A-24677, NOVEMBER 23, 1928, 8 COMP. GEN. 266

A-24677: Nov 23, 1928

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CONTRACTS - DEFAULT - RETAINED PERCENTAGES WHERE A CONTRACTOR DEFAULTS IN THE PERFORMANCE OF ITS CONTRACT FOR THE CONSTRUCTION OF AN ARMY BARRACKS AND THE WORK IS COMPLETED BY THE UNITED STATES. IT APPEARS THAT THE RETAINED PERCENTAGES WITHHELD FROM THE DEFAULTING CONTRACTOR ARE MORE THAN SUFFICIENT TO REIMBURSE THE GOVERNMENT FOR ITS EXPENDITURES IN COMPLETING THE CONTRACT AND FOR ACCRUED LIQUIDATED DAMAGES FOR DELAYS IN PERFORMANCE. THE CONTRACTOR IS ENTITLED TO THE BALANCE OF THE RETAINED PERCENTAGE DUE FOR SERVICES PERFORMED PRIOR TO ITS DEFAULT. SUBJECT TO THE EQUITABLE LIEN THEREON OF THE SURETY ON ITS PERFORMANCE BOND ON ACCOUNT OF PAYMENTS MADE TO LABORERS AND MATERIAL MEN FOR WHICH IT WAS LIABLE AS SUCH SURETY.

A-24677, NOVEMBER 23, 1928, 8 COMP. GEN. 266

CONTRACTS - DEFAULT - RETAINED PERCENTAGES WHERE A CONTRACTOR DEFAULTS IN THE PERFORMANCE OF ITS CONTRACT FOR THE CONSTRUCTION OF AN ARMY BARRACKS AND THE WORK IS COMPLETED BY THE UNITED STATES, AND IT APPEARS THAT THE RETAINED PERCENTAGES WITHHELD FROM THE DEFAULTING CONTRACTOR ARE MORE THAN SUFFICIENT TO REIMBURSE THE GOVERNMENT FOR ITS EXPENDITURES IN COMPLETING THE CONTRACT AND FOR ACCRUED LIQUIDATED DAMAGES FOR DELAYS IN PERFORMANCE, THE CONTRACTOR IS ENTITLED TO THE BALANCE OF THE RETAINED PERCENTAGE DUE FOR SERVICES PERFORMED PRIOR TO ITS DEFAULT, SUBJECT TO THE EQUITABLE LIEN THEREON OF THE SURETY ON ITS PERFORMANCE BOND ON ACCOUNT OF PAYMENTS MADE TO LABORERS AND MATERIAL MEN FOR WHICH IT WAS LIABLE AS SUCH SURETY.

DECISION BY COMPTROLLER GENERAL MCCARL, NOVEMBER 23, 1928:

THERE HAS BEEN PRESENTED TO THIS OFFICE FOR CONSIDERATION AND SETTLEMENT THE CLAIM OF THE SUBURBAN CONTRACTING CO. FOR THE SUM OF $19,827.13 AS BALANCE ALLEGED TO BE DUE UNDER ITS WAR DEPARTMENT CONTRACT NO. 2-292 QM- 1, DATED MAY 28, 1927, FOR THE CONSTRUCTION OF THE DETACHMENT BARRACKS AND UTILITIES AT THE ERIE PROVING GROUND, LA CARNE, OHIO.

UNDER THE TERMS AND CONDITIONS OF SAID CONTRACT THE CONTRACTOR AGREED, FOR AND IN CONSIDERATION OF THE PAYMENT OF $43,751, TO FURNISH ALL LABOR AND MATERIALS AND TO PERFORM ALL WORK REQUIRED FOR THE CONSTRUCTION OF THE DETACHMENT BARRACKS AND UTILITIES AT THE ERIE PROVING GROUND, LA CARNE, OHIO, IN ACCORDANCE WITH THE SPECIFICATIONS, SCHEDULES, AND DRAWINGS ATTACHED TO AND MADE A PART OF THE CONTRACT, AND TO COMMENCE THE WORK NOT LATER THAN MAY 29, 1927, AND TO COMPLETE PERFORMANCE OF THE CONTRACT NOT LATER THAN DECEMBER 24, 1927. IN THE EVENT OF DELAY IN COMPLETION OF SAID WORK THE CONTRACT PROVIDED FOR THE DEDUCTION OF LIQUIDATED DAMAGES AS PROVIDED IN THE SPECIFICATIONS- - TO WIT, AT THE RATE OF $20 PER CALENDAR DAY FOR EACH DAY COMPLETION THEREOF WAS DELAYED.

TO GUARANTEE THE PERFORMANCE OF SAID CONTRACT IN ACCORDANCE WITH THE CONDITIONS THEREOF, THE CONTRACTOR, AS PRINCIPAL, AND THE AETNA CASUALTY AND SURETY CO., OF HARTFORD, CONN., AS SURETY, EXECUTED A PERFORMANCE BOND IN THE SUM OF $21,875.50, DATED JUNE 7, 1927, PAYABLE TO THE UNITED STATES OF AMERICA.

