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illzoni

MATOCs and Bid Bonds/Guarantees

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Multiple Award Task Order Contracts (MATOCs) seem pretty common for addressing small (<$2M) construction requirements. FAR 28.101-1(a) seems pretty clear, "bid guarantees shall be required whenever a performance bond or a performance and payment bond is required", which equates to anything >$150k.

However, a quick survey of colleagues experienced with construction and MATOCs indicates they're not usually required. And I get the impression they hadn't bothered with the waivers provided under FAR 28.101-1( c ).

Am I missing something?

Should MATOC Task Orders (TOs) require Bid Guarantees?

If not, why? And under what authority?

Thanks.

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In order of your questions.

You did not mention so you might be missing an agency supplement/policy that provides for a class waiver.

Yes, unless waived.

I would note that the COE in some instances provides for the opportunity for a contractor to seek a waiver in individual cases and as such the language to do so is carried in the solicitation and resulting contract language.

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Bid bonds serve different purposes depending upon the type of acquisition. What would be the purpose or need for a bid bond on a task order?

The proposers can withdraw their proposals before notice of award anyway can't they? Plus bid bonds tie up a portion the firm's bonding capacity.

Bonding companies generally only issue bid bonds to firms that they have screened and consider to be bondable. That provides the owner some reassurance that the firm will be able to provide performance and payment bonds. However, it is no guarantee that down the road a couple of months during the task order competition that the firm might not develop financial problems that would change their bonding chances. In a MATOC, you have supposedly selected a group of most highly qualified firms to vie for task orders anyway. The risk of a firm declining award is probably lower plus the owner does have a fall back to award to another pool member or to use another acquisition method.

Bid bonds serve better purposes for IFB's, where there may be unknown firms, or firms that are less than desirable to the owner, submitting bids. The owner has less ability not to award to the lowest bidder. Plus the bidders have little opportunity to withdraw their bids before award. In addition, a determination of non-responsibility in an IFB can be more challenging to make and defend than justifying not selecting a firm for a task order.

Bonding companies sometimes don't charge firms that they have good business relationships with for bid bonds. However, that isn't to say that all bid bonds are free of cost.

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I'm VA and formerly DoD. Both VAAR and DFARS are silent on the topic.

I agree with Joel they seem to make little sense in the MATOC environment. FAR 28.101-1( c ) provides for waivers. Would a MATOC qualify as a "specific acquisition" and thus allow the "chief of the contracting" office to waive? Or would it require class authority through the HCA?

"( c ) The chief of the contracting office may waive the requirement to obtain a bid guarantee when a performance bond or a performance and payment bond is required if it is determined that a bid guarantee is not in the best interest of the Government for a specific acquisition (e.g., overseas construction, emergency acquisitions, sole-source contracts). Class waivers may be authorized by the agency head or designee."

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I'm VA and formerly DoD. Both VAAR and DFARS are silent on the topic.

I agree with Joel they seem to make little sense in the MATOC environment. FAR 28.101-1( c ) provides for waivers. Would a MATOC qualify as a "specific acquisition" and thus allow the "chief of the contracting" office to waive? Or would it require class authority through the HCA?

"( c ) The chief of the contracting office may waive the requirement to obtain a bid guarantee when a performance bond or a performance and payment bond is required if it is determined that a bid guarantee is not in the best interest of the Government for a specific acquisition (e.g., overseas construction, emergency acquisitions, sole-source contracts). Class waivers may be authorized by the agency head or designee."

I doubt if anyone in the USACE would bother seeking a class waiver. With 40 some Districts and contracting offices, It is like herding cats to get a consensus concerning uniform procedures. I am aware of at least one District that routinely waived bid bonds for negotiatied acquisitions. They didn't seem to have any problem with individual waivers. Word processors are easy to use.

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I am going to disagree with Joel.

