B-176107, NOV 16, 1972

B-176107, NOV 16, 1972

BID PROTEST - RESPONSIVENESS - BID GUARANTEE - UNDERWRITING LIMITATION - REINSURANCE - BIDDER RESPONSIBILITY - CAPACITY AND CREDIT FACTORS DECISION DENYING THE PROTEST OF ATLANTIC MAINTENANCE, INC. OF MARYLAND, AGAINST AWARD OF A CONTRACT TO ANY OTHER BIDDER UNDER AN IFB ISSUED BY THE LETTERKENNY ARMY DEPOT, CHAMBERSBURG, PA., FOR CUSTODIAL AND DISINFECTANT SERVICES. WHERE THE BID GUARANTEE SUBMITTED WITH A BID EXCEEDS THE GUARANTOR'S UNDERWRITING LIMITATION, TREASURY DEPARTMENT CIRCULAR 570, THEN THE GUARANTEE IS VALID TO OBLIGATE THE GUARANTOR IN THE AMOUNT OF HIS LIMITATION. IF THE GUARANTOR, WITHIN 45 DAYS OF THE SUBMITTAL OF THE GUARANTEE, OBTAINS REINSURANCE WITH ANOTHER UNDERWRITER FOR THE AMOUNT OF THE GUARANTEE THAT IS IN EXCESS OF ITS LIMITATION, THEN SUCH REINSURANCE IS VALID UNDER 31 CFR 223.11 AND TREASURY DEPARTMENT CIRCULAR 570, FOOTNOTE B, EVEN THOUGH IT HAS BEEN OBTAINED AFTER BID OPENING. ACCORDINGLY, THE ORIGINAL GUARANTEE IS NOT VOID AB INITIO AND THE BID IS THEREFORE RESPONSIVE BECAUSE THE AMOUNT OF THE GUARANTEE, THOUGH LESS THAN THE AMOUNT REQUIRED BY THE IFB, IS GREATER THAN THE DIFFERENCE BETWEEN THE BID PRICE AND PRICE STATED IN THE NEXT HIGHER ACCEPTABLE BID, ASPR 10- 102.5(II). A CONTRACTING OFFICER NEED ONLY REFER A FINDING OF NONRESPONSIBILITY TO THE SBA FOR COC PROCEEDINGS WHERE HE PROPOSES TO REJECT THE BID SOLELY FOR FACTORS RELATED TO CAPACITY OR CREDIT, ASPR 1-705.4(C). THEREFORE, WHERE HE REFERS HIS DETERMINATION OF NONRESPONSIBILITY TO THE SBA, THIS DETERMINATION IS NOT TO BE CONSTRUED AS ONE THAT THE BIDDER IS NONRESPONSIBLE FOR REASONS UNRELATED TO CAPACITY OR CREDIT. ACCORDINGLY, HE NEED NOT RECONSIDER SUCH UNRELATED FACTORS IN HIS REDETERMINATION OF THE BIDDER'S RESPONSIBILITY. THUS, HIS AFFIRMATIVE FINDING IN THIS RESPECT WOULD NOT BE ERRONEOUS.

TO FRIED, FRANK, HARRIS, SHRIVER & KAMPELMAN:

FURTHER REFERENCE IS MADE TO YOUR PROTEST ON BEHALF OF ATLANTIC MAINTENANCE, INC. OF MARYLAND (ATLANTIC), AGAINST THE AWARD OF A CONTRACT TO ANY OTHER BIDDER UNDER INVITATION FOR BIDS (IFB) NO. DAAG34 72-B-0048, ISSUED ON MAY 3, 1972, BY THE LETTERKENNY ARMY DEPOT (LETTERKENNY), CHAMBERSBURG, PENNSYLVANIA.

