Federal Bid Bond - Fatal Discrepancy

Leonardo Ortiz
June 11, 2010 — 1,255 views  

In the current economy many contractors seek new business opportunities and a primary target is federal government construction contracting. Upon closer inspection, contractors quickly learn that competing in the government contracting arena can prove difficult as many projects require a commitment of resources and surety bonding capacity that exceeds the capability of a single firm. As such, contractors have sought avenues such as teaming agreements or joint ventures to pool resources to increase their opportunities. But, as evidenced by a decision from the Government Accountability Office (“GAO”) in BW JVI, LLC, B-401841 (2009 CPD ¶ 249), contractors who team up to bid work must ensure that their bid strictly complies with the requirements set forth in the applicable procurement regulations, the Federal Acquisition Regulation (“FAR”). Lack of attention to detail may cost the bid team a substantial business opportunity.

Factual Background
The Department of Veterans Affairs (“VA”) issued an invitation for bids (“IFB”) for renovations at the Clement J. Zablocki VA Medical Center in Milwaukee. The IFB required bidders to submit their bids along with a bid guarantee or bid bond. BW JV1 was identified as the bidder on the apparent low bid with a business address in New Berlin, Wisconsin. The BW JV1 joint venture was comprised of two separate companies – BW Contracting Services (“BW”) and KPH Construction Corp. (“KPH”). BW JV1’s bid was signed by two individuals, identified as the President and Project Director.

The accompanying bid bond listed the principal on the bond as “BW JVI” with a Milwaukee, Wisconsin address.  The bid bond appeared to be signed by the same two persons who had signed off on the joint venture’s bid.  “BW JVI” was identified as a “joint venture” under the “Type of Organization” section of the bid bond. A notarized Acknowledgement of Principal was attached to the bid bond identifying the principal that executed the bid bond as “KPH.” The Acknowledgement of Principal was signed by KPH’s President.

The VA’s contracting officer asked the bidder to explain the discrepancy between the principal listed in the bid and the principal listed in the bid bond. In response, the bidder provided the VA with a copy of the joint venture agreement showing that BW JV1 was a joint venture between BW, with a New Berlin, Wisconsin business address, and KPH, with a Milwaukee, Wisconsin business address. The joint venture agreement specifically provided that neither venture member could execute a security agreement or bond on behalf of, or in the name of, the joint venture except by written authorization of both BW and KPH.

The VA rejected the BW JV1 bid as nonresponsive. The VA concluded that the varying names, addresses, and signatories on the bid and bid bond created an ambiguity as to whether the principal in the bid and bid bond were the same legal entity. The joint venture then filed a protest with the GAO challenging the VA’s rejection of its bid.

GAO Decision
FAR §§ 14.404-2(a) and 28.101-4(a) require the rejection of bids that fail to conform to the essential requirements of the IFB or where the bidder fails to furnish a bid guarantee in accordance with the requirements of the IFB. The protestor argued that the bid and the bid bond were submitted by the same entity because BW JV1 was a joint venture and  representatives for both members of the venture signed the bid and bid bond. The protestor pointed to the fact that the different addresses were mutually agreed upon offices as specified in the joint venture agreement. The protestor also relied upon applicable FAR provisions to argue that any discrepancy between the names was an insignificant typographical error which the agency should have waived as an informality or minor irregularity. The protestor also argued that the Acknowledgement of Principal should not affect the validity of the bid bond because this document was not required by the IFB. Finally, the protestor provided a letter from its surety confirming that the surety company stood behind the validity of the bond.

In reviewing the protest, the GAO explained that bid bonds are required for the protection of the government.  The GAO noted that a surety does not incur liability to pay the debts of another unless it expressly agrees to be bound. As a result, the GAO rigidly applies the rule that the principal listed on the bid bond must be the same as the nominal bidder. The GAO noted prior decisions holding that if the bid bond names a principal different from the nominal bidder, it is deficient and may not be corrected after bid opening as a minor informality.  Conversely, the GAO has previously ruled if the entity that submitted the bid and that is identified as the bid bond principal are exactly the same, any discrepancy between the bidder’s bond and bid bond principal’s names is a matter of form that does not require rejection of the bid.

In this case, the GAO noted that at first glance the different spellings of “BW JV1” and “BW JVI” (Number “1” vs. Roman Numeral “I”) appeared to be a discrepancy that is a mere matter of form. The more significant issue involved the discrepancy between identification of a corporation as the entity that executed the bid bond compared to the bidder’s identification as a joint venture.  As such, this presented a question as to the bid bond surety’s liability if the joint venture refused to execute the underlying contract. The GAO relied on the Acknowledgement of Principal and the fact that it stated that the person executing the bid bond was the president of KPH, only one of the joint venture members, and that was “the corporation described in the foregoing instrument” (i.e. the bid bond). But, the principal on the face of the bid bond was the joint venture. Additionally, although KPH was one of the two joint venture members, the joint venture agreement required the bid bond to be executed by both joint venture members.

The GAO rejected the protestor’s argument that the Acknowledgement of Principal should not be considered because it was not required under the IFB. The GAO noted prior decisions holding that where bidders include unsolicited or extraneous materials in their bid submission, those materials are considered part of the bid and can render the bid nonresponsive. The GAO also gave no weight to the surety’s post-bid letter, reasoning that a nonresponsive bid cannot be made responsive after bid opening through explanation of what the bidder or surety intended.

Under these facts, the GAO ruled that the bid bond was unclear as to whether the nominal bidder executed the bid bond, which cast doubt on whether the surety would be liable to the government if the joint venture failed to execute the contract after bid acceptance. Based on the foregoing, the GAO upheld the VA’s decision to reject the protestor’s bid as nonresponsive.

The bidder in this case lost out on a multi-million dollar business opportunity simply because it failed to pay attention to detail. The GAO’s decision reinforces the importance of having qualified personnel and counsel with federal government contracting experience reviewing a bid before and advising the prospective bidder before it is submitted to a government agency. Government agencies will hold bidders and contractors to the requirements of the FAR, so an informed construction professional must know these regulations thoroughly. Failure to know and understand these requirements can render an otherwise competitive bid nonresponsive.

Leonardo N. Ortiz
[email protected]
Member of the State Bar of Florida
Board Certified Florida Construction Law

Leonardo Ortiz

Smith, Currie, & Hancock LLP