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illzoni

MATOCs and Bid Bonds/Guarantees

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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.

Did those postings all cite 52.228-1?

Are solicitations under a waiver required to affirmatively state 52.228-1 does not apply?

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Just to be clear, I am talking about the use of bid bonds in negotiated and MATOC acquisitions. I am not talking about performance and payment bonds, and I am not talking about bid bonds in sealed bid acquisitions.

Carl says:

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.

Carl's argument is that a bid bond provides postaward insurance that the winning offeror will get a performance and payment bond. Carl is arguing in theory. He has no idea how often agencies have actually had to and been able to force sureties to provide performance and payment bonds. The fact is that we have no data about how often agencies have forfeited rather than enforced bid bonds. We also have no idea how often agencies have accepted faulty bonds that could not have been enforced. What we do know from the cases that I cited and the general history of bid protests is that bid bonds confront COs and agency lawyers with exceedingly complex issues about adequacy and enforceability and that they have prompted significant numbers of costly bid protests -- 677 is a big number, regardless of proportion.

I argue that it doesn't matter how often agencies have had to and been able to enforce bid bonds, it is not necessary in negotiated and MATOC acquisitions. Are bid bonds necessary to ensure that offerors in negotiated and MATOC acquisitions will be able to provide bonds? Let me ask: What kind of job of source selection will an agency have done if it selects and awards to an offeror or MATOC contract that cannot subsequently get a performance and a payment bond? If an agency does a good job of source selection, then there should be no worries about that. That being the case, what good does the bid bond do? We're not talking about sealed bidding, where an agency has to award to the low, responsive, responsible bidder.

For MATOCs, I believe the best practice is to waive bid bonds in all cases and get performance and payment bonds for each construction task order.

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Sealed bidding? I am a tad bit confused because it was Vern that first mentioned it in the context of a bid bond in this thread? That being said I will concentrate as best I can on the points as they relate to a MATOC.

I am not arguing in theory. I am arguing based on past experience albeit dated. In my 38 years as an acquisition team member in the Federal Government of which I will estimate 35 years was as a CO warranted up to the unlimited level I have personally leveraged the bid bond on both sealed bids and negotiated procurements including IDIQs and related TOs to require a surety to provide performance and payment bonds post award. This experience included assignments with agencies actively involved in construction including the USACE, Public Health Service, SBA and USDA. (Actually Vern knows this in general but he attempts to deflect the conversation by stating that I “have no idea” for purposes unknown to me and is the sole reason on why I provide the detail noted.)

Number of times? I cannot depend on memory but it is enough to shape my opinion that it is a valuable tool. As I have noted I know of nothing that will compel a contractor to provide the performance and payment bonds post award better than having the bid bond and the promise of the surety that they will do so. Surety’s who have provided a complete and accurate bid bond are clearly bound by the terms and conditions of the bond’s obligation.

This thread suggests to me that Vern's augment that bid bonds in a MATOC environment are not worthwhile is not conclusive. Why? The OP's post at #16 is a perfect example. The OP readily admits that the contractors under the instant MATOC cannot get bid bonds which is a strong suggestion that the OP has firms on the MATOC that lack the capacity to provide the requisite performance and payment bonds for the amount of work that could be available to award to the contractor. Remember by a surety saying they will not provide a bid bond is in essence saying they won't promise to provide the performance and payment bonds either. So the real answer is right in front of us, agencies are awarding MATOCs to contractors where capacity of bonding is not guaranteed and then by default look to the idea of waiver of the bid bond requirement and hope to God that the firm by some chance, even with the threat of bad past performance, better dang well provide the performance and payment bond. Completely different story if the bid bond is in hand with the absolute promise by the surety that the performance and payment bonds will be provided and if not then they will pay the Government.

Again I can only say following the advice of waiving a bid bond is a risk that is adverse to the best interest of the Government.

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One must be careful in interpreting what illzoni said in post #16. A firm's bonding capacity can be used up by having to provide bid bonds on several simultaneous competitions. That doesn't necessarily mean that the firm can't obtain performance and payment bonds for those competitions that it wins.