THE INSTANT IFB SOLICITED BIDS FOR CUSTODIAL AND DISINFECTANT SERVICES FOR FISCAL YEAR 1973 AT LETTERKENNY. OF THE FIVE BIDS RECEIVED AND OPENED ON MAY 25, 1972, TRANSCONTINENTAL CLEANING CO., INC. (TRANSCONTINENTAL) SUBMITTED THE LOWEST BID, THE RESPONSIVENESS OF WHICH YOU INITIALLY PROTESTED. HOWEVER, DURING THE PENDENCY OF THE PROTEST, TRANSCONTINENTAL'S BID ACCEPTANCE PERIOD WAS PERMITTED TO EXPIRE, AND THE QUESTION OF ITS RESPONSIVENESS IS THEREFORE MOOTED. IT IS THE ACCEPTANCE OF THE BID OF THE SECOND LOW BIDDER, BERC BUILDING MAINTENANCE COMPANY (BERC), OF WHICH YOU NOW COMPLAIN.

THE PROTEST IS BASED ON THE PREMISE THAT BERC IS NOT A RESPONSIBLE PROSPECTIVE CONTRACTOR, NOTWITHSTANDING THE ISSUANCE OF A CERTIFICATE OF COMPETENCY (COC) BY THE SMALL BUSINESS ADMINISTRATION (SBA), AND THAT BERC'S BID WAS NONRESPONSIVE IN THAT THE CORPORATE SURETY ON BERC'S BID BOND EXCEEDED ITS UNDERWRITING LIMITATION.

THERE DOES NOT APPEAR TO BE ANY DISPUTE CONCERNING THE REPORTED FACTS. BID BOND AMOUNTING TO 20 PERCENT OF THE BID TOTAL WAS REQUIRED UNDER THE IFB. A BID BOND ISSUED BY THE INTERNATIONAL FIDELITY INSURANCE COMPANY (FIDELITY) IN THE AMOUNT OF $100,000 WAS DELIVERED WITH BERC'S BID ON MAY 25, 1972. THIS AMOUNT WAS SLIGHTLY IN EXCESS OF 20 PERCENT OF BERC'S NET BID OF $495,683. HOWEVER, FIDELITY'S UNDERWRITING LIMITATION, AS SET FORTH IN TREASURY DEPARTMENT CIRCULAR 570 (TD CIRCULAR 570), WAS $69,000.

BOTH THE GOVERNMENT AND BERC HAVE TAKEN THE POSITION THAT THE BID BOND FURNISHED BY FIDELITY IS ENFORCEABLE AND VALID UP TO ITS $69,000 LIMITATION, AND SINCE THE DIFFERENCE BETWEEN BERC'S AND ATLANTIC'S BID IS $26,253.28, BERC'S BID IS RESPONSIVE PURSUANT TO THE PROVISION OF PARAGRAPH 10-102.5(II) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR) WHICH PROVIDES THAT THE FAILURE OF A BIDDER TO SUBMIT A BID GUARANTEE MAY BE WAIVED WHERE, AS HERE, "THE AMOUNT OF THE BID GUARANTEE SUBMITTED, THOUGH LESS THAN THE AMOUNT REQUIRED BY THE INVITATION FOR BIDS, IS EQUAL TO OR GREATER THAN THE DIFFERENCE BETWEEN THE PRICE STATED IN THE BID AND THE PRICE STATED IN THE NEXT HIGHER ACCEPTABLE BID."

YOU ARGUE, HOWEVER, THAT THIS POSITION IGNORES THE STATEMENT IN ASPR 10- 201.1(A)(II) THAT BONDS OF CORPORATE SURETIES "MUST NOT BE IN EXCESS OF THE UNDERWRITING LIMITS STATED IN THAT LIST (TD CIRCULAR 570)."

