B-171017, JAN 28, 1971, 50 COMP GEN 530

B-171017, JAN 28, 1971, 50 COMP GEN 530

CONTRACTS - AWARDS - SMALL BUSINESS CONCERNS - BID BOND PRINCIPAL DEVIATION THE LOW BID SUBMITTED UNDER A TOTAL SMALL BUSINESS SET-ASIDE FOR AN AIR FORCE BASE CONSTRUCTION PROJECT WHICH BORE THE THREE NAMES OF THE JOINT VENTURE SHOWN IN THE BID BOND ACCOMPANYING THE BID, BUT WAS SIGNED BY THE PRESIDENT OF THE ONLY SMALL BUSINESS CONCERN INVOLVED, MAY NOT BE AWARDED TO EITHER THE JOINT VENTURE OR THE SMALL BUSINESS CONCERN ON THE BASIS THE TWO LARGE BUSINESS FIRMS HAD ASSOCIATED WITH THE SMALL BUSINESS CONCERN ONLY FOR THE PURPOSE OF OBTAINING THE BID BOND. AS TO THE JOINT VENTURE, THERE WAS NONE AT THE TIME OF BID SUBMISSION OR OPENING, AND SUBSEQUENTLY SUBMITTED INFORMATION COULD NOT CREATE THE JOINT VENTURE FOR THE PURPOSE OF BID RATIFICATION - EVEN IF IT COULD, THE JOINT VENTURE AS A LARGE CONCERN WOULD BE INELIGIBLE FOR AWARD, NOR WOULD AN AWARD TO THE SMALL CONCERN BE PROPER AS THE BID BOND NAMED A JOINT VENTURE AS THE PRINCIPAL.

TO SELLERS, CONNERS & CUNEO, JANUARY 28, 1971:

WE REFER TO YOUR PROTEST, BY TELEGRAM OF OCTOBER 13, 1970, AS SUPPLEMENTED BY SUBSEQUENT CORRESPONDENCE, ON BEHALF OF BALBOA STRUCTURAL INDUSTRIES, INC. (BALBOA), OF SAN DIEGO, CALIFORNIA AGAINST THE REJECTION OF A LOW BID SUBMITTED IN THE NAME OF "BALBOA STRUCTURAL IND. INC. ZURN- HUWIN" ON A DEPARTMENT OF THE ARMY CONSTRUCTION PROJECT AT GALENA AIR FORCE BASE, ALASKA. THE PROCUREMENT SOLICITATION IS INVITATION FOR BIDS (IFB) DACA85-71B-0004, ISSUED JUNE 23, 1970, BY THE UNITED STATES ARMY ENGINEERS DISTRICT, ALASKA, AND THE PROCUREMENT IS A TOTAL SMALL BUSINESS SET-ASIDE.

THE BID, WHICH BORE THE SIGNATURE OF ARCH W. COUTRIS OVER THE TITLE "PRES. BALBOA STRUCT. IND.," INCLUDED A CERTIFICATION THAT THE BIDDER WAS A SMALL BUSINESS CONCERN. THE REQUIRED BID BOND, WHICH ACCOMPANIED THE BID, WAS SIGNED BY ARCH W. COUTRIS OVER THE TITLE "PRESIDENT." THE PRINCIPAL NAMED IN THE BID BOND WAS "BALBOA-ZURN-HUWIN, A JOINT VENTURE," AND THE BIDDER ALSO REPRESENTED ITSELF AS A JOINT VENTURE IN THE REPRESENTATIONS AND CERTIFICATIONS, STANDARD FORM 19-B, WHICH ACCOMPANIED ITS BID.