THERE WERE SOME CHANGES IN THE WORK, AS IT PROGRESSED, NOT CONTEMPLATED BY THE CONTRACT, BY WHICH THE COMPENSATION TO BE PAID THE CONTRACTOR WAS INCREASED $1,224 BY CHANGE ORDER "A," THUS INCREASING THE COMPENSATION TO BE PAID THE CONTRACTOR THEREFOR TO A TOTAL SUM OF $44,975.

THE FACTS RELATIVE TO THE MATTERS INVOLVED IN CONTRACTOR'S CLAIM ARE STATED BY THE QUARTERMASTER GENERAL, UNITED STATES ARMY, IN HIS LETTER OF JULY 2, 1928, TO THE CHIEF OF FINANCE, WAR DEPARTMENT, TO BE AS FOLLOWS:

2. THE UNITED STATES ENTERED INTO A CONTRACT UNDER DATE OF MAY 28, 1927, WITH THE SUBURBAN CONTRACTING COMPANY, FOR THE CONSTRUCTION OF A DETACHMENT BARRACK BUILDING WITH UTILITIES THERETO AT ERIE PROVING GROUND, OHIO, FOR THE SUM OF $43,751.00. THE CONTRACTOR DID NOT PROPERLY CARRY OUT THE WORK IN ACCORDANCE WITH THE INTENT OF THE CONTRACT AND FINALLY ON JANUARY 11, 1928, WITHDREW HIS MEN FROM THE WORK AND LEFT THE RESERVATION. AFTER HIS FAILURE TO PROCEED WITH THE WORK WHEN CALLED UPON IN WRITING TO DO SO, THE CONTRACT WAS DECLARED IN DEFAULT. THE AETNA CASUALTY AND SURETY COMPANY, THE SURETIES UNDER THE CONTRACT, IN LETTER OF FEBRUARY 6, 1928, STATED THAT THEY DID NOT ELECT TO COMPLETE THE CONTRACT.

3.THIS OFFICE THEN INSTRUCTED THE CONSTRUCTING QUARTERMASTER TO MAKE A CAREFUL INVENTORY OF ALL MATERIAL AND EQUIPMENT LEFT ON THE SITE BY THE CONTRACTOR AND TO COMPLETE THE BUILDING BY PURCHASE OF MATERIAL AND HIRE OF LABOR, CHARGING THE COST TO THE FUNDS RETAINED UNDER THE CONTRACT. AFTER COMPLETION OF THE WORK THE CONSTRUCTING QUARTERMASTER AGAIN CAREFULLY INVENTORIED THE MATERIALS REMAINING UNUSED AND CALLED UPON THE CONTRACTOR IN WRITING ON APRIL 25, 1928, TO REMOVE SAME AND HIS EQUIPMENT FROM THE RESERVATION. IT IS UNDERSTOOD THAT NO ACTION TO THAT END HAS AS YET BEEN TAKEN BY THE CONTRACTOR. A FINAL VOUCHER IN AMOUNT $6,952.06 WAS THEN PREPARED BY THE CONSTRUCTING QUARTERMASTER AND SUBMITTED TO THE CONTRACTOR FOR SIGNATURE. THIS VOUCHER IS BEING FORWARDED HEREWITH.

4. THE DATE OF PROPOSED COMPLETION OF THIS WORK AS PROVIDED BY THE TERMS OF THE CONTRACT WAS DECEMBER 24, 1927. THE WORK WAS ACTUALLY COMPLETED ON APRIL 12, 1928, MAKING A DELAY OF ONE HUNDRED AND TEN DAYS. AT THE STIPULATED RATE OF $20.00 PER DAY, LIQUIDATED DAMAGES IN THE AMOUNT $2,200.00 WERE COMPUTED AND CHARGED AGAINST THE CONTRACTOR, AS THE FINAL VOUCHER SHOWS.

5. PHOTOSTATIC COPIES OF PAPERS BEARING ON THIS CASE AND ON THE CLAIM OF THE SUBURBAN CONTRACTING COMPANY ARE INCLOSED HEREWITH. A CAREFUL STUDY OF THESE PAPERS WILL SHOW THE FOLLOWING:

(A) THAT AS EARLY AS SIXTY DAYS AFTER THE SIGNING OF THE CONTRACT, AND MORE THAN FIVE MONTHS BEFORE THE DATE OF COMPLETION AGREED UPON IN THE CONTRACT, THE CONTRACTOR WAS URGED BY LETTER TO EXPEDITE THE WORK. OCTOBER, TWO MONTHS BEFORE THE CONTRACT DATE OF COMPLETION, THE SURETY WAS NOTIFIED THAT THE PROGRESS OF THE WORK WAS NOT SATISFACTORY AND THAT THE JOB WOULD NOT BE COMPLETED ON TIME WITHOUT "STRENUOUS EFFORTS.'

