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Payment Bonds For Service Contracts


bob7947

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Guest Vern Edwards

Agencies have required performance and payment bonds for other than construction, but it is not common to do so. No one has statistics, and so no one can answer the question of how prevalent the practice is based on numbers.

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Boof - Not to split hairs but the question was really with regard experience and advice which took this thread to the bid guarantee side of the issue. On use I noted subtly it is not common at all. In my experience which I characterized as limited I estimate that I bonded something like 100 service contracts in a 38 year career as a CO. Bonding of the performance side was the primary reason for the majority but for some it was for the reason I already noted, Federal work on private property and a want to have the protections of payment and the performance bond rode along.

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Vern ? I read your latest post to indicate that price standing is the only reason one might withdraw a bid, or a price proposal for that matter? Your view is too narrow. Two reasons have been noted for the guarantee, assure bonding capability and insuring the obligation of the bidder, and/or offeror, to honor their offering to the Government. The specific language of the SF-24, Bid Bond supports this reasoning as well.

In a negotiated setting, just like sealed bidding, offerors attempt to withdraw their proposals for all kinds of reasons before and after discussions and full responsibility checks. I have experienced it and having the bid guarantee in a RFP situation to ?protect(ing) the Government ? as you note has been a distinct benefit. In my several experiences it was never affected but was strong reasoning and support that the contractor and the bonding company honor the proposal, especially in the situation of award without discussions. I agree that the strength of the bid guarantee could be questionable in instances where negotiations had occurred but as Joel already mentioned, and again by first hand experience, it was valuable leverage when, after negotiations and notice of award, the contractor attempted to withdraw.

You have not provided me with any compelling argument for not requiring the bid guarantee inclusive of noting in other parts of the thread that ?others? and certain attorney?s agree with you. To these points of reference that you have provided I would simply offer that many others and apparently certain attorneys for the USACE in and outside of Huntsville, have concluded that a bid bond in a RFP arena is a good idea (Ref: EFARS and Search of www.fbo.gov produces many real cases where the guarantee is being requested).

As to the name bid bond and or bid guarantee such an arguement is hollow in my view. It is clear that the name means nothing when the courts have enforced its intent against IFB's and RFP's.

In the end , all things considered inclusive of cost to a offeror and in light of the Nash/Cibinic 2002 view on the matter, I am convinced that the decision to include a bid guarantee is in the best interest of the Government, in all most all cases, and for all parties to a proposed contract for that matter. Federal regulation and policy allows a CO/agency to make such a decision, or not, for the bid guarantee.

So I am done as I believe we each have made our case with regard to the bid guarantee matter.

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Guest Vern Edwards

The rule in negotiated procurement is that offerors can withdraw their offers at any time prior to acceptance, FAR 15.208(e) and 52.215-1( c)(3)(v). Clearly, however, COs may require bid bonds under certain circumstances when asking for a performance and payment bond, in which case offerors cannot withdraw their offers without penalty. The question is: Why do require bid bonds? (I say "may" because FAR provides for waiver of the requirement.) So what if offerors want to withdraw their offers for reasons other than price? Ordinarily, it is permissible. What difference should it make that offerors are required to get a performance and payment bond?

In sealed bidding, the CO is compelled by law to award to the low, responsive, responsible bidder. The CO cannot let a bidder withdraw its bid after the deadline for bid opening except in the case of a mistake proven "clear and convincing" evidence, as provided by FAR 14.407-3?. A prospective construction contractor's ability to get performance and payment bonds is a matter of responsibility. See Calista Corp., B-214711, 84-2 CPD ? 198. Requiring a bid bond ensures against collusion and the submission of frivolous bids. A bid bond is evidence of the bidder's ability to get such bonds, and thus of its responsibility since most bonding companies won't provide a bid bond unless it has determined that it would provide a performance and payment bond. (However, the provision of a bid bond is a matter of responsiveness, not responsibility.)