THE RECORD ESTABLISHES THAT THE LOW BIDDER CONCEDES THE JOINT VENTURE DOES NOT QUALIFY AS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF THE PROCUREMENT; HOWEVER, BALBOA ALONE DOES SO QUALIFY. THE QUESTION BEFORE OUR OFFICE FOR DECISION, THEREFORE, IS WHETHER THE LOW BID AS SUBMITTED MAY BE ACCEPTED AS A BID BY BALBOA IN CONSIDERATION TO EVIDENCE FURNISHED BY BALBOA TO THE GOVERNMENT AFTER BID OPENING TO THE EFFECT THAT BALBOA'S ASSOCIATION WITH HUWIN (HUWIN CORPORATION) AND ZURN (ZURN ENGINEERS) IS NOT A JOINT VENTURE BUT SIMPLY AN INDEMNIFICATION ARRANGEMENT WHEREBY BALBOA HAS BEEN ENABLED TO OBTAIN THE BID BOND AND OTHER BONDING, IF NECESSARY, AS REQUIRED BY THE IFB.

THE EVIDENCE SUBMITTED BY BALBOA TO THE CONTRACTING OFFICER AND TO THE SMALL BUSINESS ADMINISTRATION (SBA) AFTER BID OPENING INCLUDES A MEMORANDUM OF UNDERSTANDING SIGNED ON SEPTEMBER 16, 1970, BY THE PRESIDENTS OF BALBOA, HUWIN, AND ZURN. PURSUANT OF AGREEMENT OF THE PARTIES AS SET FORTH IN THE MEMORANDUM, ZURN AND HUWIN ARE TO RECEIVE PAYMENTS OF $50,000 EACH FROM BALBOA IN RETURN FOR THEIR AGREEMENT TO BE INDEMNITORS ON THE BONDING REQUIRED OF BALBOA; ZURN AND HUWIN WILL HAVE NO OTHER OBLIGATIONS WITH REFERENCE TO THE PROJECT; AND BALBOA ALONE IS TO BE RESPONSIBLE FOR PERFORMING THE WORK REQUIRED BY THE CONTRACT. THE RECORD ALSO INCLUDES, HOWEVER, COPIES OF LETTERS DATED SEPTEMBER 24, 1970, IN WHICH ZURN AND HUWIN SEPARATELY ADVISED THE CONTRACTING OFFICER THAT BALBOA'S PRESIDENT HAD POWER OF ATTORNEY TO BIND THE RESPECTIVE COMPANIES ON THE BID BONDS AND ON THE BIDDING DOCUMENTS FOR THE PROJECT IN QUESTION AND SPECIFICALLY STATED, "WE SHALL SIGN THE PERFORMANCE AND PAYMENT BONDS AND THE CONTRACT IF REQUESTED BY THE U.S. ARMY CORPS OF ENGINEERS."

A LETTER ADDRESSED BY BALBOA UNDER DATE OF SEPTEMBER 18, 1970, TO THE SBA SAN DIEGO DISTRICT OFFICE INCLUDES THE FOLLOWING PERTINENT STATEMENTS:

WHEN I PREPARED THE FINAL BID DOCUMENTS FOR SUBMITTAL FROM THOSE PREPARED BY OUR MR. WHALEN, I BECAME CONCERNED THAT THE BID DOCUMENTS REQUIRED THE SAME NAME AS THAT INDICATED ON THE BOND. OTHERWISE, OUR BID WOULD BE NONRESPONSIVE. THEREFORE, UNDER BALBOA STRUCTURAL INDUSTRIES, INC., I ADDED ZURN HUWIN TO CONFORM MORE CLOSELY WITH THE NAME BALBOA-ZURN-HUWIN ON THE BOND.

THE BID BOND WAS VALIDATED BY MY SIGNATURE ONLY AND BY THE CORPORATE SEAL OF BALBOA STRUCTURAL INDUSTRIES, INC. ONLY, SHOWING THAT BALBOA WAS THE COMPANY TOTALLY RESPONSIBLE FOR ALL THE WORK. ZURN AND HUWIN WERE PROVIDING BONDING SUPPORT ONLY FOR A FIXED FEE PREVIOUSLY AGREED UPON. THE BID DOCUMENTS WERE ALSO SIGNED AND VALIDATED ONLY BY MY SIGNATURE TO SIGNIFY BALBOA'S EXCLUSIVE RESPONSIBILITY AS THE SOLE PRIME CONTRACTOR FOR THE PROJECT.