As a comparison in both a sealed bid scenario and a task order issuance scenario it is the unilateral right of the government to place the order so to speak. As such the protections afforded by the bid bond are the same, insure the contractor will provide performance and payment bonds after award. In my view even though a contractor may be on a MATOC as an available source there is otherwise no guarantee at award of individual task orders that the contractor can provide the requisite performance and payment bonds absent a bid bond. One does not know all the other work the contractor has going on and is bidding and how all that other effort impacts their capability ( maybe they screwed up on a job and their bonding capability has been jeopardized) and capacity to bond (how many contracts are they seeking or have in hand beyond a MATOC TO) a task order.

The simple view is this, the task order is a standalone contract so it makes complete sense to follow the appropriate processes of bonding, bid bond to protect the fact that the contractor is required to provide a performance and payment bond and if not the remedy of the bid bond is available to the Government pursuant to the “Obligation” statement of the Standard Form 24 Bid Bond for the awarded work.

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Carl, I don't necessarily disagree with you. I wouldn't advise anyone to use a class waiver for this purpose. However, I wonder how many readers here have run into the situation where a task order awardee couldn't get bonded. And if so, have they been able to simply award to another pool member?

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The simple view is this, the task order is a standalone contract so it makes complete sense to follow the appropriate processes of bonding, bid bond to protect the fact that the contractor is required to provide a performance and payment bond and if not the remedy of the bid bond is available to the Government pursuant to the “Obligation” statement of the Standard Form 24 Bid Bond for the awarded work.

I don't understand the bit about a task order being a "stand along" contract. Taking it at face value, I say that's untrue.

In any case, the original purpose of a bid bond was to ensure that the low bidder in a formally advertised procurement (now called sealed bidding) would not refuse to sign a contract once it's price was disclosed and its relative bid position was known. A bid bond serves no useful purpose in a negotiated procurement, including those involving the issuance of a task order. There are other ways to ensure that an offeror will be able to provide the necessary performance and payment bonds.

A bid bond is a needless expense in negotiated acquisitions, so agencies should routinely waive the requirement for a bid bond in such acquisitions, especially those involving task orders under MATOCs, where a contractor's refusal to perform would be a breach of contract entitling the government to compensatory damages. If I were the chief of a contracting office, I would issue a "blanket" waiver (not a "class" waiver), document my rationale for the office files, and let the IG take me to task if it wants to do so.

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I don't understand the bit about a task order being a "stand along" contract. Taking it at face value, I say that's untrue.

In any case, the original purpose of a bid bond was to ensure that the low bidder in a formally advertised procurement (now called sealed bidding) would not refuse to sign a contract once it's price was disclosed and its relative bid position was known. A bid bond serves no useful purpose in a negotiated procurement, including those involving the issuance of a task order. There are other ways to ensure that an offeror will be able to provide the necessary performance and payment bonds.

A bid bond is a needless expense in negotiated acquisitions, so agencies should routinely waive the requirement for a bid bond in such acquisitions, especially those involving task orders under MATOCs, where a contractor's refusal to perform would be a breach of contract entitling the government to compensatory damagesIf I were the chief of a contracting office, I would issue a "blanket" waiver (not a "class" waiver), document my rationale for the office files, and let the IG take me to task if it wants to do so.

Thanks for the reminder about the basis for the original purpose, Vern. I forgot to mention the details concerning the fact that IFB's use public bid opening procedures. A bid bond provides little value in a task order competition under a MATOC and any associated bid bond expense is relatively needless.

After inquiring of a few bonding agents how much a bid bond costs, I was told several rears ago that they often dont charge a fee for the bid bond for their regular contractor clients for various reasons (on=going relationships, incentives, loyalties, to be competitive, etc.). That may no longer be the current situation. I haven't contacted any bond agencies recently.

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Vern - First I did not say "stand along" so I do not know how to address this concern of yours.

Second, I do not care about the original purpose of the bid bond as it has no bearing on use today. The in fact reading of the “Obligation” language of the Bid Bond, SF-24 states that it provides protection after award. If you do not believe I have interpreted the "Obligation" language correctly please point me to where.

