When submitting a bid for a public construction project, a contractor is typically required to submit a bid bond along with its bid. A bid bond is a written agreement under which a surety agrees to pay a specific amount to the owner if the contractor refuses to enter into a contract for the project.
In other words, if a contractor does not honor its bid that included a bid bond, the surety will usually be required to pay for the owner’s excess reprocurement costs. Those costs may included the difference in price between the low bid and the next lowest bidder along with the owner’s administrative reprocurement costs.
Many public owners specify a form that must be used for bid bonds on their projects. But some owners don’t necessarily specify a form that must be used.
For example, the federal government’s bid guarantee provision provides the general framework for what the bid bond must cover. The federal government has a bid bond form that bidders should use (i.e., Standard Form 24).
So what happens when a contractor bids on a federal government project but does not use the standard form? You have the potential for the contractor’s bid being rejected as nonresponsive. That’s what happened in a recent federal court bid protest decision–Leeward Construction, Inc. v. United States.
In Leeward Construction, the contracting officer rejected a contractor’s $3.9 million bid for a project because the contractor’s bid bond was on the American Institute of Architects Document A310, 2010 edition. The CO found that the bid bond was defective because it did not cover all excess reprocurement costs, including administrative costs or the costs of in-house government performance.
The disappointed bidder then filed a bid protest with the Government Accountability Office. The GAO rejected the bid protest and agreed with the CO’s reasoning.
The bidder filed another bid protest with the United States Court of Federal Claims. Although the contractor raised several arguments, the court rejected them all. Most notably, the court upheld the CO’s decision to reject the bid because the contractor’s bid bond did not comply with the contract requirements. Specifically, AIA Form A310 limited the government’s ability to recover all reprocurement costs in the event the contractor did not honor its bid. Thus, the court agreed with the GAO and rejected the contractor’s bid protest.
Bottom Line: If you are bidding on a public project that requires a bid bond, make sure the bond complies with the requirements under the contract. If the owner specifies that a bid bond form must be used, then make sure to use that form. Even if the form is merely a suggestion, a contractor is probably best off using the suggested form. Otherwise, a contractor may lose a contract because it submitted a defective bid bond.