B-178371, B-178699, B-178866, AUG 17, 1973

B-178371, B-178699, B-178866, AUG 17, 1973

DENIAL OF THE PROTESTS OF JETS SERVICES, INC., AGAINST AN ALLEGED EXCESSIVE BONDING REQUIREMENTS UNDER THE DEPARTMENT OF THE ARMY IFB'S NOS. DABE33-73-B-0098, DABB19-73-B-0113 AND DABB03-73-B-0231 ISSUED BY FT. HOOD, TEXAS; FT. BELVOIR, VA.; AND FT. KNOX, KY., RESPECTIVELY BECAUSE THERE IS NO CONCRETE EVIDENCE INDICATING THE BONDING REQUIREMENTS ADVERSE AFFECT ON COMPETITION.

TO JETS SERVICES, INC.:

REFERENCE IS MADE TO YOUR LETTER OF JULY 10, 1973, AND PRIOR CORRESPONDENCE, CONCERNING YOUR PROTESTS AGAINST ALLEGED EXCESSIVE BONDING REQUIREMENTS UNDER DEPARTMENT OF THE ARMY INVITATIONS FOR BIDS (IFB) NOS. DABE33-73-B-0098, DABB19-73-B-0113, AND DABB03-73-B-0231, ISSUED BY FORT HOOD, TEXAS; FORT BELVOIR, VIRGINIA; AND FORT KNOX, KENTUCKY, RESPECTIVELY. THE ARMY HAS ADVISED OUR OFFICE THAT IT FOUND IT NECESSARY TO MAKE AWARDS UNDER THE SUBJECT INVITATIONS PRIOR TO THE RESOLUTION OF YOUR PROTESTS BY OUR OFFICE.

THE SUBJECT INVITATIONS COVERED THE PROCUREMENT OF KITCHEN POLICE AND MESS ATTENDANT SERVICES WHICH WERE SET ASIDE FOR SMALL BUSINESS. IFB 0098, BEFORE IT WAS AMENDED, CONTAINED REQUIREMENTS FOR A 20-PERCENT BID BOND AND A 50-PERCENT PERFORMANCE BOND. IT IS REPORTED THAT ON MARCH 27, 1973, THE CONTRACTING OFFICER REEVALUATED THE PERFORMANCE BOND REQUIREMENT SET FORTH IN IFB-0098 AND HE SUBSEQUENTLY DETERMINED THAT SUCH REQUIREMENT COULD BE REDUCED TO THE PENAL AMOUNT OF 25 PERCENT FOR THE PERFORMANCE BOND. AS TO THE BONDING REQUIREMENTS IN THE OTHER INVITATIONS, IFB-0113, CONTAINED REQUIREMENTS FOR A 20 PERCENT BID BOND, 50-PERCENT PERFORMANCE BOND AND 20-PERCENT PAYMENT BOND; AND IFB-0231, CONTAINED REQUIREMENTS FOR A 20-PERCENT BID BOND, 50-PERCENT PERFORMANCE BOND, AND A 50-PERCENT PAYMENT BOND.

YOU CONTEND THAT THE BONDING REQUIREMENTS IN THE INVITATIONS IN QUESTION ARE EXCESSIVE. YOU MAINTAIN THAT THE NECESSITY FOR ANY BONDING AT ALL ON A KITCHEN POLICE SERVICES CONTRACT IS OPEN TO SERIOUS QUESTION, BUT IF IT IS DESIRED THAT IT IS VIRTUALLY IMPOSSIBLE TO JUSTIFY MORE THAN 10 PERCENT PENAL VALUE BONDING. YOU STATE THAT THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) REQUIRES THAT THE JUSTIFICATION FOR REQUIRING A PERFORMANCE BOND MUST BE FULLY DOCUMENTED. YOU ASSERT THAT THE CONTRACTING OFFICER'S ARBITRARY OPINION CANNOT BE ACCEPTED IN LIEU OF THE REQUIRED FULL DOCUMENTATION. YOU INDICATE THAT YOU DO NOT AGREE WITH THE STATEMENT OF THE FORT BELVOIR CONTRACTING OFFICER, TO THE EFFECT THAT BONDING OF 70 PERCENT (50-PERCENT PERFORMANCE BOND AND 20-PERCENT PAYMENT BOND) DOES NOT INTERPOSE A CIRCUMVENTION OR DENIAL OF THE SMALL BUSINESS SET-ASIDE. YOU CONTEND THAT A BONDING REQUIREMENT IN EXCESS OF $500,000 FOR A FIRM WHOSE AVERAGE GROSS VOLUME OF BUSINESS IS LESS THAN $4,000,000 IS ALMOST AN IMPOSSIBILITY FOR THAT FIRM. YOU POINT OUT THE FACT THAT THE BOND UNDERWRITER APPRAISES THE TOTAL OF THE PENAL SUMS OF ALL EXTANT BONDS AGAINST THE NET WORTH OF THE BONDED COMPANY AND THAT WHERE A SMALL BUSINESS FIRM HAS TO SUBMIT BONDS IN LARGE PENAL SUMS SUCH AS REQUIRED UNDER THE SUBJECT INVITATIONS, THE BONDING CAPACITY OF THE FIRM BECOMES EXHAUSTED AT AN EARLY DATE.

