B-166799, MAY 15, 1969

B-166799, MAY 15, 1969

TO MR. SECRETARY:

REFERENCE IS MADE TO A LETTER DATED APRIL 25, 1969, FROM THE DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION, WITH ATTACHMENTS, REQUESTING TO BE ADVISED WHETHER THE BID OF SUMITOMO ELECTRIC INDUSTRIES, LTD., OSAKA, JAPAN, IS PROPER FOR ACCEPTANCE UNDER FORMALLY ADVERTISED BUREAU OF RECLAMATION SOLICITATION NO. DS-6662R.

THE SOLICITATION, AS AMENDED, REQUESTED BIDS FOR THE PROCUREMENT OF OIL CABLE SYSTEMS FOR THE GRAND COULEE THIRD POWERPLANT IN THE COLUMBIA BASIN PROJECT, WASHINGTON. ON THE FACESHEET OF THE SOLICITATION SUMITOMO ELECTRIC STATED THAT IT WAS ENCLOSING A GUARANTEE OF ITS OFFER CONSISTING OF A BID BOND AS REQUIRED BY SUBPARAGRAPH A 1AOF THE SPECIAL CONDITIONS. THE REFERENCED SUBPARAGRAPH PROVIDES IN PERTINENT PART AS FOLLOWS: "GUARANTEE OF OFFER. -- IF THE OFFER EXCEEDS $2,000, THE OFFEROR SHALL FURNISH GUARANTEE WITH HIS OFFER IN AN AMOUNT NOT LESS THAN 20 PERCENT OF THE AMOUNT OF THE OFFER. "FAILURE TO FURNISH A GUARANTEE OF OFFER IN THE PROPER FORM AND AMOUNT, BY THE TIME SET FOR OPENING OF OFFERS, MAY BE CAUSE FOR REJECTION OF THE OFFER. "THE GUARANTEE SHALL BE IN THE FORM OF A FIRM COMMITMENT, SUCH AS A BID BOND, WITH APPROVED SURETY OR SURETIES, POSTAL MONEY ORDER, CERTIFIED CHECK, CASHIER'S CHECK, IRREVOCABLE LETTER OF CREDIT OR, IN ACCORDANCE WITH TREASURY DEPARTMENT REGULATIONS, CERTAIN BONDS OR NOTES OF THE UNITED STATES. GUARANTEES OF OFFERS, OTHER THAN BID BONDS, WILL BE RETURNED (A) TO UNSUCCESSFUL OFFERORS AS SOON AS PRACTICABLE AFTER THE OPENING OF OFFERS, AND (B) TO THE SUCCESSFUL OFFEROR UPON EXECUTION OF SUCH FURTHER CONTRACTUAL DOCUMENTS AND BONDS AS MAY BE REQUIRED BY THE OFFER AS ACCEPTED. "IF THE SUCCESSFUL OFFEROR, UPON ACCEPTANCE OF HIS OFFER BY THE GOVERNMENT WITHIN THE PERIOD SPECIFIED THEREIN FOR ACCEPTANCE (60 DAYS IF NO PERIOD IS SPECIFIED) FAILS TO EXECUTE SUCH FURTHER CONTRACTUAL DOCUMENTS, IF ANY, AND GIVE SUCH BOND/S) AS MAY BE REQUIRED BY THE TERMS OF THE OFFER AS ACCEPTED WITHIN THE TIME SPECIFIED (10 DAYS IF NO PERIOD IS SPECIFIED) AFTER RECEIPT OF THE FORMS BY HIM, HIS CONTRACT MAY BE TERMINATED FOR DEFAULT. IN SUCH EVENT HE SHALL BE LIABLE FOR ANY COST OF PROCURING THE SUPPLIES OR SERVICES WHICH EXCEEDS THE AMOUNT OF HIS OFFER, AND THE GUARANTEE OF OFFER SHALL BE AVAILABLE TOWARD OFFSETTING SUCH DIFFERENCE.'

THE RECORD SHOWS THAT A TOTAL OF 11 BIDS WAS RECEIVED UNDER THE SOLICITATION AND THAT UPON EVALUATION THE BID OF SUMITOMO ELECTRIC IN THE TOTAL AMOUNT OF $2,676,972.93 WAS DETERMINED TO BE THE LOWEST BID RECEIVED. THE LOW BIDDER WAS IDENTIFIED THEREON AS SUMITOMO ELECTRIC INDUSTRIES, LTD., OSAKA, JAPAN; HOWEVER, THE BID WAS SIGNED BY S. TAURA,"V.P. AND GEN. MGR. OF LOS ANGELES OFFICE, SUMITOMO SHOJI N.Y., INC.' ATTACHED TO AND MADE A PART OF THE LOW BID WAS A POWER OF ATTORNEY DATED FEBRUARY 21, 1969, WHEREBY SUMITOMO ELECTRIC APPOINTED AND AUTHORIZED:

