Read the fine print: does your bid bond cover replacement performance costs? – Public procurement, procurement and PPP

The Federal Acquisition Regulation (“FAR”) contains many standard and optional forms for use in acquisitions. A Standard Form (SF) is considered mandatory. For example, any bilateral or unilateral modification of a contract must use SF 30 (“Amendment of Solicitation/Modification of Contract”), as prescribed in FAR 43.301. Where a solicitation includes an FAR provision or clause that mandates the use of a standard form, contractors must ensure that they use that standard form, or run the risk of their bid being deemed non-compliant. In other words, the use of a non-standard form may deviate from or alter the prescribed rights granted to the government through the standard form, resulting in the elimination of the competition’s offer.

This is what happened in Leeward construction company, B-420504, 3 March 2022, 2022 WL 621391, where the Government Accountability Office (“GAO”) rejected a building contractor’s protest against the rejection of its bid because the protester had submitted a bid bond on a non-standard form—where a standard form was otherwise prescribed—this unduly limited the government’s recovery of the representation costs of surrogates. The protester alleged that his bid bond met the requirements contained in the IFB (“IBF”) because the bond protected the government’s right to restocking costs in the event of a default. However, after reviewing the protester’s bid bond, the GAO agreed with the agency that the bid bond limited government recovery to resupply costs only, unlike the IFB and FAR. When submitting a bid, contractors using a bid bond document other than the standard government form should read the fine print to ensure it is IFB and FAR compliant.

Non-standard bid bond form did not meet IFB bid bond requirement

The US Army Corps of Engineers (the “Corps” or “Army”) issued an IFB to remove the stone facing from the General Edgar Jadwin Dam in Wayne County, Pennsylvania. The IFB has incorporated FAR provision 52.228-1, Bid Security, which states, in part:1

(a) Failure to provide a bid security in the appropriate form and amount, by the date fixed for opening of bids, may result in the rejection of the bid.

(e) In the event of termination of the Contract for default, the Bidder is responsible for any cost of acquiring the Work which exceeds its Bid Amount, and Bid Security is available to make up the difference.

Notably, FAR 28.106-1 prescribes the use of SF 24 when a bid bond is required. However, while the IFB contained FAR 52.228-1 in full, it did not direct bidders to use any particular form of bid bond. The protester, Leeward Construction Corporation (“Leeward”), did not use the SF 24, and instead used American Institute of Architects (AIA) Document A310 – 2010, Bid Bond, which provides that the bond, in the event of a fault:

[P]grants the Owner the difference, not exceeding the amount of this bond, between the amount specified in said offer and the greater amount for which the Owner may in good faith contract with another party to perform the work covered by said offer, then this obligation is null and void, otherwise it will remain in full force and effect.

Before submitting his bid, Leeward called the Corps to clarify the form he could use for the bid bond. The contract specialist said that the IFB only requires a bid bond in the required amount and does not require the use of a special form. Leeward timely submitted its bid to the Corps using Form AIA for its bid bond instead of the SF 24. All other bidders used the SF 24.

The Corps deemed Leeward’s bid non-compliant for failing to meet IFB’s bid bond requirement. In rejecting Leeward’s offer, the contracting officer relied on two previous GAO decisions in which GAO concluded that the same AIA form used by Leeward contained different rights and remedies than those provided by FAR provision 52.228-1.2 Leeward timely protested to the GAO.

GAO argues Leeward’s AIA form did not sufficiently protect government rights

Leeward argued that the bid bond sufficiently protects the government because it ensures that the government can recoup restocking costs. However, the GAO deemed this argument irrelevant because FAR 52.228-1 and SF 24 allow the agency to recover more than the restocking fee (for example, administrative costs or internal performance costs). GAO has found that the RBF allows the government to recover its costs of
replacement performance in general while the protester’s bid bond limits the agency’s repossession to restocking costs only. Accordingly, the GAO dismissed this ground of protest for failing to state a sufficient legal or factual basis to protest.

