Bid Bonds for Construction — GAO Protest Important Issues for Contractors

An agency’s fear of construction bid bonds can become problematic and cause contractors to file a GAO protest.  Bid bonds for construction guarantees are forms of security that ensure that a bidder will not withdraw its bid within the period specified for acceptance and, if required, will execute a written contract and furnish required performance and payment bonds. Federal Acquisition Regulation (FAR) sect. 28.001.

Bid Bonds for Construction — role in Government Contracts

Construction bid bonds guarantee secures the surety’s liability to the government, thereby providing funds to cover the excess costs of awarding to the next eligible bidder in the event that the bidder awarded the contract fails to fulfill these obligations.

When required by a solicitation or request for proposal, getting bid bonds for construction is a material part of the bid and the bid must be furnished with it. Hostetter, Keach & Cassada Constr, LLC, B-403329, Oct. 15, 2010.

Getting Government construction bid bonds is a huge hurdle for small businesses that pose as prime contractors. As a result, they sometimes have to rely on more established subcontractors or teaming partners to get a construction bid bond. However, it is no secret that commercial sureties hesitate in teaming relationships because they have no control over the small business prime construction company. Some prefer joint venture agreements instead.

These are tough issues when presented in a GAO protest, where the agency decides to reject bid bonds for construction in your proposal. If your bid bonds are non-compliant with a solicitation requirement for a bid guarantee, your bid may become non-responsive which requires the agency to reject it. See FAR sect. 28.101-4(a). See information about Defective Specification Claims and latent defect disputes.

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FAR Language

52.228-1 Bid Guarantee.

As prescribed in 28.101-2, insert a provision or clause substantially as follows:

Bid Guarantee (Sept 1996)

(a) Failure to furnish a bid guarantee in the proper form and amount, by the time set for opening of bids, may be cause for rejection of the bid.

(b) The bidder shall furnish a bid guarantee in the form of a firm commitment, e.g., bid bond supported by good and enough surety or sureties acceptable to the Government, postal money order, certified check, cashier’s check, irrevocable letter of credit, or, under Treasury Department regulations, certain bonds or notes of the United States. The Contracting Officer will return bid guarantees, other than bid bonds—

• (1) To unsuccessful bidders as soon as practicable after the opening of bids; and
• (2) To the successful bidder upon execution of contractual documents and bonds (including any necessary coinsurance or reinsurance agreements), as required by the bid as accepted.

(c) The amount of the bid guarantee shall be ______ percent of the bid price or $________, whichever is less.

(d) If the successful bidder, upon acceptance of its bid by the Government within the period specified for acceptance, fails to execute all contractual documents or furnish executed bond(s) within 10 days after receipt of the forms by the bidder, the Contracting Officer may terminate the contract for default.

(e) In the event the contract is terminated for default, the bidder is liable for any cost of acquiring the work that exceeds the amount of its bid, and the bid guarantee is available to offset the difference.

GAO Protest and Construction Bid Bonds Analysis

Responsiveness of bid bonds for construction are determined from a facial examination of the bid bond provided by your surety, and is limited to whether the surety is clearly bound by the terms of that bid bond. See Stay, Inc., B-237073.2, Feb. 26, 1990, 90-1 CPD para. 225 at 3.

GAO protest decisions have held that bid bonds are defective, rendering a non responsive bid proposal, if it is not clear that the bond will bind the surety. All Star Maint., Inc., B-234820, Mar. 24, 1989, 89-1 CPD para. 305 at 2.

However, other GAO protest decisions have determined that when required bid bonds are found proper on its face, the bond is acceptable and the bid responsive. Contract Servs. Co., Inc., B-226780.3, Sept. 17, 1987, 87‑2 CPD para. 263 at 2-3.

When a corporate surety is designated, construction bid bonds are proper “on its face” when it has been duly executed by the surety’s agent, the surety has agreed to be obligated for the penal amount of the bond, and the surety appears on the Treasury Circular list of acceptable sureties. See Stay, Inc., B-237073.2, Feb. 26, 1990, 90-1 CPD para. 225 at 3.

An Agency’s fear about construction bid bonds often gets in the way, and can cause government construction contractors to file a GAO protest. Sometimes agencies worry about the fact that a prime contractor relies on the subcontractor’s surety bond and fears that the surety has no real obligation to the prime. Find out more about Surety Bond Tips for Government Construction Contracts. 

Although government contracting agencies have wide discretion in bidding and source selections, they are still subject to reasonableness and legal authority.

See How We Can Help You in Bid Protest Cases

If you are having a problem with bid bonds for construction, or contemplating filing a GAO protest, call our government construction contract attorneys at 1-866-601-65518.