As to other ways to ensure providing of performance and payment bonds please state what they are? I ask this because I believe both you and Joel have missed a very important part of the "Obligation" of the bid bond. If the contractor bails out and a bid bond is in hand the surety "pays the Government". So again how do you provide for a contractor, who has not submitted a bid bond but bails, to pay the Government. And do not throw claim, T4D, etc at me because to me these are bigger expenses. With a bid bond in hand as CO simply needs to enforce the obligation of the bond.

Expense of a bid bond? Please tell me what that expense is in detail as by my experience there is no expense to a contractor providing a bid bond?

As CO I demanded them and if I was a still a CO I still would. Yes the waiver is available but I am not convinced by the vague arguments you and Joel have provided that they are not in the best interest of the Government especially as a protection for delivery of performance and payment bonds after award.

I fear we are beating a dead horse anyway. Before you respond I suggest a re-read of this thread on WIFCON. http://www.wifcon.com/discussion/index.php?/topic/1396-payment-bonds-for-service-contracts/?hl=bond#entry11664

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Carl:

I meant "stand alone," which is what you said as you darned well know.

As for the rest of your last post, i have explained myself perfectly well and won't do it again for you.

The expense of a bid bond is its premium. As for the amount of the premium:

Contractors pay surety agencies a premium to secure a bid bond. Bid bond costs vary greatly due to a number of factors, such as the bid amount, contract terms, and the jurisdiction in which the contract is executed. Typically bid bond premiums are between 1% and 5% of the penal sum. Before you start preparing a bid, check to see whether a bid bond is required, and if so, what the approximate penal sum is going to be. This will help you determine the fee you will pay to secure the bid bond.

http://www.constructionlawtoday.com/2010/07/what-are-bid-bonds-and-how-do-they-work/

Now, Carl, take a trip to Avernus, and then descend.

Vern

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Vern - Clearly you did not read the other thread I referenced. I suggest you do before you get in too deep.

As to the fee your reference is confused. I suggest you do further research. The % referenced is that which would apply when the performance and associated payment bonds are provided. Bid bonds are usually at a fee of around one hundred bucks.

You take the trip as you need to reorient.

Carl

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When we set up MATOC for construction, we required letters from bonding companies be included in an offeror's proposal stating the offerors bonding capacity. When we issued task orders, we did not concern ourselves with bid bonds, only performance and payment bonds.

I do agree with Vern, that bid bonds are pointless in a negotiated procurement. I guess in the construction world, it is so ingrained that it is automatic and no one thinks about it. On a few occasions, I've had companies submit bid bonds when we did not even ask for them.

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Anyone with any sense agrees with Vern in this matter. I cannot think of anything more useless than a bid bond for a task order under a MATOC. The FAR has not kept up with developments in acquisition, namely, (1) the use of negotiation to award construction contracts and (2) the use of MATOCs for construction.

And Carl, when I'm in over my head, you'll be playing shuffle board on the deck of the Lusitania. I've seen the other Wifcon thread. It shows only that you haven't changed your mind. That would bother me if you mattered.

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Vern - With due respect I answered your questions now and in that past thread. Why do you not answer mine? Maybe you sank?

Again -

1. Why does a minimal, if any expense, to provide a bid bond equal a needless expense your view?

2. Is the language of the Bid Bond regarding post award failure of a contractor enforceable or not? Especially that language that provides that the "surety shall pay the Government"?

3. What is your proposed effort that would be in lieu of seeking a bid bond that provides the ALL the same protections of a bid bond?

4. Are you confident in the website citation that you have provided that a Bid Bond cost is 1% to 5% of the penal sum of the bid bond?

Until the answers are provided I am not convinced that your position in this thread or in the previous one is compelling. Clearly folks are doing as they wish so on they go but for me a little assurance through the submission of a bid bond goes a lot futher than a "Vern" when it comes right down to it.

PS - Really? J-dude do you really think the letter you get is worth the paper it is written on?

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It's my understanding from both contractors and colleagues that bid guarantees cost next to nothing monetarily.

Our recent guidance to mandate bid guarantees (IAW FAR 28.101-1(a); despite exclusion from the base MATOCs) is already impacting the number of contractors participating in the competition. These contractors can only have so much tied up in bid guarantees before their sureties say "no more". If the government hits a surge in RFPs, competition drops.

