Claim for Reimbursement From Final Payment Proceeds

The Army requested a decision concerning the disposition of $29,000 payable upon the completion of a contract. Two businesses maintained that they were entitled to the sum. The first company, a surety that held the performance bonds on the completed contract, based its claim on two grounds: (1) it made payments to the contractor under contracts unrelated to the subject contract; and (2) the contractor agreed in October 1979 that the $29,000 should be payable jointly to itself and the surety. The second company, a commercial bank, argued that it was entitled to the sum under two agreements signed by the contractor although the agreements did not refer to the specific contract in question. GAO stated that it is well established that a surety may not offset its loss on one contract against a balance existing on another contract even though the surety has bonded the same company under each contract. Thus, GAO rejected the first ground of the surety's claim. GAO rejected the second ground of the surety's claim because, based on Federal regulations, it was an invalid assignment since the company was not a financing institution. Concerning the bank's claim, GAO stated that there was no documentation from which it could be determined that the contractor had assented to a specific assignment of monies due under the subject contract. However, GAO concluded that, if the bank could provide evidence to further substantiate the claim, then it could be paid so long as the Government was indemnified from any possible claims by the assignor.