FOOTNOTE (B) OF TD CIRCULAR 570 STATES:

"TREASURY REQUIREMENTS DO NOT LIMIT THE PENAL SUM OF BONDS WHICH SURETY COMPANIES MAY EXECUTE. THE NET RETENTION, HOWEVER, CANNOT EXCEED THE UNDERWRITING LIMITATION AND EXCESS RISKS MUST BE PROTECTED BY COINSURANCE, REINSURANCE, OR OTHER METHODS IN ACCORDANCE WITH TREASURY CIRCULAR 297, REVISED JANUARY 2, 1970. (31 C.F.R. SEC. 223.10, SEC. 223.11). WHEN EXCESS RISKS ON BONDS IN FAVOR OF THE UNITED STATES ARE PROTECTED BY REINSURANCE, SUCH REINSURANCE IS TO BE EFFECTED *** WITHIN 45 DAYS THEREAFTER. ***"

SEC. 223.10 OF 31 CFR PROVIDES IN PERTINENT PART:

"EXCEPT AS PROVIDED IN SEC. 223.11, NO COMPANY HOLDING A CERTIFICATE OF AUTHORITY SHALL UNDERWRITE ANY RISK ON ANY BOND *** THE AMOUNT OF WHICH IS GREATER THAN *** THE UNDERWRITING LIMITATION."

THE REFERENCED SECTION 223.11 AT SUBPARAGRAPH (B) STATES IN PART:

"(B) REINSURANCE. (1) IN RESPECT TO BONDS RUNNING TO THE UNITED STATES, LIABILITY IN EXCESS OF THE UNDERWRITING LIMITATION SHALL BE REINSURED WITHIN 45 DAYS FROM THE DATE OF EXECUTION AND DELIVERY OF THE BOND WITH A COMPANY HOLDING A CERTIFICATE OF AUTHORITY FROM THE SECRETARY OF THE TREASURY. ***"

WE ARE ADVISED THAT FIDELITY OBTAINED REINSURANCE WITH ALLEGHENY MUTUAL CASUALTY COMPANY, AN APPROVED COMPANY ON TD CIRCULAR 570 WITH AN UNDERWRITING LIMITATION OF $103,000, ON JULY 6, 1972, IN THE SUM OF $31,000, THE EVIDENCE OF WHICH WAS RECEIVED BY THE PROCURING ACTIVITY ON THE SAME DATE, SOME 43 DAYS AFTER THE EXECUTION (MAY 24, 1972) OF THE ORIGINAL FIDELITY BOND.

THEREFORE, SINCE THE PROVISION OF ASPR 10-102.5(II) IS FOR APPLICATION (B -175696, JUNE 12, 1972, 51 COMP. GEN. -), WE CONSIDER THE BID GUARANTEE SUBMITTED WITH BERC'S BID TO BE VALID TO OBLIGATE FIDELITY IN THE AMOUNT OF $69,000, AND THE REINSURANCE CONTEMPLATED BY THE TREASURY REGULATIONS AND ADOPTED BY ASPR WAS TIMELY AND PROPERLY OBTAINED BY FIDELITY, ALBEIT AFTER BID OPENING. HENCE, WE CANNOT AGREE WITH YOUR ARGUMENT THAT BERC'S CORPORATE SURETY COMMITTED AN UNLAWFUL ACT THAT RENDERED THE ENTIRE BOND VOID AB INITIO.

CONCERNING YOUR CONTENTION THAT BERC WAS NOT A RESPONSIBLE PROSPECTIVE CONTRACTOR, AS THAT TERM IS USED IN GOVERNMENT CONTRACTING, YOU RELY IN PART ON THE FOLLOWING FACTS.