Secondly, we need to understand that a bond is NOT an insurance policy. The contractor purchasing a bond must generally indemnify the surety for any payments or costs that it must pay out or incur under the bond. If the surety is obliged to pay the government the difference between the contractor's bid or proposal and an award to another firm under a bid bond, the surety is going to go after the contractor...

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ji - From my experience I have never had to collect cash the surety has come through with the bond when the threat of re-procurement and the requirement to pay the Government has been pushed. I would suggest that experience of the unavailability of case law regarding of collection on a bid bond post award suggests strongly that surety's come through on their promise in most all cases one way or the other. I believe it is easier again from experience because the argument ends quickly. Pretty simple (too simple I can only guess) but the obligation states clearly no performance payment bonds in 10 days guess what. You bet I have gone beyond that timeline but that is by choice.

illzoni - Yes. But to be clear I said my review was a quick one so I will not state that it was present in all. Based on the prescription for use of 52.228-1 if a waiver is applicable it is my read that 52.228-1 would not be in a solicitation. No need to state that the waiver is applicable but being the betting guy that I am, I am thinking that a CO would get questions from potential offerors to confirm why it is not in. So the answer might be that stating in the solicitation that bid guarantee has been waived might save some telephone calls or emails.

Joel - I agree but the twist is do you know how many competitions they might win and where the cut off is, your project, illzoni's or mine? Bottom line it suggests strongly that a firm is on the edge of getting in over their heads. No question on who the surety will pursue.

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Carl:

I would suggest that experience of the unavailability of case law regarding of collection on a bid bond post award suggests strongly that surety's come through on their promise in most all cases one way or the other.

Nonsense. In order to force a surety to honor a bid bond, a CO would have to refer the matter to the Department of Justice for them to pursue in district court. What do you think the chances are of getting the Department of Justice to sue to recover on even a half-million bid bond? How long do you think it would take? There is little chance if any. Among other things, the government would have to prove damages (read SF 24 closely), which would be hard to do in a negotiated procurement conducted using the tradeoff process. I haven't checked the district court data base, but if I did, and if I found a paucity of decisions, it would not prove your position. You're talking through your hat. I suspect that the government has waived many a bid bond.

From my experience I have never had to collect cash the surety has come through with the bond when the threat of re-procurement and the requirement to pay the Government has been pushed.
In my 38 years as an acquisition team member in the Federal Government of which I will estimate 35 years was as a CO warranted up to the unlimited level I have personally leveraged the bid bond on both sealed bids and negotiated procurements including IDIQs and related TOs to require a surety to provide performance and payment bonds post award.

And just how much experience is that? How many times have you "leveraged" a bid bond? Ten times? One hundred times? Come on, ball park, how many times? How many times on negotiated procurements? Ten times? One hundred times? Ball park? How many times did you threaten a surety in order to get them to come through? How did you get the surety to "come through"? Did you appeal to morality? Patriotism? Did you threaten them? Threaten them with what? The Justice Department? Don't make me laugh. Your experience, whatever it was, was very limited in comparison to the larger world of acquisition. Much more limited than the 677 GAO protest decisions that I found and that you said did not amount to a large percentage of the pertinent procurements.

We'll never agree. Never. You are adamant indeed, as am I. That's okay. We'll continue to disagree, and the other readers here can make up their own minds.

My position is simple: Bid bonds for a MATOC competition? Never. Not worth the trouble. Bid bonds for a competitive negotiated procurement? Never. Not worth the trouble. Why would I choose an offeror for award who couldn't get performance and payment bonds?

Take the last word, Carl.

Vern

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Vern – Thanks I will but it is more than one word.

My memory says that yes I do recollect the jurisdiction as you note. Thanks for the reminder. Otherwise your contention that Justice or otherwise has not plowed the ground doing so is absent any facts to support. This quote goes both ways, sir –“ I haven't checked the district court data base, but if I did, and if I found a paucity of decisions, it would not prove your position.”

