B-156674, AUGUST 29, 1966, 46 COMP. GEN. 178

B-156674: Aug 29, 1966

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THE CONCEPT THAT AMOUNTS WITHHELD UNDER A CONTRACT REPRESENTING UNPAID WAGES DUE EMPLOYEES OF A CONTRACTOR SUBJECT TO THE DAVIS-BACON ACT ARE "TRUST FUNDS" WILL NO LONGER BE FOLLOWED AS A TRUST FUND IS NO CREATED AT THE TIME OF OR BY THE ACT OF WITHHOLDING. ONLY WHEN DETERMINATIONS ARE MADE AS TO THE EMPLOYEES ENTITLED. THE WORKERS ARE LEFT TO THEIR REMEDIES AGAINST THE CONTRACTOR AND SURETY. AN ATTEMPTED ASSIGNMENT PREDICATED ON A BANKRUPTCY ARRANGEMENT FOR THE CONTRACTOR FAILING BECAUSE THE SURETY IS NOT A PERMISSIBLE ASSIGNEE UNDER 31 U.S.C. 203. WHICH NO LONGER ARE CONSIDERED "TRUST FUNDS" BASED MERELY ON THE ACT OF WITHHOLDING. ARE AVAILABLE TO THE GOVERNMENT UNDER ITS COMMON LAW RIGHT OF SET-OFF FOR THE LIQUIDATION OF ANY INDEBTEDNESS TO THE GOVERNMENT ARISING UNDER THE CONTRACT.

B-156674, AUGUST 29, 1966, 46 COMP. GEN. 178

CONTRACTS - LABOR STIPULATIONS - WITHHOLDING UNPAID WAGES, OVERTIME, ETC. - "TRUST FUNDS" - CONCEPT. THE CONCEPT THAT AMOUNTS WITHHELD UNDER A CONTRACT REPRESENTING UNPAID WAGES DUE EMPLOYEES OF A CONTRACTOR SUBJECT TO THE DAVIS-BACON ACT ARE "TRUST FUNDS" WILL NO LONGER BE FOLLOWED AS A TRUST FUND IS NO CREATED AT THE TIME OF OR BY THE ACT OF WITHHOLDING. A TRUST IN FAVOR OF UNDERPAID LABORERS OR MECHANICS ARISES, IF AT ALL, ONLY WHEN DETERMINATIONS ARE MADE AS TO THE EMPLOYEES ENTITLED, THE INDIVIDUAL AMOUNTS DUE, AND THE WITHHELD AMOUNTS TRANSFERRED TO AND ACCEPTED BY THE GENERAL ACCOUNTING OFFICE AS IMPRESSED MONIES. THEREFORE, THE DAVIS-BACON ACT PROVIDING NO PRIORITY TO EMPLOYEES OVER CLAIMS OF THE GOVERNMENT, WHEN NO TRUST ARISES, THE GOVERNMENT HAS THE COMMON LAW RIGHT OF SET-OFF AGAINST THE AMOUNTS WITHHELD FROM A CONTRACTOR FOR WHATEVER REASON, AND IF THE WITHHELD AMOUNTS DO NOT SATISFY THE CLAIMS OF THE GOVERNMENT, THE WORKERS ARE LEFT TO THEIR REMEDIES AGAINST THE CONTRACTOR AND SURETY. SET-OFF - AUTHORITY - COMMON LAW RIGHT. A SUBCONTRACTOR SUING A DEFAULTED PRIME CONTRACTOR AND ITS SURETY UNDER THE MILLER ACT BOND HAVING NO CLAIM AGAINST THE UNITED STATES, AND AN ATTEMPTED ASSIGNMENT PREDICATED ON A BANKRUPTCY ARRANGEMENT FOR THE CONTRACTOR FAILING BECAUSE THE SURETY IS NOT A PERMISSIBLE ASSIGNEE UNDER 31 U.S.C. 203, MONIES DUE UNDER THE CONTRACT, EIGHT-HOUR LAW WITHHOLDINGS, AS WELL AS DAVIS-BACON ACT WITHHOLDINGS, WHICH NO LONGER ARE CONSIDERED "TRUST FUNDS" BASED MERELY ON THE ACT OF WITHHOLDING, ARE AVAILABLE TO THE GOVERNMENT UNDER ITS COMMON LAW RIGHT OF SET-OFF FOR THE LIQUIDATION OF ANY INDEBTEDNESS TO THE GOVERNMENT ARISING UNDER THE CONTRACT, ANY BALANCE TO BE APPLIED TO UNPAID FEDERAL TAXES OR OTHER INDEBTEDNESS OF THE CONTRACTOR TO THE UNITED STATES, WHOSE CLAIMS HAVE PRIORITY OVER THOSE OF THE ASSIGNEE OR EMPLOYEES OF THE CONTRACTOR.

