B-209182, JAN 26, 1983

B-209182, JAN 26, 1983

DIGEST: REJECTION OF A BID AS NONRESPONSIVE IS PROPER WHERE LETTER OF CREDIT SUBMITTED WITH THE BID AS A BID GUARANTEE IS AMBIGUOUS BECAUSE IT REFERS NOT TO THE BIDDING CORPORATION BUT ONLY TO THE INDIVIDUAL SIGNING THE BID.

AMERICAN PHOTOGRAPHIC INDUSTRIES, INC.:

AMERICAN PHOTOGRAPHIC INDUSTRIES, INC. PROTESTS THE REJECTION OF ITS BID UNDER INVITATION FOR BIDS F05600-82-B-0021 ISSUED BY THE AIR FORCE TO PROCURE THE SERVICES NEEDED TO MANAGE AND OPERATE THE AUDIOVISUAL SERVICE CENTER AT LOWRY AIR FORCE BASE. THE AIR FORCE REJECTED THE BID AS NONRESPONSIVE FOR FAILING TO PROVIDE AN ADEQUATE BID GUARANTEE. WE FIND THAT THE AGENCY'S ACTION WAS PROPER.

PHOTOGRAPHIC'S BID OF $1,704,799.63 WAS THE LOW BID RECEIVED AT THE AUGUST 5, 1982 BID OPENING. THE NEXT LOW BID WAS $2,170,768. A LETTER DATED JULY 20 FROM THE UNITED AMERICAN BANK, CHATTANOOGA, TENNESSEE, WAS ATTACHED TO PHOTOGRAPHIC'S BID. THIS LETTER, WHICH WAS ADDRESSED TO LOWRY AIR FORCE BASE AND DENOMINATED AN "IRREVOCABLE LETTER OF CREDIT," STATED IN PART:

"WE (THE BANK) AUTHORIZE YOU (LOWRY AFB) TO DRAW ON US FOR THE ACCOUNT OF STAN BAKER UP TO AN AGGREGATE AMOUNT OF $125,000 *** ACCOMPANIED BY THE FOLLOWING:

YOUR ACCEPTANCE OF THIS CREDIT WILL CONSTITUTE YOUR AGREEMENT TO REPAY TO US ANY FUNDS PAID BY US TO YOU HEREUNDER AND NOT USED BY YOU IN SATISFACTION OR REIMBURSEMENT OF ANY LOSS, COST, CLAIM OR EXPENSE INCURRED BY YOU WITHIN THE TERMS OF THE CONTRACT BETWEEN YOURSELVES AND STAN BAKER."

A BID GUARANTEE MAY TAKE THE FORM OF AN IRREVOCABLE LETTER OF CREDIT. ALAN L. CROUCH, B-207652, OCTOBER 19, 1982, 82-2 CPD 345. A LETTER OF CREDIT IS ESSENTIALLY A THIRD PARTY BENEFICIARY CONTRACT WHERE A PARTY DESIRING TO TRANSACT BUSINESS INDUCES ANOTHER, USUALLY A BANK, TO ISSUE A LETTER TO A THIRD PROMISING TO HONOR THAT PARTY'S DRAFTS OR OTHER DEMANDS FOR PAYMENT UPON THE THIRD PARTY'S COMPLIANCE WITH CERTAIN CONDITIONS. JUANITA H. BURNS AND GEORGE M. SOBLEY, SUPRA. THE EFFECT OF THIS ARRANGEMENT IS TO SUBSTITUTE THE BANK'S CREDIT FOR THAT OF THE PARTY AT WHOSE REQUEST THE LETTER IS ISSUED. CHEMICAL TECHNOLOGY, INC., B-192893, DECEMBER 27, 1978, 78-2 CPD 438. AN IRREVOCABLE LETTER OF CREDIT SATISFIES THE REQUIREMENT OF A FIRM COMMITMENT BECAUSE IT ASSURES THE GOVERNMENT OF ACCESS TO FUNDS SHOULD A SUCCESSFUL BIDDER FAIL OR REFUSE TO EXECUTE REQUIRED CONTRACTUAL DOCUMENTS OR TO PROVIDE PAYMENT OR PERFORMANCE BONDS.

HERE, WE FIND THAT THE AIR FORCE REASONABLY CONCLUDED THAT THE LETTER SUBMITTED WITH THE PROTESTER'S BID DID NOT CONSTITUTE AN ADEQUATE GUARANTEE. THE LETTER OF CREDIT WAS AT BEST AMBIGUOUS. IT PURPORTED TO DRAW UPON THE ACCOUNT OF AN INDIVIDUAL WHO WAS NOT THE NAMED BIDDER AND DID NOT REFER AT ALL TO THE SUBJECT SOLICITATION. FURTHER, AND EVEN MORE SIGNIFICANT, THE LETTER STATED THAT THE GOVERNMENT COULD BE REQUIRED TO REPAY FUNDS PAID TO IT PURSUANT TO THE LETTER IF SUCH FUNDS WERE NOT USED IN SATISFACTION OF EXPENSES INCURRED WITHIN THE TERMS OF "THE CONTRACT" BETWEEN THE GOVERNMENT AND THAT INDIVIDUAL. THERE, OF COURSE, COULD BE NO SUCH CONTRACT SINCE THE INDIVIDUAL IS A SEPARATE LEGAL ENTITY FROM THE CORPORATION WHICH SUBMITTED THE BID UNDER THE SUBJECT INVITATION. SEE A.D.ROE COMPANY, INC., 54 COMP.GEN. 271 (1974), 74-2 CPD 194. IT IS SIMPLY UNCLEAR AS TO WHAT LIABILITY THE GOVERNMENT WOULD INCUR AS A RESULT OF THIS CLAUSE IF PHOTOGRAPHIC FAILED TO EXECUTE THE CONTRACT AND THE GOVERNMENT WERE REQUIRED TO INVOKE THIS LETTER OF CREDIT. THUS, WE HAVE NO BASIS UPON WHICH TO OBJECT TO THE AGENCY'S REJECTION OF THE PROTESTER'S BID.

THE BANK'S SECOND LETTER SUBMITTED AFTER BID OPENING ATTEMPTING TO CLARIFY ITS ORIGINAL LETTER CANNOT BE CONSIDERED BECAUSE ONLY MATERIAL AVAILABLE AT BID OPENING MAY BE CONSIDERED IN MAKING A DETERMINATION OF RESPONSIVENESS. FISHER-KLOSTERMAN, INC., B-185106, MARCH 9, 1976, 76-1 CPD 165. FURTHER, WHILE IT WOULD BE CHEAPER, AS THE PROTESTER ARGUES, TO ACCEPT ITS BID, THE PUBLIC INTEREST IN THE STRICT MAINTENANCE OF THE COMPETITIVE BIDDING PROCESS FAR OUTWEIGHS ANY MONETARY SAVINGS THAT THE GOVERNMENT MIGHT REALIZE BY WAIVING THE DEFICIENCIES HERE. CHEMICAL TECHNOLOGY, INC., SUPRA.

THE PROTEST IS DENIED.