B-183957, OCTOBER 6, 1975, 55 COMP.GEN. 352

B-183957, OCTOBER 6, 1975, 55 COMP.GEN. 352

BIDS - DISCOUNT PROVISIONS - BID BOND AMOUNT CALCULATED ON DISCOUNT PRICE SINCE ARMED SERVICES PROCUREMENT REGULATION (ASPR) 2-407.3(B) PROVIDES THAT ANY PROMPT PAYMENT DISCOUNT OFFERED SHALL BE DEDUCTED FROM BID PRICE ON ASSUMPTION THAT DISCOUNT WILL BE TAKEN AND OFFERED DISCOUNT OF SUCCESSFUL BIDDER SHALL FORM PART OF AWARD, WHERE PROMPT PAYMENT DISCOUNT IS OFFERED IN BID WHERE BID BOND IS REQUIRED AMOUNT OF BID BOND MAY BE PROPERLY CALCULATED ON DISCOUNTED PRICE. BONDS - BID - DEFICIENCIES - BID REJECTION WHILE ASPR 10-102.5(II) GIVES DISCRETIONARY AUTHORITY TO CONTRACTING OFFICER TO DECIDE WHETHER BID BOND DEFICIENCIES SHOULD BE WAIVED, SUCH DISCRETION MUST HAVE BEEN INTENDED FOR APPLICATION WITHIN DEFINITE RULES. CONSEQUENTLY, ABSENT SPECIFIC FINDING THAT WAIVER OF REQUIREMENT WAS NOT IN BEST INTEREST OF GOVERNMENT, WHICH WAS NOT MADE IN INSTANT CASE, BID SHOULD NOT HAVE BEEN REJECTED SINCE IT FELL INTO STATED EXCEPTION; PROTEST IS THEREFORE SUSTAINED AND ASPR COMMITTEE REQUESTED TO REVISE PROVISION TO MAKE EXCEPTION MANDATORY. BONDS - BID - DEFICIENCIES - WAIVER TO PERMIT UNBRIDLED DISCRETION UNDER ASPR 10-102.5(II) IN DETERMINING WHEN BID BOND DEFICIENCY MAY BE WAIVED WOULD TOTALLY DEFEAT PURPOSE OF EXCEPTION AND ALLOW ITS EMPLOYMENT AS SUBSTITUTE FOR REJECTING BIDS FOR UNRELATED REASONS SUCH AS NONRESPONSIBILITY DETERMINATIONS.

IN THE MATTER OF COMMERCIAL SANITATION SERVICE, OCTOBER 6, 1975:

THIS CASE INVOLVES A PROTEST BY COMMERCIAL SANITATION SERVICE (COMMERCIAL) AGAINST THE AWARD OF A CONTRACT TO OPERATE A REFUSE COLLECTION AND DISPOSAL SERVICE FOR NORAD CHEYENNE MOUNTAIN COMPLEX AND FORT CARSON, COLORADO, UNDER INVITATION FOR BIDS (IFB) NO. DAKF06-75-B 0106, ISSUED BY THE DEPARTMENT OF THE ARMY.

THE INVITATION WAS ISSUED AS A SMALL BUSINESS SET-ASIDE ON MARCH 7, 1975, WITH BID OPENING, AS AMENDED, SCHEDULED FOR APRIL 18, 1975. THREE BIDS WERE RECEIVED IN RESPONSE TO THE INVITATION. COMMERCIAL SUBMITTED THE LOW BID OF $187,962 WITH A PROMPT PAYMENT DISCOUNT OF 8 PERCENT IF PAYMENT WAS MADE WITHIN 20 DAYS. THIS REDUCED COMMERCIAL'S BID TO $172,925. DYNAMIC INTERNATIONAL, INC. (DYNAMIC), SUBMITTED THE NEXT LOW BID OF $196,500 WITH A PROMPT PAYMENT DISCOUNT OF 10 PERCENT IF PAYMENT WAS MADE WITHIN 20 DAYS. THIS RESULTED IN A REDUCED BID OF $176,850 FROM DYNAMIC.