TO THE ADMINISTRATOR, FEDERAL AVIATION AGENCY, AUGUST 29, 1966:

REFERENCE IS MADE TO LETTER DATED JULY 27, 1966, AND PRIOR CORRESPONDENCE, ADDRESSED TO THE GENERAL ACCOUNTING OFFICE, CLAIMS DIVISION BY THE ASSOCIATE GENERAL COUNSEL OF YOUR AGENCY, YOUR REFERENCE GC-41, REQUESTING A DETERMINATION AS TO THE PROPER PAYEES OF FUNDS BEING HELD BY THE FEDERAL AVIATION AGENCY UNDER CONTRACT NO. ARDS 1-420 WITH ROBERT R. RITTER, T/A THE FOREST COMPANY.

THE CIRCUMSTANCES GIVING RISE TO THE ABOVE REQUEST ARE STATED TO BE AS FOLLOWS:

CONTRACT ARDS-1-420 WAS ENTERED INTO BETWEEN THE FEDERAL AVIATION AGENCY AND ROBERT R. RITTER, T/A THE FOREST FOREST COMPANY, ON OR ABOUT DECEMBER 26, 1961, TO DEVELOP THE MUNICIPAL TERMINAL SITE ACCESS ROAD AND REHABILITATION OF TAXIWAY 1 AT THE AGENCY INSTALLATION AT ATLANTIC CITY, NEW JERSEY (NAFEC). THE HARTFORD ACCIDENT AND INDEMNITY COMPANY, AS SURETY FOR RITTER, EXECUTED PERFORMANCE AND PAYMENT BONDS UNDER THE CONTRACT.

IN A SUIT FILED IN THE UNITED STATES DISTRICT COURT FOR NEW JERSEY ON JUNE 11, 1963, IT WAS ALLEGED THAT RITTER DEFAULTED UNDER THE CONTRACT AND FAILED TO MAKE PAYMENT TO A SUBCONTRACTOR, GLASGOW, INCORPORATED. THE LITIGATION WAS COMMENCED BY GLASGOW AGAINST RITTER AND HARTFORD ACCIDENT AND INDEMNITY COMPANY. HARTFORD MOVED ON SEPTEMBER 27, 1963, TO BRING IN AS ADDITIONAL PARTIES, MR. SAM D. CALABY, CHIEF OF THE CONTRACT BRANCH AT NAFEC, AND MR. WILLIAM LENCHINSKY, ACTING CHIEF OF THE ACCOUNTS BRANCH. HARTFORD CLAIMED AN EQUITABLE LIEN AND A PRIOR RIGHT TO ANY MONEY REMAINING PAYABLE BY THE UNITED STATES UNDER THE CONTRACT IN VIEW OF THE CONTRACTOR'S DEFAULT AND FAILURE TO PAY THE GLASGOW COMPANY AND BY JOINING CALABY AND LENCHINSKY SOUGHT TO ENJOIN THEM FROM MAKING FINAL PAYMENT ON THE CONTRACT. HOWEVER, NEITHER CALABY NOR LENCHINSKY WAS EVER PROPERLY SERVED IN THE ACTION AND THE AGENCY DID NOT MAKE ANY FURTHER PAYMENTS ON THE CONTRACT.

