Legal Update
Jul 29, 2022
Read the Fine Print: Does Your Bid Bond Cover Substitute Performance Costs?
The Federal Acquisition Regulation ("FAR") contains numerous standard and optional forms for use in acquisitions. A standard form (SF) is considered mandatory. For instance, any bilateral or unilateral modification to a contract must use SF 30 (“Amendment of Solicitation/Modification of Contract”), as prescribed in FAR 43.301. Where a solicitation incorporates a FAR provision or clause that prescribes the use of a standard form, contractors should be mindful to use that standard form, or run the risk of its bid being deemed non-responsive. In other words, use of a non-standard form may deviate from or alter the prescribed rights granted to the government via the standard form, resulting in the bid being eliminated from the competition.
This is what happened in Leeward Construction Corporation, B-420504, Mar. 3, 2022, 2022 WL 621391, where the Government Accountability Office ("GAO") dismissed a construction contractor’s protest of the rejection of its bid because the protester submitted a bid bond on a non-standard form—where a standard form was otherwise prescribed—that improperly limited the government’s recovery of substitute performance costs. The protester alleged that its bid bond met the requirements contained within the invitation for bids (“IFB”) because the bond protected the government’s right to reprocurement costs in the event of default. However, upon review of the protester’s bid bond, GAO agreed with the agency that the bid bond limited the government’s recovery to reprocurement costs only, contrary to the IFB and the FAR. When submitting a bid, contractors using a bid bond document other than the government’s standard form must read the fine print to ensure it complies with the IFB and the FAR.
The non-standard bid bond form did not meet the IFB’s bid bond requirement
The US Army Corps of Engineers (the “Corps” or “Army”) issued an IFB for removing stone facing from the General Edgar Jadwin Dam in Wayne County, PA. The IFB incorporated FAR provision 52.228-1, Bid Guarantee, which states, in part:[1]
(a) Failure to furnish a bid guarantee in the proper form and amount, by the time set for opening of bids, may be cause for rejection of the bid.
…
(e) In the event the contract is terminated for default, the bidder is liable for any cost of acquiring the work that exceeds the amount of its bid, and the bid guarantee is available to offset the difference.
Notably, FAR 28.106-1 prescribes the use of SF 24 when a bid bond is required. However, although the IFB contained FAR provision 52.228-1 in full text, it did not instruct bidders to use any particular bid bond form. 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 surety, in the event of default:
[P]ays to the Owner the difference, not to exceed the amount of this Bond, between the amount specified in said bid and such larger amount for which the Owner may in good faith contract with another party to perform the work covered by said bid, then this obligation shall be null and void, otherwise to remain in full force and effect.
Before submitting its bid, Leeward called the Corps to clarify what form they could use for the bid bond. The contract specialist stated that the IFB only required a bid bond of the requisite amount and did not require the use of a special form. Leeward timely submitted its bid to the Corps using the AIA form for its bid bond instead of the SF 24. All other bidders used the SF 24.
The Corps deemed Leeward’s bid nonresponsive for failing to comply with IFB’s bid bond requirement. In rejecting Leeward’s bid, the contracting officer relied on two prior GAO decisions in which GAO concluded that the same AIA form that Leeward used contained rights and remedies that differed from those provided by FAR provision 52.228-1.[2] Leeward timely protested at GAO.
GAO holds that Leeward’s AIA form inadequately protected the government’s rights
Leeward argued that the bid bond sufficiently protected the government because it guarantees that the government can recover reprocurement costs. However, GAO deemed this argument irrelevant because FAR provision 52.228-1 and the SF 24 permit the agency to recover more than just reprocurement costs (e.g., administrative costs or in-house performance costs). GAO found that the FAR permits the government to recover its costs of substitute performance generally while protester’s bid bond limits the agency’s recovery to reprocurement costs only. As a result, GAO dismissed this protest ground for failure to state a legally or factually sufficient basis for protest.