YOU MAINTAIN THAT IN THE CASE OF A KITCHEN POLICE SERVICE CONTRACT A 10- PERCENT PERFORMANCE BONDING WOULD MORE THAN COVER ANY REASONABLY CONCEIVABLE LOSS TO THE GOVERNMENT. YOU REQUEST THAT OUR OFFICE ADVISE THE DEPARTMENT OF DEFENSE TO ABIDE BY THE LETTER AND INTENT OF THE ASPR WITH THE SPECIFIC SUGGESTION THAT KITCHEN POLICE SERVICE CONTRACTS SHOULD CARRY NO BONDING. YOU OBSERVE THAT ASPR 10-104.1 STIPULATES THAT "PERFORMANCE AND PAYMENT BONDS SHALL NOT BE REQUIRED UNLESS *** THE REQUIREMENT OF SUCH BONDS IS IN THE INTEREST OF THE GOVERNMENT AND NOT PREJUDICIAL TO OTHER BIDDERS OR OFFERORS." CONSEQUENTLY, YOU ARGUE THAT BONDING OF THE MAGNITUDE SPECIFIED IN THE SUBJECT INVITATIONS IS PREJUDICIAL TO SMALL BUSINESS FIRMS BECAUSE IT IS BEYOND THE REACH OF MOST OF THESE FIRMS.

ASPR 10-104.2 PROVIDES THAT PERFORMANCE BONDS MAY BE REQUIRED FOR OTHER THAN CONSTRUCTION CONTRACTS WHEN "*** THE CONTRACTING OFFICER DETERMINES THE NEED THEREFOR." THAT PARAGRAPH FURTHER PROVIDES THAT PERFORMANCE BONDS SHALL NOT BE USED AS A SUBSTITUTE FOR DETERMINATIONS OF CONTRACTOR RESPONSIBILITY. ASPR 10-104.2(A)(I) STATES THAT WHERE THE TERMS OF THE CONTRACT PROVIDE FOR THE CONTRACTOR TO HAVE THE USE OF GOVERNMENT MATERIAL, PROPERTY, OR FUNDS AND FURTHER PROVIDE FOR THE HANDLING THEREOF BY THE CONTRACTOR IN A SPECIFIED MANNER, A PERFORMANCE BOND SHALL BE REQUIRED IF NEEDED TO PROTECT THE GOVERNMENT'S INTERESTS THEREIN.

WE HAVE RECOGNIZED THAT A DETERMINATION REGARDING A REQUIREMENT FOR A PERFORMANCE BOND IS WITHIN THE CONTRACTING OFFICER'S DISCRETION. 170069, APRIL 23, 1971. WE HAVE STATED THAT WHILE "THE REQUIREMENT FOR A PERFORMANCE BOND MAY IN SOME CIRCUMSTANCES RESULT IN A RESTRICTION OF COMPETITION, IT IS NEVERTHELESS A NECESSARY AND PROPER MEANS OF SECURING TO THE GOVERNMENT FULFILLMENT OF A CONTRACTOR'S OBLIGATIONS UNDER HIS CONTRACT." B-175458(2), JUNE 28, 1972. IN THAT CASE WE REJECTED THE ARGUMENT THAT A 100-PERCENT PERFORMANCE BOND REQUIREMENT WAS UNREASONABLE BECAUSE IT WAS DIFFICULT FOR A SMALL BUSINESS FIRM TO COMPLY WITH IT OR THAT THE REQUIREMENT MUST HAVE BEEN INCLUDED IN A SOLICITATION TO FAVOR A PARTICULAR FIRM BECAUSE PRIOR SOLICITATIONS DID NOT CONTAIN SUCH A REQUIREMENT.