SUBSEQUENTLY, IT CAME TO THE ATTENTION OF THE FAA THAT RITTER HAD VIOLATED PROVISIONS OF THE DAVIS-BACON ACT, 40 U.S.C. 276A, AND EIGHT HOUR LAW, 40 U.S.C. 324 (1958 ED.), ON CONTRACT ARDS-1-420 AND THE DEPARTMENT OF LABOR WAS NOTIFIED THAT RESTITUTION DUE AMOUNTED TO $730.85 (DAVIS- BACON ACT, $558.12 AND EIGHT-HOUR LAW, $172.73). EIGHT HOUR LAW PENALTIES AMOUNT TO $150.00 FOR A TOTAL OF $880.85. THIS TOTAL AMOUNT HAD BEEN COMPUTED BY MARCH 17, 1964, AS INDICATED BY A LETTER OF THAT DATE FROM FAA TO THE DEPARTMENT OF LABOR.

BY A NOTICE OF LEVY DATED JUNE 23, 1964, THE AGENCY WAS ADVISED BY THE INTERNAL REVENUE SERVICE THAT ROBERT RITTER, T/A THE FOREST COMPANY, IS INDEBTED TO THE UNITED STATES FOR UNPAID FEDERAL TAXES IN THE AMOUNT OF $296,067.42. ON AUGUST 17, 1964, THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK CONFIRMED A CHAPTER XI BANKRUPTCY ARRANGEMENT PROPOSED BY RITTER. THE AGENCY WAS INFORMED BY LETTER OF SEPTEMBER 1, 1964, FROM COUNSEL FOR HARTFORD THAT RITTER HAD ASSIGNED ANY FUNDS DUE OR TO BECOME DUE UNDER THE CONTRACT TO HARTFORD ACCIDENT AND INDEMNITY COMPANY.

ON MARCH 3, 1965, A FINAL CONTRACT AMENDMENT WAS EXECUTED PURSUANT TO A DECISION OF THE INTERIOR BOARD OF CONTRACT APPEALS AWARDING RITTER $29,946.97 FOR INCREASED WORK PERFORMED UNDER THE CONTRACT. FROM THIS AMOUNT DEDUCTIONS WERE MADE AMOUNTING TO $5,$59.88 OF WHICH $880.85 WAS FOR LABOR VIOLATIONS. THE NET AMOUNT LEFT AVAILABLE FOR PAYMENT IS $24,887.09. THE CONTRACT RELEASE EXECUTED BY RITTER CONDITIONS THE RELEASE ON THE PAYMENT OF ANY MONIES DUE TO HIM TO THE INTERNAL REVENUE SERVICE.

INITIALLY, IT MAY BE STATED THAT ANY CLAIM THE GLASGOW COMPANY HAS AS SUBCONTRACTOR IS AGAINST THE PRIME CONTRACTOR OR AGAINST THE SURETY UNDER THE MILLER ACT (40 U.S.C. 270A) BOND. GLASGOW HAS NO CLAIM AGAINST THE UNITED STATES. ALSO, THE GOVERNMENT'S TAX CLAIMS HAVE PRIORITY OVER THE SURETY'S CLAIM. UNITED STATES V. MUNSEY TRUST COMPANY, 332 U.S. 234. ADDITION, THE SURETY'S CLAIM, PREDICATED ON THE ASSIGNMENT TO IT BY ITS PRINCIPAL OF ANY SUMS DUE FROM THE UNITED STATES, CANNOT BE HONORED, SINCE THE ASSIGNMENT IS ONE FALLING WITHIN THE PURVIEW OF THE ASSIGNMENT OF CLAIMS ACT OF 1940, AS AMENDED, 31 U.S.C. 203, AND THE SURETY IS NOT ONE OF THE CLASS OF PERMISSIBLE ASSIGNEES UNDER THE ACT.