Guess on leverage by myself – 100 times. And another 100 times in counseling agencies as an employee of the SBA. And then another 7 as a consultant after Federal employment.

So I had answers and I wonder do you? Tell the truth. Do you?

1. How many MATOCS were issued under your charge as a Chief of Contracting?

2. How many bid bond waivers pursuant FAR Part 28 to did you approve when you were Chief of Contracting?

3. For your answer to 2., if bonds were formally waived, under what circumstances – sealed bid, MATOC, negotiated or?

"Adamant" goes both ways as well, sir.

Carl

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Carl:

"Sir"? I was a sergeant.

Why are asking about my experience? Not once in this thread--not once--have I mentioned my experience or relied on my experience in making my argument. You are the one who has argued on the basis of your experience. Your questions are impertinent, but I'll admit that you've had more experience with bid bonds than I.

As for your 207 experiences, I'll quote what you had to say earlier: "[O]ne should balance the numbers of cases found with that of the number of solicitations that occurred... ." By the way, you were a little vague, just what was it you did 207 times? Waive the bond requirement? Waive the bond? Persuade the surety on moral grounds? Threaten the surety with court action? Enforce the bond in court?

As for district court decisions, I searched the district court data base of published and unpublished decisions back to 1945 for any mention of "bid bond" "52.228-1" or "Standard Form 24". I found 172 decisions that mentioned bid bonds. I searched among them for any mention of 52.228-1 and found only one, in a case between private parties in which the FAR was mentioned only in passing. I searched then for SF 24 and found four cases, not one of which was about federal enforcement of a bid bond. Thus, I found not a single instance of the U.S. winning or losing a suit in a U.S. district court to enforce a bid bond. I was surprised at my result, but assume that my search was sound and my results were valid. I don't know what it means. Maybe sureties don't default often. Maybe they do, but the DOJ doesn't go to court often. Maybe they settle out of court. Who knows? I spoke with a knowledgeable government contracts attorney who said he'd have been surprised if I'd found a case. Of course, this was about bonds. It says nothing about bid guarantees in the form of certified checks, money orders, etc., where I guess the guarantor would have to sue the government to recover its money if the government wouldn't give it back.

(I know of one famous instance where a cash guarantee did not work -- the Wright Brothers contract. The Army demanded cash deposits to guarantee performance and reduce the number of frivolous bids. Many bidders did not submit the guarantee and were disqualified. The government gave the Wrights their money back, even though they defaulted. So much for bonds and guarantees.)

Now I suppose you'll want to continue this, but we've both said all there is to say that's worth reading, so I'm done. It's up to the readers to decide.

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Vern -

Yes, sir! My recollection of my USACE days supports that it is a proper salutation from a civilian to a sergeant. The following quote from this website, while only a website and not conclusive, sums it up. http://www.quora.com/What-is-the-proper-way-for-a-civilian-to-address-a-member-of-the-military

“If you are a civilian, then "Sir or Ma'am" are completely optional as terms of address. If you respect the person and they not heavy handed about titles, then you may wish to address them in that manner…”

The couple of days of this thread reinvigorated my knowledge (gained when with SBA for 8 years) of the bonding in general and bid bonds in particular. The reminders included a couple of references that took me a little while to recall specifically but I finally remembered. So I will end my posts to this thread with this.

It is my conclusion that this thread has not done justice to the history, need and overall views of why bonding in general is important, with it my view that such importance goes to even the patriotism that has been thrown around in this thread. My upbringing, so to speak, probably has swayed my advocacy of the need for a bid bond and I will, as you have stated, leave it to others as to whether they want to waive them or not and provide, the following references (wish I still had one of them at my desk).

Admittedly not a specific reference to the bid bond matter discussed here in but a good read on the subject anyway - http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3010&context=lcp

I remembered this organization and found this reference. Again admittedly not specific to bid bond but again during my days with SBA the full gauntlet of the bonding process (bid bond to performance and payment bond) was felt to be the proper advocacy of growing a small business - http://c.ymcdn.com/sites/www.surety.org/resource/resmgr/govrel-pub/BondWaiversTalkingPoints.pdf

And finally this reference, not at my desk, but again wish I had it today…..

