Fed. Cir. 1985). There is no one "other party"; thus, it is uncertain whether the Restatement language should be read as referring to the bidder/offeror, the purchaser of the surety bond, or to the government, the entity to be protected or indemnified upon default of the bidder/offeror.

As for the DeBoer case, it does not purport to apply the Restatement rule to this situation. The court in DeBoer addressed fraudulent action by a bonding company's agent, a matter the court recognized was not encompassed by the Restatement rule. Nothing in the court's discussion of the rule leads to a conclusion that the rule is applicable here.

In 51 Comp.Gen. 802 (1972), we approved a contracting officer's request to accept a bid bond on the basis of the partial validity doctrine. In reaching that decision, we stated that "where the only difference between the contract as authorized [by the surety] and the contract as made [by the agent for the surety] is a difference in amount, an exception is recognized and the principal is liable upon the contract as it was authorized."

Upon further consideration, we believe that we were too quick in 51 Comp. Gen. 802 to conclude that the surety would in fact be liable up to the bond amount for which its agent was authorized to contract. As we have previously discussed, and in the absence of any contrary authority, we conclude that there is some question whether the partial validity doctrine applies in the situation presented to the contracting officer in this case. Bid bonds are to be strictly construed and should not be accepted if there is any doubt as to their validity. Consequently, the contracting officer reasonably rejected the protester's bid.

The protest is denied.