Construction Bond Cost | Surety Bond Service
Print Friendly, PDF & Email

Bidders on most sealed-bid federal contracts are required to furnish a bid guarantee along with their bids. The bid guarantee is usually provided in the form of a bid bond issued by a Treasury-listed surety company. The purpose of the bid bond is to guarantee the payment of liquidated damages to the government in the event the contractor refuses, or is unable to honor its bid and accept the award of a contract. This guarantee is usually 20 percent of the bid price.

Under the federal rules governing bids and contracts, a proper, enforceable bid guarantee is a matter of bid responsiveness – the bid of a contractor that fails to include a valid bid bond at the moment of bid opening must be rejected by the government (FAR 28.101-4). A bid guarantee is deemed acceptable if the government determines that the bid bond documents, including any powers of attorney appointing an attorney-in-fact, also known as an agent, with authority to bind the surety, would be enforceable against eh surety should the bidder fail to accept the contract award. If the government cannot determine definitely from the documents submitted with the bid that the surety would be bound, the bid must be rejected as nonresponsive.

Similar to the insurance industry, surety companies providing bonds often rely on authorized agents (attorneys-in-fact) to issue bid bonds for their customers. The sureties furnish their agents with corporate seals and blank bond forms. The surety also executes a power of attorney document authorizing the agent to issue bonds in the name of the surety. To prevent agents from issuing unauthorized bonds, many sureties have a practice of keeping powers of attorney at their home office and only sending a copy to the agent. The completed bid bond signed by the agent as well as the faxed power of attorney authorizing that agent to issue the bond are then included with the contractor’s bid. In two recent decisions, the General Accounting Office (“GAO”) has essentially declared this long-accepted practice invalid by upholding the government’s rejection of facsimile and photocopied powers of attorney accompanying otherwise valid bid bonds.

The first decision, Kemper Construction Co., involved an invitation for bids (“IFB”) issued by the U.S. Army Corps of Engineers (“Corps”) for construction of a shop and garage facility on the Mississippi River in Louisiana. Following bid opening, the fourth low bidder on the project was successful in persuading the Corps to reject as nonresponsive the bids of its three lower-priced competitors. The Corps’ basis for rejecting these bids was that the powers of attorney accompanying the bidders’ bid guarantees were faxed documents. According to the Corps, the faxed signatures on each bidder’s power of attorney documents were insufficient to demonstrate an intent on the part of the surety to be bound by the bond.

Kemper, the low bidder on the project, protested the Corp’s rejection of its bid to the GAO. Kemper’s bid bond was signed by an attorney-in-fact for the surety. The surety’s raised corporate seal was crimped over the agent’s signature. The bond was accompanied by a faxed copy of a power of attorney appointing that individual as attorney-in-fact for the surety. The power of attorney contained a certification that it was currently in full force and effect. The power of attorney also included a provision stating that “[t]this Power of Attorney is signed and sealed by facsimile under and by the authority of [a Resolution adopted by the surety’s Board of Directors]. . . .” The document recited the Board resolution which sated that the signature of a Corporate Officer “may be affixed by facsimile on any power of attorney” and that the signature of a Secretary and the seal of the Corporation may be affixed by facsimile to any certificate on such powers of attorney and “such facsimile signature and seal shall be valid an biding on the Corporation.” This language is substantially similar to the language used by many surety companies on their powers of attorney.

The GAO upheld the Corps’ rejection of Kemper’s bid. The GAO held that the Corps reasonably determined that without the original power of attorney it could not be certain that alterations had not been made to the faxed documents to which the surety did not consent. Therefore, Kemper did not unequivocally establish that its surety would be bound in the event Kemper failed to meet its obligations. Kemper argued that since the power of attorney expressly provided that signatures could be “affixed by facsimile,” the surety consented to be bound by the faxed document. The GAO, however, rejected this argument by finding that the phrase “affixed by facsimile” referred only to signatures produced by mechanical means (e.g., by stamp or automatic signature machine) and not by faxed or photocopied documents.

The GAO recently reiterated its holding in Schrepfer Industries, Inc., a bid protest that involved a Corps project to replace irrigation conduit at Chatfield Lake in Littleton, Colorado. The Corps rejected the low bid of Schrepfer as nonresponsive because the power of attorney accompanying its bid bond was a photocopied document. Relying on its earlier decision in Kemper Construction, GAO held that the Corps reasonably concluded that the photocopied power of attorney did not unequivocally established that the bond would be enforceable against the surety.

The Kemper Construction and Schrepfer Industries decisions have been met with much concern and confusion within the surety and government contracting communities. In response to these decisions, the Corps seems to be subjecting bid guarantees and powers of attorney to greater scrutiny. Many sureties are revising their business practices and providing their agents with stacks of blank, original powers of attorney containing mechanically produced signatures. While this revised practice addresses the problems raised in Kemper Construction and Schrepfer Industries, it comes at the cost of an important control sureties previously had over their agents.

The following points should be carefully considered in submittals on federal projects: (1) Use only original documents (bid bond and power of attorney) with the bid; (2) Ensure that bid bonds and power of attorney have original (wet-ink) signatures, or mechanically produced signatures if mechanically produced signatures are expressly permitted; (3) Ensure that the power of attorney is current as of the date of bid opening. The power of attorney should have a certificate stating that it is in full force and effect and has not been revoked. If the certification is dated prior to bid opening or contains no date at all it can provide a basis for the government to reject the bid as nonresponsive; and (4) Ensure that the penal sum of the bid bond is correct.
__________________
By: Hal Perloff, Esq.  The author is an attorney with the law firm of Wickwire Gavin, P.C., located at 8100 Boone Blvd., Suite 700, Vienna, VA 22182 (703) 790-8750; [email protected]

ConstructionRisk.com Report, Vol. 4, No. 2 (Feb 2002)