B-153506, MAR. 18, 1964

B-153506: Mar 18, 1964

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DEPARTMENT OF THE INTERIOR: REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 11. YOUR LETTER ADVISES THAT ALL MONIES DUE UNDER THE CONTRACT HAVE BEEN PAID EXCEPT $2. THERE IS ALSO A CLAIM FOR UNPAID FEDERAL WITHHOLDING TAXES UNDER THE ABOVE CONTRACT AMOUNTING TO $1. IT IS NOT KNOWN WHETHER THE CONTRACTOR. OR SURETY WILL COMPLETE THE CONTRACT. 000 WILL BE WITHHELD FROM THE PAYMENTS DUE UNDER THIS CONTRACT TO PROTECT THE GOVERNMENT'S INTEREST. 109.55 IS PRESENTLY DUE THE STATE OF OREGON FOR TAXES ARISING OUT OF ACTIVITIES UNDER THIS CONTRACT. HAS NOT BEEN TERMINATED FOR DEFAULT BUT THAT THE CONTRACTOR IS IN SERIOUS FINANCIAL DIFFICULTIES. STATES THAT THE CONTRACTOR WAS INDEBTED TO DUANE COOP LOGGING COMPANY FOR $3.

B-153506, MAR. 18, 1964

TO MR. J. E. PERRY, BONNEVILLE POWER ADMINISTRATION, DEPARTMENT OF THE INTERIOR:

REFERENCE IS MADE TO YOUR LETTER DATED FEBRUARY 11, 1964, REQUESTING OUR DECISION WHETHER $1,409.87 DUE UNDER CONTRACT NO. 14-03-34810 FOR "CLEARING OF RIGHT-OF-WAY AND CONSTRUCTION OF ACCESS ROADS FOR SCHEDULE I OF THE BONNEVILLE POWER ADMINISTRATION'S ALVEY-TAHKENITCH 230-KV LINE NO. 1" SHOULD BE PAID TO THE CONTRACTOR, TIDEWATER CONTRACTING CO., INC., P.O. BOX 328, BLAINE, WASHINGTON, PURSUANT TO THE ENCLOSED VOUCHER OR WHETHER PAYMENT OF THE ABOVE AMOUNT SHOULD BE MADE TO UNITED STATES FIDELITY AND GUARANTY COMPANY, SUITE 201, OREGON BANK BUILDING, PORTLAND 4, OREGON, THE CONTRACTOR'S PAYMENT BOND SURETY.

YOUR LETTER ADVISES THAT ALL MONIES DUE UNDER THE CONTRACT HAVE BEEN PAID EXCEPT $2,000 WITHHELD FROM PREVIOUS PAYMENTS, $4,119.46 COVERED BY "CONTRACT CHANGES C AND D.' THE INTERNAL REVENUE SERVICE COVERED BY "CONTRACT CHANGES C AND D" . THE INTERNAL REVENUE SERVICE HAS FILED A TAX LIEN FOR $721.39 FOR FICA TAXES DUE UNDER THE ABOVE CONTRACT. THERE IS ALSO A CLAIM FOR UNPAID FEDERAL WITHHOLDING TAXES UNDER THE ABOVE CONTRACT AMOUNTING TO $1,115.70 FOR WHICH A LEVY HAS NOT YET BEEN PERFECTED BY THE INTERNAL REVENUE SERVICE. PERFORMANCE UNDER THE CONTRACT HAS NOT BEEN COMPLETED, AND IT IS NOT KNOWN WHETHER THE CONTRACTOR, GOVERNMENT, OR SURETY WILL COMPLETE THE CONTRACT; THEREFORE, $3,000 WILL BE WITHHELD FROM THE PAYMENTS DUE UNDER THIS CONTRACT TO PROTECT THE GOVERNMENT'S INTEREST. THE CONTRACTOR REPORTS THAT $1,109.55 IS PRESENTLY DUE THE STATE OF OREGON FOR TAXES ARISING OUT OF ACTIVITIES UNDER THIS CONTRACT. YOUR LETTER ALSO ADVISES THAT THE CONTRACT WITH TIDEWATER CONTRACTING CO., INC., HAS NOT BEEN TERMINATED FOR DEFAULT BUT THAT THE CONTRACTOR IS IN SERIOUS FINANCIAL DIFFICULTIES.

