How Did a Liability Limitation in a Bond Sink the Protester’s Bid?

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The agency rejected the protester’s bid as non-responsive because the protester’s bond restricted the government’s ability to recover costs in the event of default. The protester argued that its bond didn’t really limit liability because the bond contained a savings clause that incorporated the bond provision from the FAR, which allows the government to recover all costs in the event of default. The court was not persuaded. The savings clause in the bond did not expressly incorporate the FAR provisions and was too broadly worded to constitute an incorporation by reference.

Leeward Construction Inc. v. United States, COCF 22-374C


The Army Corps of Engineers posted an invitation for bids (IFB) seeking a contractor to replace a stone facing on a dam. The IFB incorporated FAR 52.228-1(e), which requires bidders to include a bid bond with their submission. FAR 52.228-1(e) states that failure to submit a bond with the proper form may be cause for rejection of a bid.

Several contractors submitted bids. Leeward Construction submitted the lowest bid. But for its bid bond, Leeward used a bond from the American Institute of Architects (AIA Form A310). The other bidders used the government’s standard bond form. The AIA bond limited the liability of Leeward in the case of default to the difference between Leeward’s bid and the amount the agency has to pay another contractor. This differed from the government’s standard bond, which pays the government for any cost of procuring work that exceeds the amount of the bid.

The Corps found that the limitation of liability rendered its bid non-responsive because the limitation conflicted with FAR 52-228-1(e), which allows the government to recover all costs of reprocurement. Leeward filed suit with the Court of Federal Claims challenging the rejection of its bid.

Court’s Analysis

Incorporation by Reference

Leeward did not dispute that the AIA bond limited liability. But Leeward argued this did’t matter because the savings clause in the AIA bond incorporated FAR 52.228-1 by reference. The savings clause stated that the bond had complied with “statutory or other legal requirements in the location of the Project” and that any provision that conflicted with a statutory or legal requirement was deleted. 

The court was not convinced. To incorporate a regulation by reference, a contract must specifically refer to that regulation. The language of the savings clause did not expressly refer to FAR 52.228-1, and the court found that the language in the bond was too broad to constitute a valid incorporation by reference.

Statutory Bond

Leeward nonetheless contended that the AIA complied with FAR 52.228 because the saving clause stated that it was a statutory bond furnished to comply with the legal requirements in the location of the project. Leeward reasoned that because the bond was a statutory bond, the court should read the statutory/regulatory provision—i.e., FAR 52.229-1—into the bond.

The court did not bite. As an initial matter, the FAR is a regulatory provision, not a statute, so it was not clear the “statutory” language clause in the savings clause applied. Also, Leeward had furnished the bond in response to an IFB, which created ambiguity as to whether the bond was intended to be construed as a statutory bond. Moreover, the savings clause’s statutory language was qualified by the phrase “location of Project.”  This indicated that it was intended to apply to state or local rules applicable to a location but not to federal statutes or regulations applicable to a federal procurement. The FAR does not apply because of a location but rather because one of the contracting parties is the government

Defect in Bond Was Material

Leeward argued that the difference between its own bid and the next lowest bidder exceeded the penal sum of the bond. Thus, the bond’s liability limitation would have no effect on the Corps in the event of default. Thus, Leeward maintained, the Army should have waived the defect as immaterial.

But it is well-settled that a defective bond is a material deficiency. A bidder’s failure to comply with a bond requirement would put the government at economic risk. A bond requirement is not merely a matter of form. Also, Leeward’s materiality argument wrongly assumed the government would go with the next lowest bidder, but there was no guarantee of that.

Disparate Evaluation

Leeward contended that the Corps had waived a mistake in the awardee’s pricing proposal, but it rejected Leeward’s bid for an irregularity in a bid bond. Leeward believed this evinced disparate treatment. 

Not so, said the court. To prove disparate evaluation a protester must show that the agency downgraded its proposal for a deficiency that was substantively indistinguishable from those in other proposals. Here, the errors in the bids were not indistinguishable. The awardee’s bid contained a clerical error. Leeward defective bond was non-responsive.