(B) THAT THE WORK WHICH WAS ACCOMPLISHED BY THE CONTRACTOR WAS IN MANY INSTANCES UNSATISFACTORY AND UNACCEPTABLE, AND HAD TO BE DONE OVER BY THE FORCE HIRED BY THE CONSTRUCTING QUARTERMASTER TO COMPLETE THE BUILDING AFTER THE CONTRACTOR HAD DEFAULTED.

THIS WAS TRUE IN SPITE OF CAREFUL INSPECTION BY A CIVIL ENGINEER AND SUPERINTENDENT OF CONSTRUCTION, WHO HAS HAD SOME 20 YEARS IN GOVERNMENT SERVICE.

(C) THAT THE CONTRACTOR WALKED OFF THE UNCOMPLETED JOB ON JANUARY 11, 1928. THE SURETY ON BEING ADVISED OF THE CONDITIONS (SEE LETTER JANUARY 21ST) ADVISED BY ITS LETTER OF FEBRUARY 6TH THAT IT DID NOT ELECT AS SURETY "TO ASSUME THE COMPLETION OF THE WORK.'

(D) HAD THE CONTRACTOR COMPLETED THE WORK IN A SATISFACTORY MANNER, AND WITHIN THE CONTRACT COMPLETION DATE, HE WOULD HAVE BEEN PAID A TOTAL OF $44,975.00. HE WAS PAID $28,884.50, LEAVING AN UNPAID BALANCE OF $16,090.50. UNDER DATE OF APRIL 18, 1928, HE SUBMITTED TO THIS OFFICE A ,CLAIM" IN AMOUNT OF $19,827.13. THIS ALLEGED "CLAIM" IS MERELY A LIST OF FIGURES, WHICH ARE UNEXPLAINED AND UNSUPPORTED BY FACTS HAVING ANY BEARING ON AN EQUITABLE SETTLEMENT OF THE CONTRACT.

THUS, IT APPEARS THAT THE CONTRACTOR ABANDONED ITS CONTRACT ON JANUARY 11, 1928, AND FAILED TO PERFORM THE WORK CONTRACTED FOR THEREUNDER, AS AGREED, AND THAT ITS SURETY ELECTED NOT TO COMPLETE THE UNFINISHED WORK, NECESSITATING THE SUBSEQUENT COMPLETION THEREOF BY THE GOVERNMENT. THE RECORD DISCLOSES THAT THE SURETY'S ELECTION NOT TO COMPLETE THE CONTRACT WAS DATED FEBRUARY 6, 1928, AND WAS RECEIVED BY THE WAR DEPARTMENT ON FEBRUARY 7, 1928, AND THAT SUBSEQUENTLY THE GOVERNMENT COMPLETED THE WORK ON APRIL 12, 1928. WHERE A CONTRACTOR ABANDONS ITS CONTRACT, NECESSITATING THE TERMINATION THEREOF BY THE GOVERNMENT AND THE SUBSEQUENT COMPLETION OF THE WORK CONTRACTED FOR BY ANOTHER CONTRACTOR OR BY THE GOVERNMENT, THE UNITED STATES IS ENTITLED TO THE ACCRUED LIQUIDATED DAMAGES PROVIDED BY THE CONTRACT TO THE DATE OF SUCH TERMINATION, FOR DELAYS IN COMPLETION OF THE CONTRACT. IN THIS CONNECTION SEE 7 COMP. GEN. 409. IN THE INSTANT MATTER THE GOVERNMENT RECEIVED THE SURETY'S NOTICE THAT IT ELECTED NOT TO COMPLETE THE UNFINISHED WORK UNDER THE CONTRACT ON FEBRUARY 7, 1928. INASMUCH AS THE PRESENT RECORD DOES NOT DISCLOSE THE ACTUAL DATE OF THE TERMINATION OF THE CONTRACT BY THE GOVERNMENT, FEBRUARY 7, 1928, WILL BE ACCEPTED AS THE DATE OF TERMINATION FOR THE PURPOSE OF DETERMINING THE ACCRUED LIQUIDATED DAMAGES DUE THE UNITED STATES FROM THE CONTRACTOR FOR THE DELAYS IN COMPLETION OF THE WORK. AS THE CONTRACT PROVIDED FOR COMPLETION THEREOF BY DECEMBER 24, 1927, THERE WAS A DELAY OF 45 DAYS BEYOND THAT DATE BEFORE TERMINATION OF THE CONTRACT FOR WHICH LIQUIDATED DAMAGES ACCRUED TO THE UNITED STATES.

