B-161387, MAY 23, 1967

B-161387, MAY 23, 1967

TO BRANCH OF FINANCE, BUREAU OF MINES:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 27, 1967, WITH ENCLOSURES, CONCERNING THE DEFAULT OF INTER-MOUNTAIN CONSTRUCTION COMPANY, INCORPORATED, PITTSBURGH, PENNSYLVANIA, UNDER DEPARTMENT OF THE INTERIOR CONTRACT NO. 14-09-0050-2872, AS AMENDED, DATED APRIL 15, 1966.

THE CONTRACT ORIGINALLY PROVIDED FOR THE PERFORMANCE OF CERTAIN CONSTRUCTION WORK ON THE PREMISES OF THE BUREAU OF MINES, BRUCETON, PENNSYLVANIA, AT A PRICE OF $17,025. UNDER CHANGE ORDER NO. 2, PROVIDING FOR THE ACCOMPLISHMENT OF ADDITIONAL WORK, THE CONTRACT PRICE WAS INCREASED BY THE AMOUNT OF $15,819 AND THE COMPLETION DATE OF THE CONTRACT WAS EXTENDED TO NOVEMBER 1, 1966. THE CONTRACT, AS AMENDED, WAS SECURED BY TWO PERFORMANCE BONDS, IN THE TOTAL AMOUNT OF $32,844, EXECUTED BY THE MARYLAND CASUALTY COMPANY, BALTIMORE, MARYLAND. THAT COMPANY ALSO EXECUTED REQUIRED PAYMENT BONDS IN THE PENAL SUMS OF $8,512.50 AND $7,909.50.

ON NOVEMBER 25, 1966, THE CONTRACTOR'S RIGHT TO PROCEED FURTHER WITH THE PROSECUTION OF THE REQUIRED WORK WAS TERMINATED FOR FAILURE TO COMPLETE THE CONTRACT WITHIN THE PRESCRIBED TIME. A CONTRACT WAS AWARDED AT A PRICE OF $675 TO LISOTTO BROTHERS, PITTSBURGH, PENNSYLVANIA, FOR THE PERFORMANCE OF THE ITEMS OF WORK NOT COMPLETED BY THE DEFAULTING CONTRACTOR.

YOUR LETTER SETS FORTH THAT THE CONTRACT WORK HAS BEEN SATISFACTORILY COMPLETED AND THAT, AFTER HAVING PAID LISOTTO BROTHERS THE SUM OF $675, THERE REMAINS AN UNPAID CONTRACT BALANCE OF $4,409.40, COMPUTED AS FOLLOWS:

AMOUNT RETAINED ON PROGRESS PAYMENT 8/2/66 $1,200.00

AMOUNT RETAINED ON PROGRESS PAYMENT 8/18/66 1,000.00

AMOUNT RETAINED ON PROGRESS PAYMENT 10/11/66 884.40

$3,084.40

AMOUNT DUE FOR LABOR AND MATERIALS FURNISHED

10/1-11/1/66 2,000.00

$5,084.40

LESS AMOUNT PAID TO LISOTTO BROTHERS 675.00

UNPAID BALANCE $4,409.40

YOUR LETTER ALSO REFERS TO THE REQUEST OF THE MARYLAND CASUALTY COMPANY FOR PAYMENT OF THE CONTRACT BALANCE TO THAT COMPANY AS THE SURETY ON THE CONTRACT PAYMENT BONDS. THE SURETY PROVIDED STATEMENTS INDICATING THAT THE TOTAL SUM OF $13,899.25 HAS BEEN PAID BY THE SURETY ON CLAIMS OF SUBCONTRACTORS AND THAT THE AMOUNT OF $1,452 HAS BEEN WITHHELD FROM THE PAYMENTS MADE ON TWO SUBCONTRACTOR CLAIMS.

YOU REQUEST A DECISION AS TO WHETHER THE CONTRACTOR OR THE SURETY SHOULD BE REQUIRED TO FURNISH A WRITTEN ONE-YEAR GUARANTEE AND A RELEASE OF LIENS STATEMENT, AS PROVIDED FOR IN ARTICLE X OF THE SPECIFICATIONS MADE A PART OF CONTRACT NO. 14-09-0050-2872. YOU ALSO REQUEST A DECISION AS TO WHETHER THE CONTRACT BALANCE MAY BE PAID TO THE SURETY OR TO THE CONTRACTOR.

IT IS APPARENT THAT, REGARDLESS OF THE CONTRACTOR'S DEFAULT, THE REQUIREMENT FOR THE WRITTEN GUARANTEE OF ALL OF THE WORK PERFORMED BY THE ORIGINAL CONTRACTOR SHOULD NOT BE WAIVED. IN OUR OPINION, THE GUARANTEE MUST BE FURNISHED BY THE ORIGINAL CONTRACTOR, AS TO THAT PORTION OF THE WORK HE PERFORMED, BEFORE ANY PAYMENT OF THE BALANCE DUE UNDER THE CONTRACT IS AUTHORIZED. OF COURSE, THE SURETY WILL BE LIABLE UNDER THE PERFORMANCE BONDS FOR ANY FAILURE OF THE ORIGINAL CONTRACTOR TO MEET HIS OBLIGATIONS UNDER THE GUARANTEE.

