B-141215, DECEMBER 3, 1959, 39 COMP. GEN. 418

B-141215, DECEMBER 3, 1959, 39 COMP. GEN. 418

CONTRACTS - CONDITION IN BID BOND - BID BOND AS LIQUIDATED DAMAGES - AMOUNT DETERMINATION A LOW BIDDER WHO, IN RESPONSE TO AN INVITATION WHICH REQUIRES FORFEITURE OF THE TOTAL AMOUNT OF THE REQUIRED BID BOND AS LIQUIDATED DAMAGES, SUBMITS THE REQUIRED BOND WITH A CONDITION LIMITING HIS LIABILITY TO THE DIFFERENCE BETWEEN THE BID PRICE AND THE COST OF OBTAINING PERFORMANCE ELSEWHERE HAS SUBMITTED A BID CLEARLY ESTABLISHING THE LIABILITY OF THE PRINCIPAL AND SURETY AS A PENALTY, WHEREAS THE LIABILITY OF THE OTHER BIDDERS WHO CONFORMED TO THE TERMS OF THE INVITATION IS FOR LIQUIDATED DAMAGES THEREBY RENDERING THE BIDDING ON UNEQUAL TERMS AND REQUIRING REJECTION OF THE LOW BID AS NONRESPONSIVE TO THE INVITATION. WHERE THE AMOUNT OF A BID BOND WHICH PURSUANT TO AN INVITATION IS REQUIRED TO BE FORFEITED AS LIQUIDATED DAMAGES, IN THE EVENT THE BOND CONDITIONS ARE NOT SATISFIED, IS BASED ON THE ESTIMATED HARM WHICH COULD FLOW FROM A BREACH OF THE BOND CONDITION AND A COMPARISON OF THE RESULTING BIDS DISCLOSES THAT, ALTHOUGH THE DIFFERENCE BETWEEN THE LOW BID AND NEXT LOW BID IS ONLY ABOUT 17 PERCENT OF THE BID BOND AMOUNT, THE OVERALL DIFFERENCE BETWEEN THE LOW AND HIGH BID RESULTS IN AN AMOUNT GREATER THAN THE BID BOND, THE ESTABLISHMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES MAY NOT BE REGARDED AS AN UNREASONABLE FORECAST OF THE DAMAGES WHICH COULD RESULT FROM A BREACH OF THE BOND CONDITIONS. WHEN THE AMOUNT OF A BID BOND WHICH PURSUANT TO THE INVITATION IS REQUIRED TO BE FORFEITED AS LIQUIDATED DAMAGES, IN THE EVENT THE BOND CONDITIONS ARE NOT SATISFIED, IS DETERMINED NOT ONLY ON THE BASIS OF THE DIFFERENCE IN BID PRICES BUT ALSO ON CERTAIN INCALCULABLE DAMAGES, TOGETHER WITH INTANGIBLE LOSSES, THE AMOUNT OF HARM THAT WOULD BE CAUSED BY A BREACH MAY NOT BE REGARDED AS SO EASILY DETERMINED AS TO INVALIDATE THE LIQUIDATED DAMAGE PROVISION AND TO REQUIRE THE MEASURE OF DAMAGES TO BE LIMITED TO THE DIFFERENCE BETWEEN THE LOW BID AND THE NEXT LOWEST BID.

TO THE CHAIRMAN, FEDERAL MARITIME BOARD, DECEMBER 3, 1959:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 10, 1959, REQUESTING OUR OPINION REGARDING THE RESPONSIVENESS OF A BID SUBMITTED BY THE TRIPLE A MACHINE SHOP, INC., SAN FRANCISCO, CALIFORNIA, PURSUANT TO AN INVITATION FOR BIDS DATED OCTOBER 29, 1959, BY THE AMERICAN PRESIDENT LINES, LTD., FOR THE CONVERSION OF TWO COMBINATION PASSENGER-CARGO VESSELS.