CLAUSE 31 OF STANDARD FORM 33 REQUIRED THAT EACH BIDDER SUBMIT WITH HIS BID A BID GUARANTY IN AN AMOUNT EQUAL TO 20 PERCENT OF THE BID PRICE OF $3 MILLION, WHICHEVER IS LESS. COMMERCIAL SUBMITTED A BID BOND IN THE FORM OF A CASHIER'S CHECK IN THE AMOUNT OF $34,585 WHICH REPRESENTED 20 PERCENT OF THE BID PRICE LESS THE PROMPT PAYMENT DISCOUNT. BY LETTER DATED MAY 8, 1975, THE CONTRACTING OFFICER NOTIFIED COMMERCIAL THAT ITS BID HAD BEEN REJECTED AS NONRESPONSIVE FOR FAILURE TO SUBMIT A SUFFICIENT BID BOND. THE CONTRACTING OFFICER IMPLIED THAT COMMERCIAL'S CHECK SHOULD HAVE BEEN IN THE AMOUNT OF $37,592.40 WHICH REPRESENTS 20 PERCENT OF COMMERCIAL'S BID PRICE BEFORE THE PROMPT PAYMENT DISCOUNT IS SUBTRACTED. AN AWARD WAS MADE TO DYNAMIC ON MAY 8, 1975, AFTER THE CONTRACTING OFFICER DETERMINED THAT COMMERCIAL'S BID WAS NONRESPONSIVE SINCE THE BID BOND WAS IN AN AMOUNT LESS THAN THAT REQUIRED BY THE INVITATION.

COUNSEL FOR COMMERCIAL SUBMITS THAT A DISTINCTION SHOULD BE MADE BETWEEN THE BID PRICE BEFORE THE DISCOUNT, REFERRED TO BY COUNSEL AS THE GROSS BID, AND THE BID PRICE AFTER DISCOUNT, REFERRED TO BY COUNSEL AS THE NET BID. HE ARGUES THAT SINCE THE BIDS WERE EVALUATED ON THE BASIS OF THE DISCOUNTED PRICE, THE CASHIER'S CHECK SUBMITTED BY COMMERCIAL SHOULD NOT HAVE BEEN CONSIDERED AS INSUFFICIENT SO AS TO CAUSE REJECTION OF ITS BID. COUNSEL FURTHER ARGUES THAT THE CONTRACTING OFFICER ACTED IMPROPERLY BY REFUSING TO CONSIDER THE CURATIVE PROVISIONS OF ARMED SERVICES PROCUREMENT REGULATION (ASPR) SEC. 10-102.5(II) (1974 ED.) IN REJECTING COMMERCIAL'S BID.

THE PROCURING ACTIVITY HAS TAKEN THE POSITION THAT THE BID PRICE IS THE PRICE BID BEFORE THE PROMPT PAYMENT DISCOUNT IS SUBTRACTED. TERM DISCOUNTS ARE CONSIDERED IN THE EVALUATION PROCESS, BUT ARE NOT DEDUCTED AND REFLECTED IN THE CONTRACT AWARD AMOUNT AS SET FORTH IN BLOCK 22 OF STANDARD FORM 33. A TERM DISCOUNT HAS TO BE EARNED BY THE GOVERNMENT AND CANNOT BE TAKEN AS A MATTER OF FACT.