AS TO THE EIGHT-HOUR LAW WITHHOLDINGS, WE HAVE ASSUMED THAT SUCH WITHHOLDINGS WERE MADE UNDER A CONTRACT PROVISION, SINCE THE CONTRACT HERE CONCERNED ANTEDATED THE STATUTORY AUTHORITY FOR WITHHOLDING. IN THIS TYPE OF SITUATION WE HELD IN OUR DECISION OF APRIL 20, 1954, 33 COMP. GEN. 496 (QUOTING FROM THE SYLLABUS):

THE WITHHOLDING PROCEDURES OF THE DAVIS-BACON ACT DO NOT GOVERN THE WITHHOLDING AND DISPOSITION OF AMOUNTS REPRESENTING OVERTIME WAGE DIFFERENCES AND, WHILE CONTRACTORS AND GOVERNMENT MAY AGREE THAT THERE MAY BE WITHHOLD FROM MONEY OTHERWISE DUE A CONTRACTOR AMOUNTS REPRESENTING NON -PAYMENTS OF OVERTIME COMPENSATION, THERE IS NO AUTHORITY FOR DISTRIBUTION BY THE GOVERNMENT OF SUCH WITHHOLDINGS TO WORKERS WHO HAVE NOT BEEN PAID OVERTIME FOR WORK IN EXCESS OF 8 HOURS PER DAY.

HENCE, WE PERCEIVE NO BASIS FOR CONSIDERING THESE WITHHELD FUNDS AS OTHER THAN, WITHHELD SUMS, AVAILABLE, AS ARE OTHER WITHHELD SUMS, FOR SET-OFF BY THE GOVERNMENT.

THIS LEAVES ONLY THE MATTER OF PRIORITY BETWEEN THE CLAIMS OF THE UNITED STATES AND THE CLAIMS OF LABORERS AND MECHANICS UNDER THE DAVIS BACON ACT.

ON A NUMBER OF OCCASIONS IN THE PAST WE HAVE HELD THAT AMOUNTS REPRESENTING UNPAID WAGES DUE EMPLOYEES OF A CONTRACTOR SUBJECT TO THE DAVIS-BACON ACT ARE FOR HANDLING AS "TRUST FUNDS". THE IMPRESSION HAS BEEN GIVEN THAT THE WITHHELD AMOUNTS ARE IN FACT "TRUST FUNDS;, FOR EXAMPLE, SEE 33 COMP. GEN. 496, 498, AND 35 COMP. GEN. 144, 146. WE NOW FIND IT NECESSARY TO REEXAMINE THESE HOLDINGS IN THE LIGHT OF THE PRESENT MATTER.

THE DAVIS-BACON ACT, SECTIONS 276A AND 276A-2 OF TITLE 40 U.S.C; ON THE DATE OF EXECUTION OF THE CONTRACT HERE CONCERNED, PROVIDED IN PERTINENT PART, AS FOLLOWS:

276. RATE OF WAGES FOR LABORERS AND MECHANICS.

THE ADVERTISED SPECIFICATIONS FOR EVERY CONTRACT IN EXCESS OF $2,000, TO WHICH THE UNITED STATES OR THE DISTRICT OF COLUMBIA IS A PARTY, FOR CONSTRUCTION, ALTERATION, AND/OR REPAIR, INCLUDING PAINTING AND DECORATING, OF PUBLIC BUILDINGS OR PUBLIC WORKS OF THE UNITED STATES OR THE DISTRICT OF COLUMBIA WITHIN THE GEOGRAPHICAL LIMITS OF THE STATES OF THE UNION, OR THE DISTRICT OF COLUMBIA, AND WHICH REQUIRES OR INVOLVES THE EMPLOYMENT OF MECHANICS AND/OR LABORERS SHALL CONTAIN A PROVISION STATING THE MINIMUM WAGES TO BE PAID VARIOUS CLASSES OF LABORERS AND MECHANICS WHICH SHALL BE BASED UPON THE WAGES THAT WILL BE DETERMINED BY THE SECRETARY OF LABOR TO BE PREVAILING FOR THE CORRESPONDING CLASSES OF LABORERS AND MECHANICS EMPLOYED ON PROJECTS OF A CHARACTER SIMILAR TO THE CONTRACT WORK IN THE CITY, TOWN, VILLAGE, OR OTHER CIVIL SUBDIVISION OF THE STATE, IN WHICH THE WORK IS TO BE PERFORMED, OR IN THE DISTRICT OF COLUMBIA IF THE WORK IS TO BE PERFORMED THERE; AND EVERY CONTRACT BASED UPON THESE SPECIFICATIONS SHALL CONTAIN A STIPULATION THAT THE CONTRACTOR OR HIS SUBCONTRACTOR SHALL PAY ALL MECHANICS AND LABORERS EMPLOYED DIRECTLY UPON THE SITE OF THE WORK, UNCONDITIONALLY AND NOT LESS OFTEN THAN ONCE A WEEK, AND WITHOUT SUBSEQUENT DEDUCTION OR REBATE ON ANY ACCOUNT, THE FULL AMOUNTS ACCRUED AT TIME OF PAYMENT, COMPUTED AT WAGE RATES NOT LESS THAN THOSE STATED IN THE ADVERTIZED SPECIFICATIONS, REGARDLESS OF ANY CONTRACTUAL RELATIONSHIP WHICH MAY BE ALLEGED TO EXIST BETWEEN THE CONTRACTOR OR SUBCONTRACTOR AND SUCH LABORERS AND MECHANICS, AND THAT THE SCALE OF AGES TO BE POSTED BY THE CONTRACTOR IN A PROMINENT AND EASILY ACCESSIBLE PLACE AT THE SITE OF THE WORK; AND THE FURTHER STIPULATION THAT THERE MAY BE WITHHELD FROM THE CONTRACTOR SO MUCH OF ACCRUED PAYMENTS AS MAY BE CONSIDERED NECESSARY BY THE CONTRACTING OFFICER TO PAY TO LABORERS AND MECHANICS EMPLOYED BY THE CONTRACTOR OR ANY SUBCONSTRACTOR ON THE WORK THE DIFFERENCE BETWEEN THE RATES OF WAGES REQUIRED BY THE CONTRACT TO BE PAID LABORERS AND MECHANICS ON THE WORK AND THE RATES OF WAGES RECEIVED BY SUBCONTRACTORS, OR THEIR AGENTS. * * *.

276A-2 PAYMENT OF WAGES BY COMPTROLLER GENERAL FROM WITHHELD

PAYMENTS; LISTING CONTRACTORS VIOLATING CONTRACTS.

(A) THE COMPTROLLER GENERAL OF THE UNITED STATES IS AUTHORIZED AND DIRECTED TO PAY DIRECTLY TO LABORERS AND MECHANICS FROM ANY ACCRUED PAYMENTS WITHHELD UNDER THE TERMS OF THE CONTRACT ANY WAGES FOUND TO BE DUE LABORERS AND MECHANICS PURSUANT TO SECTIONS 276A TO 276A-5 OF THIS TITLE; * * *.

(B) IF THE ACCRUED PAYMENTS WITHHELD UNDER THE TERMS OF THE CONTRACT, AS AFORESAID, ARE INSUFFICIENT TO REIMBURSE ALL THE LABORERS AND MECHANICS, WITH RESPECT TO WHOM THERE HAS BEEN A FAILURE TO PAY THE WAGES REQUIRED PURSUANT TO SECTIONS 276A TO 276A-5 OF THIS TITLE, SUCH LABORERS AND MECHANICS SHALL HAVE THE RIGHT OF ACTION AND/OR OF INTERVENTION AGAINST THE CONTRACTOR AND HIS SURETIES CONFERRED BY LAW UPON PERSONS FURNISHING LABOR OR MATERIALS, AND IN SUCH PROCEEDINGS IT SHALL BE NO DEFENSE THAT SUCH LABORERS AND MECHANICS ACCEPTED OR AGREED TO ACCEPT LESS THAN THE REQUIRED RATE OF WAGES OR VOLUNTARILY MADE REFUNDS. * * *.