THE RECORD INDICATES THAT BY A LETTER DATED SEPTEMBER 11, 1972, TO OUR OFFICE, WITH A COPY TO THE SMALL BUSINESS ADMINISTRATION (SBA), YOU LODGED A GENERALIZED PROTEST AGAINST USE OF "EXCESSIVE BONDING REQUIREMENTS" BY NUMEROUS CONTRACTING OFFICERS IN THE ARMY AND AIR FORCE. AS INDICATED IN OUR LETTER OF NOVEMBER 3, 1972, TO YOUR FIRM, AT THE REQUEST OF SBA, THE AIR FORCE CONDUCTED A STUDY AS TO THE BONDING POLICIES EMPLOYED BY SOME 77 AIR FORCE BASES FOR OTHER THAN CONSTRUCTION PROCUREMENTS UNDER ASPR 10- 104. IN A POSITION PAPER DATED JANUARY 15, 1973, A COPY OF WHICH WAS FURNISHED TO YOUR FIRM, THE AIR FORCE STATES THAT YOUR ALLEGATIONS OF LAST YEAR THAT EXCESSIVE BONDING REQUIREMENTS HAD BEEN PRACTICED BY NUMEROUS CONTRACTING OFFICERS IN THE AIR FORCE WERE NOT SUPPORTABLE. IT IS POINTED OUT IN THE POSITION PAPER THAT FOR FISCAL YEAR 1972, THE DATA SHOWS THERE WERE 56 INSTANCES OF BONDING FOR THREE CATEGORIES OF OTHER THAN CONSTRUCTION CONTRACTS AND THAT IN ALL 56 CONTRACTS, EXCEPT ONE, A SMALL BUSINESS FIRM WAS AWARDED THE CONTRACT.

IN A LETTER DATED APRIL 24, 1973, TO YOU, SBA ADVISED THAT IT DID NOT CONCUR WITH THE VIEWS OF THE AIR FORCE THAT BONDING REQUIREMENTS ON FOOD HANDLING CONTRACTS ARE NOT EXCESSIVE AND THAT SBA HAD MADE A RECOMMENDATION TO THE ASPR COMMITTEE THAT THE ASPR BE CHANGED TO REQUIRE THE CONTRACTING OFFICER TO SHOW THE APPROXIMATE DOLLAR VALUE OF THE GOVERNMENT INTERESTS TO BE PROTECTED AS WELL AS REQUIRING A DOCUMENTED STATEMENT THAT BONDING IS NOT BEING USED AS A SUBSTITUTE BASIS FOR DETERMINING CONTRACTOR RESPONSIBILITY. THE RECORD INDICATES THAT AT A MEETING HELD ON MAY 30, 1973, THE ASPR COMMITTEE CONSIDERED THE RECOMMENDATION OF SBA WITH RESPECT TO BONDING FOR SERVICE-TYPE CONTRACTS WITH SMALL BUSINESSES. THE COMMITTEE WAS UNABLE TO DETERMINE THE EXISTENCE OF A SUBSTANTIAL PROBLEM AND IT WAS THEREFORE DECIDED TO CLOSE THE CASE (NO. 73-40) WITHOUT ACTION AND TO REFER THE MATTER TO A PROCUREMENT MANAGEMENT REVIEW (PMR) GROUP WHICH IS TO SUBMIT A REPORT ON ITS FINDINGS TO THE COMMITTEE IN APPROXIMATELY ONE YEAR.

IN THIS CONNECTION, IT ALSO IS NOTED THAT IN ARMY PROCUREMENT INFORMATION CIRCULAR NO. 715-2-18, ISSUED ON MAY 16, 1973, THE DEPARTMENT OF THE ARMY ADVISED CONTRACTING OFFICES AS FOLLOWS:

XIV. BID GUARANTEES AND PERFORMANCE AND PAYMENT BONDS. COMPLAINTS HAVE BEEN RECEIVED THAT DEPARTMENT OF ARMY CONTRACTING OFFICERS ARE ROUTINELY USING BID GUARANTEES AND PERFORMANCE AND PAYMENT BONDS IN CONNECTION WITH NONCONSTRUCTION CONTRACTS. IT IS ALLEGED THAT THESE GUARANTEE AND BONDING REQUIREMENTS ARE BEING USED TO RESTRICT COMPETITION. SUCH REQUIREMENTS ARE TO BE INCLUDED IN SOLICITATIONS, OTHER THAN FOR CONSTRUCTION, ONLY IN STRICT ACCORD WITH ASPR 10-104.2.

IN VIEW OF THE FOREGOING ARMY INSTRUCTION TO CONTRACTING OFFICES, QUOTED ABOVE, AND THE FACT THAT THE PMR GROUP IS NOW STUDYING THE MATTER OF WHICH YOU COMPLAIN, AND SINCE THERE IS NO CONCRETE EVIDENCE TO INDICATE THAT COMPETITION HAS BEEN ADVERSELY AFFECTED BY THE BONDING REQUIREMENTS, WE DO NOT BELIEVE IT WOULD BE APPROPRIATE AT THIS TIME FOR OUR OFFICE TO MAKE ANY RECOMMENDATIONS TO THE DEPARTMENT OF DEFENSE. SEE OUR DECISION TO YOUR FIRM IN B-178530; B-178602; B 178606; AND B-178701, JULY 23, 1973, WHEREIN WE DENIED SIMILAR PROTESTS UNDER DEPARTMENT OF THE AIR FORCE PROCUREMENTS.

ACCORDINGLY, YOUR INSTANT PROTESTS ARE DENIED.