Leeward also argued that the IFB was ambiguous, which the GAO also rejected. The GAO has indicated that its bid protest regulations require the filing of protests based on IFB irregularities. before closing of the receipt of tenders. The GAO further noted that the protester has a positive obligation to seek clarification. prior todeadline for submission of tenders. The GAO dismissed this reason for protest as inappropriate.

Leeward also argued that she reasonably relied on the oral advice of the contracts specialist who indicated that the IFB did not require the use of the SF-24 or any other particular form. However, the GAO explained that the acceptability of the bid bond depends on the rights and obligations of the parties that the bid bond protects. Notwithstanding what the Contracts Specialist has advised, GAO has found that the Government cannot be bound by oral advice given to bidders by its representatives, and bidders rely on such advice at their own risk. The GAO found this reason legally and factually insufficient.

The COFC renders a judgment in favor of the government

Following her loss to the GAO, Leeward filed a subsequent protest with the Federal Claims Court (“COFC”), where she fared no better. Leeward argued that the Army erred in law in determining that a limitation of liability in its bid bond deviated significantly from IFB requirements and that, even if the bid did not comply , the military should have waived non-compliance. The government argued that ambiguities in the wording of Leeward’s bid bond were a defense to execution and that the Army had reasonably relied on previous GAO rulings to conclude that the bid bond was defective. In accepting the requests of the government and the intervener in judgment on the administrative file, the court drew a certain number of conclusions.

First, the court found that Leeward’s bid bond did not comply with the IFB to the extent that Form AIA A310, as used by Leeward, did not comply with the requirements of FAR 52. 228 -1(e). Leeward originally argued that a particular provision of his bid bond – known as the “savings clause” – actually incorporated FAR 52.228-1(e) by reference, and therefore the government was still protected. by this clause. However, the court determined that the wording of the AIA A310 safeguard clause was too broad and indefinite to constitute a valid incorporation by reference of any legal or regulatory requirement, let alone the requirements provided by the FAR. The court also found the wording of the AIA A310 savings clause too ambiguous to function as a “legal obligation”, which would otherwise incorporate FAR 52.228-1(e) (as Leeward argued in its reply brief) .

Second, the court found that the failure of Leeward’s bid bond was material. Leeward argued that limiting the surety’s liability would have no material effect on the recovery of the Army in the event of default. In rejecting this argument, the court held that the bid bond requirement was an important aspect of the IFB because it was binding on bidders and had a more than negligible impact on the quality of bids. Thus, Leeward’s error was not a matter of form, but rather a matter of substance. The court acknowledged that the limitation of liability in Leeward’s bid bond created uncertainty about how much the government would be able to recover in future resupply costs.

Third, the court determined that the wording of Leeward’s bid bond was a defense to execution, that’s to say, a demonstrable risk of future litigation. Leeward challenged the Army’s reliance on two previous GAO rulings dealing with the same bid bond language. The court raised no such issue with the Army’s reliance on the same when faced with the ambiguity presented in Leeward’s bid bond, finding that while not binding on the army, the GAO decisions relied on were valid and legally correct to find exactly the same surety. improper. Therefore, the Army’s reliance on GAO decisions on this issue was rational.

Take away food

Government forms exist for one reason: to provide guidance to contractors on what information, rights and obligations the government expects in a particular scenario. Bidders choosing to use anything other than a standard government form to submit the same information do so at their own risk. As with bid bonds, GAO and COFC will not support a protest challenging the agency’s rejection of a bid that does not provide an adequate bond where a bidder has elected to post its bid bond on a non-standard government form. If a Bidder intends to use a different form, the Bidder should read the fine print to confirm that the Surety provides substantially the same rights and remedies to the parties as the IFB and FAR require. Even where, as here, the government informed the protester that there was no special form that bidders were required to use, bidders should still default to standard government forms or else they would run the risk to be disqualified.

Footnotes

1. The FAR provision is available at https://www.acquisition.gov/far/52.228-1.

2. These decisions are Pacific Dredge and Constr., LLCB-418900, September 18, 2020, DPC 2020 ¶ 299, and
G2G, LLCB-416502, September 27, 2018, DPC 2018 ¶ 328.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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