B-161335, MAY 5, 1967

B-161335: May 5, 1967

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YOU STATE THAT THE PURPOSE OF THE MILLER ACT IS TO PROVIDE FINANCIAL PROTECTION TO SUPPLIERS AND SUBCONTRACTORS ON GOVERNMENT PROJECTS AND THAT IT IS CERTAINLY NOT THE INTENTION OF THE GOVERNMENT TO WILFULLY DEPRIVE A SUPPLIER OR A SUBCONTRACTOR OF THE RIGHTS AFFORDED THEM BY THE ACT BY NOT REQUIRING CHRYSLER CORPORATION TO FURNISH PAYMENT AND PERFORMANCE BONDS. - TO RETAIN SUCH MONIES UNTIL: A) PAYMENT IS MADE AND MUTUAL SETTLEMENT AGREED UPON. IT MAY WELL BE THAT NASA'S ELECTION NOT TO REQUIRE A PAYMENT BOND FROM CHRYSLER WAS BASED UPON A DETERMINATION THAT THE ACT WAS NOT APPLICABLE. WHETHER NASA'S DETERMINATION IN THIS REGARD WAS CORRECT OR NOT. THE GOVERNMENT IS NOT LIABLE TO SUBCONTRACTORS WHERE THE CONTRACTING OFFICER HAS FAILED TO REQUIRE A PAYMENT BOND FROM THE PRIME CONTRACTOR.

B-161335, MAY 5, 1967

TO SPELLMAN ENGINEERING, INC.:

WE REFER TO YOUR LETTER OF APRIL 21, 1967, IN WHICH YOU REQUEST THAT OUR OFFICE TAKE CERTAIN ACTION TO PROTECT YOUR RIGHTS AS A SUBCONTRACTOR.

YOUR LETTER STATES THAT THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION (NASA) AWARDED A CONTRACT TO CHRYSLER CORPORATION AND, FOR "REASONS OF ITS OWN" ELECTED NOT TO REQUIRE CHRYSLER TO FURNISH THE PAYMENT AND PERFORMANCE BONDS SPECIFIED IN THE MILLER ACT, 40 U.S.C. 270A. YOUR LETTER INDICATES THAT THE CHRYSLER CONTRACT CALLED FOR:

"1--- REHABILITATE SATURN LAUNCH COMPLEX 37-B, PROPELLANT LOADING SYSTEMS (LIQUID OXYGEN, LIQUID HYDROGEN, R P 1 FUEL, AND NITROGEN PRESSURIZING SYSTEMS);

"2--- FABRICATE AND INSTALL NEW PIPING, ELECTRICAL WORK, ELECTRO/PNEUMATIC/MECHANICAL EQUIPMENT NEEDED TO FUELLING AND PRESSURIZING THE UPPER STATES OF SATURN 1 B MISSILE.'

YOU STATE THAT THE PURPOSE OF THE MILLER ACT IS TO PROVIDE FINANCIAL PROTECTION TO SUPPLIERS AND SUBCONTRACTORS ON GOVERNMENT PROJECTS AND THAT IT IS CERTAINLY NOT THE INTENTION OF THE GOVERNMENT TO WILFULLY DEPRIVE A SUPPLIER OR A SUBCONTRACTOR OF THE RIGHTS AFFORDED THEM BY THE ACT BY NOT REQUIRING CHRYSLER CORPORATION TO FURNISH PAYMENT AND PERFORMANCE BONDS. THEREFORE, YOU PETITION OUR OFFICE TO DIRECT NASA:

"1--- TO CEASE FURTHER PAYMENT TO CHRYSLER CORPORATION OF MONIES DUE OR TO BECOME DUE FOR WORK PERFORMED BY AND/OR THROUGH THEM ON GOVERNMENT CONTRACT NO. NAS 8-4016, ITEM 7;

