The Write Way To Sign Bids

April 4, 2003
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GRAND RAPIDS — A word to the wise: Don’t e-sign on the dotted e-line, especially if you plan on putting forward a construction bid, even though e-signing is becoming a more routine way of doing business.

All Seasons Construction Inc. of Shreveport, La., did just that, and it cost the firm a lucrative project that company executives thought they had in the bag.

Last summer, All Seasons tendered a proposal to remove some buildings and build a new addition with four operating rooms at the Overton Brooks Veterans Administration Medical Center in Shreveport. The firm turned in the lowest of the four bids the VA received for the project, at $3.36 million.

But the contracting officer (CO) for the VA rejected the bid from All Seasons, calling it non-responsive. The contract was then awarded to the Witherington Construction Corp., the project’s second lowest bidder at $3.5 million, or $140,000 higher than All Seasons.

All Seasons ended up appealing the VA decision in January to the U.S. Court of Federal Claims, citing the U.S. government as the defendant. The company asked the court to enjoin the VA from taking any further action on the project.

But the judge denied motions from All Seasons for preliminary and permanent injunctive relief and granted the defendant’s motion for a summary judgment. The outcome has raised some eyebrows because signing documents electronically is an accepted business practice.

“This is pretty routine. In fact, it’s getting more routine because it’s getting harder and harder to get original documents,” said Stephen Hilger, chair of the construction law group at Rhoades McKee, a downtown Grand Rapids law firm.

“As the pace of bidding increases, just because of our increased pace of life, it gets harder and harder to get ducks in a row. People are doing this regularly,” he added.

So how did the low bid get rejected? Here’s the storyline.

When All Seasons submitted its bid the firm also submitted a bid bond for 20 percent of the bid price on a standard form fittingly called Standard Form 24. The company president e-signed the bid bond, as did the attorney for the casualty insurance firm that agreed to back it. The surety’s seal was electronically placed next to the attorney’s e-signature.

The bid bond was accompanied by a three-part power of attorney, with a notarized public certification of that document and another signed certificate that authorized the power of attorney. Then the computer documents were printed and submitted.

The VA’s CO, however, rejected the bid during his “responsiveness” review because the bid bond was “not an original and not accompanied by an original certification of validity.”

All Seasons submitted papers that bore computer-generated signatures and a corporate seal, and the CO said the signatures were unacceptable because these weren’t applied to the papers after the documents were created.

Because of that, the CO ruled that the signatures did not authenticate the bid bond and the firm’s bid was deemed non-responsive. He saw the bid bond as a photocopy and not an original document containing ink signatures and a crimped original corporate seal.

The CO based his decision on Schrepfer Industries Inc; a 2001 ruling from the Comptroller General who said a bid bond with a photocopied power of attorney is unacceptable. The CO quoted the CG in his decision who said a “photocopied power of attorney does not establish unequivocally at the time of the bid opening that the bond would be enforceable against the surety in the event that the bidder fails to meet its obligations.”

In short, e-signing on the dotted e-line was an e-error and is a practice that businesses should stop doing.

“There is at least one court that says they should,” said Hilger.

“I can’t imagine that every contracting officer is going to take the same position that this one did,” he added. “I suspect what truly happened behind the whole situation is that this particular contracting officer did not want to work with this particular contractor and did everything he could to find a reason not to contract. But as contractors, you don’t want to get yourself in that position.”

To be safe, Hilger suggested that bids, bid bonds, powers-of-attorney and any other required papers for a bid be signed by hand and the seals be crimped after documents are printed. Or, if a two-color printer is available, print the signatures in a color different from the documents to make the e-signings look like these were done separately.

“The two-color printer is a novel approach and hasn’t been tested. Certainly, the original signed by somebody who is the power of attorney is what is contemplated. It’s just that in a real world setting that may not be completely practical,” he said.

“The counter-signed bond is the best way to do it, because that is an original document and you comply with the literal term of the bidding requirements.”

Firms other than construction companies should also make note of this ruling, more so if a bid is involved in a transaction.

But Hilger said if there aren’t any public requirements in a bid process then a court looks to simple contract law to settle a dispute. A faxed signature, and maybe even a copied one, would likely be good enough for most courts under that circumstance.

“If someone can demonstrate that there is an original around,” said Hilger. “So it’s not a big a deal for someone in the private sector. But it is a deal for anyone who is going to do any kind of work where the bidding requirements require originals, which is typical.”

All Seasons first protested the CO decision with the General Accounting Office. But the GAO upheld the decision in December for reasons cited by the CO and because the date of the bid was added after the document was printed. After the GAO ruled, All Seasons took the matter to the federal claims court and, of course, lost there, too.

“They got trapped,” said Hilger. “They got caught.”           

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