THE "TRUST FUND" THEORY APPARENTLY ORIGINATED IN GENERAL ACCOUNTING OFFICE CIRCULAR DATED FEBRUARY 28, 1936, A-34106, WHEREIN IT IS STATED:

ACCORDINGLY, WHERE THE CONTRACTING OFFICER OF THE GOVERNMENT FINDS THAT ANY LABORER OR MECHANIC EMPLOYED BY A CONTRACTOR OR SUBCONTRACTOR ON SUCH PUBLIC BUILDINGS OR PUBLIC WORKS HAS BEEN OR IS BEING PAID A RATE OF WAGES LESS THAN THE WAGES REQUIRED BY THE CONTRACT TO BE PAID, HE SHALL CAUSE TO BE DEDUCTED FROM THE AMOUNTS DUE THE CONTRACTOR SO MUCH AS MAY BE NECESSARY TO PAY SAID DIFFERENCE TO EACH SUCH LABORER AND MECHANIC, AND THE TOTAL AMOUNT SO DEDUCTED SHALL BE SET APART, IN THE MANNER HEREINAFTER OUTLINED FOR THE PURPOSE OF LIQUIDATING THE DIFFERENCE IN THE WAGE RATE PAID BY THE CONTRACTOR AND THE WAGE RATE REQUIRED TO BE PAID UNDER THE CONTRACT.

THE NEXT VOUCHER DRAWN IN FAVOR OF THE CONTRACTOR SHOULD BE FOR THE GROSS AMOUNT OF THE ACCRUED EARNINGS, LESS DEDUCTIONS FOR PRIOR PAYMENTS AND ANY AMOUNT TO BE WITHHELD FOR OTHER PURPOSE, AND SCHEDULED TO THE PAYING OFFICER ON STANDARD FORM 1064, TOGETHER WITH "SCHEDULE OF DEDUCTIONS FROM PAYMENTS TO CONTRACTOR (ACT OF AUGUST 30), 1935", (DAVIS-BACON ACT) WHICH IS HEREBY PRESCRIBED (STANDARD FORM 1093) * * *, SHOWING: * * * IN DETAIL THE NAMES AND ADDRESSES OF THE LABORERS AND MECHANICS INVOLVED WHO HAVE BEEN UNDERPAID, SHOWING FOR EACH THE PERIOD COVERED, TIME WORKED, AMOUNT DUE AT RATE OF WAGES REQUIRED BY CONTRACT, AMOUNTS (AND RATES) PAID BY CONTRACTOR, AMOUNTS OF UNDERPAYMENTS, AND A STATEMENT OF FACTS UPON WHICH SUCH FINDING IS BASED. THE SCHEDULE OF DEDUCTIONS WILL THEN BE SIGNED BY THE CONTRACTING OFFICER AND TRANSMITTED THROUGH ADMINISTRATIVE CHANNELS TO THE DISBURSING OFFICER.

THE PAYING OFFICER (DISBURSING OFFICER) UPON RECEIPT OF THE SCHEDULES WILL DRAW ONE CHECK IN FAVOR OF THE UNITED STATES FOR THE TOTAL AMOUNT TO BE WITHHELD ON ACCOUNT OF SUCH UNDERPAYMENTS TO LABORERS, ET AL; IN THE EMPLOY OF SUCH CONTRACTOR, AND ONE CHECK IN FAVOR OF THE CONTRACTOR FOR THE RESULTING NET AMOUNT DUE HIM, CLAIMING CREDIT THEREFOR IN HIS ACCOUNTS AS A DISBURSEMENT. HE WILL THEN TAKE INTO HIS ACCOUNTS AS A COLLECTION THE AMOUNT DEDUCTED AND WILL DEPOSIT THE SAME INTO THE TREASURY TO THE TRUST-FUND-RECEIPT ACCOUNT,"SYMBOL 8020, WITHHOLDINGS FROM CONTRACTORS FOR WAGE ADJUSTMENTS, ACT OF AUGUST 30, 1935 (PUBLIC NO. 403)", CLAIMING CREDIT THEREFOR AS A TREASURY DEPOSIT.

