B-31597, JANUARY 19, 1943, 22 COMP. GEN. 671

B-31597: Jan 19, 1943

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BONDS - CONTRACT PERFORMANCE - CERTIFIED CHECK OR CASH DEPOSIT IN LIEU OF WHERE IT IS ADMINISTRATIVELY DETERMINED THAT THE INTERESTS OF THE GOVERNMENT REQUIRE THE FURNISHING OF SECURITY FOR THE FAITHFUL PERFORMANCE OF A CONTRACT OF A NATURE OTHER THAN THAT FOR WHICH THE FURNISHING OF A PERFORMANCE BOND IS REQUIRED BY STATUTE. A PROVISION IS INSERTED IN THE INVITATION FOR BIDS. THERE IS NO OBJECTION TO THE ACCEPTANCE OF A CERTIFIED CHECK OR CASH DEPOSIT IN LIEU OF THE STIPULATED PERFORMANCE BOND. WHERE A PERFORMANCE BOND IS REQUIRED BY THE ADVERTISED SPECIFICATIONS. IT IS PRESUMED. IF THE BOND IS NOT FURNISHED. AN AMOUNT EQUAL TO THE PREMIUM IS REQUIRED TO BE DEDUCTED FROM THE CONTRACT PRICE.

B-31597, JANUARY 19, 1943, 22 COMP. GEN. 671

BONDS - CONTRACT PERFORMANCE - CERTIFIED CHECK OR CASH DEPOSIT IN LIEU OF WHERE IT IS ADMINISTRATIVELY DETERMINED THAT THE INTERESTS OF THE GOVERNMENT REQUIRE THE FURNISHING OF SECURITY FOR THE FAITHFUL PERFORMANCE OF A CONTRACT OF A NATURE OTHER THAN THAT FOR WHICH THE FURNISHING OF A PERFORMANCE BOND IS REQUIRED BY STATUTE, AND A PROVISION IS INSERTED IN THE INVITATION FOR BIDS, AND IN THE RESULTING CONTRACT, REQUIRING THE SUCCESSFUL BIDDER TO FURNISH A PERFORMANCE BOND, THERE IS NO OBJECTION TO THE ACCEPTANCE OF A CERTIFIED CHECK OR CASH DEPOSIT IN LIEU OF THE STIPULATED PERFORMANCE BOND. WHERE A PERFORMANCE BOND IS REQUIRED BY THE ADVERTISED SPECIFICATIONS, IT IS PRESUMED, AS A GENERAL RULE, THAT THE CONTRACTOR INCLUDED AS A PART OF THE BID PRICE AN AMOUNT EQUAL TO THE PREMIUM ON A CORPORATE SURETY BOND, AND, IF THE BOND IS NOT FURNISHED, AN AMOUNT EQUAL TO THE PREMIUM IS REQUIRED TO BE DEDUCTED FROM THE CONTRACT PRICE, BUT WHERE A CONTRACTOR ASSUMED IN GOOD FAITH THAT A CERTIFIED CHECK WOULD BE ACCEPTABLE TO THE GOVERNMENT IN LIEU OF A PERFORMANCE BOND, THERE IS NO BASIS FOR THE ASSUMPTION THAT THE BID PRICE INCLUDED THE COST OF PROCURING A BOND INVOLVING THE PAYMENT OF A PREMIUM.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE INTERIOR, JANUARY 19, 1943:

I HAVE YOUR LETTER OF JANUARY 7, 1943, AS FOLLOWS:

THE UNITED STATES DEPARTMENT OF THE INTERIOR IS IN RECEIPT OF A LETTER FROM THE PHEOLL MANUFACTURING COMPANY, DATED NOVEMBER 27, REQUESTING THAT THAT COMPANY'S CERTIFIED CHECK, NO. 2950, IN THE AMOUNT OF $1100.00, SUBMITTED TO SUPPORT CONTRACT I-1-IND-26670, BE ACCEPTED IN LIEU OF A PERFORMANCE BOND.

