“Not To Exceed” Bid Bond Error Sinks Bid

A bid bond containing an erroneous “not to exceed” limit of less than the 20 percent required by the solicitation was defective, and was properly rejected by the procuring agency.

The GAO’s recent bid protest decision in IMR Development Corporation, B-408585 (Nov. 13, 2013) is a reminder that when a bid guarantee is required, a contractor must ensure that the bid bond meets the government’s requirements.

The IMR Development Corporation bid protest involved a VA invitation for bids for building renovation services.  The IFB included the clause at FAR 52.228-1, which requires a bid guarantee.  As used in the IFB, the clause provided for a bid guarantee of 20 percent of the bid price or $3 million, whichever was the lesser amount.

IMR Development Corporation submitted the apparent low bid of $425,054.88.  With its bid, IMR submitted a bid bond on Standard Form 24.  The bid bond identified the penal sum as “20% of the bid price” but also included a “not to exceed” amount of $60,000.

Because 20 percent of IMR’s bid was $85,109.97, the VA determined that the bid bond contained a discrepancy as to the penal amount, and rejected IMR’s bid as defective.  The VA awarded the contract to the next-lowest bidder.

IMR filed a GAO bid protest challenging the rejection of its bid.  IMR argued, in part, that the “not to exceed” language was an administrative error and should have been waived as a minor clerical mistake.

The GAO wrote that “noncompliance with a solicitation requirement for a bid guarantee generally renders the bid nonresponsive and requires rejection of the bid unless the deficiency can be waived” pursuant to specific provisions in the FAR.  In this case, because the bid bond included a “not to exceed” amount significantly lower than 20 percent, “IMR’s bid bond was ambiguous regarding the extent of the surety’s liability, and did not clearly establish that the surety would be liable for any amount exceeding the specific penal amount of $60,000–less than that required by the IFB.”

The GAO held that “[u]nder these circumstances, the agency was not required to assume the risk that it would not receive the protection that the bid bond was to afford and the contracting officer properly rejected IMR’s bid as nonresponsive.”  The GAO denied IMR’s bid protest.

Assuming that the “not to exceed” amount was in fact a clerical error, it was a costly one.  As such, the IMR Development Corporation case is a good example of why it is critical that construction contractors carefully review their bid bonds before submitting them to the government.

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