THE CONTRACT PROVIDED:

ARTICLE 9. DELAYS--- DAMAGES.--- IF THE CONTRACTOR REFUSES OR FAILS TO PROSECUTE THE WORK, OR ANY SEPARABLE PART THEREOF, WITH SUCH DILIGENCE AS WILL INSURE ITS COMPLETION WITHIN THE TIME SPECIFIED IN ARTICLE 1, OR ANY EXTENSION THEREOF, OR FAILS TO COMPLETE SAID WORK WITHIN SUCH TIME, THE GOVERNMENT MAY, BY WRITTEN NOTICE TO THE OF THE WORK AS TO WHICH THERE HAS BEEN DELAY. IN SUCH EVENT, THE GOVERNMENT MAY TAKE OVER THE WORK AND PROSECUTE THE SAME TO COMPLETION BY CONTRACT OR OTHERWISE, AND THE CONTRACTOR AND HIS SURETIES SHALL BE LIABLE TO THE GOVERNMENT FOR ANY EXCESS COST OCCASIONED THE GOVERNMENT THEREBY. IF THE CONTRACTOR'S RIGHT TO PROCEED IS SO TERMINATED, THE GOVERNMENT MAY TAKE POSSESSION OF AND UTILIZE IN COMPLETING THE WORK SUCH MATERIALS, APPLIANCES, AND PLANT AS MAY BE ON THE SITE OF THE WORK AND NECESSARY THEREFOR. IF THE GOVERNMENT DOES NOT TERMINATE THE RIGHT OF THE CONTRACTOR TO PROCEED, THE CONTRACTOR SHALL CONTINUE THE WORK, IN WHICH EVENT THE ACTUAL DAMAGES FOR THE DELAY WILL BE IMPOSSIBLE TO DETERMINE AND IN LIEU THEREOF THE CONTRACTOR SHALL PAY TO THE GOVERNMENT AS FIXED, AGREED, AND LIQUIDATED DAMAGES FOR EACH CALENDAR DAY OF DELAY UNTIL THE WORK IS COMPLETED OR ACCEPTED THE AMOUNT AS SET FORTH IN THE SPECIFICATIONS OR ACCOMPANYING PAPERS AND THE CONTRACTOR AND HIS SURETIES SHALL BE LIABLE FOR THE AMOUNT THEREOF: PROVIDED, THAT THE RIGHT OF THE CONTRACTOR TO PROCEED SHALL NOT BE TERMINATED OR THE CONTRACTOR CHARGED WITH LIQUIDATED DAMAGES BECAUSE OF ANY DELAYS IN THE COMPLETION OF THE WORK DUE TO UNFORESEEABLE CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF THE CONTRACTOR, INCLUDING, BUT NOT RESTRICTED TO, ACTS OF GOD, OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES, FREIGHT EMBARGOES, AND UNUSUALLY SEVERE WEATHER OR DELAYS OF SUBCONTRACTORS DUE TO SUCH CAUSES: PROVIDED FURTHER, THAT THE CONTRACTOR SHALL WITHIN TEN DAYS FROM THE BEGINNING OF ANY SUCH DELAY NOTIFY THE CONTRACTING OFFICER IN WRITING OF THE CAUSES OF DELAY, WHO SHALL ASCERTAIN THE FACTS AND THE EXTENT OF THE DELAY, AND HIS FINDINGS OF FACTS THEREON SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO, SUBJECT ONLY TO APPEAL, WITHIN THIRTY DAYS, BY THE CONTRACTOR TO THE HEAD OF THE DEPARTMENT CONCERNED, WHOSE DECISION ON SUCH APPEAL AS TO THE FACTS OF DELAY SHALL BE FINAL AND CONCLUSIVE ON THE PARTIES HERETO.

ARTICLE 15. DISPUTES.--- EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS CONTRACT, ALL DISPUTES CONCERNING QUESTIONS OF FACT ARISING UNDER THIS CONTRACT SHALL BE DECIDED BY THE CONTRACTING OFFICER OR HIS DULY AUTHORIZED REPRESENTATIVE, SUBJECT TO WRITTEN APPEAL BY THE CONTRACTOR WITHIN THIRTY DAYS TO THE HEAD OF THE DEPARTMENT CONCERNED, WHOSE DECISION SHALL BE FINAL AND CONCLUSIVE UPON THE PARTIES THERETO AS TO SUCH QUESTIONS OF FACT. IN THE MEANTIME THE CONTRACTOR SHALL DILIGENTLY PROCEED WITH THE WORK AS DIRECTED.

ARTICLE 16. PAYMENTS TO CONTRACTORS.--- (A) UNLESS OTHERWISE PROVIDED IN THE SPECIFICATIONS, PARTIAL PAYMENTS WILL BE MADE AS THE WORK PROGRESSES AT THE END OF EACH CALENDAR MONTH, OR AS SOON THEREAFTER AS PRACTICABLE, ON ESTIMATES MADE AND APPROVED BY THE CONTRACTING OFFICER. IN PREPARING ESTIMATES THE MATERIAL DELIVERED ON THE SITE AND PREPARATORY WORK DONE MAY BE TAKEN INTO CONSIDERATION.