ON AUGUST 4, 1942, THE ACTING PURCHASING OFFICER, DEPARTMENT OF THE INTERIOR, ISSUED AN ADVERTISEMENT, INVITATION A.E. SCHEDULE NO. 17, SOLICITING BIDS FOR HARDWARE, TO BE RECEIVED ON SEPTEMBER 1, 1942, AT THE INDIAN SERVICE WAREHOUSE, 615 WEST PERSHING ROAD, CHICAGO, ILLINOIS. RESPONSE TO THE INVITATION, ON AUGUST 14, 1942, THE PHEOLL MANUFACTURING COMPANY, 5700 ROOSEVELT ROAD, CHICAGO, ILLINOIS, SUBMITTED A BID TO SELL BOLTS TO THE INDIAN SERVICE; ON SEPTEMBER 19, 1942, AWARD WAS MADE THEREON BY THE PURCHASING OFFICER FOR THE PURCHASE OF BOLTS UNDER CERTAIN ITEMS OF THE ADVERTISEMENT. ON SEPTEMBER 19, 1942, CONTRACT I-1-IND-26670 WAS EXECUTED, IN THE AMOUNT OF $2,196.28, AND IT WILL TERMINATE ON JUNE 30, 1943.

PARAGRAPH 8 OF DEPARTMENTAL STANDARD FORM NO. 5-089, WHICH ACCOMPANIED THE ADVERTISEMENT, SPECIFIED THAT EACH CONTRACTOR RECEIVING AN AWARD OF MORE THAN $2,000.00, SHOULD FURNISH A PERFORMANCE BOND FOR AT LEAST FIFTY (50) PERCENT OF THE AMOUNT OF THE CONTRACT. THE CONTRACT ALSO SPECIFIED THAT A "PERFORMANCE BOND WILL BE REQUIRED TO SUPPORT ANY CONTRACT INVOLVING MORE THAN $2,000.00.'

ON OCTOBER 13, 1942, THE PURCHASING OFFICER SENT THE CONTRACTOR A PERFORMANCE BOND, GOVERNMENT STANDARD FORM NO. 25, IN THE AMOUNT OF $1100.00, FOR EXECUTION AND RETURN TO THE " PURCHASING OFFICER, INTERIOR DEPARTMENT, WASHINGTON, D.C.' ON NOVEMBER 5, 1942, THE CONTRACTOR SENT THE PURCHASING OFFICER A CERTIFIED CHECK, NO. 2950, IN THE AMOUNT OF $1100.00, TO SUPPORT THE CONTRACT IN LIEU OF A PERFORMANCE BOND. NOVEMBER 12, 1942, THE PURCHASING OFFICER ADVISED THE CONTRACTOR THAT THE CONTRACT PROVIDES THAT A PERFORMANCE BOND SHALL BE FURNISHED TO SUPPORT THE CONTRACT WHEN THE TOTAL AMOUNT EXCEEDS $2,000, AND THE CHECK COULD NOT BE ACCEPTED IN SUPPORT THEREOF.

ON NOVEMBER 27, 1942, THE CONTRACTOR ADVISED THE PURCHASING OFFICER THAT "WE ARE DOING DIRECT BUSINESS WITH MANY OTHER OF THE GOVERNMENTAL AGENCIES INCLUDING THE ARMY, NAVY AND AIR CORPS AND THAT NONE OF THESE REQUIRE THE FURNISHING OF A PERFORMANCE BOND ON A CONTRACT DURING THIS PERIOD OF EMERGENCY. * * * IT WOULD, THEREFORE, BE APPRECIATED IF YOU WOULD RECONSIDER THIS MATTER AND ADVISE US THAT IT WILL EITHER NOT BE NECESSARY TO SUPPLY THIS PERFORMANCE BOND OR THAT YOU WILL ACCEPT OUR CERTIFIED CHECK REFERRED TO ABOVE.'

YOUR OPINION IS REQUESTED AS TO WHETHER THE CERTIFIED CHECK OF THE CONTRACTOR MAY BE ACCEPTED IN LIEU OF A PERFORMANCE BOND TO SUPPORT THE ABOVE-NUMBERED CONTRACT.

THE DETERMINATION OF WHETHER THE CONTRACTOR MAY BE PERMITTED TO FURNISH A TYPE OF SECURITY OTHER THAN THAT SPECIFIED MUST, OF COURSE, BE GOVERNED AND CONTROLLED BY THE PUBLIC INTEREST.

