Departure from Standard Form 24-Bid Bond on Federal Construction Projects May Be Risky Business!

I recently was contacted in writing by the contracting chief of a district office of the U.S. Army Corps of Engineers (USACE) about the use of commercial bid bond forms on USACE projects. The contracting chief related that the use of nonconforming and, therefore, unacceptable bid bonds in her district had increased significantly. The contracting chief characterized the situation as a “spate” of unacceptable bid bonds on commercial forms. She also stated that, in the past few years, “we have annually rejected 2-3 low bidders who would otherwise have been found to be responsive, responsible bidders” due to the use of unacceptable commercial bid bond forms.

As surety professionals, you no doubt are familiar with Standard Form 24 (SF 24), the standardized bid bond form published by the federal government for use when a bid guaranty is required on federal construction projects. Under the Federal Acquisition Regulation (FAR), bid guarantees generally are required whenever a performance bond or a performance and payment bond is required (see FAR 28.101-1(a)). Contracting officers insert the clause at FAR 52.228-1 in solicitations, which sets the “ground rules” for the bid guaranty.

Among those “ground rules” is that the bid guaranty must provide that “the bidder is liable for any costs of acquiring the work that exceeds the amount of its bid” should the contract be terminated for default (e.g., the contracting officer terminates the contract for default as a result of the successful bidder failing to execute all contractual documents or furnishing executed performance and payment bonds within 10 days after receipt of the forms by the bidder). SF 24 establishes that the bid bond will pay the federal government “for any cost of procuring the work which exceeds the amount of the bid” up to the penal amount of the bond. In the event of default, the federal government’s interest is in recovering the difference in the contract amount between the defaulting contractor and the subsequent contractor awarded the contract to perform the work together with the federal government’s administrative costs associated with reprocuring the work.

Use of SF 24 is not mandatory. However, use of commercial bid bond forms must provide the federal government with the same level of protection offered in SF 24 (and must address requirements set forth in the invitation for bids). If the contracting officer assesses that the commercial bid bond form offers less protection, that bidder’s bid will be rejected as non-responsive and not subject to correction. Decisions by the U.S. Comptroller General, which provides administrative review of bid protests, support such actions by contracting officers.

Some commercial bid bond forms only address recovery of the difference in contract amount between the defaulting contractor and the subsequent contractor and do not specifically address recovery of other costs, such as the administrative or in-house costs incurred by the federal government in procuring the new contract. Admittedly, these bid bond forms often have been developed focusing on the private work context. Using them to form a bid guaranty for a federal contract without careful review and modification can lead to an unfortunate result—a client found to be the low bidder but whose bid is rejected as non-responsive due to an inadequate bid bond. If you choose to use a commercial bid bond form on a federal construction project, prudence dictates that you should consult first with knowledgeable legal counsel to ensure that the bid bond will be adequate in the eyes of the contracting officer.