SINCE THIS PROJECT WAS ESTABLISHED AS A SMALL BUSINESS SET-ASIDE, WE WERE INSPIRED TO BID, KNOWING THAT LARGE FIRMS WHO SOMETIMES BID EVEN BELOW COST COULD NOT QUALIFY AS BIDDERS. OUR PROBLEM WAS BONDING ONLY. WE HAVE THE RESOURCES AND THE TALENT TO PERFORM A FINE PROJECT FOR THE ALASKA U.S. ARMY CORPS OF ENGINEERS. WE WERE EXTREMELY FORTUNATE TO HAVE INTRODUCED TO ZURN, A LARGE LISTED CORPORATION ON THE NEW YORK STOCK EXCHANGE AND TO HUWIN, A VERY SUCCESSFUL COMPANY FINANCIALLY, WHO WERE WILLING TO INDEMNIFY OUR BONDING COMPANY. THEY HELPED TO SOLVE OUR BONDING PROBLEM.

A MEMORANDUM DATED SEPTEMBER 17, 1970, BEARING THE SIGNATURE OF THE SBA DISTRICT COUNSEL AND RELATING TO THE SUBJECT OF THE SIZE DETERMINATION OF BALBOA STRUCTURAL INDUSTRIES, INC., COMMENCES WITH THE STATEMENT, "BALBOA ADMITS THAT IF BALBOA IS A JOINT VENTURER WITH ZURN HUWIN THAT BALBOA WOULD NOT BE A SMALL BUSINESS CONCERN AS DEFINED IN SECTION 121.3-8(A)(1) OF THE SMALL BUSINESS ADMINISTRATION'S RULES AND REGULATIONS." THE MEMORANDUM ALSO INCLUDES A DISCUSSION OF THE DIFFICULTIES ENCOUNTERED BY SMALL BUSINESS CONSTRUCTION FIRMS IN OBTAINING NECESSARY BONDING FOR CONSTRUCTION PROJECTS; REVIEWS THE EVIDENCE SUBMITTED BY BALBOA AND EXPRESSES COUNSEL'S OPINION THAT ONLY AN INDEMNIFICATION AGREEMENT EXISTS BETWEEN BALBOA, ZURN, AND HUWIN; AND CONCLUDES THAT BALBOA IS A SMALL BUSINESS CONCERN FOR THE PROCUREMENT IN QUESTION. A LETTER DATED SEPTEMBER 18, 1970, FROM THE DISTRICT DIRECTOR OF THE SBA SAN DIEGO OFFICE TO THE PROCURING ACTIVITY READS AS FOLLOWS:

CONFIRMING TELETYPE OF TODAY, COPY ATTACHED, THIS OFFICE HAS MADE AN EXAMINATION OF ALL EVIDENCE REGARDING THE SUBJECT. OUR FINDINGS INDICATE SUBJECT FIRM IS A SMALL BUSINESS FIRM WITHIN THE PURVIEW OF THE SMALL BUSINESS ADMINISTRATION'S RULES AND REGULATIONS FOR THE ABOVE NOTED CONSTRUCTION WORK. OUR FINDINGS ALSO INDICATE THIS IS NOT A JOINT VENTURE PROJECT WITHIN THE PURVIEW OF SAME RULES AND REGULATIONS.

THE CONTRACTING OFFICER JUSTIFIES HIS REJECTION OF THE LOW BID ON THE BASIS OF NONRESPONSIVENESS IN VIEW OF WHAT HE REGARDS AS A DIRECT CONFLICT BETWEEN THE MEMORANDUM OF UNDERSTANDING, EVIDENCING ONLY AN INDEMNIFICATION AGREEMENT AMONG THE THREE FIRMS, AND THE ZURN AND HUWIN LETTERS OF SEPTEMBER 24, EVIDENCING AGREEMENT OF ZURN AND HUWIN TO BE BOUND ON THE CONTRACT. THE NOTICE OF REJECTION, BY LETTER OF OCTOBER 14, 1970, ADDRESSED TO MR. COUTRIS OF BALBOA, READS AS FOLLOWS:

THIS IS TO ADVISE YOU THAT YOUR BID ON INVITATION DACA85-71-B-0004 FOR THE CONSTRUCTION OF CERTAIN ADDITIONAL FACILITIES AT GALENA AIRPORT, ALASKA IS REJECTED AS IT IS CONSIDERED NOT RESPONSIVE. YOUR BID WAS AS A JOINT VENTURE AND THE DOCUMENTS SUBSEQUENTLY SUBMITTED BY YOU DO NOT SUPPORT THAT ALLEGED RELATIONSHIP. IT IS QUESTIONABLE WHETHER OR NOT YOU HAD AUTHORITY TO BIND EITHER ZURN ENGINEERS AND/OR HUWIN CORPORATION AS A JOINT VENTURE IN THE BIDDING OR THE SUBSEQUENT OBLIGATION TO EXECUTE A CONTRACT CONFORMING TO THE OBLIGATIONS OF YOUR BID AND THE INVITATION.

IN YOUR PROTEST, YOU MAINTAIN THAT BALBOA, AS ATTESTED BY THE PRESIDENTS OF BALBOA, ZURN, AND HUWIN IN SEPARATE AFFIDAVITS DATED OCTOBER 30 AND NOVEMBER 2, WHICH YOU HAVE FORWARDED TO OUR OFFICE, HAS AUTHORITY TO SIGN ALL OF THE BID DOCUMENTS AND CONTRACT DOCUMENTS IN THE NAME OF BALBOA-ZURN -HUWIN. YOU FURTHER MAINTAIN THAT THE PARTIES DO NOT HAVE A JOINT VENTURE RELATIONSHIP, BECAUSE A JOINT VENTURE WOULD NOT HAVE QUALIFIED FOR THE SMALL BUSINESS SET-ASIDE IN LIGHT OF THE STATUS OF ZURN AND HUWIN AS LARGE BUSINESS AND THAT THE JOINT VENTURE FORMAT WAS USED ON THE BID AND ON THE BID BOND ONLY BECAUSE SUCH WAS THE FORM IN WHICH THE BONDING COMPANY AGREED TO ISSUE THE BID BOND. ACCORDINGLY, YOU URGE, THE BID SHOULD BE CONSIDERED AS THE BID OF BALBOA ALONE, WHO DOES HAVE THE STATUS OF A SMALL BUSINESS CONCERN AS REPRESENTED IN THE BID, AND NOT AS THE BID OF AN INELIGIBLE JOINT VENTURE. YOU SPECIFICALLY REQUEST, HOWEVER, THAT THE AWARD BE MADE TO "BALBOA STRUCTURAL IND. INC., ZURN-HUWIN," THE NAME WHICH IS REFLECTED IN BOTH THE BID AND THE BID BOND.

THE STATUTE WHICH GOVERNS THE AWARD OF THIS ADVERTISED PROCUREMENT, 10 U.S.C. 2305(C), PROVIDES FOR AWARD TO THE RESPONSIBLE BIDDER WHOSE BID CONFORMS TO THE INVITATION FOR BIDS AND IS MOST ADVANTAGEOUS TO THE GOVERNMENT, PRICE AND OTHER FACTORS CONSIDERED. PARAGRAPH 2-407.1, ARMED SERVICES PROCUREMENT REGULATION, RELATING TO AWARD OF FORMALLY ADVERTISED PROCUREMENTS, IS CONSISTENT WITH THE STATUTE. A JOINT VENTURE IS RECOGNIZED AS AN ENTITY TO WHICH A CONTRACT MAY BE AWARDED UNDER SUCH PROVISIONS. 39 COMP. GEN. 524, 529 (1960). HOWEVER, THE CONTRACT WHICH IS AWARDED UNDER THE STATUTE MUST BE EXECUTED WITH THE ENTITY WHICH SUBMITTED THE BID. 33 COMP. GEN. 549 (1954).

