B-150528, FEB. 1, 1963

B-150528: Feb 1, 1963

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INCORPORATED: REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 3. CONSTITUTING SUCH PAYMENT WAS FORWARDED TO THE GENERAL ACCOUNTING OFFICE FOR APPROPRIATE ACTION IN ACCORDANCE WITH ESTABLISHED PROCEDURE AND WAS. YOUR LETTER WILL BE TREATED AS A REQUEST FOR REVIEW OF THE ACTION SO TAKEN. IT IS YOUR CONTENTION. IT IS FURTHER URGED THAT IF SUCH POSITION IS UNACCEPTABLE TO US. THEN AT LEAST NO DISPOSITION OF THE MONEYS SHOULD BE MADE UNTIL THE PARTY ENTITLED THERETO IS DETERMINED BY A COURT OF COMPETENT JURISDICTION. THE ABOVE-NAMED CONTRACTOR WAS FOUND. TO HAVE VIOLATED THE PROVISIONS OF THE WALSH-HEALEY PUBLIC CONTRACTS ACT. IN THAT IT FAILED TO PAY A NUMBER OF ITS EMPLOYEES ALL OF THE WAGES EACH WEEK TO WHICH THEY WERE ENTITLED.

B-150528, FEB. 1, 1963

TO SHELDON FACTORS, INCORPORATED:

REFERENCE IS MADE TO YOUR LETTER OF DECEMBER 3, 1962, PROTESTING AGAINST THE ACTION TAKEN BY THE DEPARTMENT OF THE AIR FORCE AND THIS OFFICE IN CONNECTION WITH THE FINAL PAYMENT MADE UNDER CONTRACT NO. AF 33/601/-5044, ENTERED INTO WITH ACCURATE MICROFILM COMPANY, INCORPORATED. SINCE THE CHECK IN THE AMOUNT OF $11,123.54, CONSTITUTING SUCH PAYMENT WAS FORWARDED TO THE GENERAL ACCOUNTING OFFICE FOR APPROPRIATE ACTION IN ACCORDANCE WITH ESTABLISHED PROCEDURE AND WAS, IN TURN, DEPOSITED TO THE CREDIT OF THE DEPARTMENT OF LABOR, YOUR LETTER WILL BE TREATED AS A REQUEST FOR REVIEW OF THE ACTION SO TAKEN.

IT IS YOUR CONTENTION, IN SUBSTANCE, THAT YOU, AS ASSIGNEE UNDER THE CONTRACT, HAD A PRIOR RIGHT TO THE FUNDS SUPERIOR TO ANY CLAIM OF THE GOVERNMENT AGAINST THE ASSIGNOR CONTRACTOR. IT IS FURTHER URGED THAT IF SUCH POSITION IS UNACCEPTABLE TO US, THEN AT LEAST NO DISPOSITION OF THE MONEYS SHOULD BE MADE UNTIL THE PARTY ENTITLED THERETO IS DETERMINED BY A COURT OF COMPETENT JURISDICTION.

THE RECORD DISCLOSES THAT IN THE PERFORMANCE OF CONTRACT NO. AF 33/601/- 5044, THE ABOVE-NAMED CONTRACTOR WAS FOUND, BY UNDISPUTED EVIDENCE, TO HAVE VIOLATED THE PROVISIONS OF THE WALSH-HEALEY PUBLIC CONTRACTS ACT, 49 STAT. 2036, 41 U.S.C. 35-45, MADE A PART OF THE CONTRACT, IN THAT IT FAILED TO PAY A NUMBER OF ITS EMPLOYEES ALL OF THE WAGES EACH WEEK TO WHICH THEY WERE ENTITLED. AS A RESULT OF SUCH STATUTORY VIOLATIONS THE CONTRACTOR, BY VIRTUE OF SECTION 2 OF THE ACT (41 U.S.C. 36), IS INDEBTED TO THE UNITED STATES IN THE TOTAL AMOUNT OF SUCH WAGE UNDERPAYMENTS, AMOUNTING TO $16,494.63.

