Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

By: Michael H. Payne

Government contractors frequently use incorrect terminology to describe a solicitation. For example, clients often call me and ask why they were not awarded a contract even though they had submitted the lowest bid. The first thing that I ask is whether the solicitation was a Request for Proposals ("RFP"), or an Invitation for Bid ("IFB"). If it was an RFP, the award was probably based on best value and the lowest-priced proposal would not necessarily receive the award. If the solicitation was an IFB, there would be more of a question about why an award was not made to the lowest-priced bidder. Of course, even in sealed bidding the lowest bidder must also be responsive and responsible in order to receive an award, so there can be a valid reason as to why the lowest bidder did not receive the award.

The best way to show that you understand the basics of the federal procurement process is to remember that responses to an IFB (sealed bid solicitation) are referred to as "bids," and responses to an RFP (negotiated procurement) are referred to as "proposals" or "offers." In other words, the proper terms under an IFB are "bid," "bidder," and "sealed bid," and the proper terms under an RFP are "proposal," "offer," and "offeror." Your lawyer will become very confused if you mix these terms by saying, for example, "I just submitted a bid on an RFP." Sometimes, the only way that I can figure out what my client is talking about is to ask for the solicitation number (the "R" or the "B" in the middle will be a dead giveaway), or I may simply ask my client to send me a copy of the solicitation.

Of course, government procurement personnel frequently add to the confusion. RPPs are often referred to as "negotiated procurements" even though there usually are no negotiations (or "discussions"), and contracting officers often refer to both bids and proposals as "bids," To make matters worse, the GAO and the courts refer to protests of either an IFB or an RFP as "bid protests." No wonder there is so much confusion.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters, including teaming arrangements, negotiated procurements, bid protests, claims, and appeals.

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Guest Post By: Kristen Bradley

The U.S. boasts a huge contract bond market as federal, state and local government agencies all utilize contract bond law to regulate professionals who work in the construction industry. Inevitably, some contracting firms find themselves unable to qualify for these bonds because they do not have the financial stability needed to back them up. This denies them access to working on publicly funded construction projects.

Contractors who cannot find a surety provider that's willing to issue them necessary bonds might complain that contract bond requirements are too strict and difficult to fulfill. Their purpose, however, is to deter unqualified and financially unstable contractors from working on projects for which they might not be qualified. Contractor bonding helps stabilize the industry in a number of legally enforceable ways.

Contract Bond Protection

Contract bonds work to protect the best interests of the project owners and government agencies that fund construction projects, as well as the best interests of the public.

The Surety Information Office explains how crucial surety bonds are to the financial success of the construction industry:

"The use of corporate surety bonds makes it possible for the government to use private contractors for public construction projects under a competitive sealed bid, open competition system where the work is awarded to the lowest responsive bidder. Political influence is not a factor, the government is protected against financial loss if the contractor defaults, and certain laborers, material suppliers and subcontractors have a remedy if they are not paid, all without consequence to the taxpayer."

Bid bonds specifically work to keep the bidding process honest. When a contracting firm submits a bid bond along with a project bid, it makes a legal promise that it won't increase the bid after being selected to work on the project. For example, the city of Philadelphia frequently requires contracting firms to provide a bid bond that's 10% of the total bid amount. If the winning contractor raises the bid after being awarded the project, the city could collect on the bond to gain financial reparation.

Contract Bonds and the Surety Bond Process

Contract bonds function as do other surety bond types. Contractors and contracting firms purchase surety bonds to financially guarantee some aspect of their work. When a surety provider issues a bid bond to a contractor, the bond essentially acts as a legally binding contract among three entities:

1. the principal: the contractor or contracting firm that purchases the bond as a promise that the bid will not be increased
2. the obligee: the project owner that requires the bond to protect itself from potential financial loss
3. the surety: the agency that executes the bond, thus providing a financial guarantee that the contractor won't increase the bid

Although bid bonds are often used for publicly funded projects managed by the government, private project owners can also choose to take advantage of their protective benefits.

How Surety Bonds Affect the Bidding Process

When government agencies or other project owners require bid bonds, the contracting firm must purchase a bid bond and submit it along with its original bid. Bid bonds may not be purchased after a bid has been submitted, and surety providers will not execute a bid bond after a contracting firm has already submitted its formal bid to a project owner.