(B) IN MAKING SUCH PARTIAL PAYMENTS THERE SHALL BE RETAINED 10 PERCENT ON THE ESTIMATED AMOUNT UNTIL FINAL COMPLETION AND ACCEPTANCE OF ALL WORK COVERED BY THE CONTRACT: PROVIDED, HOWEVER, THAT THE CONTRACTING OFFICER, AT ANY TIME AFTER 50 PERCENT OF THE WORK HAS BEEN COMPLETED, IF HE FINDS THAT SATISFACTORY PROGRESS IS BEING MADE, MAY MAKE ANY OF THE REMAINING PARTIAL PAYMENTS IN FULL: AND PROVIDED FURTHER, THAT ON COMPLETION AND ACCEPTANCE OF EACH SEPARATE BUILDING, VESSEL, PUBLIC WORK, OR OTHER DIVISION OF THE CONTRACT, ON WHICH THE PRICE IS STATED SEPARATELY IN THE CONTRACT, PAYMENT MAY BE MADE IN FULL, INCLUDING RETAINED PERCENTAGES THEREON, LESS AUTHORIZED DEDUCTIONS.

(C) ALL MATERIAL AND WORK COVERED BY PARTIAL PAYMENTS MADE SHALL THEREUPON BECOME THE SOLE PROPERTY OF THE GOVERNMENT, BUT THIS PROVISION SHALL NOT BE CONSTRUED AS RELIEVING THE CONTRACTOR FROM THE SOLE RESPONSIBILITY FOR THE CARE AND PROTECTION OF MATERIALS AND WORK UPON WHICH PAYMENTS HAVE BEEN MADE OR THE RESTORATION OF ANY DAMAGED WORK, OR AS A WAIVER OF THE RIGHT OF THE GOVERNMENT TO REQUIRE THE FULFILLMENT OF ALL OF THE TERMS OF THE CONTRACT.

(D) UPON COMPLETION AND ACCEPTANCE OF ALL WORK REQUIRED HEREUNDER, THE AMOUNT DUE THE CONTRACTOR UNDER THIS CONTRACT WILL BE PAID UPON THE PRESENTATION OF A PROPERLY EXECUTED AND DULY CERTIFIED VOUCHER THEREFOR, AFTER THE CONTRACTOR SHALL HAVE FURNISHED THE GOVERNMENT WITH A RELEASE, IF REQUIRED, OF ALL CLAIMS AGAINST THE GOVERNMENT ARISING UNDER AND BY VIRTUE OF THIS CONTRACT, OTHER THAN SUCH CLAIMS, IF ANY, AS MAY BE SPECIFICALLY EXCEPTED BY THE CONTRACTOR FROM THE OPERATION OF THE RELEASE IN STATED AMOUNTS TO BE SET FORTH THEREIN.

PROGRESS PARTIAL PAYMENTS, REPRESENTING 90 PER CENT OF THE ESTIMATED VALUE OF THE COMPLETED WORK, WERE MADE TO THE CONTRACTOR BY THE WAR DEPARTMENT'S DISBURSING OFFICER, AS FOLLOWS:

TABLE JULY 27, 1927, ON VOUCHER NO. 872- -- - - - - - - - - - - $2,249.93 AUG. 10, 1927, ON VOUCHER NO. 424- - - - - - - - - - - - - 4,369.66 SEPT. 12, 1927, ON VOUCHER NO. 465 - - - - - - - - - - - - 1,602.05 OCT. 5, 1927, ON VOUCHER NO. 131 - - - - - - --- - - - - - 7,589.33 NOV. 15, 1927, ON VOUCHER NO. 439- - - - - - - - - - - - - 5,594.35 DEC. 12, 1927, ON VOUCHER NO. 312------------- 7,479.18

TOTAL PAYMENTS TO CONTRACTOR -----------------28,884.50

THE WAR DEPARTMENT REPORTS THAT THE TOTAL AMOUNT EXPENDED BY THE UNITED STATES TO COMPLETE THE WORK AFTER ITS ABANDONMENT BY THE CONTRACTOR AGGREGATED $6,988.17.