“The Law of Suretyship” By Edward Graham Gallagher, American Bar Association

Finally, I never expected you to answer the questions as you never do. I would say that the discussion by all is always salted with experience, experience in reading such things as Nash and Cibinic, the FAR, in deeds done or not done, etc. Your deflection is always well placed. By example in your post #11 you were abashed in my comment about “stand along” that I made in #8 saying I darn well knew what you meant. Really Vern, you darned well knew what I meant too but you were wanting to entice me to enter your world. Throughout the thread I then, with respect, answered every one of the questions yours and otherwise, as I always do, even when I was challenged that I could not provide truthful ones. You never will answer my questions but rather deflect for varied reasons, and in the end I find that, well, darn well disrespectful, but it will not prevent me from expressing my opinion in this forum.

Thank you sir for another challenging ride.

Carl

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Carl, I would recommend requiring bid bonds for construction RFP's and perhaps for task order competitions that are reserved for small disadvantaged business, 8(a) or any other socio economic classifications of construction contractors that have historically faced difficulty in obtaining performance and payment bonds. Even with the SBA's bond guarantee programs, we sometimes encountered SDB or 8(a) firms that had great difficulty obtaining bonds or just couldn't obtain them. The SBA's current Surety Bond Guarantee Program consists of the Prior Approval Program and the Preferred Program (See: https://www.sba.gov/surety-bonds)

I'm surprised that there hasn't been any input here by KO's who have been involved with construction RFP's or task order competitions, other than Carl. Perhaps they are intimidated by the level of debate. Carl, I will salute your bravery.

I don't know if there are any SDB set-aside programs any more. DoD's program ended years ago. It was frought with various problems. The definitions and joint venture rules were lacking and not coordinated with those of the SBA, for example.

Is there much value in using construction MATOC's that would be rerstricted to types of firms that have very low bonding capacity or that would be extremely challenged if awarded multiple, simultaneously on-going construction task orders?

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Joel - As you posted a direct question I will exercise my prerogative to respond even though I did say #34 was my last post.

First, Thanks.

Next remember while there was concentration on bid bond in reality we are talking bid guarantee which affords a lot of ways to provide the security that supports the SF-24.

Then to your question.

My recollection is that there were agencies that thought about or even attempted same. I do not remember success or not. View I have is to use the set aside efforts and their allowances already in place to make it happen. By example, but I hazard that not practiced much any more due to the depleted ranks (in body and in knowledge) of SBA, we did work hard at and I actually did have entities that would provide alternate forms of bonding. Had experience of even having cash on deposit in the local Federal Reserve Bank which was a major headache. It takes dedication to support and assist firms that have the want to succeed through use of all the tools available. Off hand support by just granting a class waiver to everyone is a whole other matter.

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Carl, I found that the alternatives to standard payment and performance bonds -like- individual sureties - don't work. They are usually shams or very shakey at best. And Cash bid security from emerging firms is quite onerous for them. Just my 2 cents worth.

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Carl:

I don’t want to continue the discussion about bid bonds, but I have asked myself about your complaint that I never answer questions and that my refusal to answer your questions was “darn well disrespectful.” I have asked myself if what you said was true.

Your questions in Post #32 were the opening shots of an ad hominem attack. By ad hominem attack, I don’t mean the kind of thing that people often whine about when things get heated at Wifcon. I mean the rhetorical tactic in which one speaker attacks the other’s argument by trying to show that the speaker himself is not worthy, instead of by showing that his premises are not true or that his conclusion does not follow from his premises.

My argument could be reconstructed as follows:

Major premise: When conducting an acquisition, if a course of action is required, but can be waived, then one should waive it if it confers no particular benefit and requires some effort to perform.

Minor premise: The requirement for a bid bond can be waived, and in a negotiated or MATOC acquisition it confers no particular benefit, requires some effort to perform on the part of both the government and the offerors, and bid bonds are difficult to enforce.