SECTION 2-407.3(B) OF ASPR (1974 ED.) PROVIDES THAT ANY DISCOUNT OFFERED SHALL BE DEDUCTED FROM THE BID PRICE IF A PROMPT PAYMENT DISCOUNT IS OFFERED FOR PAYMENT WITHIN 20 DAYS. THE BID OFFERED BY COMMERCIAL CONTAINED A 20-DAY PROMPT PAYMENT DISCOUNT AND, THEREFORE, IT WAS WITHIN THE PARAMETERS OF ASPR SO AS TO BE EVALUATED ON THE DISCOUNTED PRICE. COMMERCIAL, WHICH WAS THE INCUMBENT CONTRACTOR, ASSERTS THAT IN THE PAST THE GOVERNMENT HAS ALWAYS TAKEN ADVANTAGE OF THE DISCOUNTED PRICE AND IT WAS NOT UNREASONABLE FOR IT TO ASSUME THAT THE GOVERNMENT WOULD DO SO IN THIS INSTANCE. COUNSEL ARGUES THAT SINCE THE BIDS WERE TO BE EVALUATED ON THE DISCOUNTED PRICE, IT FOLLOWS THAT A BID GUARANTY SHOULD BE SUBMITTED ON THAT PRICE. THUS, IT IS URGED THAT IF A BID IS TO BE EVALUATED ON THE DISCOUNTED PRICE, A BID GUARANTY SUBMITTED ON THE DISCOUNTED PRICE SHOULD BE DEEMED SUFFICIENT.

WHILE OUR OFFICE HAS NOT DECIDED THIS ISSUE BEFORE, IT IS OUR VIEW THAT WHERE A PROMPT PAYMENT DISCOUNT IS OFFERED BY A BIDDER IN A BID WHERE A BID BOND IS REQUIRED, THE AMOUNT OF THE BOND MAY BE CALCULATED ON THE BID PRICE LESS THE DISCOUNT. WE THINK SUCH AN INTERPRETATION IS REASONABLE SINCE ASPR SEC. 2-407.3(B) (1974 ED.) PROVIDES THAT ANY PROMPT PAYMENT DISCOUNT OFFERED SHALL BE DEDUCTED FROM THE BID PRICE ON THE ASSUMPTION THAT THE DISCOUNT WILL BE TAKEN, AND IT IS THIS PRICE UPON WHICH THE BIDS ARE EVALUATED, AND THE OFFERED DISCOUNT OF THE SUCCESSFUL BIDDER SHALL FORM A PART OF THE AWARD. ASPR SEC. 2-407.3(D) (1974 ED.). THEREFORE, WE CONCLUDE THAT COMMERCIAL'S BID WAS IMPROPERLY REJECTED.

ALTHOUGH THE FOREGOING IS DISPOSITIVE OF THE PROTEST, WE BELIEVE THE REMAINING ISSUE IS SIGNIFICANT AND SHOULD BE DISCUSSED. THE OTHER ISSUE TO BE RESOLVED IS WHETHER THE CONTRACTING OFFICER IMPROPERLY REJECTED COMMERICIAL'S BID IN LIGHT OF THE CURATIVE PROVISIONS OF ASPR SEC. 10- 102.5(II), WHICH PROVIDES THAT:

NONCOMPLIANCE WITH BID GUARANTEE REQUIREMENTS. WHEN A SOLICITATION REQUIRES THAT BIDS BE SUPPORTED BY A BID GUARANTEE, NONCOMPLIANCE WITH SUCH REQUIREMENT WILL REQUIRE REJECTION OF THE BID * * * EXCEPT THAT REJECTION OF THE BID IS NOT REQUIRED IN THESE SITUATIONS:

(II) WHEN 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 * * * .

THE ARMY HAS TAKEN THE POSITION THAT THE PROVISION CITED GIVES THE CONTRACTING OFFICER DISCRETION TO DECIDE WHETHER THE PROVISION SHOULD BE INVOKED TO PERMIT THE ACCEPTANCE OF A BID NOT IN STRICT CONFORMITY WITH THE BID GUARANTY REQUIREMENT OF THE INVITATION.