WE DO NOT KNOW WHY A RELEASE OF LIENS SHOULD BE REQUIRED WITH RESPECT TO THE WORK, MATERIALS OR EQUIPMENT INCORPORATED INTO THE WORK OF THE CONSTRUCTION PROJECT SINCE, ORDINARILY, NO LIEN CAN BE OBTAINED UPON BUILDINGS OR GROUNDS OF THE UNITED STATES. HILL V. AMERICAN SURETY CO., 200 U.S. 197, 203. IT NEVERTHELESS APPEARS THAT THE CONTRACTOR SHOULD BE REQUIRED TO FURNISH THE RELEASE OF LIENS STATEMENT AS A CONDITION PRECEDENT TO PAYMENT OF AMOUNTS WITHHELD SINCE THE AGREEMENT TO DO SO WAS MADE A PART OF THE CONTRACT.

THE INTERNAL REVENUE SERVICE HAS ADVISED US THAT THE DEFAULTING CONTRACTOR IS INDEBTED TO THE UNITED STATES FOR A FAILURE TO PAY 1966 FUTA (FEDERAL UNEMPLOYMENT TAX ACT) TAXES, AND THAT THE TAX DEBT IS IN THE AMOUNT OF $278.78, WITH INTEREST COMPUTED TO APRIL 28, 1967. A SETOFF OF THE TAX DEBT IN THE AMOUNT OF $278.78 SHOULD BE MADE IN ACCORDANCE WITH 4 GAO 5540.10. SEE UNITED STATES V. MUNSEY TRUST COMPANY, 332 U.S. 234; AND 40 COMP. GEN. 85.

OUR RECORDS DO NOT DISCLOSE ANY OTHER INDEBTEDNESS OF THE CONTRACTOR TO THE UNITED STATES. HOWEVER, IT APPEARS THAT THE CONTRACTOR MAY BE LIABLE TO THE UNITED STATES UNDER THE CONTRACT HERE INVOLVED IN AN AMOUNT WHICH EXCEEDS THE $675 PAID TO LISOTTO BROTHERS. WE BELIEVE THAT THE ADMINISTRATIVE COSTS INCURRED IN AWARDING THE CONTRACT TO LISOTTO BROTHERS SHOULD BE CONSIDERED. IN ADDITION, ANY DAMAGES SUSTAINED BY THE UNITED STATES IN THE COURSE, OR AS THE RESULT, OF THE DELAY IN COMPLETION OF THE REQUIRED CONTRACT WORK, FOR WHICH THE CONTRACTOR MAY BE HELD LIABLE, SHOULD BE SET OFF.

ANY BALANCE REMAINING AFTER SETTING OFF AMOUNTS DUE TO THE GOVERNMENT IN ACCORDANCE WITH THE FOREGOING MAY BE PAID. HOWEVER, THE GOVERNMENT IS ENTITLED TO OBTAIN A GOOD ACQUITTANCE FOR THE FINAL PAYMENT MADE UNDER THE CONTRACT. A CHECK FOR THE AMOUNT DUE MADE OUT TO THE ORIGINAL CONTRACTOR MAY BE SENT IN CARE OF THE PAYMENT BOND SURETY PROVIDING THE SURETY FIRST SUBMITS A WRITTEN STATEMENT FROM THE CONTRACTOR GIVING HIS CONSENT TO SUCH PROCEDURE. SEE B-157563, MARCH 21, 1967.

IF THE MARYLAND CASUALTY COMPANY MEETS SUCH CONDITION AND ALSO FURNISHES THE CONTRACTOR'S WRITTEN GUARANTEE AND THE CONTRACTOR'S RELEASE OF LINES STATEMENT, AS REQUIRED UNDER ARTICLE X OF THE CONTRACT SPECIFICATIONS, WE WOULD NOT BE REQUIRED TO OBJECT TO PAYMENT OF THE FINAL CONTRACT BALANCE, LESS THE AMOUNT OF THE GOVERNMENT'S TAX CLAIM, AND ANY OTHER APPROPRIATE GOVERNMENT CLAIMS AS HEREIN DESCRIBED, BY A CHECK PAYABLE TO THE CONTRACTOR MAILED IN CARE OF THE MARYLAND CASUALTY COMPANY.

THE DOCUMENTS AND CORRESPONDENCE FORWARDED WITH YOUR LETTER ARE RETURNED HEREWITH. A COPY OF THIS DECISION SHOULD BE ATTACHED TO THE VOUCHER COVERING THE FINAL PAYMENT UNDER THE CONTRACT. YOU ARE ADVISED THAT A COPY OF THE DECISION IS BEING MAILED TO THE MARYLAND CASUALTY COMPANY'S