THE AMOUNTS SO DEPOSITED WILL THEN BE APPROPRIATED TO THE TRUST FUND- EXPENDITURE COUNT,"SYMBOL OT421, WAGES OF EMPLOYEES OF CONTRACTORS, ACT OF AUGUST 30, 1935 (PUBLIC NO. 403) (TRUST FUND)", AND MADE AVAILABLE FOR DIRECT SETTLEMENT BY THE GENERAL ACCOUNTING OFFICE IN PAYMENT FOR THE DEFICIENCIES IN WAGES DUE THE CONTRACTOR'S EMPLOYEES UNDER THE ACT, SUPRA.

CIRCULAR DATED MARCH 19, 1957, B-3368, RESCINDED THE CIRCULAR OF FEBRUARY 28, 1936, AND PROVIDED IN PERTINENT PART AS FOLLOWS:

IT IS RECOGNIZED THAT WITHHOLDING PROCEDURES MAY BE INSTITUTED, AS A MATTER OF ENSURING THAT FULL WAGES WILL BE PAID IN QUESTIONABLE INSTANCES, PRIOR TO COLLECTION ACTION. HOWEVER, THE GENERAL ACCOUNTING OFFICE DOES NOT UNDERTAKE TO MAKE ADJUSTMENTS WITH EMPLOYEES UNTIL WAGE UNDERPAYMENT DETERMINATIONS HAVE BECOME FINAL AND UNLESS CONTRACTORS HAVE REFUSED TO COMPLY WITH SUCH DETERMINATIONS. THE REASONING FOLLOWED IS THAT (A) THE PRIMARY RESPONSIBILITY FOR MAKING FULL PAYMENT TO EMPLOYEES RESTS UPON CONTRACTORS (AND SUBCONTRACTORS) AND (B) THE EXPENSE OF DISBURSEMENT TO EMPLOYEES BY THE GOVERNMENT SHOULD BE AVOIDED WHERE POSSIBLE. IT FOLLOWS THAT ACTUAL COLLECTIONS AND DEPOSITS OF MONIES INTO THE TRUST FUND (AS DISTINGUISHED FROM WITHHOLDINGS AS NECESSARY) SHOULD NOT BE COMPLETED UNTIL IT CAN BE SHOWN THAT ALL CONTROVERSIES HAVE BEEN FINALLY SETTLED AND THAT CONTRACTORS CANNOT, OR WILL NOT, THEMSELVES DISCHARGE THEIR OBLIGATIONS IN FULL. NOTWITHSTANDING THAT OUR PAST DECISIONS MAY HAVE INDICATED TO THE CONTRARY, WE ARE OF THE OPINION THAT A TRUST FUND IS NOT CREATED AT THE TIME OF OR BY THE ACT OF WITHHOLDING. A TRUST IN FAVOR OF THE UNDERPAID LABORERS OR MECHANICS ARISES, IF AT ALL, ONLY WHEN DETERMINATIONS ARE MADE AS TO THE EMPLOYEES ENTITLED, THE INDIVIDUAL AMOUNTS DUE, AND THE WITHHELD AMOUNTS TRANSFERRED TO AND ACCEPTED BY THE GENERAL ACCOUNTING OFFICE AS IMPRESSED MONIES. IN THE PRESENT MATTER, TRANSFER HAS NOT BEEN MADE TO THE GENERAL ACCOUNTING OFFICE. ON THE CONTRARY, THE FUNDS ARE STILL IN THE HANDS OF FAA AND HAVE NOT BEEN TRANSFERRED TO ANY TYPE OF TRUST ACCOUNT.

