B-153802, APR. 22, 1964

B-153802: Apr 22, 1964

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IF ANY LIEN REMAINS UNSATISFIED AFTER ALL PAYMENTS ARE MADE. YOU ADVISE THAT PERFORMANCE UNDER THE CONTRACT WAS ACCEPTED AS COMPLETED ON JANUARY 31. THAT PURSUANT TO THE ABOVE CLAUSE THE CONTRACTOR WAS NOTIFIED IN WRITING TO FURNISH PROOF OF RELEASE OF ALL LIENS FOR LABOR AND MATERIALS FURNISHED UNDER THE CONTRACT. 523.90 IN RETAINED PERCENTAGES WAS WITHHELD FROM THE CONTRACTOR AFTER COMPLETION OF THE WORK. ENCLOSED WITH YOUR LETTER IS A COPY OF A LETTER OF NOVEMBER 6. FROM THE ATTORNEYS FOR THE SURETY COMPANY INDICATING THE SURETY'S CLAIM WAS DISCUSSED SOME DAYS PRIOR TO THE DATE OF THE LETTER. THERE IS NO INDICATION OF A DEMAND FOR PAYMENT BY THE SURETY PRIOR TO THAT TIME. YOUR LETTER ADVISES THAT YOU ARE NOT AWARE OF ANY ADDITIONAL OUTSTANDING CLAIMS FOR LABOR AND MATERIAL UNDER THIS CONTRACT.

B-153802, APR. 22, 1964

TO MR. RALPH A. LAUXMAN, AUTHORIZED CERTIFYING OFFICER, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE:

WE REFER TO YOUR LETTER DATED MARCH 20, 1964, WITH ENCLOSURES, REQUESTING AN ADVANCE DECISION ON THE PROPRIETY OF PAYING A VOUCHER IN FAVOR OF THE INTERNAL REVENUE SERVICE UNDER THE CIRCUMSTANCES SET OUT BELOW.

ON FEBRUARY 23, 1961, THE DIVISION OF INDIAN HEALTH, PUBLIC HEALTH SERVICE, AWARDED CONTRACT NO. SA74 PA-383--- TESUQUE TO THE THOMPSON TRENCHING SERVICE, 3000 EDITH BOULEVARD, N.E., ALBUQUERQUE, NEW MEXICO, FOR THE CONSTRUCTION OF A WATER SUPPLY AND WASTE DISPOSAL PROJECT AT TASUQUE PUEBLO, NEW MEXICO. CLAUSE GC-16 OF THIS CONTRACT ENTITLED "LIENS" PROVIDED AS FOLLOWS:

"NEITHER THE FINAL PAYMENT NOR ANY PART OF THE RETAINED PERCENTAGES SHALL BECOME DUE UNTIL THE CONTRACTOR, IF REQUIRED, SHALL DELIVER TO THE GOVERNMENT A COMPLETE RELEASE OF ALL LIENS ARISING OUT OF THIS CONTRACT, OR RECEIPTS IN FULL IN LIEU THEREOF AND, IF REQUIRED IN EITHER CASE, AN AFFIDAVIT THAT SO FAR AS HE HAS KNOWLEDGE OR INFORMATION, THE RELEASES AND RECEIPTS INCLUDE ALL THE LABOR AND MATERIAL FOR WHICH A LIEN COULD BE FILED; BUT THE CONTRACTOR MAY, IF ANY SUBCONTRACTOR REFUSES TO FURNISH A RELEASE OR RECEIPT IN FULL, FURNISH A BOND SATISFACTORY TO THE ENGINEER, TO INDEMNIFY THE GOVERNMENT AGAINST ANY LIEN. IF ANY LIEN REMAINS UNSATISFIED AFTER ALL PAYMENTS ARE MADE, THE CONTRACTOR SHALL REFUND TO THE GOVERNMENT ALL MONEYS THAT THE LATTER MAY BE COMPELLED TO PAY IN DISCHARGING SUCH A LIEN, INCLUDING ALL COSTS AND A REASONABLE ATTORNEY'S E.' YOU ADVISE THAT PERFORMANCE UNDER THE CONTRACT WAS ACCEPTED AS COMPLETED ON JANUARY 31, 1962, AND THAT PURSUANT TO THE ABOVE CLAUSE THE CONTRACTOR WAS NOTIFIED IN WRITING TO FURNISH PROOF OF RELEASE OF ALL LIENS FOR LABOR AND MATERIALS FURNISHED UNDER THE CONTRACT. YOUR LETTER STATES THAT BECAUSE THE CONTRACTOR DID NOT TENDER PROOF OF RELEASE OF ALL LIENS $5,523.90 IN RETAINED PERCENTAGES WAS WITHHELD FROM THE CONTRACTOR AFTER COMPLETION OF THE WORK. ON OR ABOUT JUNE 12, 1962, THE HOME INDEMNITY COMPANY, THE CONTRACTOR'S PAYMENT BOND SURETY, PAID THE OUTSTANDING CLAIM OF A MATERIALMAN, CRANE SUPPLY COMPANY, IN THE AMOUNT OF $4,958.08. ON OCTOBER 21, 1963, THE INTERNAL REVENUE SERVICE SERVED A NOTICE OF LEVY ON THE PUBLIC HEALTH SERVICE, DIVISION OF INDIAN HEALTH, FOR $14,249.20, REPRESENTING OUTSTANDING TAXES OWED BY THE CONTRACTOR. ENCLOSED WITH YOUR LETTER IS A COPY OF A LETTER OF NOVEMBER 6, 1963, FROM THE ATTORNEYS FOR THE SURETY COMPANY INDICATING THE SURETY'S CLAIM WAS DISCUSSED SOME DAYS PRIOR TO THE DATE OF THE LETTER. THERE IS NO INDICATION OF A DEMAND FOR PAYMENT BY THE SURETY PRIOR TO THAT TIME. YOUR LETTER ADVISES THAT YOU ARE NOT AWARE OF ANY ADDITIONAL OUTSTANDING CLAIMS FOR LABOR AND MATERIAL UNDER THIS CONTRACT, AND THAT EVEN IF SUCH CLAIMS DID EXIST THEY WOULD BE BARRED BY THE LIMITATION IN 40 U.S.C. 270 (B) WHICH PROVIDES THAT SUITS UNDER THE PAYMENT BOND MUST BE COMMENCED WITHIN ONE YEAR AFTER THE FINAL SETTLEMENT OF THE CONTRACT.

