B-220994, JAN 27, 1986

B-220994, JAN 27, 1986

BIDS - GUARANTEES - BID GUARANTEES - IRREVOCABLE LETTER OF CREDIT - ACCEPTABILITY DIGEST: IN RESPONSE TO A REQUEST FROM THE OFFICE OF SENATE LEGAL COUNSEL FOR AN INTERPRETATION OF A REQUIREMENT IN 2 U.S.C. SECS. 106 AND 107 (1982) THAT BIDS ON PROCUREMENTS OF STATIONERY BY THE CONGRESS BE ACCOMPANIED BY SECURITY SUFFICIENT TO GUARANTEE PERFORMANCE, GAO (1) CONSTRUES THE SECURITY REQUIREMENT OF THE STATUTES AS APPLYING ONLY TO ITEMS THAT MAY BE CONSIDERED TO BE "STATIONERY," (2) AGREES THAT THE STATUTES LEAVE TO THE PROCURING AUTHORITIES THE DECISION AS TO WHAT AMOUNT OF SECURITY IS SUFFICIENT, AND (3) NOTES THAT THE LANGUAGE OF THE STATUTES DOES NOT APPEAR TO PROHIBIT THE USE OF CERTIFIED CHECKS OR LETTERS OF CREDIT AS TYPES OF SECURITY.

KEN U. BENJAMIN, JR., ESQ:

DEPUTY COUNSEL, OFFICE OF SENATE

LEGAL COUNSEL

UNITED STATES SENATE

THIS RESPONDS TO YOUR LETTER OF OCTOBER 24, 1985, REQUESTING OUR VIEWS ON TWO PROPOSED APPROACHES BY WHICH THE SECRETARY OF THE SENATE MAY COMPLY WITH THE REQUIREMENTS OF SECTIONS 106 AND 107 OF TITLE 2 OF THE UNITED STATES CODE.

SECTIONS 106 AND 107 CONCERN PURCHASES OF STATIONERY BY THE SECRETARY OF THE SENATE AND THE CLERK OF THE HOUSE OF REPRESENTATIVES. IN ESSENCE, THE STATUTES PROVIDE FOR SUCH PURCHASES THROUGH A FORMAL ADVERTISING PROCEDURE UNDER WHICH BIDDERS ARE TO ACCOMPANY THEIR BIDS WITH "SUFFICIENT SECURITY" TO GUARANTEE PERFORMANCE OF THE RESULTING CONTRACT. THE STATUTES ARE BASED ON AN 1815 JOINT RESOLUTION OF THE CONGRESS CONTAINING THESE REQUIREMENTS. YOU STATE THAT THE SECRETARY OF THE SENATE IS REEXAMINING THE LONG-STANDING PRACTICE UNDER THESE STATUTES OF REQUIRING PERFORMANCE BONDS ON PURCHASES OF SUCH ITEMS AS FLAGS, LEATHER GOODS, CALENDARS, AND PENS, AND THAT YOU ARE CONSIDERING MAKING THE FOLLOWING RECOMMENDATIONS IN CONNECTION WITH THAT REEXAMINATION: (1) THAT THE STATUTORY PERFORMANCE BOND REQUIREMENT BE CONSTRUED AS APPLYING ONLY TO ITEMS ASSOCIATED WITH WRITING AND PRINTING, AND (2) THAT THE SECRETARY REDUCE THE PENALTY AMOUNT OF THE BOND FROM THE CURRENT 60 PERCENT TO 5 PERCENT OR LESS.

