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Coal Was Not Acceptable Bid Bond Asset

The Court of Appeals for the Federal Circuit affirmed the dismissal of a bid protest because the Court of Federal Claims correctly concluded coal was not an acceptable bid bond asset. The invitation for bids for the construction of a traffic circle required bidders to submit a bid bond. The contracting officer rejected the protester's low bid on the grounds its individual surety bond, which was secured by approximately $191 million in mined coal, did not constitute an acceptable bid bond under FAR 28.203. The Government Accountability Office (23 CGEN 112,596) and the CFC (52 CCF 78,977) both denied protests on the basis that the CO reasonably rejected the bid as unacceptable, finding mined coal is not an acceptable asset because it cannot be placed into an escrow account, as required for pledges of assets under FAR 28.203-1(b)(1). On appeal from the CFC's dismissal, the protester argued the CFC affirmed the government's rejection of the bid on a ground not invoked by the government, in violation of the principle enunciated by the Supreme Court in SEC v. Chenery Corp. (332 US 194).

Speculative Asset

However, there was no need to determine whether the government violated the Chenery doctrine because the rejection of the bid bond was sustainable based on the CO's finding that the coal was not an acceptable bid bond asset. "The purpose of a bid bond is to protect the government in the event that the bidder withdraws its bid." Consistent with this purpose, FAR 28.203-2 defines acceptable bid bond assets as "those that have an identifiable value and are readily marketable, so that they can easily be sold to cover any expenses incurred by the government as a result of the bidder's failure to satisfy its obligation." FAR 28.203-2 distinguishes between acceptable assets, such as cash, stocks, and bonds, and unacceptable assets, such as jewelry, antiques, and furs, to reflect this concern with discernible value and liquidity of pledged assets. Despite the protester's contention that coal is a readily marketable mineral with a known value that is defined by national price indices, mined coal is "clearly less liquid than cash, stocks, certificates of deposit, and bonds," which are highly liquid assets with readily identifiable values. Further, the fact that there is some market for a product does not mean that the product is readily marketable. As shown by the protester's own submissions, mined coal is a speculative asset, as its value is difficult to ascertain and is highly dependent on variables such as the type, quality, and provenance. Pledges of speculative assets increase the risk of loss to the government, as was the case here, "as it became evident in the GAO proceedings that the pledged coal actually consisted of coal refuse that would likely require further processing before it could be liquidated." (Tip Top Construction, Inc. v. U.S., CA-FC, 53 CCF 79,099)

(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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