THERE IS SUBSTANTIAL AGREEMENT THAT IN ORDER TO CONSTITUTE A JOINT VENTURE, CERTAIN FACTORS MUST BE PRESENT. SUCH FACTORS INCLUDE A CONTRIBUTION BY THE PARTIES OF MONEY, PROPERTY, EFFORT, KNOWLEDGE, SKILL, OR OTHER ASSETS TO A COMMON UNDERTAKING; A JOINT PROPERTY INTEREST IN THE SUBJECT MATTER OF THE VENTURE AND A RIGHT OF MUTUAL CONTROL OR MANAGEMENT OF THE ENTERPRISE; EXPECTATION OF PROFITS OR THE PRESENCE OF ADVENTURE; A RIGHT TO PARTICIPATE IN THE PROFITS; AND USUALLY A LIMITATION OF THE OBJECTIVE TO A SINGLE UNDERTAKING OR AD HOC ENTERPRISE. 46 AM. JUR. 7.

THE EVIDENCE SUBMITTED BY BALBOA INDICATES THAT ZURN AND HUWIN HAD NOT AGREED AT TIME OF BID SUBMISSION OR BID OPENING TO PARTICIPATE IN PERFORMANCE OF, OR TO BE EQUALLY BOUND WITH BALBOA ON, THE CONTRACT. IS APPARENT, THEREFORE, THAT THERE WAS NO JOINT VENTURE, AND THEREFORE NO LEGAL ENTITY, ANSWERING TO THE NAME OF BALBOA STRUCTURAL IND. INC., ZURN- HUWIN FOR THE PURPOSE OF BID SUBMISSION OR CONTRACT PERFORMANCE, EITHER AT THE TIME THE BID WAS SUBMITTED OR AT THE TIME THE BIDS WERE OPENED, AS WAS REPRESENTED IN THE BID AND IN THE BID BOND.

WITH RESPECT TO THE STATEMENTS DATED SEPTEMBER 24, WHICH WERE SUBMITTED BY ZURN AND HUWIN AFTER BID OPENING, ADVISING THAT BALBOA'S PRESIDENT WAS AUTHORIZED TO SIGN THE BID AND CONTRACT IN THEIR NAMES, IT WOULD APPEAR THAT SUCH STATEMENTS COULD ONLY SERVE TO CREATE A JOINT VENTURE AT SUCH LATE DATE. IF IN FACT A JOINT VENTURE WAS CREATED AT SUCH TIME, IT WOULD APPEAR TO BE CONCEDED BY THE RECORD THAT THE JOINT VENTURE WOULD NECESSARILY HAVE TO BE CLASSIFIED AS A LARGE BUSINESS CONCERN AND THEREFORE WOULD NOT BE ELIGIBLE TO RECEIVE AN AWARD. HOWEVER, EVEN IF THAT WERE NOT TRUE, IT IS OUR OPINION THAT A JOINT VENTURE CANNOT BE CREATED AFTER BID OPENING FOR THE PURPOSE OF RATIFYING A BID SUBMITTED WITHOUT AUTHORITY IN THE NAME OF THE JOINT VENTURE.

WE MUST THEREFORE CONCLUDE THAT AN AWARD TO "BALBOA STRUCTURAL IND. INC., ZURN-HUWIN" WOULD NOT RESULT IN AN ENFORCEABLE CONTRACT AS CONTEMPLATED BY THE PROCUREMENT STATUTE AND REGULATIONS. NEITHER WOULD AN AWARD IN THE NAME OF BALBOA STRUCTURAL INDUSTRIES, INC., ALONE BE PROPER, SINCE THE BID BOND NAMED A JOINT VENTURE AS THE PRINCIPAL, AND THE SURETY'S LIABILITY TO THE JOINT VENTURE COULD NOT BE IMPUTED TO BALBOA AS A BIDDER OR CONTRACTOR INDEPENDENT OF THE JOINT VENTURE.

SEE SECTION 4.14, STEARNS LAW OF SURETYSHIPS.

IN LINE WITH THE FOREGOING, IT IS OUR OPINION THAT THE LOW BID MAY NOT PROPERLY BE ACCEPTED, AND YOUR PROTEST IS THEREFORE DENIED.