UNDER THE TERMS OF THE CONTRACT, LIQUIDATED DAMAGES ACCRUED TO THE UNITED STATES AT THE RATE OF $20 PER DAY FOR THE 45 CALENDAR DAYS THE CONTRACT WORK WAS DELAYED IN COMPLETION, AMOUNTING TO $900. DEDUCTING FROM THE CONTRACT PRICE OF $44,975 FOR THE WORK REQUIRED, (1) THE $28,884.50 PAYMENTS MADE TO THE CONTRACTOR, (2) THE $6,988.17 EXPENDITURES MADE BY THE UNITED STATES IN COMPLETING THE CONTRACT, AND (3) THE $900 ACCRUED LIQUIDATED DAMAGES, THERE REMAINS DUE TO THE CONTRACTOR FOR WORK PERFORMED PRIOR TO ITS DEFAULT ON THE CONTRACT THE SUM OF $8,202.33, REPRESENTING THE BALANCE OF THE RETAINED PERCENTAGES WITHHELD FROM THE CONTRACTOR, UNDER THE TERMS OF THE CONTRACT, UNTIL THE WORK WAS COMPLETED AND ACCEPTED.

ON JULY 7, 1928, THE AETNA CASUALTY AND SURETY COMPANY, A SURETY ON THE CONTRACTOR'S PERFORMANCE BOND, REQUESTED THIS OFFICE TO WITHHOLD PAYMENT OF ANY MONEYS FOUND TO BE DUE THE CONTRACTOR ON SETTLEMENT OF THE INVOLVED CONTRACT, PENDING AN ADJUSTMENT OF ITS LIABILITY AS SURETY FOR THE PAYMENT OF CERTAIN UNPAID CLAIMS OF LABORERS AND MATERIAL MEN, AS FOLLOWS:

THE ABOVE CONTRACT BETWEEN THE SUBURBAN CONTRACTING COMPANY AND THE UNITED STATES, ACTING THROUGH THE QUARTERMASTER GENERAL OF THE ARMY, WAS ENTERED INTO MAY 28, 1927, IN THE AMOUNT OF $43,751.00, AND THE AETNA CASUALTY AND SURETY COMPANY GAVE ITS BOND, DATED JUNE 7, 1927, IN THE AMOUNT OF $21,875.50.

ON OR ABOUT JANUARY 14, 1928, THE GOVERNMENT GAVE THE SURETY NOTICE OF DEFAULT OF THE CONTRACTOR, AND THE SURETY WAIVED ITS RIGHT TO COMPLETE AS SURETY AND PERMITTED THE WORK TO BE COMPLETED BY THE GOVERNMENT. THE SURETY COMPANY HAS HAD PRESENTED TO IT A LARGE NUMBER OF CLAIMS FOR LABOR AND MATERIALS ALLEGED TO HAVE BEEN FURNISHED THE CONTRACTOR AND USED IN THE WORK, TOTALING TO DATE BETWEEN FIVE AND SIX THOUSAND DOLLARS. THE SURETY, OF COURSE, IS LIABLE FOR THE PAYMENT OF LABOR AND MATERIAL CLAIMS.

THE SURETY IS NOW ADVISED THAT THE WORK HAS BEEN COMPLETED AND FINAL VOUCHER HAS BEEN ISSUED BY THE GOVERNMENT AND IS BEING FORWARDED TO YOUR OFFICE FOR DIRECT SETTLEMENT. I AM INSTRUCTED BY THE SURETY TO ADVISE YOU THAT IT IS PROCEEDING WITH THE INVESTIGATION OF THESE CLAIMS WITH A VIEW TO PAYMENT OF THE SAME IN THE RESPECTIVE AMOUNTS FOUND TO BE PROPER OBLIGATIONS AGAINST THE BOND, AND TO REQUEST THAT YOU TAKE NOTICE OF THE SURETY'S RIGHTS IN THE PREMISES AND WITHHOLD PAYMENTS OF THE FINAL BALANCE DUE ON THIS CONTRACT UNTIL THE SURETY HAS PAID THE CLAIMS AND SUBMITTED PROOF TO YOUR OFFICE OF SUCH PAYMENT, IN ORDER THAT ITS RIGHT OF SUBROGATION MAY BE ENFORCED AND REIMBURSEMENT MADE TO THE SURETY COMPANY OUT OF THE BALANCE NOW REMAINING IN THE HANDS OF THE GOVERNMENT.

THE PERFORMANCE BOND PROVIDED:

NOW, THEREFORE, IF THE PRINCIPAL SHALL WELL AND TRULY PERFORM AND FULFILL ALL THE UNDERTAKINGS, COVENANTS, TERMS, CONDITIONS, AND AGREEMENTS OF SAID CONTRACT DURING THE ORIGINAL TERM OF SAID CONTRACT AND ANY EXTENSIONS THEREOF THAT MAY BE GRANTED BY THE GOVERNMENT, WITH OR WITHOUT NOTICE TO THE SURETY, AND DURING THE LIFE OF ANY GUARANTY REQUIRED UNDER THE CONTRACT, AND SHALL ALSO WELL AND TRULY PERFORM AND FULFILL ALL THE UNDERTAKINGS, COVENANTS, TERMS, CONDITIONS, AND AGREEMENTS OF ANY AND ALL DULY AUTHORIZED MODIFICATIONS OF SAID CONTRACT THAT MAY HEREAFTER BE MADE, NOTICE OF WHICH MODIFICATIONS TO THE SURETY BEING HEREBY WAIVED, AND IF SAID CONTRACT IS FOR THE CONSTRUCTION OR REPAIR OF A PUBLIC BUILDING OR A PUBLIC WORK WITHIN THE MEANING OF THE ACT OF AUGUST 13, 1894, AS AMENDED BY ACT OF FEBRUARY 24, 1905, SHALL PROMPTLY MAKE PAYMENT TO ALL PERSONS SUPPLYING THE PRINCIPAL WITH LABOR AND MATERIALS IN THE PROSECUTION OF THE WORK PROVIDED FOR IN SAID CONTRACT, AND ANY SUCH AUTHORIZED EXTENSION OR MODIFICATION THEREOF, THEN, THIS OBLIGATION TO BE VOID; OTHERWISE TO REMAIN IN FULL FORCE AND VIRTUE.

THE INVOLVED GOVERNMENT CONTRACT FOR THE CONSTRUCTION OF THE ARMY DETACHMENT BARRACKS AND UTILITIES AT THE ERIE PROVING GROUND IS A PUBLIC WORK WITHIN THE MEANING OF THE ACT OF AUGUST 13, 1894, 28 STAT. 278, AS AMENDED BY THE ACT OF FEBRUARY 24, 1905, 33 STAT. 811, WHICH PROVIDES FOR THE PROTECTION OF PERSONS FURNISHING MATERIALS AND LABOR FOR THE CONSTRUCTION OF PUBLIC BUILDINGS AND WORKS. THE COURTS HAVE HELD THAT UNDER A PERFORMANCE BOND FOR PUBLIC BUILDINGS AND WORK UNDER SAID STATUTE THE OBLIGATION HAS A DUAL ASPECT, TO WIT, FIRST, TO SECURE TO THE GOVERNMENT THE FAITHFUL PERFORMANCE OF THE CONTRACT, AND, SECOND, TO PROTECT THIRD PERSONS FROM WHOM THE CONTRACTOR MAY OBTAIN MATERIALS OR LABOR; AND THAT THE ACT WAS INTENDED TO PROVIDE A SECURITY FOR LABORERS AND MATERIAL MEN ON WHICH THEY COULD RELY CONFIDENTLY FOR PROTECTION, UNLESS THEY RELINQUISHED THE BENEFIT OF SUCH SECURITY BY THEIR OWN DEALINGS WITH THE CONTRACTOR. UNITED STATES V. NATIONAL SURETY CO., 92 FED.REP. 549, EQUITABLE SURETY CO. V. UNITED STATES, 234 U.S. 448. UNDER THE CONDITIONS OF THE BOND, AND IN VIEW OF SAID STATUTE, THE SURETY BECOMES BOUND FOR PERFORMANCE OF THE WORK BY THE CONTRACTOR IN ACCORDANCE WITH THE STIPULATIONS OF THE CONTRACT AND FOR THE PROMPT PAYMENT OF MONEYS DUE TO ALL PERSONS SUPPLYING LABOR AND MATERIALS TO THE CONTRACTOR FOR THE WORK UNDER INVOLVED CONTRACT.

IN THE INSTANT MATTER THE CONTRACTOR DEFAULTED IN PERFORMANCE OF ITS CONTRACT AND THE UNITED STATES WAS COMPELLED TO COMPLETE THE WORK. HOWEVER, THERE APPEAR TO HAVE BEEN FUNDS DUE TO THE CONTRACTOR WHICH HAVE BEEN WITHHELD UNDER THE RETAINED PERCENTAGE CLAUSE OF THE CONTRACT UNTIL COMPLETION OF THE WORK, WHICH ARE MORE THAN SUFFICIENT TO REIMBURSE THE GOVERNMENT FOR ITS EXPENDITURES IN COMPLETING THE CONTRACT. AFTER PAYMENT OF THE AMOUNTS DUE THE GOVERNMENT, BOTH FOR NECESSARY EXPENDITURES AND ACCRUED LIQUIDATED DAMAGES FOR DELAYS IN PERFORMANCE, THERE REMAINS OF THE CONTRACT PRICE FOR THE WORK THE SUM OF $8,202.33 AS BALANCE OF THE RETAINED PERCENTAGES WITHHELD FROM THE DEFAULTING CONTRACTOR.