THE SURETY ALLEGES IT HAS PAID BILLS FOR LABOR AND MATERIAL IN EXCESS OF THE AMOUNT WHICH YOU PROPOSE TO PAY UNDER THE CONTRACT AT THIS TIME. THIS REGARD, AN AFFIDAVIT ENCLOSED WITH THE LETTER OF THE SURETY TO YOU, DATED JANUARY 30, 1964, STATES THAT THE CONTRACTOR WAS INDEBTED TO DUANE COOP LOGGING COMPANY FOR $3,443.83 AND THAT THIS AMOUNT BECOME DUE AND PAYABLE ON SEPTEMBER 1, 1963. THE AFFIDAVIT FURTHER STATES THAT THE CONTRACTOR FAILED TO PAY THE $3,443.83 AFTER REPEATED DEMANDS BY THE CREDITOR, AND THAT THE SURETY DISCHARGED THE CONTRACTOR'S OBLIGATION. THE RECORD INDICATES THAT THIS PAYMENT BY THE SURETY WAS MADE PURSUANT TO ITS OBLIGATIONS UNDER THE PAYMENT BOND. THE SURETY HAS CLAIMED ANY PAYMENTS DUE UNDER THIS CONTRACT, AND HAS CITED AS AUTHORITY IN SUPPORT OF THIS POSITION THE CASES OF PEARLMAN V. RELIANCE INSURANCE COMPANY, 371 U.S. 132, AND UNITED PACIFIC INSURANCE COMPANY V. THE UNITED STATES, 319 F. 2D 893. THE RECORD DOES NOT INDICATE WHETHER THE CONTRACTOR CONSENTED TO THE SURETY'S PAYMENT OF THE $3,443.83 TO THE CONTRACTOR'S CREDITOR.

FROM A REVIEW OF THE RECORD PRESENTED TO US WE CANNOT CONCLUSIVELY DETERMINE THE RIGHTS OF THE SURETY. IN THIS REGARD WHILE THE SURETY HAS SUBMITTED EVIDENCE THAT MATERIALMEN WERE PAID IN EXCESS OF THE AMOUNT PAYABLE UNDER THIS CONTRACT, THE SURETY'S STATEMENT OF FACTS COULD BE DISPUTED BY THE CONTRACTOR SINCE AN ADMINISTRATIVE DETERMINATION OF THIS ISSUE WOULD NOT BE RES JUDICATA. IN ADDITION, THERE IS NO SHOWING THAT THE SURETY HAS SATISFIED ALL CLAIMS FOR LABOR AND MATERIAL ARISING UNDER THE CONTRACT. SEE UNITED STATES V. NATIONAL SURETY COMPANY, 254 U.S. 73, AND AMERICAN SURETY CO. V. WESTINGHOUSE ELECTRIC MANUFACTURING CO., 296 U.S. 133. IN THE PEARLMAN AND UNITED PACIFIC CASES, SUPRA, CITED BY THE SURETY, THE QUESTION WAS WHETHER PAYMENT SHOULD BE MADE TO THE SURETY OR THE TRUSTEE IN BANKRUPTCY. HERE, THE CONTRACTOR HAS NOT BEEN ADJUDGED A BANKRUPT, AND THE QUESTION IS WHETHER PAYMENT SHOULD BE MADE TO THE SURETY OR TO THE CONTRACTOR. MOREOVER, IN THE PEARLMAN AND THE UNITED PACIFIC CASES, SUPRA, THE COURT WAS ABLE TO CONCLUSIVELY ADJUDICATE THE RIGHTS OF ALL THE INTERESTED PARTIES. FOR THESE REASONS WE DO NOT FIND PEARLMAN OR UNITED PACIFIC, SUPRA, APPLICABLE FOR AUTHORIZING PAYMENT TO THE SURETY IN THIS SITUATION.

ASSUMING THAT THE $4,837.09 WITHHELD FROM THIS PAYMENT WILL ADEQUATELY PROTECT THE GOVERNMENT FROM LOSS FOR ANY CONTINGENCIES WHICH MAY ARISE OUT OF THE COMPLETION OF THIS CONTRACT OR ANY LOSS ARISING FROM THE CONTRACTOR'S UNPAID TAX LIABILITY, SINCE THE RECORD CLEARLY INDICATES THAT THE CONTRACTOR HAS NOT BEEN ADJUDGED A BANKRUPT, HAS NOT BEEN TERMINATED FOR DEFAULT UNDER THE CONTRACT, AND HAS EARNED THE AMOUNT PRESENTLY PAYABLE UNDER THE CONTRACT, PAYMENT OF $1,409.87 SHOULD BE MADE TO THE CONTRACTOR IF OTHERWISE CORRECT UNLESS THE SURETY SHOULD OBTAIN AN ORDER OF THE COURT DIRECTING PAYMENT TO IT. HOWEVER, WE WOULD SUGGEST PAYMENT IN THE FORM OF A CHECK MAILED TO THE SURETY ON WHICH THE CONTRACTOR IS THE PAYEE PROVIDED THAT THE CONTRACTOR AGREES IN WRITING TO SUCH ACTION.