BEFORE COMMENTING ON THE SPECIFIC RECOMMENDATIONS, WE NOTE THAT EXCEPT FOR CONSTRUCTION CONTRACTS, WHERE SUCH BONDS ARE REQUIRED BY STATUTE, 40 U.S.C. SEC. 270A-270F (1982) (THE MILLER ACT), REQUIRING PERFORMANCE BONDS IS NOT A FAVORED MEANS OF ENSURING THAT GOVERNMENT CONTRACTS ARE PERFORMED PROPERLY. ALTHOUGH NOT APPLICABLE TO PROCUREMENTS BY THE CONGRESS, THE FEDERAL ACQUISITION REGULATION (FAR) PROVIDES THAT AGENCIES SHOULD NOT REQUIRE PERFORMANCE BONDS ON OTHER THAN CONSTRUCTION CONTRACTS UNLESS NECESSARY TO PROTECT THE GOVERNMENT'S INTEREST. FAR, 48 C.F.R. SEC. 28.103 (1984). THE FAR GIVES FOUR EXAMPLES OF SITUATIONS WHERE THE INTEREST OF THE GOVERNMENT MIGHT REQUIRE PERFORMANCE BONDS, NONE OF WHICH IS SIMILAR TO THE PROCUREMENTS YOU DESCRIBE. BOTH THE REGULATIONS AND OUR CASES CLEARLY STATE THAT A PERFORMANCE BOND MAY NOT SERVE AS A SUBSTITUTE FOR AN AFFIRMATIVE RESPONSIBILITY DETERMINATION.

IN OUR VIEW, THE SECURITY REQUIREMENT OF SECTIONS 106 AND 107 APPLIES ONLY TO ITEMS THAT MAY BE CONSIDERED "STATIONERY;" IT DOES NOT APPLY TO ALL ITEMS ASSOCIATED WITH WRITING AND PRINTING. UNDER THIS CONSTRUCTION, WE BELIEVE THAT NONE OF THE ITEMS YOU MENTION WOULD BE SUBJECT TO THE STATUTORY SECURITY REQUIREMENT. WE HAVE NOT FOUND ANY LEGISLATIVE HISTORY THAT INDICATES THE CONGRESS INTENDED THE REQUIREMENTS OF SECTIONS 106 AND 107 TO APPLY TO SUCH ITEMS AS FLAGS, PENS, LEATHER GOODS, AND CALENDARS. SHOULD YOU DECIDE TO RECOMMEND THIS PROPOSED CONSTRUCTION OF THE STATUTES, THERE WOULD BE NO REQUIREMENT FOR PERFORMANCE BONDS IN PROCUREMENTS OF THESE ITEMS. FURTHER, WE NOTE THAT THE SECURITY REQUIREMENT OF SECTIONS 106 AND 107 APPLIES ONLY TO STATIONERY PROCURED IN THE OPEN MARKET UNDER THOSE SECTIONS; IT DOES NOT APPLY TO STATIONERY PURCHASED AT COST FROM THE PUBLIC PRINTER FOR THE SENATE STATIONERY ROOM UNDER 2 U.S.C. SEC. 110.

WITH RESPECT TO PROCUREMENTS TO WHICH YOU DECIDE THE SECURITY REQUIREMENT OF SECTIONS 106 AND 107 APPLIES, WE BELIEVE THAT BEYOND ESTABLISHING A CEILING AMOUNT OF DOUBLE THE CONTRACT PRICE, THE STATUTES LEAVE TO THE SECRETARY THE DECISION AS TO WHAT AMOUNT CONSTITUTES "SUFFICIENT SECURITY." AS LONG AS THE SECRETARY REASONABLY DETERMINES THAT THE AMOUNT OF SECURITY REQUIRED IS ADEQUATE TO PROTECT THE GOVERNMENT'S INTERESTS SHOULD THE CONTRACTOR DEFAULT IN PERFORMING THE CONTRACT, WE BELIEVE THE SECRETARY WOULD HAVE SATISFIED THE STATUTORY REQUIREMENTS.

FINALLY, YOU ALSO SUGGEST THAT THE SECURITY OFFERED BY A CONTRACTOR COULD TAKE THE FORM OF A CERTIFIED CHECK OR A LETTER OF CREDIT, RATHER THAN THE PROMISE OF A SURETY TO GUARANTEE PERFORMANCE OF THE CONTRACT IN THE EVENT OF A DEFAULT. WE NOTE, HOWEVER, THAT SECTION 107 PROVIDES THAT IN THE EVENT OF A DEFAULT BY THE CONTRACTOR, "HE AND HIS SURETIES SHALL BE LIABLE FOR THE FORFEITURE SPECIFIED." WHILE THIS LANGUAGE SUGGESTS THAT THE CONGRESS ENVISIONED THE USE OF SURETIES TO SATISFY THE SECURITY REQUIREMENT, WE DO NOT THINK IT PROHIBITS THE USE OF THE OTHER TYPES OF SECURITY YOU PROPOSE.