AS POINTED OUT IN YOUR LETTER, THE ABOVE-MENTIONED INVITATION SPECIFICALLY REQUIRED THAT NO BID WILL BE CONSIDERED UNLESS IT IS ACCOMPANIED BY A BID BOND IN THE SUM OF $200,000, AND PROVIDED FURTHER THAT THE CONDITION OF SUCH BOND OR DEPOSIT SHOULD BE:

NOW, THEREFORE, IF THE PRINCIPAL (OR THE DEPOSITOR) SHALL KEEP ITS BID OPEN AS REQUIRED BY THE INVITATION FOR BIDS, EXECUTE THE CONVERSION CONTRACT WITHIN FIVE DAYS AFTER TENDER BY THE OWNER, AND FURNISH THE BONDS REQUIRED THEREUNDER WITHIN THE TIME SPECIFIED IN SUCH CONTRACT, THEN THE ABOVE OBLIGATION SHALL BE NULL AND VOID, OTHERWISE TO BE AND TO REMAIN IN FULL FORCE AND EFFECT AND THE PRINCIPAL AMOUNT OF THIS BOND (OR DEPOSIT) TO BE FORFEITED AS LIQUIDATED DAMAGES FOR FAILURE OF THE PRINCIPAL (OR DEPOSITOR) TO KEEP ITS BID OPEN, TO EXECUTE THE CONTRACT, OR TO FURNISH THE BONDS. ( ITALICS SUPPLIED.)

IN RESPONSE TO THE FOREGOING INVITATION, THERE WERE RECEIVED THE FOLLOWING FIVE BIDS:

PACIFIC SHIP REPAIR----------------------------------$959,340

BETHLEHEM STEEL COMPANY------------------------------ 775,544

TODD SHIPYARDS CORPORATION--------------------------- 713,222

MOORE DRY DOCK COMPANY------------------------------ 686,000

TRIPLE A MACHINE SHOP, INC-------------------------- 651,568

WITH THE EXCEPTION OF TRIPLE A MACHINE SHOP, INC., THE LOW BIDDER, ALL BIDS WERE ACCOMPANIED BY BID BONDS WHICH CONTAINED THE REQUIRED CONDITION AS SET OUT IN THE INVITATION. THE BID OF TRIPLE A MACHINE SHOP, INC., ALSO WAS ACCOMPANIED BY A BID BOND IN THE REQUIRED AMOUNT OF $200,000, WAS CONDITIONED UPON NONWITHDRAWAL, ENTRY INTO FINAL CONTRACT AND SUBMISSION OF PERFORMANCE AND PAYMENT BONDS, BUT CONTAINED AN EXPRESS LIMITATION OF THE RECOVERY THEREON TO THE DIFFERENCE BETWEEN THE AMOUNT OF THE BID AND THE COST OF OBTAINING A SUBSTITUTE PERFORMANCE. YOU HAVE EXPRESSED THE OPINION THAT THIS VARIANCE FROM THE REQUIRED FORM IN THE CONDITION OF THE BID SUBMITTED BY TRIPLE A MACHINE SHOP, INC., IS AN IRREGULARITY WHICH, UNDER THE RULES OF THIS OFFICE, CANNOT BE WAIVED, THUS RENDERING IT NONRESPONSIVE. ACCORDINGLY, YOU REQUEST WHETHER WE CONCUR IN YOUR VIEW.

IN A BRIEF FILED HERE ON NOVEMBER 16, 1959, BY THE ATTORNEY FOR TRIPLE A MACHINE SHOP, INC., A COPY OF WHICH WAS FORWARDED TO YOUR OFFICE, IT IS CONTENDED THAT THE BID BOND AS SUBMITTED WAS IN ,SUBSTANTIAL CONFORMITY" WITH THE REQUIREMENTS OF THE INVITATION BECAUSE THE LIMITATION IN THE BOND MERELY EXPRESSED WHAT WAS IMPLIED BY THE INVITATION. IN SUPPORT OF THIS POSITION, THE BRIEF POINTS OUT THAT THE SOLE APPARENT DIFFERENCE BETWEEN THE BOND SUBMITTED AND THE SPECIFIED BOND IS THAT THE FORMER CONTAINED A CLAUSE EXPRESSLY LIMITING LIABILITY THEREUNDER TO THE DIFFERENCE BETWEEN THE BID PRICE AND THE COST OF OBTAINING PERFORMANCE ELSEWHERE, WHEREAS THE LATTER CONTAINED NO SUCH LIMITATION IN EXPRESS WORDS. NEVERTHELESS, IT IS CONTENDED THAT THE LIMITATION WAS IMPLIED BY THE LATTER AS A MATTER OF LAW. FOLLOWING THIS STATEMENT, THE BRIEF THEN DISCUSSES THE DISTINCTION BETWEEN LIQUIDATED DAMAGES AND PENALTIES, SUPPORTED BY NUMEROUS AUTHORITIES ON THE SUBJECT, AND IN SUBSTANCE CONCLUDES BY SAYING THAT RECOVERY ON THE BOND REQUESTED WOULD BE LIMITED TO THE ACTUAL DAMAGES CAUSED BY THE BREACH OF CONDITION. IT THEN SUGGESTS THAT THE HARM THAT WOULD BE CAUSED BY A BREACH OF CONDITION IS NOT AT ALL DIFFICULT OF ASCERTAINMENT, ITS MEASURE BEING THE DIFFERENCE BETWEEN ITS BID PRICE AND THAT OF THE NEXT LOW BIDDER--- WHICH DIFFERENCE IN THE INSTANT CASE TURNED OUT TO BE MORE THAN $34,342. AND IT IS CONTENDED THAT $200,000 WAS NOT A REASONABLE FORECAST OF THE HARM THAT WOULD RESULT FROM TRIPLE A'S FAILURE TO COMPLY WITH THE CONDITIONS OF THE BOND.

