Introduction
Design-build contractors should be aware of recent changes in the Federal Acquisition Regulation (FAR) that significantly affect the requirements for adequate and enforceable bid bonds. In the past the FAR, with rare exceptions, did not allow a Contracting Officer (CO) to investigate whether apparent defects in a power of attorney in support of a bid bond constituted minor irregularities and allow them to be corrected. Rather, the CO was required to reject the bid bond out of hand as “non-responsive.” The new regulations do not eliminate the requirement that a contractor must submit an enforceable bid bond as a condition for award. The regulations do, however, allow the surety to clarify and correct any technical defects after bid opening. The new regulations should greatly reduce the number of bids that are rejected for minor reasons, thus making life much easier for design-build contractors and their sureties.
Specifically, the FAR Councils1 amended the FAR on September 30, 2005, to provide that a copy of an original power of attorney, including a photocopy or facsimile copy, when submitted in support of a bid bond, is sufficient evidence of the authority to bind the surety. The authenticity and enforceability of the power of attorney at the time of bid opening will be treated as a matter of “responsibility” after bid opening. Further, the FAR now specifically allows, if not requires, that the CO contact the surety in the event of a defect to validate the bid bond and to correct any technical errors.
As revised, FAR § 28.101 3 provides as follows:
(a) Any person signing a bid bond as an attorney-in-fact shall include with the bid bond evidence of authority to bind the surety.
(b) An original, or photocopy or facsimile of an original, power of attorney is sufficient evidence of such authority.
(c) For purposes of this section, electronic, mechanically-applied and printed signatures, seals, and dates on the power of attorney shall be considered original signatures, seals, and dates, without regard to the order in which they were affixed.
(d) The contracting officer shall —
(1) Treat the failure to provide a signed and dated power of attorney at the time of bid opening as a matter of responsiveness; and
(2) Treat questions regarding the authenticity and enforceability of the power of attorney at the time of bid opening as a matter of responsibility. These questions are handled after bid opening.
(e) (1) If the contracting officer contacts the surety to validate the power of attorney, the contracting officer shall document the file providing, at a minimum, the following information:
(i) Name of person contacted.
(ii) Date and time of contact.
(iii) Response of the surety.
(2) If, upon investigation, the surety declares the power of attorney to have been valid at the time of bid opening, the contracting officer may require correction of any technical error.
(3) If the surety declares the power of attorney to have been invalid, the contracting officer shall not allow the bidder to substitute a replacement power of attorney or a replacement surety.
(f) Determinations of non-responsibility based on the unacceptability of a power of attorney are not subject to the Certificate of Competency process of subpart 19.6 if the surety has disavowed the validity of the power of attorney.2
Prior Rules Led to Inconsistent Results
Pursuant to existing FAR regulations that remain in effect, a contractor is required to submit a “bid guarantee,” typically a “bid bond,” to give the government recourse in the event the contractor refuses to execute the contract documents (including bid and performance bonds) after being selected for award. The bid bond is intended to reimburse the government for the added cost of awarding to the next lowest bidder. FAR § 28.101-2(b) states that the amount of the bid bond is typically set at 20 percent of the bid price, with a maximum of $3 million.
FAR § 28.101-4 expressly provides that the failure to comply with a solicitation requirement for a bid guarantee requires the rejection of the bid or, in the case of a negotiated contract, the initial proposal. This requirement can be waived in only very limited circumstances. In practice, the CO treated this as an issue of responsiveness and rejected otherwise responsive bids for minor irregularities without further investigation. The Government Accountability Office (GAO) often affirmed these determinations.
A particularly troubling problem has concerned the use of “wet” (original) versus facsimile signatures on the power of attorney form. For example, the GAO denied a protest in which the lowest bidder’s power of attorney accompanying its bid bond contained signatures generated by a computer as part of the document. According to the GAO, “[u]nless accompanied by an original certification from a current officer of the surety attesting to its authenticity and continuing validity, a photocopied power of attorney does not satisfy the requirement for a clearly enforceable guarantee.”3
In certain instances, however, the GAO determined that otherwise responsive bids containing minor errors could be corrected.4 In one particular case, the GAO sustained a protest in which the Department of the Navy erroneously rejected a bid bond as non-responsive because of multiple discrepancies in the Power of Attorney Certificate accompanying the bid bond.5 There, the certificate was executed by the facsimile signature of a corporate secretary, was notarized by an undated notary certification, and was deemed by the notary as having been dated a different date than the actual certificate date. In sustaining the protest, the GAO stated that it failed to see as a matter of law how the surety would not be bound to the obligations of the bond.