IT IS A WELL-SETTLED PRINCIPLE OF LAW THAT WHERE A SURETY UPON A CONTRACTOR'S BOND HAS PAID CLAIMS IT WAS OBLIGATED TO PAY, IF ITS PRINCIPAL DID NOT, IT IS ENTITLED TO BE SUBROGATED TO THE RIGHTS OF THE LABORERS AND MATERIAL MEN SO PAID FROM ANY FUNDS IN THE HANDS OF THE GOVERNMENT BELONGING TO THE CONTRACTOR FOR WORK PERFORMED ON THE INVOLVED CONTRACT. IN THIS CONNECTION, SEE UNITED STATES V. NATIONAL SURETY COMPANY, 92 FED.REP. 549; HENNINGSEN ET AL. V. UNITED STATES FIDELITY AND GUARANTY COMPANY, ETC., ET AL., 143 FED.REP. 810, AFFIRMED BY THE UNITED STATES SUPREME COURT, 208 U.S. 404; PRAIRIE STATE BANK V. UNITED STATES, 164 U.S. 227; FIDELITY AND DEPOSIT COMPANY OF MARYLAND V. CLAIBORNE PARISH SCHOOL BOARD, 11 FED.REP. (2ND SERIES) 404; FIDELITY AND DEPOSIT COMPANY V. UNION STATE BANK, 21 FED.REP. (2ND SERIES) 102; AND HARDAWAY V. NATIONAL SURETY COMPANY, 211 U.S. 552.

THE LAW IS WELL ESTABLISHED THAT THE RETAINED PERCENTAGES AUTHORIZED BY A CONTRACT TO BE WITHHELD UNTIL COMPLETION OF THE WORK TO BE DONE IS AS MUCH FOR THE INDEMNITY OF HIM WHO MAY BE A GUARANTOR OF THE PERFORMANCE OF THE CONTRACT AS FOR HIM FOR WHOM IT IS TO BE PERFORMED. EQUITABLY, THEREFORE, THE SURETIES IN SUCH CASES ARE ENTITLED TO HAVE THE SUM AGREED UPON IN THE CONTRACT HELD AS A FUND OUT OF WHICH THEY MAY BE INDEMNIFIED. SEE PRAIRIE STATE BANK V. UNITED STATES, SUPRA; COX V. NEW ENGLAND EQUITABLE INSURANCE COMPANY, 247 FED.REP. 955; IN RE SCOFIELD COMPANY, 215 FED.REP. 45.

THE PRESENT RECORD HEREIN DOES NOT SHOW THAT THE SURETY ON THE CONTRACTOR'S PERFORMANCE BOND HAS PAID ANY OUTSTANDING INDEBTEDNESS TO MATERIAL MEN AND LABORERS UNDER THE INVOLVED CONTRACT. HOWEVER, HAVING ASCERTAINED THAT THERE ARE SOME UNPAID CLAIMS FOR LABOR AND MATERIALS FOR THE PAYMENT OF WHICH IT IS LIABLE ON THE PERFORMANCE BOND, THE SURETY HAS NOTIFIED THIS OFFICE TO WITHHOLD PAYMENT OF THE MONEYS DUE UNDER THE CONTRACT UNTIL SUCH CLAIMS ARE INVESTIGATED AND ADJUSTED. THE CONTRACTOR INSISTS THAT IT IS ENTITLED TO THE BALANCE OF THE MONEYS DUE FOR WORK UNDER THE CONTRACT.

HAVING RECEIVED THE NOTICE FROM THE SURETY THAT THERE ARE OUTSTANDING UNPAID CLAIMS OF LABORERS AND MATERIAL MEN FOR WHICH IT IS LIABLE ON THE PERFORMANCE BOND, PAYMENT OF THE RETAINED PERCENTAGES DUE UNDER THE CONTRACT MAY NOT BE MADE WITHOUT CONSENT OF THE SURETY. THE EQUITIES BETWEEN THE SURETY AND THE CONTRACTOR ARE INVOLVED WITH THE LEGAL RIGHTS OF THE PARTIES, AND IN THE SETTLEMENT OF SUCH MATTERS IT HAS BEEN THE PRACTICE OF THIS OFFICE TO REQUIRE A RELEASE EXECUTED BY THE CONTRACTOR AND THE SURETY RELEASING THE UNITED STATES OF ALL CLAIMS, LEGAL AND EQUITABLE, ARISING OUT OF OR BY VIRTUE OF THE CONTRACT. 5 COMP. GEN. 995, 999.

IN VIEW OF THE FACTS AND CIRCUMSTANCES IN THIS MATTER, AS HEREINABOVE SET FORTH, PAYMENT TO THE CONTRACTOR OF THE AMOUNT FOUND TO BE DUE UNDER THE CONTRACT WILL BE WITHHELD PENDING THE ADJUSTMENT BY THE CONTRACTOR OF THE SURETY'S EQUITABLE LIEN THEREON FOR PAYMENTS MADE TO LABORERS AND MATERIAL MEN FOR WHICH IT WAS LIABLE UNDER THE PERFORMANCE BOND, AND THE FILING IN THIS OFFICE OF A RELEASE FROM THE SURETY OF ITS CLAIM AGAINST SAID RETAINED PERCENTAGE FUNDS DUE TO THE CONTRACTOR.