THERE BEING NO STATUTORY REQUIREMENT THAT PERFORMANCE BONDS BE FURNISHED WITH CONTRACTS OF THE NATURE HERE INVOLVED, IT IS PRESUMED THAT THE ADMINISTRATIVE DETERMINATION OF THE NEED THEREFOR WAS FOR THE PURPOSE OF AFFORDING ADDITIONAL SECURITY THAT THE SUCCESSFUL BIDDERS WOULD FAITHFULLY PERFORM THE CONTRACTS AWARDED PURSUANT TO THE SUBJECT INVITATION AND WOULD MAKE GOOD ANY LOSS SUSTAINED BY THE GOVERNMENT IN THE EVENT OF THEIR FAILURE SO TO PERFORM. IN THIS CONNECTION, IT IS TO BE RECOGNIZED THAT IF THE BIDDERS ARE RESPONSIBLE, FINANCIALLY, THE BOND IS OF LITTLE, IF ANY, ADDITIONAL VALUE TO THE GOVERNMENT AS, INDEPENDENTLY THEREOF, ANY LOSS SUSTAINED THROUGH FAILURE TO PERFORM WOULD BE RECOVERABLE FROM THE CONTRACTORS. IT IS FOR THIS REASON AND TO AVOID IMPOSING UPON THE GOVERNMENT THE BURDEN OF PAYING SUCH EXTRA AMOUNT AS MAY BE INCLUDED BY BIDDERS AS THE COST OF PROCURING A PERFORMANCE BOND THAT THIS OFFICE HAS SUGGESTED THAT, IN THOSE INSTANCES WHERE THE NEED FOR FURTHER SECURITY FOR PERFORMANCE OF CONTRACTS IS ADMINISTRATIVELY DETERMINED, BIDDERS BE PERMITTED TO FURNISH A CASH DEPOSIT, CERTIFIED CHECK, OR PERFORMANCE BOND, AT THEIR OPTION--- SUCH OPTIONS TO BE STATED IN THE BID. 16 COMP. GEN. 81. FURTHER, FROM A PRACTICAL STANDPOINT, THERE WOULD APPEAR TO BE NO VALID OBJECTION TO THE FURNISHING OF A CASH DEPOSIT OR CERTIFIED CHECK IN LIEU OF A PERFORMANCE BOND WITH CORPORATE OR INDIVIDUAL SURETY SINCE THE GOVERNMENT IS AFFORDED AN EQUAL MEASURE OF PROTECTION IN EITHER EVENT. RATHER, THE FORMER TYPE OF SECURITY WOULD APPEAR TO BE MORE IN THE INTEREST OF THE GOVERNMENT SINCE, IN THE EVENT OF DEFAULT AND THE INCURRENCE OF EXCESS COST, THE GOVERNMENT COULD MORE EASILY REALIZE ON ITS SECURITY WITHOUT THE NECESSITY OF INSTITUTING SUIT, AS SO OFTEN IS THE CASE IN CONNECTION WITH CORPORATE OR INDIVIDUAL SURETY.

ALSO, WHILE THERE IS FOR CONSIDERATION, SO FAR AS THE INTEREST OF THE GOVERNMENT IN THIS MATTER IS CONCERNED, THE PRINCIPLE THAT WHERE A PERFORMANCE BOND IS REQUIRED BY THE ADVERTISED SPECIFICATIONS, IT IS TO BE PRESUMED, AS A GENERAL RULE, THAT THE CONTRACTOR INCLUDED AS A PART OF THE BID PRICE AN AMOUNT EQUAL TO THE PREMIUM ON A CORPORATE SURETY BOND, AND, ACCORDINGLY, IF THE BOND IS NOT FURNISHED SUCH AMOUNT IS REQUIRED TO BE DEDUCTED FROM THE CONTRACT PRICE, THIS PRESUMPTION IS NOT CONCLUSIVE AND, IN THE INSTANCE CASE, DOES NOT AFFECT THE PROPRIETY OF ACCEPTING THE TYPE OF SECURITY HERE OFFERED. WHERE, AS HERE, THE EVIDENCE ESTABLISHES THAT THE CONTRACTOR ASSUMED IN GOOD FAITH THAT A CERTIFIED CHECK WOULD BE ACCEPTABLE TO THE GOVERNMENT IN LIEU OF THE STIPULATED PERFORMANCE BOND AND HAS OFFERED PERFORMANCE GUARANTY OF THIS CHARACTER, THERE IS NO BASIS FOR THE ASSUMPTION THAT THE BID PRICE INCLUDED THE COST OF PROCURING A BOND INVOLVING THE PAYMENT OF A PREMIUM AND, IT NECESSARILY FOLLOWS, NO BASIS FOR OBJECTION ON THAT ACCOUNT TO THE FURNISHING OF SOME OTHER TYPE OF SECURITY.

SINCE, FOR THE REASONS STATED, THE ACCEPTANCE OF THE CONTRACTOR'S CERTIFIED CHECK IN LIEU OF A PERFORMANCE BOND WOULD NOT BE PREJUDICIAL TO THE INTERESTS OF THE GOVERNMENT, THE QUESTION PRESENTED IS ANSWERED IN THE AFFIRMATIVE.