Leeward also argued that the IFB was ambiguous, which GAO also dismissed. GAO advised that its bid protest regulations require filing protests based IFB improprieties before the closing of the receipt of bids. GAO further remarked that the protester has an affirmative obligation to seek clarification prior to bid submission due date. GAO dismissed this protest ground as untimely.
Leeward also argued that it reasonably relied on oral advice from the contract specialist who advised that the IFB did not require use of the SF-24 or any other particular form. However, 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 contract specialist advised, GAO 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. GAO deemed this ground legally and factually insufficient.
COFC grants judgment in favor of the government
Following its loss at GAO, Leeward filed a subsequent protest at the Court of Federal Claims (“COFC”), where it fared no better. Leeward argued that the Army erred as a matter of law in determining that a liability limitation in its bid bond significantly departed from the IFB’s requirements, and that, even if the bid were non-compliant, the Army should have waived the non-compliance. The government argued that the ambiguities of Leeward’s bid bond language presented a defense to enforcement, and that the Army reasonably relied on previous GAO decisions to find the bid bond defective. In granting Government’s and Intervenor’s Motions for Judgment on the Administrative Record, the court made a number of findings.
First, the court found that Leeward’s bid bond failed to comply with the IFB in that AIA Form A310, as used by Leeward, did not comply with the requirements of FAR 52. 228-1(e). Leeward initially argued that a particular provision in its bid bond—known as the “Savings Clause”—actually incorporated FAR 52.228-1(e) by reference, and thus the government was still protected by that clause. However, the court determined that the AIA A310 savings clause language was too broad and indefinite to constitute a valid incorporation by reference of any statutory or regulatory requirements, let alone the requirements provided by the FAR. The court similarly found the language in the AIA A310 savings clause too ambiguous to operate as a “statutory bond,” which would otherwise incorporate FAR 52.228-1(e) (as Leeward argued in its Reply memorandum).
Second, the court found that the defect in Leeward’s bid bond was material. Leeward argued that the bond’s liability limitation would have no material effect on the Army’s recovery in the event of default. In rejecting this argument, the court held that the bid bond requirement was a material aspect of the IFB because it was binding on bidders and had more than a negligible impact on the quality of the bids. Thus, Leeward’s error was not a matter of form, but rather one of substance. The court recognized that the liability limitation in Leeward’s bid bond brought with it uncertainty regarding the amount the government would be able to recover in future reprocurement costs.
Third, the court determined that the language of Leeward’s bid bond created a defense to enforcement, i.e., a demonstrable risk of future litigation. Leeward took issue with the Army’s reliance on two prior GAO decisions addressing the same bid bond language. The court took no such issue with the Army’s reliance on the same when confronted with the ambiguity presented in Leeward’s bid bond, finding that, although not binding on the Army, the GAO decisions relied upon were sound and legally correct in finding the exact same bond non-compliant. Therefore, the Army’s reliance on the GAO’s decisions on this matter was rational.
Takeaways
Government forms exist for a reason—to provide contractors guidance on the information, rights and obligations that the government expects in a particular scenario. Bidders who elect to use something other than a standard government form to convey the same information do so at their own risk. As in the case of bid bonds, GAO and COFC will not sustain a protest challenging the agency’s rejection of a bid that fails to provide adequate bonding where a bidder elected to submit its bid bond on a non-standard government form. If a bidder intends to use a different form, the bidder must read the fine print to confirm that the bond provides substantively the same rights and remedies to the parties that the IFB and the FAR require. Even where, as here, the government informed the protester that there was no special form bidders were required to use, bidders should still default to use of the government’s standard forms, or else run the risk of being disqualified.
[1] The FAR provision is available at https://www.acquisition.gov/far/52.228-1.
[2] Those decisions are Pacific Dredge and Constr., LLC, B-418900, Sept. 18, 2020, 2020 CPD ¶ 299, and G2G, LLC, B-416502, Sept. 27, 2018, 2018 CPD ¶ 328.