IN THE ABSENCE OF ANY STATUTORY PROHIBITION THE GOVERNMENT COULD EXERCISE ITS COMMON LAW RIGHT OF SETOFF AND APPLY THE FUNDS HERE INVOLVED AGAINST ANY INDEBTEDNESS OF THE CONTRACTOR TO THE GOVERNMENT. UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234. ANY PREFERRED STATUS YOU MAY HAVE STEMS FROM THE ASSIGNMENT OF CLAIMS ACT, 31 U.S.C. 203 (41 U.S.C. 15) WHICH LIMITS THE GOVERNMENT'S RIGHT OF REDUCTION OR SETOFF AS FOLLOWS:

"* * * PAYMENTS TO BE MADE TO THE ASSIGNEE * * * UNDER SUCH CONTRACT * * * SHALL NOT BE SUBJECT TO REDUCTION OR SET-OFF FOR ANY LIABILITY OF ANY NATURE OF THE ASSIGNOR TO THE UNITED STATES OR ANY DEPARTMENT OR AGENCY THEREOF WHICH ARISES INDEPENDENTLY OF SUCH CONTRACT, OR HEREAFTER FOR ANY LIABILITY OF THE ASSIGNOR ON ACCOUNT OF * * * (3) PENALTIES (WHICH TERM DOES NOT INCLUDE AMOUNTS WHICH MAY BE COLLECTED OR WITHHELD FROM THE ASSIGNOR IN ACCORDANCE WITH OR FOR FAILURE TO COMPLY WITH THE TERMS OF THE CONTRACT) * * * WHETHER ARISING FROM OR INDEPENDENTLY OF SUCH CONTRACT.'

IN REPORTING ON THE BILL (H.R. 3692) WHICH INSERTED THE ABOVE LANGUAGE, THE COMMITTEE ON THE JUDICIARY STATED THAT---

"FINES OR PENALTIES COULD NOT BE SET OFF, ALTHOUGH THE LATTER TERM IS DEFINED TO EXCLUDE AMOUNTS WHICH MAY BE COLLECTED OR WITHHELD FROM THE ASSIGNOR IN ACCORDANCE WITH, OR FAILURE TO COMPLY WITH, THE TERMS OF THE CONTRACT ITSELF. CONSEQUENTLY, PENALTIES OR WITHHOLDINGS AUTHORIZED BY THE CONTRACT FOR VIOLATIONS OF THE DAVIS-BACON ACT, THE 8-HOUR LAW AND THE WALSH-HEALEY ACT WOULD NOT BE AFFECTED.' SEE REPORT NO. 376, 82D CONGRESS, 1ST SESSION.

IN VIEW OF THE QUOTED LANGUAGE OF THE ACT, AND THE EXPLANATION EMBODIED IN THE COMMITTEE REPORT, IT MUST BE CONCLUDED THAT YOUR RIGHTS ARE SUBORDINATE TO THOSE OF THE UNITED STATES TO LIQUIDATE THE CONTRACTOR'S INDEBTEDNESS ARISING UNDER THE CONTRACT FOR WALSH-HEALEY ACT VIOLATIONS.

BY SECTION 305 OF THE ACT OF JUNE 10, 1921, (31 U.S.C. 71) THIS OFFICE IS CHARGED WITH THE DUTY OF SETTLING AND ADJUSTING ALL CLAIMS BY AND AGAINST THE UNITED STATES, AND OUR SETTLEMENTS OF ACCOUNTS ARE FINAL AND CONCLUSIVE UPON THE EXECUTIVE BRANCH OF THE GOVERNMENT. (31 U.S.C. 74). WE CANNOT THEREFORE AGREE WITH YOUR CONTENTION THAT PRIORITY IN THE DISTRIBUTION OF THE FUND INVOLVED HAS NOT BEEN "DETERMINED BY LAW," AS PROVIDED IN THE STIPULATION ENTERED INTO BEFORE THE ARMED SERVICES BOARD OF CONTRACT APPEALS. OUR ACTION IS, HOWEVER, IN NO WAY PREJUDICIAL TO YOUR RIGHT TO SEEK A JUDICIAL DETERMINATION OF YOUR CLAIM.

ON THE BASIS OF THE FACTS OF RECORD YOUR PROTEST MUST BE, AND IS DENIED.