This is not necessary in a negotiated procurement. The CO need not award to the low, responsive, responsible offeror. Offerors will not know their standing until contract award, and the system cannot be easily gamed by collusion and the submission of frivolous proposals, which is unlikely in any case due to the relatively high cost of proposal preparation. Presumably, in a negotiated procurement the government would not award to any firm unless it has determined during the proposal evaluation process that the firm can get performance and payment bonds. Besides, what contracting officer in his or her right mind would try to force an offeror in a negotiated procurement to enter into a contract when it wants to withdraw is proposal? Such a contracting officer would be a fool in my opinion. That is exactly why offers ordinarily may be withdrawn at any time prior to acceptance.

This is why I think bid bonds are unnecessary in negotiated procurements, which I think confront the government will less risk than sealed bid procurements.

I understand that you disagree, as reasonable persons might. I am not trying to change your mind and I am not interested in providing you with a compelling argument. I am only explaining my thinking. Please note that I was talking to Joel about the attorney, and not to you, because Joel knows him. I did not offer that to you as proof of the soundness of my argument. As to the hollowness of my comments about the name "bid bond," you're welcome to your opinion about that, too. (here_2_help might think your "hollow" comment was ad hominem, but I don't. It's perfectly acceptable rhetoric.)

And as for you being done, that's up to you. I doubt that either one of us can say anything that would change the other's mind, but you might want to comment further for the sake of other readers. I haven't said that you are wrong, Carl. In fact, I've made a point of not saying that. Yet I sense that your horse is getting taller. No need. We're having a conversation, not an argument, and we have different views, that's all.

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Vern - Okay so I found a shorter horse.....

You are missing a very important point which I may not have been exact enough on. What if the contract is awarded and the offeror, in the RFP situation, fails to provide performance and payment bonds and in effect elects not to perform what then? Breach of contract, T4D, claim, or other remedy available to the Government are possibilities however, I say the Government could in fact exercise the obligations of the bid guarantee with regard to necessary re-procurement costs that exceed the contract award amount. The exact wording of the bid bond, SF-24, is offered (below and bold added) as my reference. Again this wording and its implication is and has been in my experience strong leverage to compel a contractor and their surety to live up to the promise made by submitting the bid guarantee in the first place.

In my opinion the foolish CO is the one that overlooks this obligation and condition of the bid guarantee and fails to use it in the best interest of the Government.

"OBLIGATION

We, the Principal and Surety (ies) are firmly bound to the United States of America (hereinafter call the Government) in the above penal sum. For payment of the penal sum, we bind ourselves, our heirs, executors, administrators, and successors, jointly and severally. However, where the sureties are corporations acting as co-sureties, we, the Sureties, bind ourselves in such sum "jointly and severally" as well as "severally" only for the purpose of allowing a joint action or actions against any or all of us. For all other purposes, each Surety binds itself, jointly and severally with the Principal, for the payment of the sum shown opposite the name of the Surety. If no limit of liability is indicated, the limit or liability is the full amount of the penal sum.

CONDITIONS:

The principal has submitted the bid identified above.

THEREFORE:

The above obligation is void if the Principal - (a) upon acceptance by the Government of the bid identified above, within the period specified therein for acceptance (sixty (60) days if no period is specified), executes the further contractual documents and gives the bond(s) required by the terms of the bid as accepted within the time specified (ten (10 days if no period is specified) after receipt of the forms by the principal; or (:) in the event of failure to executes such further contractual documents and give such bonds, pays the Government for any cost of procuring the work which exceeds the amount of the bid.

Each surety executing this instrument agrees that its obligations is not impaired by any extension(s) of the time for acceptance of the bid that the principal may grand to the Government. Notice to the surety (ies) of extensions (s) are waived. However, waiver of the notice applies only to extensions aggregating not more than sixty (60) calendar days in addition to the periods originally allowed for acceptance of the bid.

WITNESS

The principal and Surety (ies) executed this bid bond and affixed their seals on the above date."

PS - Perfectly positioned emoticon don't you think!

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  • 1 month later...

There is no good reason to push for a bid bond in a performance based service contract. As for protecting the subcontractors so they can get paid? Thats really not our concern........remember privity. You may do this at the expense of impeding competition. What about a cost type of contract? A payment and performance bond is required as a security to the job completion. What is the contractor promising to complete?

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