Contracting firms that want to bid on high scale public construction projects must have a high bonding capacity. Contracting firms can take a few approaches to increase their bonding capacities, such as

• making more investments
• taking their net cash position down to zero
• excluding net pension liabilities and construction credits in residential development co-ops

Although the effort required to secure bid bonds for high scale projects might seem unnecessary to some contractors, the stability they give the construction industry is irreplaceable. 

This article was provided by SuretyBonds.com, a nationwide surety bond producer.
SuretyBonds.com offers surety bond education to contractors who need to purchase contract bonds. The agency believes that contractors should understand the bonding market so they are prepared for the surety bond application process. 

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By: Edward T. DeLisle

Pursuant to the Contract Disputes Act of 1978 (CDA), every claim on a federal construction project that is in excess of $100,000 must be certified. The reasoning behind this policy is simple: the government wants to discourage the submission of questionable and/or inflated claims. As such, for each claim in excess of the threshold amount, a contractor must append the following language to its claim:

I certify that the claim is made in good faith; that the supporting data are accurate and complete to the best of my knowledge and belief; that the amount requested accurately reflects the contract adjustment for which the Contractor believes the Government is liable; and that I am duly authorized to certify the claim on behalf of the Contractor.

If a contractor submits a claim that it has reason to believe runs afoul of this affirmation, it is subject to a variety of penalties. Those set forth in the False Claims Act (FCA) are the most daunting and represent those that the government will most likely pursue if it becomes aware of a potential violation.

In order to be liable under the civil version of the FCA, the government (or an individual in a qui tam action) must prove that the contractor submitted false information and had actual knowledge that the information was false; acted in deliberate ignorance of the truth or falsity of that information; or acted in reckless disregard of the truth of falsity of the information. If, after an evidentiary hearing, a fact finder determines that a violation took place, a contractor can be assessed fines, damages, or both. Fines can range from $5,000 to $10,000 per violation. This can amount to quite a penalty indeed. For example, in Ab-Tech Const., Inc. v. U.S., 31 Fed.Cl. 429 (1994), a contractor was successful in obtaining the award of a contract issued as an 8(a) set-aside. It subsequently pursued a claim for an equitable adjustment of its contract. The government filed a counterclaim under the FCA, alleging that the contractor was not eligible to receive the award, thereby forfeiting its claim. The government also demanded penalties in the amount of $10,000 for each instance that the contractor submitted an invoice for payment, arguing that in each case the contractor was effectively asserting that it was an eligible participant under the 8(a) program. The court ultimately agreed that the government was entitled to a penalty of $221,000, $10,000 for each payment application submitted by the contractor.

The government can also seek treble damages under the FCA. While many of the reported cases that involve the assessment of treble damages pertain to egregious violations, that does not preclude the government from pursuing such a remedy in more benign situations. See Morse Diesel Intern v. U.S., 79 Fed.Cl. 116 (2007)(assessing treble damages where contractor billed the government more than $1.6 million for reimbursement of bond premiums that were not paid and in excess of $650,000 for false indemnity payments to a parent company).

The above must be taken very seriously based upon the current trends in federal government contracting. The GAO has issued a number of reports over the last several years identifying instances of fraud in the government procurement process. Those reports have generated intense interest on Capitol Hill, resulting in legislation such as the Small Business Contracting Fraud Prevention Act of 2011. The Act would allow for stricter enforcement of the regulations governing small business procurement and increase prosecutions, suspensions and debarments for violations. Similarly, there is a push to amend the FCA to increase the statute of limitations for offenses from six (6) to ten (10) years, expand the ability of the government to obtain awards in excess of any actual losses incurred and apply these principals in a retroactive fashion. All of this suggests increased vigilance in the prosecution of potential instances of fraud. Inevitably, as the government attempts to vigorously root out the evils in the system, there will be honest, hard-working contractors who find Justice knocking on their door. Contractors must be aware of the FCA and the world we now live in and have sufficient controls in place to avoid any unwanted visitors.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.

This article was originally published on Law360.

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