B-160149, DEC. 29, 1966

B-160149, DEC. 29, 1966

TO ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

THERE IS ENCLOSED A COPY OF OUR DECISION OF TODAY TO GADSBY, MAGUIRE, HANNAH AND MERRIGAN, ATTORNEYS FOR MR. IRVING REINGOLD, T/A TETERBORO FLIGHT TEST CENTER, HACKENSACK, NEW JERSEY, WITH RESPECT TO THEIR PROTEST AGAINST AWARD OF A CONTRACT TO ANYONE OTHER THAN THEIR CLIENT UNDER INVITATION TO BID NO. 8 UPS-67-71.

WHILE DENYING THE PROTEST, WE AGREE IN PART WITH THE ARGUMENT MADE BY THE BIDDER'S ATTORNEYS THAT THE SETOFF AGAINST THE BID DEPOSIT SUBMITTED UNDER THE FIRST OFFERING, INVITATION TO BID NO. 8 UPS-67-16, WAS IMPROPER AND SHOULD BE RETURNED.

THIS PARTICULAR ISSUE IS THE SAME AS THAT INVOLVED IN OUR PUBLISHED DECISIONS OF 14 COMP. GEN. 430 (1934), 17 COMP. GEN. 923 (1938), 33 COMP. GEN. 262 (1953), 38 COMP. GEN. 476 (1959), AND 41 COMP. GEN. 86 (1961), NAMELY: MAY THE GOVERNMENT EXERCISE ITS RIGHT OF SETOFF AGAINST THE BID DEPOSIT OF AN UNSUCCESSFUL BIDDER IN ORDER TO LIQUIDATE A PRIOR INDEBTEDNESS THAT AROSE OUT OF ANOTHER CONTRACT WITH THE SAME BIDDER. 14 COMP. GEN. 430 AND 17 COMP. GEN. 923 IT WAS HELD THAT THE GOVERNMENT COULD EXERCISE THE RIGHT OF SETOFF AGAINST AN UNSUCCESSFULBIDDER'S BID DEPOSIT. IN 33 COMP. GEN. 262 IT WAS HELD THAT SUCH AN INDEBTEDNESS COULD NOT BE LIQUIDATED BY SETOFF FROM A BIDDER'S CASH BOND WHICH HAD BEEN GIVEN TO INSURE DELIVERY OF RETAINED MATERIAL AND COMPLIANCE WITH THE TERMS OF A CONTRACT OTHER THAN THAT UNDER WHICH THE INDEBTEDNESS AROSE. IN 38 COMP. GEN. 476 IT WAS HELD THAT A BID DEPOSIT WHICH IS SUBMITTED BY AN UNSUCCESSFUL BIDDER WHO IS OTHERWISE INDEBTED TO THE GOVERNMENT SHOULD BE RETAINED PENDING JUDICIAL DETERMINATION OF THE COMPANY'S INDEBTEDNESS TO THE UNITED STATES. THEN IN 41 COMP. GEN. 86 WE SUBSEQUENTLY HELD THAT THE POSITION TAKEN AT 38 COMP. GEN. 476 WOULD NO LONGER BE FOLLOWED BECAUSE THE PROCEDURES ESTABLISHED IN IMPLEMENTATION THEREOF CREATED ADMINISTRATIVE BURDENS GREATER THAN THE BENEFITS DERIVED.

THE ISSUE HAS ALWAY PRESENTED A CONFLICT BETWEEN THE PRACTICAL EFFECT OF THE INDIVIDUAL CASE, AND THE OVERALL POLICY EFFECT OF SUCH MATTERS ON GOVERNMENT CONTRACTING. WE ARE OF THE OPINION THAT IN SPITE OF THE FACTS IN THIS CASE, ANY ATTEMPT TO LIQUIDATE THE PRIOR INDEBTEDNESS BY SETOFF OF A PART OF THE BID DEPOSIT SUBMITTED UNDER INVITATION NO. 8 UPS-67-16 WOULD BE IN VIOLATION OF THE TERMS OF THE INVITATION.

UNDER THE TERMS OF THE INVITATION, STANDARD FORM 114-C, PARAGRAPH 4, PROVIDES IN PART:

"THE GOVERNMENT RESERVES THE RIGHT TO APPLY ANY BID DEPOSITS MADE UNDER THE INVITATION BY A BIDDER AGAINST ANY AMOUNTS DUE TO THE GOVERNMENT UNDER A CONTRACT AWARDED TO HIM THEREUNDER. * * *. ALSO, DEPOSITS ACCOMPANYING BIDS WHICH ARE NOT ACCEPTED WILL BE PROMPTLY RETURNED TO HIM.'

THE CHARACTERIZATION OF "BID DEPOSIT" MUST NECESSARILY BE THAT IT IS A SECURITY DEPOSIT OR PLEDGE GUARANTEEING AGAINST WITHDRAWAL OF A BID PRIOR TO OPENING. IT IS NOT CONVERTED INTO ,MONEYS ADVANCED" UNDER A CONTRACT UNTIL SUCH CONTRACT COMES INTO BEING. THE BID DEPOSIT WAS SUBMITTED BY THE BIDDER BASED UPON THE PROMISE THAT IT WOULD BE RETURNED IF THE BID WAS REJECTED. THE RETENTION OF THE DEPOSIT DOES NOT CHANGE THE RELATIONSHIP OF THE PARTIES TO THIS FUND. LEGAL TITLE TO THE DEPOSIT REMAINS IN THE BIDDER.

A LEGAL BASIS COULD BE ESTABLISHED THAT WOULD PERMIT THE GOVERNMENT TO APPLY BID DEPOSITS OF UNSUCCESSFUL BIDDERS IN SATISFACTION OF THE BIDDER'S LIABILITY UNDER PRIOR CONTRACTS. INSERTION OF A CLAUSE IN THE SURPLUS SALES INVITATION PROVIDING THAT THE BIDDER AGREES THAT THE GOVERNMENT AGENCY MAY USE ALL OR ANY PORTION OF A REFUND DUE HIM TO SATISFY IN WHOLE OR IN PART, ANY DEBT ARISING OUT OF PRIOR TRANSACTIONS WITH THE AGENCY, WOULD ACCOMPLISH THIS.

WE THEREFORE RECOMMEND THAT, UNLESS YOU DETERMINE THE INDEBTEDNESS CAN BE PROMPTLY REDUCED TO JUDGMENT THROUGH SUIT BY THE DEPARTMENT OF JUSTICE, AND THAT SUCH ACTION WOULD BE ADMINISTRATIVELY PRACTICABLE, THE AMOUNT SET OFF BE RETURNED.