"2--- TO RETAIN, DETAIN AND WITHHOLD, TO THE EXTENT OF THE AUTHORITY OF YOUR OFFICE, IN LIEU OF PAYMENT AND PERFORMANCE BOND, AN AMOUNT NOT GREATER THAN $250,000.00 TO INSURE THE PAYMENT BY CHRYSLER CORPORATION TO THEIR SUBCONTRACTOR, MAGNA BUILDING CORPORATION, MONIES DUE SAID SUBCONTRACTOR AND ITS SUB-SUBCONTRACTOR, SPELLMAN ENGINEERING, INC. FOR PERFORMING CONTRACTUAL WORK FOR THE PERIOD OCTOBER 1965 THROUGH MAY 1966, AND DAMAGES TO MAGNA BUILDING CORPORATION AND SPELLMAN ENGINEERING, INC. BY CHRYSLER CORPORATION'S FAILURE TO TIMELY PAY, AND COSTS OF COLLECTION.

"3--- TO RETAIN SUCH MONIES UNTIL:

A) PAYMENT IS MADE AND MUTUAL SETTLEMENT AGREED UPON, OR

B) COURT ORDERS PAYMENT BY ISSUING A JUDGMENT, OR

C) COURT DIRECTS RELEASE OF FUNDS.'

THE MILLER ACT, WHICH REQUIRES GOVERNMENT CONTRACTORS TO FURNISH PAYMENT BONDS FOR THE PROTECTION OF PERSONS SUPPLYING LABOR AND MATERIALS IN THE PROSECUTION OF THE WORK, APPLIES ONLY TO CONTRACTS FOR THE "CONSTRUCTION, ALTERATION, OR REPAIR OF ANY PUBLIC BUILDING OR PUBLIC WORK OF THE UNITED STATES.' WHILE YOUR LETTER DOES NOT FURNISH SUFFICIENT INFORMATION TO ASCERTAIN APPLICABILITY OF THE MILLER ACT TO THE CONTRACT IN QUESTION, IT MAY WELL BE THAT NASA'S ELECTION NOT TO REQUIRE A PAYMENT BOND FROM CHRYSLER WAS BASED UPON A DETERMINATION THAT THE ACT WAS NOT APPLICABLE. IN ANY EVENT, WHETHER NASA'S DETERMINATION IN THIS REGARD WAS CORRECT OR NOT, THE GOVERNMENT IS NOT LIABLE TO SUBCONTRACTORS WHERE THE CONTRACTING OFFICER HAS FAILED TO REQUIRE A PAYMENT BOND FROM THE PRIME CONTRACTOR. SEE UNITED STATES V. SMITH, 324 F.2D 622.

GENERALLY, IN THOSE CASES WHERE A GOVERNMENT PRIME CONTRACTOR HAS NOT FURNISHED A PAYMENT BOND FOR THE PROTECTION OF SUBCONTRACTORS, THE ONLY REDRESS THAT AN UNPAID SUBCONTRACTOR WOULD HAVE WOULD BE A SUIT AT LAW AGAINST THE PRIME CONTRACTOR OR HIGHER TIER SUBCONTRACTOR. THE GOVERNMENT IS UNDER NO OBLIGATION TO PAY THE SUBCONTRACTOR FOR SUPPLIES FURNISHED UNDER A GOVERNMENT PRIME CONTRACT SINCE THE SUBCONTRACTOR HAS NO CONTRACTUAL RELATIONSHIP WITH THE GOVERNMENT. SEE UNITED STATES V. BLAIR, 321 U.S. 730; MERRITT V. UNITED STATES, 267 U.S. 338; AND FRANKLIN KNITTING MILLS V. UNITED STATES, 62 CT.CL. 700.

YOUR REQUEST THAT WE DIRECT NASA TO CEASE FURTHER PAYMENTS TO CHRYSLER AND TO WITHHOLD UP TO $250,000 FROM CONTRACT PAYMENTS DUE CHRYSLER, IN LIEU OF PAYMENT BOND, CANNOT BE HONORED. OUR OFFICE IS WITHOUT AUTHORITY TO TAKE SUCH ACTION UNDER THE CIRCUMSTANCES PRESENTED HERE. THE CONTROLLING OBLIGATION OF THE GOVERNMENT IN SUCH MATTERS IS TO HONOR THE PROVISIONS OF CONTRACTS ENTERED INTO WITH ITS PRIME CONTRACTORS.