I can't imagine a scenario in which a bid guarantee would prove advantageous to the gonvernment for a task order under a construction MATOC. If a MATOC contractor fails to provide required performance and payments bonds, it affects their past performance and our decision regarding exercise of the MATOC option(s). That stick alone seems adequate risk mitigation.

The negative impact on competition is greater then the risk mitigation provided by bid guarantees, IMNSHO.

I like the idea of a "blanket waiver" as suggested to cover our MATOCs. I can see seeking chief of the contracting office approval for one waiver for each origional MATOC solicitation, thus providing coverage for all resultant MATOC awards to separate contractors.

Thanks.

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Carl:

The answers to all of your questions in Post # 15 are taught in Contracting 101. If you don't know how I would answer them at this point, then you're not worth any more of my time. Even if you know the answers, you are not worth any more of my time on this topic.

As for whether you think my position is compelling, I don't think you understand -- making a compelling argument for YOU is of no interest to me. I have explained my reasoning. It is clear to the people who matter, and you are not among them.

Agencies should waive the requirement for bid bonds in all negotiated procurements and waive the requirement for them, assuming that the requirement even applies, under MATOCs. Eliminating unnecessary paperwork is a patriotic act.

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Vern - More questions....

1. Please identify for me the entity that is covering this subject in "Contracting 101". I would like to read what they have to offer.

2. So what would make it worth your time?

3. So who are you trying to compel those that must believe in "Vern" absent any references other than you say so?

4. So if agencies should why haven't they? maybe they forgot that Vern said so? Clarify please?

5. Did you forgot the "patriotic act" when you first responded to this thread?

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illzoni - Interesting comments as I would suggest that you did not do a very good job of checking the responsibility (capacity) of the contractors on your MATOC. You are correct about your contractors capacity to bond several TO's out there is affected by bid bond capcity but so does the actual requirement to provide performance and payment bonds. By note requesting the bid bond you are rolling dice that the firm will have the capacity for the requisite performance and payment bonds. Unless of course you want a simple letter from a bonding firm that promises such but for me such a promise is hollow. I am left confused that you are worried about only one element of the bonding capacity equation.

Probably wasted breath as I have pointed to the "Obligation" part of the SF-24 but I will pose it again in a different way. Remember if a contractor at award after 10 days can not provide performance and payment bonds the surety must "pay the Government for the cost of procuring the work which exceeds the amount bid". Are there costs that would occur that would exceed the contract (TO) awarded? Sure are in my view but if you want the Government to simply role over and pay for those costs then have at it.

In my best "Vern" imitation your willingness to spend tax dollars without a simple protection that will cost next to nothing or absolutely nothing in the context of your needs does not seem very patriotic to me. Absent that is, clear and convincing evidence that you can substantiate that the lack of competition you note has raised the MATOC prices and a waiver is therefore in the best interests of the Government and my taxes.

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If bid bonds were required for task orders and if a firm learns that it's bonding capacity is all tied up and/or will preclude it from competing for other work , it may withdraw its task order offer/proposal anytime before an award (52.215-1). A smart construction firm is going to be cognizant of attractive business opportunities even during other on-going competitions. So bid bonds don't always necessarily "protect the government's interest" in negotiated procurements.**This is based upon my own experience with proposers dropping out to pursue other business opportunities.

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In an article that they wrote in 1986 for The Nash & Cibinic Report, "Bid Bonds and Bid Guarantees: Is The Tail Wagging The Dog," professors Ralph Nash and John Cibinic of the GWU Law School reviewed GAO protest decisions about bid bonds and guarantees and concluded as follows:

It is evident from the foregoing discussion of the regulations and only a portion of last year's Comptroller General decisions that bid bonds and bid guarantees add an incredible amount of complexity and cost to sealed bid procurement. It is extremely doubtful whether such cost and complexity is justified by whatever benefits the Government receives from bonds and guarantees. It is time to cut off the tail that wags the dog. The procuring agencies should attempt sealed bid contracting without bid bonds or guarantees. If, as we believe, the integrity of the competitive system will not be adversely affected, they should be permanently discarded.