COUNSEL FOR COMMERCIAL ARGUES THAT THE PURPOSE OF ASPR SEC. 10 102.5(II) IS CURATIVE AND IT WAS PROMULGATED TO ALLEVIATE THE TYPE OF SITUATION WHICH EXISTS IN THE INSTANT CASE. COUNSEL FURTHER CONTENDS THAT ALTHOUGH THE LANGUAGE OF THE PROVISION IS DISCRETIONARY RATHER THAN MANDATORY, THE CONTRACTING OFFICER SHOULD HAVE WAIVED THE DEFECTIVE BID GUARANTY AND DETERMINED THE BID TO BE RESPONSIVE. COUNSEL ALSO CITES A SIMILAR PROVISION IN THE FEDERAL PROCUREMENT REGULATIONS (FPR) WHICH IS NO LONGER DISCRETIONARY BUT MANDATORY SO THAT A BID SUBMITTED WITH A BID BOND LESS THAN THE AMOUNT REQUIRED BY THE INVITATION BUT EQUAL TO OR GREATER THAN THE DIFFERENCE BETWEEN THE PRICE STATED IN THE BID AND THE PRICE STATED IN THE NEXT HIGHER ACCEPTABLE BID SHALL NOT BE REJECTED IF OTHERWISE CORRECT. SEE FPR SEC. 1-10.103-4(B) (1964 ED. CIRC. 1).

THE CONTRACTING OFFICER STATES THAT THERE IS NOTHING IN ASPR OR IN OUR DECISIONS WHICH IRREVOCABLY MANDATES THAT THE CONTRACTING OFFICER ACCEPT A BID GUARANTY LESS THAN THAT REQUIRED IN THE INVITATION FOR BIDS. THE CONTRACTING OFFICER TAKES THE ABOVE POSITION SINCE AN FPR PROVISION SUBSTANTIALLY IDENTICAL TO THE ASPR PROVISION CITED BY COUNSEL FOR COMMERCIAL WAS HELD TO BE DISCRETIONARY IN 40 COMP.GEN. 561 (1961). IN THAT CASE WE HELD THAT FAILURE TO SUBMIT A SUFFICIENT BID BOND WAS A MATERIAL DEVIATION BUT DESPITE THE FACT THAT THE DEFICIENCY COULD BE WAIVED, WE WOULD NOT DISAGREE WITH THE CONTRACTING OFFICER'S DETERMINATION NOT TO WAIVE THE DEFICIENCY.

WHILE WE AGREE THAT FAILURE TO SUBMIT A SUFFICIENT BID BOND IS STILL A MATERIAL DEVIATION, SEE A. D. ROE COMPANY, INC., 54 COMP.GEN. 271 (1974), 74-2 CPD 194, WE DO NOT BELIEVE THAT 40 ID. 561, SUPRA, IS FOR APPLICATION IN THE INSTANT CASE. ALTHOUGH THE LANGUAGE OF THE FPR PROVISION THEN IN USE IN THAT CASE WAS ESSENTIALLY THE SAME AS ASPR SEC. 10-102.5(II), THE IFB IN THAT CASE ALSO PROVIDED THAT "THIS REQUIREMENT FOR BID GUARANTEE WILL NOT BE WAIVED." THE IFB IN THE INSTANT CASE DOES NOT CONTAIN THE SAME FORCEFUL LANGUAGE. WE NOTE IN THIS REGARD THAT SUBSEQUENT TO OUR DECISION IN THAT CASE, THE LANGUAGE IN FPR SEC. 1-10.103-4(B) WAS AMENDED SO AS TO MAKE THE APPLICATION OF THE REGULATION MANDATORY.

IN 38 COMP.GEN. 532 (1959), WE HELD THAT BEGINNING WITH INVITATIONS ISSUED MORE THAN 60 DAYS AFTER FEBRUARY 5, 1959, BID BOND REQUIREMENTS WOULD BE ENFORCED IN ACCORDANCE WITH THEIR LANGUAGE. IN SOME INSTANCES THE APPLICATION OF THE RULE APPEARED TO LEAD TO RESULTS WHICH WERE HARSH ON THE LOW BIDDER AND NOT IN THE GOVERNMENT'S BEST INTEREST. IT HAS BEEN OUR VIEW, HOWEVER, THAT BID BONDS ARE REQUIRED IN THE VAST MAJORITY OF CASES ONLY BY ADMINISTRATIVE REGULATION AND THAT THE APPLICABILITY OF AND THE EXCEPTIONS TO THE REQUIREMENT ARE ALSO MATTERS TO BE ESTABLISHED BY REGULATION.