Conclusion: Therefore, when conducting a negotiated or MATOC procurement, one should waive the requirement for a bid bond.

In the course of our debate, support for my argument was provided in posts by Joel (##3, 7, 9, 21, 23, and 29); Ilizoni (##4 and 16); J_dude77 (#13); and ji20874 (#25). And in the end, after our debate, I even got some support from the Department of Commerce. I never referred to my personal experience or asked anyone to believe me on grounds of my personal experience. So, why did you ask about my experience in Post #32?

I eventually answered the substantive questions you posed in Post ## 15 and 18. My Post #22 alone took a lot of research work and time. Was Post #22 a sign of disrespect? How about the district court research in Post # 33, which I did in response to your challenge? Was that a sign of disrespect? I put a lot of work into responding to you and trying to give substance to this debate. It pisses me off that you say I don't answer questions. No one. NO ONE posting at this website puts in as much work on getting and crafting answers as I do. I write and rewrite for clarity. I check spelling and grammar. Yes, I have resources, and I share them with all by providing complete citations whenever possible. Did I ignore your silly questions, like why is a minimal expense a needless expense and what would make you worth my time? You bet.

Your argument might be reconstructed as follows:

Major premise: When conducting an acquisition, if a course of action is required, but can be waived, then one should waive it if it confers no particular benefit and requires some effort to perform.

Minor premise: When conducting a negotiated or MATOC acquisition, bid bonds cost little or nothing and provide the postaward benefit of ensuring that offerors can get performance and payment bonds.

Conclusion: Therefore, the requirement for bid bonds should not be waived.

I attacked your minor premise by arguing that bid bonds do cost something -- in expense, time, and legal complexities and difficulties, that their benefits are illusory, and that they are difficult to enforce in court. In Posts #22 and #27, I cited Cibinic and Nash, several law review articles, including one that said that bid bonds were “farcical,” I provided some data on litigation, and I offered the proposition that in a well-conducted acquisition bid bonds are not necessary to ensure that an offeror can get performance and payment bonds.

Then, in Post #28 you explicitly raised your experience as grounds for accepting your premise that bid bonds are beneficial and not troublesome and rejecting my attack on that premise. That’s when I asked about your experience, and my questions were pertinent.

As for your questions in Post #32, you asked about my experience hoping either (a) that my answers would enable you to say that I did not have enough experience to speak on the matter or ( b ) that I would not answer and that you could thus insinuate that I did not have enough experience to be believed. Your questions were impertinent, meaning that they did not pertain to my argument. Even if I’d had no experience, you could not legitimately attack the truth of any of my premises based on my lack of experience.

I am not complaining about you, and I am not asking for an apology. You don't owe me an apology for your questions. Ad hominem attacks of the kind I'm talking about are part of the debating game. But while ad hominem attacks are part of the game, I don't have to play that part. When you see signs of an ambush, why step into it?

I don't know whether you stumbled into the ad hominem tactic unintentionally or did it on purpose. It doesn't matter. I will answer pertinent questions, but I do not regret refusing to answer your Post #32 questions in this thread. You did not deserve answers to those questions.

But, boy, you do owe me an apology for saying that I don't answer questions and didn't answer yours and that I am disrespectful on those grounds. The more i think of the time and effort I put into responding to you, and about you saying that I don't answer questions and that I am "darn well disrespectful," the angrier I get. Even this post is a sign of respect. So I'd best sign off, before I say how I really feel about you right now.

Vern

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I appreciate the multiple responses to my questions in this thread. They've given me a better understanding of the factors to consider and fuel for my own arguments to correct issues here.

Even the exchanges between Vern and Carl have added new lawyers to their rationales that provide deeper understanding. Thank you.

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

Yes we did. We did not accept a general 'we will bond them' letter. They were more detailed than that. If we had any issues with what was in the letters, a quick phone call cleared it up. I guess the better question would be; why would a bonding company give a letter to a Government agency stating that they would issue bonds to the contractor, only to not issue the contractor a bond if they were awarded an order under the MATOC?