Sixteen years later, in 2002, in "Bid Bonds and Bid Guarantees: That Tail Is Still Wagging," another article in The Nash & Cibinic Report, they concluded:

Determining whether a bid guarantee meets the requirements of the solicitation and would be enforceable requires a great deal of expertise and knowledge of an intricate rule structure. Expenditure of the effort required to deal with issues regarding the adequacy of bid guarantees might be justified if any significant benefit could be expected to result. However, acceptable bid guarantees do not ensure that the Government will obtain the desired work. Only a properly conducted responsibility determination will give the Government reasonable assurance that it will receive the desired performance from a particular contractor. Bonds don't do that. However, they sure do a great job of wagging the dog.

I found 677 GAO bid protest decisions in which the adequacy of a bid bond was the principle issue, and another 1,000 in which it was an issue of some kind. I have found 200 board of contract appeals decisions involving bid bonds or guarantees as an issue of some kind, and 92 decisions of the Court of Federal Claims in which bid bonds were metioned. Professors Cibinic and Nash said that bid bonds and guarantees confront the government with a complex issue. How complex can it get? See e.g., Anthem Builders, Inc. v. U.S., COFC 14-1231 C, April 6, 2015, for a recent 18-page Court of Federal Claims decision dealing about a bid bond. The government won the case, but at what cost do you think?

https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2014cv1231-19-0

See also A&D Fire Protection, Inc. v. U.S., 72 Fed. Cl. 126 (2006) for a 28-page decision prompted by an agency's rejection of a task order proposal under an IDIQ contract due to its failure to submit a bid bond. What a comedy of errors. The government ultimately won, but at what expense, and for what benefit?

See also Bezer, "The Inadequacy of Surety Bid Bonds in Public Construction Contracting," Public Contracts Law Journal, Fall 2010:

All levels of government routinely request bids from competing contractors when commissioning construction projects. Public construction is done by open competitive bidding to obtain the best price for quality services, and to prevent favoritism and corruption. Construction contractors bidding on public projects must submit security with their bids to guarantee that if selected, they will execute a formal contract to perform the work according to the terms of their bid. The threat of loss of the security is intended to discourage bid reneging. However, contractors often avoid forfeiture of their bid security after they default on their bids, and thus the functional utility of the bid security is questionable...

The chief reason that contractors' bid security is farcically unreliable in guarding against bid default is the form in which the security is offered: surety bid bonds. Sureties occupy a unique legal status that often shields surety bonds from the harsh consequence of forfeiture. Additionally, construction contract bidders enjoy equitable protections that will often excuse mistakes in the written terms of their bids. Because the penalty for withdrawing a ‘firm bid’ can so often be avoided, there are significant strategic econometric advantages to be gained by reneging on one's bid.

See also, Gallagher and McCallum, The Importance of Surety Bond Verification, Public Contract Law Journal, Fall 2010, and Dekel, The Legal Theory of Competitive Bidding for Government Contracts, Public Contract Law Journal, Fall 2010, for other discussions of bid bond complications.

So much for "a simple protection that will cost next to nothing or absolutely nothing."

Bid bonds make limited sense in sealed bid procurements. They make no sense in negotiated procurements, especially when conducted using the tradeoff process. Waive the bid bond in negotiated procurements and task order competitions. They are not worth the trouble and the potential litigation work and costs. Read Anthem Builders, Inc. and ask yourself if its worth it. Carl will be adamant that it is. I say it's not, as did Profs. Cibinic and Nash. Do what you think best.

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When the government rejects a low bid or proposal due to a legally insufficient bid bond of an otherwise winning bidder/offeror then awards the contract action to a higher priced bidder/proposer, there go those monetary savings that are supposedly "in the government's best interest". Yes, I realize that the intregrity of the competitive process could be compromised if a firm could avoid being bound if it decides to reject the award. My point is that those savings which Carl argues that bid bonds provide are offset by the times that the government rejects a bond over a technical defect, then awards to a higher priced firm. I wonder what percentage of those firms whose bids or proposals were rejected would have fulfilled their duties to accept the award and provide performance and bonds anyway...

