Bid Guarantees in Federal Procurement

• Author: BY Robert H. Rumizen and Milton J. Socolar
• Pages: 03

I. INTRODUCTION

Where public contracts are awarded under competitive bidding procedures, the Federal Government, pursuant to applicable statutes and regulations, holds out that it will make award to that responsible bidder whose bid, conforming to the invitation for bids, will be most advantageous to the Government, price and other factors considered, or that it will reject a11 bids and readvertise.' Agents of the Government have no discretion in this regard. Since the Government obligates itself to award its contracts upon anobjective basis without favor to any particular bidder. it is clearly the duty of each bidder to enter into a formal contract if his offer is accepted within its terms. As stated by the Court of Claims in Scott w. United States,%

The agents of the Government stand upon a different fwting from Private individuals in the matter of advertising for the letting of contracts in behaif of the United States. They have no dimetion. They must accept the i0we.t OT highest (in the esse of asks) reaponaible bid, or reject dland readvertise. Private individuals are not required thus to act. Hence it is apparent that government agents ahouid be ailawed P reraonsble time after the opening of bids before they m e allowed to be withdrawn, 80 they can bo sfforded Omartunities to ascertain whether eoilumn or fraud has

Although a successful bidder's refusal to enter into a formal con-tract would not necessarily relieve him of liability were the Government to accept his bid and make award, the costs and administrative difficulties to the Government in obtaining perfarm-ance or damages from a recalcitrant bidder are burdensome. To assure ultimate execution of a contract and to protect the Gavernment against the consequences of unjustifiable failure or refusal to enter into a final or formal contract, the Government often requires a deposit or security to accompany each bid: Generally, bid guarantees are called far by the Government only where the invitation for bids also requires the furnishing of payment or performance bands. The act of furnishing a bid guarantee would not, however, ratify requirements as to the bidder's responsibility; it would still be the duty of Government authorities to take into consideration matters bearing on the likelihood of prompt and efficient contract performance..

Bid guarantee requirements are imposed by statute on the Post Office Department with respect to bids for transporting the mail and an the Public Printer with respect to the furnishing of paper and envelopes.# So other agency of the Federal Government has bid guaranty requirements imposed upon it by statute; bid security is virtually entirely a matter of administrative procurement regulation.

Regulations governing hid guarantees have been promulgated pursuant to applicable law by the Department of Defense and the General Services Administration.. These regulations are substantially identical in that they provide for advising prospective bidders, where a bid guarantee has been determined to be neces-sary, that failure to comply with guarantee requirements in the proper amount by the time set for public opening of bids may be cause far rejection of a bid. Waiver of bid guarantee requirements is permitted in only four specified situations.'

The purpose of this article is to review some of the legal prob- 4 But S B B Lieberman V. Neptune Township, 50 N.J. Super. 197. 141 A.2d 563 (Super. Ct. App. Dw 1956). wherein th% court declared L iale of public land illegal on the ground that P requirement for deposit three daya prmr todate of d e was calculated to reduce the number of possible bidders and not conducive to rosliz~ti0n of higheat possible pnce. See slio note 2 m p ~ a .

I Wiimott Y State Purchasing Comm'm. 246 Ky. 115. 54 S.W.2d 634 (1832) ; Albsnese V. Mschetto, 5 N.J. Su~er. 665. 68 A.2d 655 (Super Ct. L Div. 1545): East River Gaslight Co. Y. Donneily. 53 N.Y. 557 (16631: Hibba Y.

Arenaberg, 278 Pa. 24, 115 Ati. 727 (1523). 86 U.S.C. B 426 (10581: Act of Jnn. 12, 1805, ch. 23, 9 5, 28 Stat. 602, SI

amended, 44 U.S.C. 5 7 (19561

- ASPR 10-102 (Jan. 31, 1861) ; Federal Procurement Rrgs. 5 1-16 102 (15611.

*See text sccampanymg note 64 znjra.106 *co *BbJB

BID GUARANTEES

lema stemming from the efforts of administrative agencies to assure, by means of guarantees, that bidders will enter into contracts in accordance with the terms of their offers. These problems fall into two broad categories: (1) Rights of parties where a bid guarantee has been furnished as required but where the bidder to whom award is to be made desires to withdraw his bid; and (2) Rights of parties where a bidder otherwise qualified for award fails ta meet requirements for guarantee of his bid.