IN OUR DECISION DATED FEBRUARY 5, 1959, 38 COMP. GEN. 532, WE TOOK THE POSITION THAT THE CONTRACTING OFFICER MAY, BY THE TERMS OF THE INVITATION, IMPOSE ANY REQUIREMENT REASONABLY RELATED TO THE PURPOSES OF PROCUREMENT, PROVIDED THE REQUIREMENT AND THE CONSEQUENCES OF THE FAILURE TO CONFORM THERETO ARE CLEARLY SET OUT IN THE INVITATION FOR BIDS. AND IN THE SAME OPINION WE STATED THAT IT CANNOT BE QUESTIONED THAT THE FURNISHING OF A BID BOND IS REASONABLY RELATED TO THE PURPOSES OF PROCUREMENT, AND THAT IT IS A PROPER EXERCISE OF ADMINISTRATIVE JUDGMENT TO DETERMINE WHETHER OR NOT BID BONDS ARE NEEDED IN A PARTICULAR CASE; HENCE, WHERE SUCH A DETERMINATION HAS BEEN MADE AND THE INVITATION REQUIRES A BOND, THAT REQUIREMENT BECOMES A MATERIAL PART OF THE INVITATION, NONCOMPLIANCE WITH WHICH RENDERS A BID NONRESPONSIVE. IN OUR DECISION DATED JUNE 19, 1959, 38 COMP. GEN. 851, WE HELD THAT A LOW BID WHICH IS ACCOMPANIED BY A BID BOND IN AN AMOUNT LIMITED TO LESS THAN THE AMOUNT REQUIRED BY THE INVITATION IS ALSO NONRESPONSIVE TO THE INVITATION.

IN THE INSTANT CASE, IT IS OUR UNDERSTANDING THAT BOTH THE OWNER, AMERICAN PRESIDENT LINES, TD., AND YOUR BOARD AT THE TIME OF THE ISSUANCE OF THE INVITATION CONCLUDED THAT, DUE TO THE NATURE OF THE WORK INVOLVED, THE ESTIMATED HARM WHICH COULD FLOW FROM A BREACH OF THE PROPOSED BOND CONDITION WELL COULD AMOUNT TO THE SUM OF $200,000. HENCE, THROUGH THE MEDIUM OF THE INVITATION, SUCH FACT IN EFFECT WAS COMMUNICATED TO ALL PROSPECTIVE BIDDERS, TOGETHER WITH THE FURTHER ADVICE THAT IN THE EVENT OF A FAILURE TO PERFORM, SUCH AMOUNT WOULD BE FORFEITED AS LIQUIDATED DAMAGES. VIEWING THE MATTER RETROSPECTIVELY, WHILE THE RESULTING BIDS DISCLOSED A DIFFERENCE BETWEEN THE LOW BID AND THE NEXT LOW BID OF ONLY $34,342, THE OVERALL DIFFERENCE BETWEEN THE LOWEST AND THE OTHER BIDS RECEIVED RANGED BETWEEN $34,342 AND $307,772. IN THE LIGHT OF THESE RESULTS, AND IN VIEW OF THE ADDITIONAL INCALCULABLE DAMAGES DISCUSSED IN THE NEXT PARAGRAPH, WE ARE UNABLE TO CONCUR IN THE CONTENTION SET FORTH IN THE ABOVE-MENTIONED BRIEF THAT THE SUM OF $200,000 PROVIDED IN THE INVITATION AS LIQUIDATED DAMAGES WAS NOT A REASONABLE FORECAST OF THE DAMAGES WHICH COULD RESULT FROM A FAILURE TO COMPLY WITH THE CONDITION OF THE BOND.