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j-dude – (Still exercising my prerogative)

So was the letter from a bonding company or the actual Treasury approved surety? If the former I could see the bonding company writing it as simply supporting the contractor, remember their interest is get the contractors business. I do question whether they were representing the full faith of the surety in doing so. If actually the surety it is surprising they would do so but props to you for getting it. If it worked either way then so be it but risky none the less in my book.

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Yes we did. We did not accept a general 'we will bond them' letter. They were more detailed than that. If we had any issues with what was in the letters, a quick phone call cleared it up. I guess the better question would be; why would a bonding company give a letter to a Government agency stating that they would issue bonds to the contractor, only to not issue the contractor a bond if they were awarded an order under the MATOC?

j_dude, a letter from a bonding company doesn't really mean much. A bid bond ties up a certain amount of bonding capacity and essentially commits the bonding company to provide a bond for that action. It also may limit how many other actions the contractor pursue until that procurement is completed. Not so with a letter. If the firm wins some other work in the meantime, it's bonding capacity may be used up. Also, contractors can get into financial binds rather quickly. Even the big ones* do sometimes.

*for example, In 2001, our contractor on two huge Army projects, Washington Group International, filed for Chapter 11 bankruptcy protection, as a result of purchasing Raytheon's Engineers and Constructors unit, who was our contractor before the sale, a year earlier. Shay D. Assad was the Chairman and CEO of that unit at the time of the sale to WGI. WGI was the nation's fourth largest construction contractor at the time - they told us that they couldn't even provide increased bonding coverage for ANY change orders on our two contracts. Raytheon was - shall I say - not one of the best contractors at executing firm fixed price construction contracting...**

http://articles.latimes.com/2001/may/15/business/fi-63637 http://nacra.net/nacra/abstracts2005/Washington%20Group%20International.doc

http://people.equilar.com/bio/shay-assad-raytheon/salary/25872#.VVXgUHA8KrU

**http://www.thefreelibrary.com/Washington+Group+International+Files+Fraud+Lawsuit+Against+Raytheon...-a071360999

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Vern – Lordy, to your post #40 I exercise my prerogative yet one more time.

I will not answer your lecture of questions but simply point out that in your post #31 you stated the following “Tell the Truth.” as a direct challenge to me. An ad hominem perfectly fit to the definition.

That post at some time has been edited to remove “truth” statement at #31. No matter, an attempt, prior to the edit, in my view to yet take one more step to reflect me in a bad light not with regard to the subject but with regard to me personally. Or, stated another way I won’t edit my post #32 that was simply a repeat of the “truth” statement in your #31 prior to its edit.

I am done with your attempts to provide distraction. Personally the thoughts expressed in the thread posts by others are of interest but matter less to me than your comments that continue through your post #40 as they contain (or contained until edited) clear attempts to discredit me personally and have nothing to do with my arguments on the topic. The result is in my view an attempt to undermine my case completely without actually having to engage with it, equaling ad hominem.

I am angry, upset, and offended more than anyone (repeat anyone) can imagine. The intent of this forum has been overstepped as started by you at post number #8 and continued by you. The forum is intended to help folks. In my attempt to help I am no more or no less off base than you are. I know an order is a contract, I do not need to go to the infernal regions and descend, I have knowledge beyond Contracting 101, I am patriotic even when I demand more paperwork, I have already explained my experience, and I tell the truth.

To your most recent argument on the matter of the bid bond contained in post #40 within a bunch of comments that leave me, how should I say distracted because you have already made them, I pose simply this. Commerce, who cares? One position with regard to a specific industry of the Department, not carte blanc across all construction that Commerce buys that requires Miller Act bonding is minimal support if support at all to your argument because Commerce’s intent is to support small business and is not because it is a needless expense. Clearly Commerce does not buy in completely that an agency should abandon bid bonds on most sealed bidding and all negotiated procurements, inclusive of IDIQs or their interim final rule would so state. And I quote “Contracting Officers (CO) may not issue solicitations waiving the requirements for bonds until the waiver request is approved.” Geez even the Commerce rule is not inclusive and automatic.

Respectfully

Carl

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