YOU REQUEST OUR DECISION WHETHER IN THESE CIRCUMSTANCES THE ENCLOSED VOUCHER FOR $5,523.90, MAY BE PAID TO THE INTERNAL REVENUE SERVICE, AND IN THIS REGARD YOU STATE THAT PEARLMAN V. RELIANCE INSURANCE COMPANY, 371 U.S. 132 (1962) MAY HAVE CAST SOME DOUBT ON THE HOLDING IN UNITED STATES V. MUNSEY TRUST COMPANY, 332 U.S. 234 (1947). YOU CONCLUDE THAT CONSIDERING THIS DOUBT TOGETHER WITH THE LAPSE OF SOME 16 MONTHS BETWEEN THE TIME THAT THE CONTRACT WAS COMPLETED AND THE TIME THAT THE TAX LEVY WAS FILED THERE IS SOME QUESTION WHETHER THE GOVERNMENT MAY OFFSET THE TAX DEBT FROM THE AMOUNT DUE UNDER THE CONTRACT.

PEARLMAN INVOLVED A SITUATION CONCERNING THE RELATIVE RIGHTS OF THE SURETY AND THE TRUSTEE IN BANKRUPTCY. IT SHOULD BE NOTED THAT IN PEARLMAN THE GOVERNMENT WAS NOT ASSERTING ANY RIGHT OF SET-OFF, AND IN FACT WAS MERELY A STAKEHOLDER. IN THE MUNSEY CASE THE GOVERNMENT'S RIGHT OF SET- OFF FOR AN OUTSTANDING CLAIM WAS DIRECTLY IN ISSUE. WE CONCLUDE, THEREFORE, THAT THE PEARLMAN CASE DID NOT AFFECT THE HOLDING IN THE MUNSEY CASE REGARDING THE GOVERNMENT'S RIGHT OF SET-OFF FOR OUTSTANDING CLAIMS. IN MUNSEY THE COURT HELD THAT NOTWITHSTANDING THE CLAIM OF A SURETY ON A STATUTORY PAYMENT BOND, THE GOVERNMENT MAY SET OFF, AGAINST UNAPPROPRIATED PERCENTAGES OF PROGRESS PAYMENTS WITHHELD BY IT AND DUE TO THE CONTRACTOR ON THE CONSTRUCTION CONTRACT, A DEBT OWED TO IT BY THE CONTRACTOR AS A RESULT OF A SEPARATE AND UNRELATED TRANSACTION. WE ALSO INVITE YOUR ATTENTION TO THE CASE OF STANDARD ACCIDENT INSURANCE COMPANY V. UNITED STATES, 119 CT.CL. 749 (1951) WHERE THE COURT HELD THAT THE GOVERNMENT'S RIGHT TO COLLECT THE CONTRACTOR'S TAX DEBT BY SET-OFF AGAINST THE CONTRACT FUND IS SUPERIOR TO THE SURETY'S RIGHT THERETO BY SUBROGATION. SEE ALSO UNITED STATES V. NATIONAL SURETY COMPANY, 254 U.S. 73 (1920). MOREOVER, WE FIND NO BASIS FOR CONCLUDING THAT THE GOVERNMENT'S RIGHT OF SET-OFF WOULD BE PRECLUDED BECAUSE THE TAX LEVY WAS NOT FILED UNTIL AFTER THE SURETY HAD PAID THE MATERIALMAN, CF. GENERAL CASUALTY COMPANY V. UNITED STATES, 130 CT.CL. 520 (1955). FURTHERMORE, IN THIS SITUATION WE FIND NO BASIS FOR CONCLUDING THAT THE GOVERNMENT'S RIGHT OF SET-OFF WOULD BE PRECLUDED BY FAILURE TO FILE ITS LEVY FOR TAXES DUE UNTIL SOME 16 MONTHS AFTER THE COMPLETION OF THE CONTRACT; AND IN THIS CONNECTION WE NOTE THAT TAXES WELL IN EXCESS OF THE RETAINED PERCENTAGES BECAME MATURE AND ACTIONABLE CLAIMS AGAINST THE CONTRACTOR WELL IN ADVANCE OF THE SURETY'S SATISFACTION OF THE MATERIALMAN'S CLAIM. SEE B-150865, MARCH 20, 1963.

ACCORDINGLY, THE TAX DEBT MAY BE CONSIDERED AS PROPERLY FOR SET-OFF FROM THE AMOUNT DUE UNDER THE CONTRACT; CONSEQUENTLY, THE VOUCHER FOR $5,523.90 DRAWN TO THE INTERNAL REVENUE SERVICE, WHICH IS ENCLOSED, MAY BE CERTIFIED FOR PAYMENT IF OTHERWISE CORRECT. IN VIEW OF THIS CONCLUSION IT IS NOT NECESSARY TO CONSIDER THE OTHER QUESTIONS RAISED IN YOUR SUBMISSION.