ON THE STRENGTH OF A NEGATIVE PRE-AWARD SURVEY OF BERC WHICH FOUND THAT IT DID NOT HAVE ADEQUATE FINANCIAL RESOURCES, THE ABILITY TO COMPLY WITH REQUIRED PERFORMANCE SCHEDULES, A SATISFACTORY RECORD OF PERFORMANCE, AND A SATISFACTORY RECORD OF INTEGRITY, THE CONTRACTING OFFICER DETERMINED ON JULY 17, 1972, THAT BERC WAS NOT A RESPONSIBLE PROSPECTIVE CONTRACTOR. JULY 19, 1972, THE MATTER OF BERC'S COMPETENCY WAS REFERRED TO THE SBA FOR A DETERMINATION AS TO WHETHER A COC SHOULD BE ISSUED. BY LETTER DATED SEPTEMBER 6, 1972, THE SBA ISSUED A COC AS TO THE CAPACITY AND CREDIT OF BERC TO PERFORM THE REQUIRED SERVICES. CONSEQUENTLY, THE CONTRACTING OFFICER WITHDREW THE DETERMINATION THAT BERC WAS A NONRESPONSIBLE CONTRACTOR. IN ADDITION TO THE ISSUANCE OF THE COC, THIS DECISION WAS BASED IN PART ON THE FACT THAT IT DID NOT APPEAR THERE WOULD BE ANY CHANGE IN CURRENT SUPERVISION OR PERSONNEL PRESENTLY PERFORMING THE REQUIRED SERVICES.

YOU ASSERT THAT SINCE TWO OF THE BASES FOR THE INITIAL DETERMINATION OF BERC'S NONRESPONSIBILITY, I.E., "SATISFACTORY RECORD OF PERFORMANCE" AND "SATISFACTORY RECORD OF INTEGRITY," WERE NOT THE SUBJECT OF THE COC, IT IS APPARENT THAT BERC IS NOT A RESPONSIBLE PROSPECTIVE CONTRACTOR, NOTWITHSTANDING THE ISSUANCE OF THE COC REFLECTING ONLY ON BERC'S CAPACITY AND CREDIT.

WHILE THE DECISIONS OF OUR OFFICE CITED BY YOU DO RECOGNIZE THAT THE ISSUANCE OF A COC IS CONCLUSIVE UPON CONTRACTING OFFICERS ONLY AS TO A FIRM'S CAPACITY AND CREDIT, YOUR ARGUMENT BASICALLY TAKES ISSUE WITH THE CONTRACTING OFFICER'S DECISION TO WITHDRAW THE EARLIER DETERMINATION OF NONRESPONSIBILITY AFTER RECEIPT OF THE COC, AND HIS CURRENT FINDING THAT BERC IS RESPONSIBLE.

WE BELIEVE YOUR ARGUMENT IN THIS REGARD OVERLOOKS THE REQUIREMENT FOUND BOTH IN ASPR 1-705.4(C) AND THE SBA REGULATIONS (13 CFR 124.8 16(A)) TO THE EFFECT THAT COC PROCEEDINGS WILL BE ENGAGED IN ONLY WHEN THE CONTRACTING OFFICER PROPOSES TO REJECT A BID SOLELY FOR FACTORS RELATED TO CAPACITY OR CREDIT. CONVERSELY, WHERE CONSIDERATIONS GOING TO MATTERS OTHER THAN CAPACITY OR CREDIT WILL JUSTIFY A FINDING OF NONRESPONSIBILITY, THERE IS NO NECESSITY TO REFER THE QUESTION TO SBA. IN VIEW THEREOF, WE DO NOT BELIEVE THE RECORD AS SET OUT ABOVE CAN BE VIEWED AS REFLECTING A DETERMINATION, PRIOR TO THE REFERRAL TO SBA, THAT BERC SHOULD BE CLASSED AS A NONRESPONSIBLE BIDDER FOR ANY REASON OR REASONS WHICH WERE UNRELATED TO ITS CAPACITY OR CREDIT. UNDER THE CIRCUMSTANCES IT DOES NOT APPEAR THAT THE CONTRACTING OFFICER WAS REQUIRED TO AGAIN CONSIDER SUCH MATTERS UPON RECEIPT OF THE COC, AND IT DOES APPEAR THAT HE WAS JUSTIFIED IN ACCEPTING THE COC AS CONCLUSIVE ON THE QUESTION OF BERC'S RESPONSIBILITY.

ACCORDINGLY, WE CONCLUDE THERE IS NO PRESENT LEGAL BASIS TO REJECT BERC'S BID, AND YOUR PROTEST ON BEHALF OF ATLANTIC IS THEREFORE DENIED.