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I always appreciate the resources available to Vern Edwards that allows him to research the COFC and GAO cases a luxury that I am not afforded. However I offer a caution with regard the citations that he has provided in total.

First one should balance the numbers of cases found with that of the number of solicitations that occurred that had no protests. Without the number the degree of expense (cost) impact that he and Joel keep offering cannot be adequately determined. Simply Vern has reached back to 1986 and hazarding a guess at how many solicitations occurred that required bid bonds where there was no COFC or GAO action would number probably in the tens of thousands.

In a quick read he has not offered a specific case on point with the unfolding discussion in this thread about the benefit or not of a bid bond as an AFTER AWARD PROTECTION. I would offer that he will find limited to no COFC of CBCA cases regarding the POST AWARD “Obligation” of the surety. The reason being that after award and the failure of the contractor to provide performance and payment bonds one of two things is going to happen. The surety (when forced) is going to either provide the performance and payment bonds or “Pay the Government”. I would offer that in my experience the former is the most probable action the surety will take because the leverage of a bid bond in hand is truly convincing at POST AWARD.

Vern has painted my position as “adamant” which I reject by reference to my post #2 and subsequently where I have acknowledged the ability of the Government to waive the bid bond requirement. To this point Vern has offered again both COFC and GAO decisions regarding pre award matters and not POST AWARD. The Nash and Cibinic references deal with pre award as well. I would agree arguing them in a pre-award situation is expensive but they are rare. Further as Vern notes the Government did prevail in some very confused and complex matters so to an extent the bid bond did matter.

To the dialogue offered by Vern (post #22) I would pose that isn’t any matter expensive when a disagreement, dispute or claim occurs? Tongue in cheek I could simply say well heck there have been XXXXXXX GAO protests in the history of contracting so why even do formal contacting at all? However what is absent again is any support that bid bonds when enforced in POST AWARD is expensive.

Clearly there is little doubt that Vern is advocating the elimination of bonds to a large extent in all aspects of contracting(ref. Vern Edwards post #22) and even suggests that bonding may not be required for a MATOC (ref. Vern Edwards post #17). I express caution again as I find nothing in the FAR that suggests that bonding is not required in a MATOC situation, that is of course if further direction is not provided in agency supplement or at waiver.

In the end the position that bonds for MATOC's should be waived does not seem to be the intent of the FAR which as pointed out has no exception to bonding for MATOCs other than the waiver allowance that can be exercised. To add in a quick view of the 115 references to MATOCS in FBO today which provided more than simply a pre-solicitation notice I did not find one agency that waived the bid bond. As already noted some do provide for waiver of bid bonds for specific TO actions but again none appeared provided for waiver in total.

So I am left to my position that should you want to waive the bid bond be aware that in the situation of failure of a contractor to provide performance and payment bonds POST AWARD you will be left with the expensive proposition of T4D to cover you re-procurement costs, with a bid bond I would offer that you would not.

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Carl,

You make it sound like the bid bonds offers great and wonderful protection to the Government, and that collecting the money from the surety is as easy as taking candy from a baby (in the event the contractor doesn't provide performance and payment bonds on time). I haven't dealt with enforcing bid bonds, but I have dealt with enforcing performance bonds, and my experience there is that the sureties will do everything possible to avoid payment and that the Government attorneys never want to press the matter. Is collecting on a bid bond so much easier than collecting on a performance bond?

What is the history of successfully collecting on bid bonds? If we go through all the trouble and litigation pre-award, and yet post-award we only collect a couple of hundred thousand dollars across the federal government, then maybe all the trouble isn't worth it. Here, I'm only talking about bid bonds -- I suppose that sort of data isn't available, and I suppose a poll of contracting officers would show very few instances (maybe even none?) of collecting cash from a surety on a bid bond. Even so, as long as we have sealed bidding, I support the firm bid rule. But for this thread, we're not talking about sealed bidding.

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