THE CITED PROVISION OF ASPR WAS PROMULGATED TO PROVIDE EXCEPTIONS TO THE GENERAL RULE WHERE DEEMED TO BE IN THE BEST INTEREST OF THE GOVERNMENT. WHILE THE ASPR PROVISION IN QUESTION GIVES DISCRETIONARY AUTHORITY TO THE CONTRACTING OFFICER TO DECIDE WHETHER BID BOND DEFICIENCIES SHOULD BE WAIVED, SUCH DISCRETION MUST HAVE BEEN INTENDED FOR APPLICATION WIT IN DEFINITE RULES. SINCE THE LOW BIDDER'S FAILURE TO CONFORM TO THE LITERAL REQUIREMENTS OF THE BID BOND PROVISIONS COMES WITHIN ONE OF THE ASPR EXCEPTIONS, SUCH FAILURE SHOULD BE WAIVED PROVIDED IT IS FOUND BY THE PROCURING ACTIVITY NOT TO HAVE BEEN DUE TO THE PROTESTER'S INABILITY TO OBTAIN THE BID BOND IN THE REQUIRED AMOUNT FOR FINANCIAL OR RELATED REASONS, OR FOR SUCH OTHER VALID REASONS THAT WOULD NOT MAKE ACCEPTANCE OF THE BID IN THE BEST INTERESTS OF THE GOVERNMENT. STATED DIFFERENTLY, ABSENT A SPECIFIC FINDING, WHICH WAS NOT MADE HERE, THAT A WAIVER OF THE REQUIREMENT WAS NOT IN THE BEST INTERESTS OF THE GOVERNMENT, THE BID SHOULD NOT BE REJECTED IF IT FALLS INTO THE STATED EXCEPTION. TO RULE OTHERWISE WOULD PERMIT UNBRIDLED DISCRETION TO TOTALLY DEFEAT THE PURPOSE OF THE EXCEPTION AND ALLOW ITS EMPLOYMENT AS A SUBSTITUTE FOR REJECTING BIDS FOR UNRELATED REASONS SUCH AS NONRESPONSIBILITY DETERMINATIONS.

IT IS OUR VIEW THAT SINCE THE FAILURE OF THE BID TO COMPLY FULLY WITH THE INVITATION REQUIREMENTS FALLS WITHIN ONE OF THE EXCEPTIONS ENUMERATED IN ASPR, AND THERE WAS NO FINDING THAT ITS ACCEPTANCE WOULD IN ANY WAY BE DETRIMENTAL TO THE BEST INTERESTS OF THE GOVERNMENT, OR PREJUDICE THE RIGHTS IT WOULD OTHERWISE HAVE, THE LOW BID SHOULD BE REGARDED AS RESPONSIVE.

IN VIEW OF THE FOREGOING CIRCUMSTANCES, WE RECOMMEND THAT THE CONTRACT WITH DYNAMIC BE TERMINATED FOR THE CONVENIENCE OF THE GOVERNMENT AND THAT AWARD BE MADE TO COMMERCIAL AS THE LOW BIDDER.

AS THIS DECISION CONTAINS A RECOMMENDATION FOR CORRECTIVE ACTION TO BE TAKEN, IT IS BEING TRANSMITTED BY LETTERS OF TODAY TO THE CONGRESSIONAL COMMITTEES NAMED IN SECTION 232 OF THE LEGISLATIVE REORGANIZATION ACT OF 1970, PUBLIC LAW 91-510, 31 U.S.C. 1172.

IN ADDITION, WE ARE RECOMMENDING, BY LETTER OF TODAY, TO THE ASPR COMMITTEE OF THE DEPARTMENT OF DEFENSE THAT THE LANGUAGE OF ASPR SEC. 10- 102.5 BE REVISED SO THAT IT IS NO LONGER DISCRETIONARY ON THE PART OF THE CONTRACTING OFFICER WHETHER TO ACCEPT A BID IF THE BID BOND IS DEFICIENT BUT FALLS WITHIN ONE OF THE ENUMERATED EXCEPTIONS.