NOR CAN WE AGREE WITH THE FURTHER CONTENTION THAT THE HARM THAT WOULD BE CAUSED BY A BREACH OF CONDITION IS NOT AT ALL DIFFICULT OF ASCERTAINMENT, AND THAT ITS MEASURE IS MERELY THE DIFFERENCE BETWEEN THE BID PRICE AND THE COST OF OBTAINING SUBSTITUTE PERFORMANCE WHICH, IN THE PRESENT CASE, IS THE DIFFERENCE BETWEEN TRIPLE A'S BID AND THE NEXT LOWEST BID. STATED PREVIOUSLY, THE OWNER, WITH THE CONCURRENCE OF YOUR BOARD, AT THE TIME THE INVITATION WAS ISSUED, DETERMINED THAT THE HARM WHICH COULD RESULT FROM A BREACH OF THE CONDITION COULD ENCOMPASS FACTORS OTHER THAN THE DIFFERENCE BETWEEN THE LOW AND NEXT LOW BID. IN ADDITION TO THE DIFFERENCE BETWEEN THE BID PRICES, IT IS UNDERSTOOD THAT THERE ALSO WERE TAKEN INTO CONSIDERATION CERTAIN INCALCULABLE DAMAGES SUCH AS LOSS OF SHIP REVENUE WHICH COULD RESULT FROM DELAY OCCASIONED BY A FAILURE TO COMPLY WITH THE REQUESTED BOND CONDITION, TOGETHER WITH OTHER INTANGIBLE LOSSES INCAPABLE OF ACCURATE ESTIMATION AT THE TIME OF THE INVITATION. EVIDENCE OF THIS IS FOUND IN PARAGRAPH 3 (C) OF THE INVITATION WHICH PRESCRIBES LIQUIDATED DAMAGES OF $1,000 PER PASSENGER BERTH PER VOYAGE FOR ALL ROOMS OUT OF SERVICE AS A RESULT OF THE SUCCESSFUL BIDDER'S FAILURE TO COMPLETE THE WORK ON TIME. HENCE, IT WOULD APPEAR THAT THE ALLEGATION REGARDING A DEPARTURE FROM THE RULES STATED IN SECTION 339 OF THE RESTATEMENT, CONTRACTS, IS OF DOUBTFUL VALIDITY. IN THIS CONNECTION, SEE THE CASE OF RICHARD M. TAYLOR AND LYDIA TAYLOR V. UNITED STATES, 150 FED.SUPP. 567.

FURTHERMORE, WHILE IT IS TRUE THAT THE AMOUNT OF THE BOND SUBMITTED BY TRIPLE A ON ITS FACE REPRESENTS THE SUM REQUIRED BY THE INVITATION, THE LIMITATIONS IMMEDIATELY FOLLOWING THEREIN CLEARLY ESTABLISH THE LIABILITY OF THE PRINCIPAL AND SURETY THEREUNDER AS A PENALTY, WHEREAS IT IS FAIRLY ARGUABLE THAT THE LIABILITY OF OTHER BIDDERS WHO CONFORMED STRICTLY TO THE TERMS OF THE INVITATION IS FOR LIQUIDATED DAMAGES, THUS RENDERING THE BIDDING UPON UNEQUAL TERMS. THEREFORE, WE MUST CONCLUDE THAT THE LOW BID SUBMITTED BY TRIPLE A MAY NOT BE CONSIDERED FOR AWARD.

WE HAVE BEEN INFORMED THAT THE ATTORNEY FOR THE LOW BIDDER ON NOVEMBER 12, 1959, SEVEN DAYS AFTER BID OPENING, FORWARDED TO YOUR OFFICE AN EXECUTED BID BOND IN THE FORM PRESCRIBED BY THE INVITATION, AND HAS URGED THAT THE DEVIATION IN THE ORIGINAL BID BOND BE WAIVED.

IN RESPONSE TO THIS REQUEST, WE AGAIN REFER TO THE LONG-ESTABLISHED RULE THAT PUBLIC OFFICERS MAY NOT ACCEPT BIDS NOT COMPLYING IN SUBSTANCE WITH THE ADVERTISED SPECIFICATIONS OR PERMIT BIDDERS TO VARY THEIR PROPOSALS AFTER THE BIDS ARE OPENED. THEREFORE, SINCE THE BID BOND IN THE INSTANT CASE FAILED TO MEET A MATERIAL REQUIREMENT AND CANNOT BE REGARDED AS RESPONSIVE, IT FOLLOWS THAT SUCH FAILURE TO COMPLY CANNOT NOW BE REMEDIED BY AN OFFER TO SUBMIT THE BID BOND ON THE PROPER FORM AFTER THE OTHER BIDS HAVE BEEN EXPOSED.