IT LONG HAS BEEN HELD THAT THE GOVERNMENT HAS THE COMMON LAW RIGHT OF SET -OFF AGAINST AMOUNTS FOUND DUE A CLAIMANT, IN THE ABSENCE OF A STATUTE OR AGREEMENT PROHIBITING THE SET-OFF. WE FIND NOTHING IN THE DAVIS-BACON ACT EVIDENCING AN INTENT TO GIVE PRIORITY TO THE EMPLOYEES OVER CLAIMS OF THE GOVERNMENT AGAINST THE CONTRACTOR. IT SHOULD BE NOTED THAT, ASIDE FROM THIS STATUTE, THE EMPLOYEES HAVE A RIGHT OF ACTION AGAINST THE EMPLOYER'S SURETY UNDER THE POSTED MILLER ACT BOND.

THE STATUTE PROVIDES THAT THE CONTRACTING OFFICER MAY WITHHOLD IN FAVOR OF THE EMPLOYEES, BUT IF THERE IS INSUFFICIENT MONEY AVAILABLE TO PAY THEM, THEIR RIGHTS AGAINST THE EMPLOYER-CONTRACTOR AND THE SURETY ARE PRESERVED. THE DAVIS-BACON PROCEDURES CONCERNING PROTECTION OF UNDERPAID EMPLOYEES APPEAR TO US TO BE AN ADDITION TO RATHER THAN A SUBSTITUTION FOR THE MILLER ACT PROTECTION. IN THIS CONNECTION COMPARISON SHOULD BE MADE WITH THE PROVISIONS OF SECTION 2OF THE WALSH-HEALEY ACT OF JUNE 30, 1936, 49 STAT. 2036, 41 U.S.C. 36, AND OUR DECISION OF DECEMBER 9, 1939, 19 COMP. GEN. 565. THE WALSH HEALEY PROVISIONS APPEAR MANDATORY AND THE EMPLOYEES OF A CONTRACTOR SUBJECT TO THIS ACT ARE NOT PROTECTED BY A PAYMENT BOND.

IN ADDITION IT MAY BE OBSERVED THAT IF DAVIS-BACON WORKERS ARE GIVEN PRIORITY OVER THE UNITED STATES, PAYMENT TO THEM BY THE GOVERNMENT WOULD RELIEVE THE SURETY PRO TANTO FROM ITS LIABILITY TO THE WORKERS ON ITS PAYMENT BOND, AND IT IS DEBATABLE WHETHER THE GOVERNMENT COULD OBTAIN REDRESS FROM THE SURETY AS SUBROGEE OF THE WORKERS.

IN ANY EVENT, WE NOW CONCLUDE THAT THE GOVERNMENT HAS PRIORITY FOR SET- OFF OF ITS CLAIMS AGAINST AMOUNTS WITHHELD FROM A CONTRACTOR, FOR WHATEVER REASON, AND IF THE WITHHELD AMOUNTS ARE INSUFFICIENT TO SATISFY THE GOVERNMENT'S CLAIMS, THE WORKERS ARE LEFT TO THEIR REMEDIES AGAINST THE CONTRACTOR AND THE SURETY.

IN THE PRESENT MATTER YOU ARE ADVISED, IN ANSWER TO YOUR QUESTION, THAT ALL WITHHELD SUMS SHOULD BE APPLIED, FIRST, IN LIQUIDATION OF INDEBTEDNESSES TO THE GOVERNMENT ARISING UNDER THE CONTRACT, AND THE BALANCE APPLIED AGAINST OTHER INDEBTEDNESSES OF THE CONTRACTOR TO THE UNITED STATES.

THE ENCLOSURES WITH THE LETTER OF MARCH 19, 1965, ARE RETURNED HEREWITH.