"* * * SUMITOMO SHOJI NEW YORK INC., LOS ANGELES OFFICE, 606 SOUTH OLIVE STREET, LOS ANGELES, CALIF. 90014, U.S.A. TO ACT AS ITS TRUE AND LAWFUL ATTORNEY, AND ON ITS BEHALF TO DO THE FOLLOWING ACTS AND DEEDS IN CONNECTION WITH THE TENDER NO. DS-6662R * * * "1. TO MAKE AND TO SIGN THE BID FOR THE ABOVE MENTIONED TENDER. "2.TO FURNISH A BID BOND AND/OR PERFORMANCE BOND. "3. TO NEGOTIATE WITH UNITED STATES, DEPARTMENT OF THE INTERIOR, BUREAU OF RECLAMATION. "4. TO SIGN AND TO EXECUTE THE CONTRACT WITH UNITED STATES, DEPARTMENT OF THE INTERIOR, BUREAU OF RECLAMATION WHEN THE SAID BID IS AWARDED. "5. TO ENGAGE IN ANY OTHER ACTIVITY WHICH MAY BE RELATED TO OR CONNECTED WITH THE ABOVE MENTIONED ACTS AND DEEDS.'

A QUESTION, HOWEVER, ARISES WHETHER THE LOW BID MAY BE ACCEPTED SINCE THE BID BOND NAMED ,SUMITOMO SHOJI, NEW YORK INC., 227 PARK AVENUE, NEW YORK, NEW YORK 10017" AS THE PRINCIPAL, AND NOT SUMITOMO ELECTRIC, THE BIDDER.

THE DEPUTY ASSISTANT SECRETARY STATES THAT THE DEPARTMENT HAS REGARDED BIDS SUPPORTED BY DEFICIENT BID BONDS AS NONRESPONSIVE, CITING 44 COMP. GEN. 495. HOWEVER, IT IS APPARENTLY FELT THAT OUR DECISION, B-164453, JULY 16, 1968, AFFORDS A BASIS FOR CONCLUDING THAT THE FAILURE OF SUMITOMO ELECTRIC TO SUPPLY A BID BOND NAMING IT AS PRINCIPAL IS A MINOR INFORMALITY WHICH MAY BE WAIVED. IN B-164453, SUPRA, WHICH IS DISTINGUISHABLE BOTH IN FACT AND LAW FROM THE INSTANT CASE, THE DEFICIENCY IN THE BID BOND WAS CONSIDERED TO BE MINOR AND NOT AFFECTING THE RESPONSIVENESS OF THE BID. IN THAT CASE, THE ONLY QUESTION INVOLVED WAS THE EFFECT OF THE FAILURE OF THE BIDDER TO SIGN THE BOND. THE RATIONALE OF B-164453 MAY BE STATED AS FOLLOWS:

THE RULE OF LAW FOLLOWED IN THE FEDERAL COURTS IS THAT IF THE PRINCIPAL IN A BOND WOULD BE LIABLE WITHOUT REFERENCE TO THE BOND FOR THE ACTS CONSTITUTING THE BREACH, AND BY THE TERMS OF THE BOND THE PARTIES BIND THEMSELVES SEVERALLY AS WELL AS JOINTLY TO PERFORM ITS CONDITIONS, THE FAILURE OF THE PRINCIPAL TO SIGN THE BOND DOES NOT RENDER THE BOND VOID AS TO THE SURETY AND DOES NOT RELEASE THE SURETY FROM LIABILITY THEREON. MAROTTA V AMERICAN SURETY CO., 64 F.2D 77; EMPIRE STATE SURETY CO. V CARROLL COUNTY, 194 F.593; UNITED STATES FIDELITY AND GUARANTY CO. V HAGGART, 163 F.801; AND ST. LOUIS BREWING ASSOCIATION V HAYES, 97 F.859. IN B-164453, THE LIABILITY OF THE BIDDER COULD BE DETERMINED FROM HIS BID AND FROM THE STATUTES AND REGULATIONS APPLICABLE TO GOVERNMENT PROCUREMENT. SEE REFINING ASSOCIATES INC. V UNITED STATES, 109 F.SUPP. 259, 124 CT.CL. 115. THE CONDITIONS SET FORTH IN THE BOND WERE MERELY RESTATEMENTS OF SOME OF THE CONDITIONS ACCEPTED BY THE BIDDER IN SUBMITTING HIS BID AND SINCE IT WAS NOT NECESSARY TO REFER TO THE BOND TO ESTABLISH THE BIDDER'S LIABILITY, THE BIDDER'S FAILURE TO SIGN THE BOND AS PRINCIPAL DID NOT RELEASE THE SURETY FROM HIS LIABILITY.

