IFB for Construction Issued Low Bid Under SAT

[Todd Davis]

Scenario: IFB is issued for construction since government estimate is over the SAT.  Low bid is under the SAT.  Bid is responsive and bidder is considered responsible.  IFB included FAR clause 52.228-15, Performance and Payment Bonds-Construction, requiring payment and performance bonds. 

Question: Do you think it would be appropriate to make award and then bilaterally modify the contract to remove this clause and replace with 52.228-13, Alternative Payment Protections, along with a price reduction reflecting the removal of the performance bond premium and any difference in the cost of the payment protection provided? 

I was unable to find any GAO decisions or other case law on the issue with the resources I have.  My initial though is that this would be appropriate since there is not a compelling reason to cancel the IFB (FAR 14.404-1) and no bidders would be subject to competitive prejudice by award being made (all submitted bids based on same information).

Thank you.

 

Edit: I suppose a contractor could argue that they did not include the cost of bonds in their bid since clause 52.228-15 itself does not require bonds if the "resulting contract price is $150,000 or less."

[Don Mansfield]

I don't think you have to remove FAR 52.228-15. Paragraph (b) of the clause makes it inapplicable under $150K. So, I think you can award.

I also don't see a problem with a bilateral modification to include FAR 52.228-13. However, I wouldn't assume that this would cause a decrease in the contractor's cost of performance. Since the requirements of FAR 52.228-15 didn't apply to their bid, they may not have assented to any payment protections. The addition of FAR 52.228-13 may increase the cost of performance.

 

[C Culham]

Not disagreeing with the response provided but I think there might be some other questions that need to be considered before moving to the proposed action.   They are –

So was a bid guarantee provided by the low bidder?  Here it is noted that when a contractor secures a bid bond they have usually confirmed with the surety that the surety will in fact issue both the payment and performance bond upon award.

How close to the SAT was the low bid and if close will the Government potentially require the contractor to provide increased bond protection should the contract price, as modified, go over the SAT?  (Reference FAR 52.228-2)

What alternative payment protection will you require?   If payment bond consider this which I believe you can confirm with a bonding entity.   The cost of payment bond is commensurate with a performance bond.   Or in other words a bonding entity will not issue a payment bond solely without a performance bond.  This is verified in part by the fact that if you look at the back of a performance bond the premium is shown, there is no such requirement for a payment bond. 

Who is proposing the idea, the Government or the contractor?   In either case are you sure your hoped for result of a price reduction will really result?

So the alternative might be if the contractor provided a bid bond, and intends (guarantees) and will provide both a performance and payment bond even with the price being below the SAT, then it may be actually more cost effective to just have them provide both bonds.   The Government would have in hand a bond for the performance as well as payment protection and in the end the actual cost to the contractor as passed through to the Government would be no different and you save yourself a lot of paperwork madness.

[Mike_wolff]

I question if you can remove it - without researching further, I would say you can't, because the prescription states that clause is to be inserted when the contract is EXPECTED to exceed $150,000.  See 28.102-3(a) below.  The fact the bid came in under $150K doesn't change the expected cost, and since some form of payment protection is still required, how much money would be saved?  It might not be worth the work to modify and negotiate the change.  

However, interesting the clause already addresses contracts coming in under at $150K or less.  52.228-15

Quote

(b) Amount of required bonds. Unless the resulting contract
price is $150,000 or less, the successful offeror shall furnish
performance and payment bonds to the Contracting Officer as
follows:
(1) Performance bonds (Standard Form 25). The penal
amount of performance bonds at the time of contract award
shall be 100 percent of the original contract price.
(2) Payment Bonds (Standard Form 25A). The penal
amount of payment bonds at the time of contract award shall
be 100 percent of the original contract price.

However, it doesn't say what to do in such a situation - and for construction between $35K and $150K alternative payment protection is required.  Did your IFB include 52.228-13 Alternative Payment Protection?  If not (and I'm guessing not given your GCE) it's a very interesting issue since the above quoted part of -15 has the "unless the resulting contract price is $150K or less, but doesn't then require -13.

 

 

28.102-3 Contract clauses.
(a) Insert a clause substantially the same as the clause at
52.228-15, Performance and Payment Bonds—Construction,
in solicitations and contracts for construction that contain a
requirement for performance and payment bonds if the resultant
contract is expected to exceed $150,000.