Local procurement bidding process defective, says local attorney

Contract for airport project raises red flags — federal regs or local mandate?
blue@samoanews.com

Paramount Builders has been awarded the contract for the "Pago Pago International Airport Apron Rehabilitation Phase II - Construction Project" to the tune of $9.8 million.

But according to the Procurement Office, the award and subsequent execution of the contract is contingent on the submission of a 100% performance bond and a 100% payment bond from a US Dept. of Treasury Circular 570 approved surety.

A week ago Saturday was the deadline given to Paramount Builders to come up with a 100% performance bond and 100% payment bond for the project.

Samoa News has confirmed that Paramount met the deadline for both requirements — each bond at 100% of the $9.8M contract price — meaning the project is now guaranteed by 200%

But the requirements have led to local attorney Roy J.D. Hall Jr., counsel for Paramount Builders, to ask pointed questions.

According to an Oct. 14th letter to Chief Procurement Officer Dr. Oreta Mapu Crichton, Counsel Hall contends that Procurement has "failed" to provide any legal authority to support the position that the surety bond MUST be issued by an insurer listed in Circular 570, and that the use of the Circular 570 is a federal requirement, not an ASG mandate.

He claims that no legal authority was provided by Procurement to support their statements, and said if this is the position of the ASG Procurement Office, then they need to provide him with a list of insurers — listed in Circular 570 — that are licensed to do business in American Samoa.

"My concern is that none of these Circular 570 insurers are licensed in American Samoa by the ASG Insurance Commissioner, as required by law," Hall wrote.

He referred to local law pertaining to the ASG Insurance Act, which states in part that "no person may transact insurance in American Samoa as an insurer without a certificate of authority issued by the Commissioner, and when the certificate is issued, that person may not transact any class of insurance which is not specifically authorized by his certificate."

According to Hall, 'conditions of contract' specifically provides that the bonds shall be issued by a solvent surety, which is certified to operate within the state/country the project work is located and is listed in the current issue of the US Treasury Circular 570.

This means the insurers listed in the Circular 570 must be certified to operate where the project is located — in this case, American Samoa.

The question then becomes, “How are off island companies that are insured in countries other than American Samoa able to secure contract awards if their insurer is not certified to operate locally?”

In his letter, Hall said if the insurers listed in Circular 570 are not admitted as insurers in American Samoa, pursuant to the ASG Insurance Act, “then the requirement that only Circular 570 insurers are qualified to issue surety bonds under this contract, […] the provision or condition is a substantive defect to the contract and the entire bidding process is defective.”

Simply put, “The contract or contracts for the Airport Rehabilitation Projects must therefore be cancelled and be rewritten to correct this substantive defect and the contract for this project must be rebid as soon as practicable."

In the interest of ASG Procurement curing the deficiencies in the original bid proposal for said project, Hall said, "all proposals should be rejected as irregular or consider waiving the irregularity as a technicality" and allow Paramount to submit a surety or guarantee "issued by a licensed and certified insurer approved by the ASG Insurance Commissioner, in accordance to law."

Hall recommends that the legal counsel for the ASG Procurement Office be tasked with reviewing the use of Circular 570 and the bidding procedures set forth in 2 CFR 200. (CFR stands for Code of Federal Regulations and it is a codification or arrangement of the general and permanent rules established in the Federal Register.) The Airport projects are funded with federal dollars from the Federal Aviation Administration (FAA).

Samoa News points out that the grant from FAA to ASG is governed by 2 CFR 200, which states in part, “…a state (including American Samoa) must follow the same policies and procedures it uses for procurements from its non-federal funds.”

Local law, ASG regulations, and the Request For Proposal govern the awarding of the airport project contract, according to another local attorney, who reviewed the award.

He said under AS procurement regulations for construction contracts, bid bonds may be provided by either a Circular 570 company or by "…other surety acceptable to the government." Furthermore, surety certified by the government may provide performance and payment bonds for construction contracts for amounts exceeding $100K. This provision, according to the attorney, has been interpreted to allow for performance bonds issued by bonding companies not included in Circular 570.

The RFP requires performance and payment bonds to be issued by a solvent surety, certified to operate within the state/ country, and the project work is located and listed in the current issue of the US Treasury Circular 570; however, none of the proposals submitted included a surety that met the aforementioned requirements.

If such a determination is not made, the minimum requirements include a bid guarantee from each bidder equivalent to 5% of the bid price; a 'bid guarantee' that consists of a firm commitment to include a bid bond, certified check, or other negotiable instrument accompanying a bid; and a performance bond and payment bond for 100% of the contract price.

In his letter to Crichton, Hall wrote, "In 2 CFR 200-325, there is no reference to Circular 570 list of insurers; in fact, it permits 'bid guarantee', 'performance bond', and 'payment bond'." Furthermore, the contract conditions provide that the FAA can make a determination with regards to local bonding policy and requirements, as long as the government's interest is adequately protected.

He said Paramount Builders' submission of a surety bond issued by a licensed insurer in American Samoa "should be acceptable under this provision of the contract."

An Aug 21, 2017 letter to Governor Lolo M. Moliga from the FAA notes the requirement of a Circular 570 bond due to the Miller Act, which requires surety bonds on federal construction projects.

According to an attorney from the AG's office, the FAA has determined that the government's interests are not adequately protected without the Circular 570 bond for this project.

But Hall says he has yet to receive a list of licensed insurers permitted to do business in the territory, and a confirmation that the insurers listed are registered and received a permit and license to operate locally under the Foreign Corporation Act; and that each was issued a certificate of authority by the Insurance Commissioner, as required by law.

The law is very clear. For an insurance company to do business in American Samoa, it has to receive a Certificate of Authority or be represented by a licensed insurance broker, he said.

Samoa News understands that since the required bonds were provided by Paramount prior to the deadline, the project will go on as scheduled.

However, it is unclear how federal regulations, as far as Circular 570 bonding is concerned, were overlooked in the past — with the awarding of contracts to companies to do work locally without Circular 570 bonding — and in the future, if such insurance services are not available locally.

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