First, various legal questions concerning the contractual relationship of bidders and public agencies as affected by requirements for bid guarantees will be considered, and, second, the related roleof the Comptroller General of the United States will be disc~ssed.~

11. BID GUARANTEES-THE CONTRACTUAL RELATION

1. FAILURE TO FURNISH REQUIRED BID GUARAXTEE

   The Court of Claims in Adelhardt Construction Company v. United States'" considered the question whether a valid contract resulted where the Federal Government accepted plaintiffs bid and made award to him, notwithstanding his failure to furnish a bid guarantee as required by the Government's invitation for bids and notwithstanding administrative regulations in effect at that time which provided that:

   N'here security is required to insure the execution of contract and band for performance of the ~ewiee,no bid will be eonsidered unleii it is m guaranteed.''

   In holding that a valid contract was consummated, the court emphasized that the regulation and requirement far bid guarantee were "obviously intended far the benefit of the Government." Reliance was also placed upon the well-established principle enun-ciated in United States v. N.Y. & Porto Rico S. S. Co." that there are circumstances in which a party for whose protection a requirement is made may waive that requirement. The Supreme Court held in that case that "Even when a statute in SO many words declares a transaction void far want of certain farms, the party far whose protection the requirement is made often may waive it, void being held to mean only voidable at the party's choice."" Similar reasoning was applied in Cedy V. Citg of San Bernadine"

   The current Comptroller General 18 the Honorable doaeph Campbell, who

   Aa set forth in 123 Ct. Ci. at 458, 107 F.Supp. at 846.

   was appointed on March 18, 1955.

   In 123 Ct. Ci. 456, 107 F.Supp. 945 (1952). 1) 238 C.S. 88 (1915).

   Li Id. at 93.l a 153 Cai. 24, 94 Pae. 242 (1908).

   AGO 88838 101

   ~

   and MeCord v. Lauterbach.' It should be noted, however, that in the Adelhardt case, the bidder had held its offer open and Bought to avoid the contract only after acceptance of its outstanding offer had been made. And the Cady and 'Mecord cases involved taxpayer suits to void contracts entered into in goad faith by bidders who failed to fully meet bid guarantee requirements. The Supreme Court of California in the Cadu case did recognize, however, that the taxpayer might have had a justiciable grievance to prevent consideration of an otherwise successful bidder's offer, on the ground that the offer was not accompanied by a guarantee in the required amount. But the court added that such grievance was certainly at an end when the contract was entered into.

   Thus, it may be concluded that where a public contract has been awarded to an otherwise qualified bidder who has not attempted to withdraw his offer, the validity of the resulting contract may not be impugned on the basis that the successful bidder did not meet the requirements for guarantee of his bid. When a contract is entered into, the purpose of the guarantee requirement ia at an end; and it would seem to follow that there is no proper legal basis for attacking a contract on the ground of failure to comply with a "on-existent requirement.

   But what if the bidder, himself, after a11 bids have been opened. seeks to withdraw his bid prior to award, on the basis that he has failed to furnish a required bid guarantee? " No court case covering this question has been found. However, considering that both the military and civilian procurement regulations preclude withdrawal of bids after the time set for public opening of bids (except in certain specified circumstances not pertinent here),' it would seem to follow from the rationale of the above cases, that a bidder could not rely upon hie failure to meet a bid guarantee requirement imposed far the Government's benefit to relieve him of his duty to keep his offer open for the time specified in his bid or for a reasonable time if none is specified. , On the other hand, it would not appear that an otherwise lowest responsive bidder who failed to meet bid guarantee requirements would have any sound basis far contesting a proposed award to another."' It seems safe to - "91 App Dir. 316, 86 YIYS. 603 (1904).li Any bidder may, af course, withdraw his bid before hid opening Federal Procurement Regs I 1-2 304 (1960) : ASPR 2-304 (April 16, 1962).

   '-Federal Procurement Regs. g 1-2.305 (1960); ASPR 2-305 (April 15,

   In Ton) Amode Ca Y Town of Woodward, he., 192 Iowa 535, 185 X.W. 94 (1921). the bidder was not allowed after acceptance ta withdrav his hid and ree~vei his bid deposit on the ground that the inrumcimey of the deposit rendered the contract ~llegal102 *co dXl8B

   1962)

   1s See note 2 supra

   BID GUARANTEES

   conclude that the courts would not interfere where a low bid un-accompanied by required bid guarantee but otherwise responsive is either rejected or accepted

2. BID GCARAXTEE FL'RXISHED

   Of course, where a required bid guarantee is furnished and the bidder submitting it enters into the adtwrtised contract furnishing such contract bands as are stipulated, the purpose for the bid guarantee is at an end. Bid deposit is then...