B-168267, JAN. 14, 1970

B-168267, JAN. 14, 1970

CONTRACTS--PAYMENTS--MILLER ACT WITHHOLDINGS DECISION TO SECRETARY OF INTERIOR MODIFYING DECISION OF NOVEMBER 17, 1969, DEALING WITH PROPRIETY OF MAKING PAYMENTS TO A PRIME CONSTRUCTION CONTRACTOR WHEN THERE IS NOTICE THAT A SUBSTANTIAL SUM IS DUE A LABOR AND MATERIAL SUBCONTRACTOR AND THAT A MILLER ACT SUIT IS PENDING. WHERE GOVERNMENT HAS NOTICE OF SUBCONTRACTOR'S CLAIM AGAINST A PRIME CONTRACTOR AND REQUEST IS MADE TO WITHHOLD MONIES UNTIL MILLER ACT SUIT IS DECIDED, THE GOVERNMENT SHOULD WITHHOLD THE RETAINAGES REQUIRED TO PROTECT THE RIGHTS OF THE SUBCONTRACTOR UNDER THE CONTRACT. HOWEVER, AMOUNTS DUE IN EXCESS OF SUCH RETAINAGES (PROGRESS PAYMENTS, ETC.) MAY CONTINUE TO BE PAID. HOME INDEMNITY CO. V. UNITED STATES, 376 F. 2D 890 (1967).

TO MR. SECRETARY:

BY LETTER OF DECEMBER 18, 1969, THE DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION REQUESTED THAT WE RECONSIDER OUR DECISION B-168267, NOVEMBER 17, 1969, DEALING WITH THE PROPRIETY OF MAKING CONTRACT PAYMENTS TO A PRIME CONSTRUCTION CONTRACTOR IN THE FACE OF NOTICE THAT A SUBSTANTIAL SUM IS DUE A LABOR AND MATERIAL SUBCONTRACTOR AND THAT A MILLER ACT SUIT IS PENDING AGAINST THE CONTRACTOR AND ITS SURETY.

OUR DECISION HELD THAT INASMUCH AS LABORERS AND MATERIALMEN HAVE NO ENFORCEABLE RIGHTS AGAINST THE GOVERNMENT FOR MONEY DUE THEM FROM GOVERNMENT PRIME CONTRACTORS THERE IS NO DUTY ON THE PART OF THE GOVERNMENT TO WITHHOLD PAYMENTS TO THE PRIME IN ORDER TO PROTECT THE RIGHTS OF SUBCONTRACTORS. OUR DECISION NOTED, HOWEVER, THAT THE DECISION OF THE COURT OF CLAIMS IN HOME INDEMNITY COMPANY V. UNITED STATES, 376 F. 2D 890 (1967), "IMPLIES THAT THE GOVERNMENT'S INTERESTS MIGHT BE JEOPARDIZED WHERE IT PAYS A PRIME CONTRACTOR WHEN IT IS ON NOTICE OF LABORER'S AND MATERIALMEN'S CLAIMS AGAINST THE PAYMENT BOND SURETY," AND STATED THEREFORE THAT PAYMENT SHOULD BE MADE TO THE PRIME CONTRACTOR ONLY AFTER AGREEMENT IN WRITING HAD BEEN OBTAINED FROM THE SURETY.

YOUR LETTER POINTS OUT THAT IF CONSTRUED BROADLY OUR DECISION COULD BE INTERPRETED TO REQUIRE THE WITHHOLDING NOT ONLY OF MONEY RETAINED PURSUANT TO THE CONTRACT PAYMENTS CLAUSE BUT OF CONTRACT EARNINGS IN EXCESS OF RETAINAGES AS WELL. IT IS YOUR POSITION THAT THE HOLDING IN THE HOME INDEMNITY CASE SHOULD BE READ TO APPLY ONLY TO RETAINED PERCENTAGES AS OPPOSED TO EARNINGS IN EXCESS THEREOF AND YOU MENTION THE FINANCIAL HARDSHIPS WHICH THE WITHHOLDING OF MONEYS OTHERWISE PAYABLE IN ACCORDANCE WITH THE CONTRACT TERMS WOULD WORK ON PRIME CONTRACTORS. IN THIS REGARD, YOU STATE THAT WHILE EARNINGS WERE NOT SIGNIFICANTLY IN EXCESS OF RETAINAGES IN THE CASE OF THE CONTRACT WITH RESPECT TO WHICH THIS MATTER WAS INITIALLY SUBMITTED TO OUR OFFICE, THERE ARE OTHER CURRENT CONTRACTS WHERE SUBSTANTIAL EARNINGS IN THE FORM OF PROGRESS PAYMENTS COULD BE HELD UP BY LABORERS' AND MATERIALMEN'S CLAIMS WITH THE RESULT THAT CONTINUED PERFORMANCE WOULD BE JEOPARDIZED.

WE AGREE WITH YOUR ANALYSIS OF THE HOME INDEMNITY CASE AND WE THEREFORE AGREE THAT MONEYS IN EXCESS OF RETAINAGES ARE PROPERLY PAYABLE TO PRIME CONTRACTORS IN ACCORDANCE WITH THE CONTRACT TERMS WITHOUT THE NECESSITY OF FIRST SECURING THE SURETY'S AGREEMENT NOTWITHSTANDING NOTICE OF UNPAID LABORERS AND/OR MATERIALMEN. IN OUR INITIAL CONSIDERATION OF THIS MATTER IT WAS ASSUMED THAT ONLY RETAINAGES WERE INVOLVED AND IT WAS NOT OUR INTENT TO EXTEND THE HOLDING IN HOME INDEMNITY TO REQUIRE THE WITHHOLDING OF EARNINGS IN EXCESS OF RETAINAGES.

ACCORDINGLY, OUR NOVEMBER 17, 1969, DECISION IS MODIFIED AS INDICATED ABOVE.