The underlying logic of that decision was simply that if the CO can determine that the surety did intend to be bound, then it makes sense to allow the correction of any technical defects in bond documents. The adverse impact on the competitive procurement system that results from instantaneously rejecting an otherwise acceptable bid is a far greater concern than allowing the CO a little time to make a more informed judgment as part of his responsibility determination, which would take place in any case.
The U.S. Court of Federal Claims has also weighed in on the validity of facsimile signatures and has reached a decision that conflicts with GAO’s position on the issue.6 In that case, the court found that mechanically applied signatures on the certificate were adequate to establish unequivocally that the surety intended to be bound. In granting relief for the disappointed bidder, the court stated that the CO is forbidden from rejecting a bid when the surety has bound itself as a matter of law to the obligations of the bond.
The irony of the case law is that the bid bond is intended to protect the government from paying a higher price in the event that it is forced to award the contract to the second lowest bidder. By requiring that the CO reject a bid because of minor defects in the bond and award the contract to the next lowest bidder, the government ends up paying this increased price without any recourse against that lowest bidder or its surety.
The New Rule Sweeps Away the Confusion
On September 30, 2005, the FAR Councils responded to the conflicting case law by announcing the final rule amending FAR § 28.101 3:
In response to the split between the two bid protest fora [on the facsimile signature issue] and the quandary shared by industry and government in implementing a workable standard to be applied at bid opening, the Councils agreed to a revision to FAR part 28 that would remove the matter of authenticity and enforceability of powers of attorney from a contracting officer’s responsiveness determination, which is based solely on documents available at the time of bid opening. Instead, the rule instructs contracting officers to address these issues after bid opening as a matter of responsibility.7 70 Fed. Reg. at 57459 (2005).
The key feature of the new regulation is that there is now a bright-line test regarding the acceptability of bid bonds. If a contractor submits a signed and dated bid bond and Power of Attorney Certificate, the CO cannot reject the bid at the time of bid opening on the basis of an apparent defect in the bond. Rather, the CO must treat any questions regarding the enforceability of the bond as a matter of responsibility that must be analyzed, pursuant to the regulation, after bid opening. Although the regulation states that the CO may contact the surety if questions arise regarding the enforceability of the bond, the fact that the surety can validate the bond and make any corrections implies that the CO must indeed contact the surety in such cases.
In amending the FAR, the FAR Councils believed it to be sound policy to give the CO the discretion to clarify the facts with the surety in order to make an informed decision. The FAR Councils emphasized that this regulation worked no prejudice on other bidders.
Conclusion
In a typical bid situation for a design-build contract, the contractor’s focus is on finalizing the price and other details of the bid or proposal. The contractor does not always have sufficient time to check each and every detail on a bond. Thus, the problems that have arisen have been a matter of time and pressure, not a matter of intent not to be bound. Regardless, the prior inconsistent case law has led to disaster because technical deficiencies have sometimes caused the rejection of otherwise valid bid bonds.
The new FAR regulation goes a long way toward eliminating the aforementioned problems and simplifying the bid process for design-build contractors.
Endnotes
- The FAR Councils consist of the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council which collaborate on the development of the FAR procurement regulations.
- 70 Fed. Reg. at 57462 (2005).
- All Seasons Constr., Inc., B-291162.2, 2002 CPD ¶ 212.
- Universal Coatings, Inc., B-278700, 98 1 CPD ¶70.
- Daley Corp — California Commercial Asphalt Corp., B-274203, 96-2 CPD¶217.
- Hawaiian Dredging Constr. Co., Inc. v. United States, 59 Fed. Cl. 305 (2004).
- 70 Fed. Reg. at 57459 (2005).
Steven L. Briggerman is Of Counsel at Seyfarth Shaw LLP, where he specializes in government contracts. He received his A.B. from the University of Chicago and his J.D. (with honors) and LL.M. in government procurement law from the George Washington University Law School. Mr. Briggerman is chairman of the Government Contracts Section of the Federal Bar Association and a professorial lecturer in Law at the George Washington University Law School. He may be reached at sbriggerman@ seyfarth.com.
Jamison L. Weinbaum is an Associate at Seyfarth Shaw LLP specializing in government contracts and construction litigation. Mr. Weinbaum received his A.B. from Wake Forest University (with honors) and his J.D. from the George Washington University Law School. Mr. Weinbaum is a former law clerk to the Honorable Edward J. Damich of the United States Court of Federal Claims. He may be reached at jweinbaum@ seyfarth.com.