THE BID BOND IN B-164453 WAS SUFFICIENT TO PROVIDE THE PROTECTION TO THE GOVERNMENT THAT WAS DEEMED NECESSARY WHEN THE BID BOND REQUIREMENT WAS PLACED IN THE INVITATION. SINCE THE FAILURE OF THE BIDDER TO SIGN THE BOND HAD NO EFFECT ON ITS LIABILITY OR THAT OF THE SURETY, WE HAD NO OBJECTION TO TREATMENT OF THE DEFICIENCY AS A MINOR IRREGULARITY WHICH COULD BE WAIVED IN ORDER FOR THE GOVERNMENT TO CONSIDER THE BID.

OUR DECISION 44 COMP. GEN. 495, AS HERE, INVOLVED A SITUATION WHEREIN THE SURETY'S OBLIGATION TO THE BIDDER COULD NOT BE ESTABLISHED BY REFERENCE TO THE BID. IN THAT CASE IT WAS HELD THAT THE BID BOND WAS PRIMA FACIE DEFICIENT IN A MATERIAL RESPECT BECAUSE THE PRINCIPAL NAMED IN THE BOND (MARITIME SHIPWATCH SERVICE CORPORATION, AN AFFILIATE OF THE BIDDER) WAS NOT THE BIDDER AND FOR THAT REASON, THE OBLIGATION OF THE SURETY COULD NOT BE IMPUTED TO MARITIME MAINTENANCE, THE BIDDER. AT PAGE 497 OF THAT DECISION WE HELD:

"* * * IT IS A GENERAL RULE OF THE LAW OF SURETYSHIP THAT NO ONE INCURS A LIABILITY TO PAY A DEBT OR PERFORM A DUTY FOR ANOTHER UNLESS HE EXPRESSLY AGREES TO BE SO BOUND, FOR THE LAW DOES NOT CREATE RELATIONSHIPS OF THIS CHARACTER BY MERE IMPLICATION. SURETYSHIP, THEREFORE, GENERALLY ARISES ONLY BY EXPRESS CONTRACT OF THE PARTIES.

"IN VIEW OF THE FOREGOING WE FIND THAT THE BOND AS SUBMITTED WITH THE MARITIME MAINTENANCE BID WOULD NOT ESTABLISH THAT THE SURETY HAD AN OBLIGATION UNDER THE INSTANT INVITATION TO PAY A DEBT OF MARITIME MAINTENANCE. THEREFORE, THE SURETY'S OBLIGATION AS TO MARITIME MAINTENANCE WOULD NECESSARILY HAVE TO BE ESTABLISHED AFTER BID OPENING. TO PERMIT A BIDDER TO ESTABLISH THE SURETY'S OBLIGATION ON A BID BOND AFTER BID OPENING WOULD TEND TO COMPROMISE THE INTEGRITY OF THE COMPETITIVE BID SYSTEM BY MAKING IT POSSIBLE FOR A BIDDER TO DECIDE AFTER OPENING WHETHER OR NOT TO MAKE HIS BID ACCEPTABLE. ALSO, UNDUE DELAYS COULD BE CAUSED IN EFFECTING PROCUREMENTS AND INCONSISTENCIES IN THE TREATMENT OF BIDDERS COULD BE CREATED BECAUSE OF THE SUBJECTIVE DETERMINATIONS BY DIFFERENT CONTRACTING OFFICERS. IT HAS OFTEN BEEN STATED THAT THE MAINTENANCE OF THE INTEGRITY OF THE SYSTEM IS INFINITELY MORE IN THE PUBLIC INTEREST THAN A FINANCIAL SAVING IN ANY INDIVIDUAL CASE. SEE 17 COMP. GEN. 554 AND 38 COMP. GEN. 532. * * *"

WHAT WAS STATED THERE IS EQUALLY APPLICABLE HERE. MOREOVER, WE HAVE BEEN INFORMALLY ADVISED BY A REPRESENTATIVE OF THE SURETY COMPANY THAT IT NEVER INTENDED TO GUARANTEE THE OFFER OF SUMITOMO ELECTRIC AND THAT ANY FAILURE BY THAT BIDDER TO EXECUTE THE CONTRACT OR FURNISH ANY REQUIRED BONDS WOULD NOT GIVE RISE TO ANY OBLIGATION BY THE SURETY TO PAY A DEBT OF SUMITOMO ELECTRIC.

ACCORDINGLY, THE BID OF SUMITOMO ELECTRIC MAY NOT BE REGARDED AS RESPONSIVE TO THE BONDING PROVISIONS OF THE SOLICITATION AND, AS SUCH, MAY NOT BE CONSIDERED FOR AWARD.

AS REQUESTED, THE DOCUMENTS ENCLOSED WITH THE LETTER OF APRIL 25 ARE RETURNED HEREWITH.