B-168132, DEC. 12, 1969

B-168132: Dec 12, 1969

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IS DENIED NO BASIS EXISTING UPON WHICH SETTLEMENT MAY BE CONSIDERED SINCE NO PRIVITY EXISTS BETWEEN SUBCONTRACTOR AND GOVT. IS NOT LEGALLY LIABLE TO PAY AMOUNT DUE NOR IS MILLER ACT. CONTRACTOR TO FURNISH PAYMENT BONDS ONLY FOR CONSTRUCTION CONTRACTS AND SINCE SUBJECT CONTRACT WAS SUPPLY CONTRACT NO PAYMENT BOND WAS REQUIRED. SINCE CONTRACTING OFFICER IS PROHIBITED FROM PARTICIPATING IN DISPUTES BETWEEN PRIME CONTRACTOR AND HIS SUBCONTRACTOR. WITHHOLDING FINAL PAYMENT WOULD HAVE VIOLATED SUCH PROHIBITION. 874.00 WHICH YOU ALLEGE IS DUE AND OWING FOR WORK YOU PERFORMED AS SUBCONTRACTOR FOR DECISIONS SYSTEMS. THE HISTORY OF YOUR CLAIM IN DISPUTE APPEARS FROM THE RECORD TO BE AS FOLLOWS: THE DECISIONS CONTRACT IN QUESTION WAS A SUPPLY CONTRACT FOR AN AUDIO- VISUAL SYSTEM TO BE INSTALLED IN AVSCOM HEADQUARTERS AT THE MART BUILDING.

B-168132, DEC. 12, 1969

BONDS--PAYMENT--MILLER ACT COVERAGE--SUBCONTRACTORS, ETC. SUBCONTRACTOR'S CLAIM FOR INSTALLATION WORK PERFORMED FOR PRIME CONTRACTOR SUPPLYING AUDIO-VISUAL SYSTEM TO GOVERNMENT, WHERE PROCURING ACTIVITY DID NOT REQUIRE PERFORMANCE BOND AND MADE FINAL PAYMENT AFTER NOTICE OF CLAIM, IS DENIED NO BASIS EXISTING UPON WHICH SETTLEMENT MAY BE CONSIDERED SINCE NO PRIVITY EXISTS BETWEEN SUBCONTRACTOR AND GOVT. AND GOVT. IS NOT LEGALLY LIABLE TO PAY AMOUNT DUE NOR IS MILLER ACT, 40 U.S.C. 270B, APPLICABLE SINCE IT REQUIRES GOVT. CONTRACTOR TO FURNISH PAYMENT BONDS ONLY FOR CONSTRUCTION CONTRACTS AND SINCE SUBJECT CONTRACT WAS SUPPLY CONTRACT NO PAYMENT BOND WAS REQUIRED. SINCE CONTRACTING OFFICER IS PROHIBITED FROM PARTICIPATING IN DISPUTES BETWEEN PRIME CONTRACTOR AND HIS SUBCONTRACTOR, WITHHOLDING FINAL PAYMENT WOULD HAVE VIOLATED SUCH PROHIBITION.

TO HOF CONSTRUCTION COMPANY:

YOUR LETTER OF OCTOBER 8, 1969, REQUESTED THE ASSISTANCE OF OUR OFFICE IN REGARD TO THE SETTLEMENT OF A CLAIM FOR $1,874.00 WHICH YOU ALLEGE IS DUE AND OWING FOR WORK YOU PERFORMED AS SUBCONTRACTOR FOR DECISIONS SYSTEMS, INC., (DECISIONS), A PRIME CONTRACTOR UNDER CONTRACT NO. DAAJ0168-C- 0284/3D), ISSUED BY THE UNITED STATES ARMY AVIATION SYSTEMS COMMAND (AVSCOM), ST. LOUIS, MISSOURI.

THE HISTORY OF YOUR CLAIM IN DISPUTE APPEARS FROM THE RECORD TO BE AS FOLLOWS:

THE DECISIONS CONTRACT IN QUESTION WAS A SUPPLY CONTRACT FOR AN AUDIO- VISUAL SYSTEM TO BE INSTALLED IN AVSCOM HEADQUARTERS AT THE MART BUILDING, ST. LOUIS, MISSOURI, FOR THE TOTAL PRICE OF $36,000. THE INSTALLATION WORK TO BE PERFORMED IN THE COMMANDING OFFICER'S CONFERENCE ROOM WAS SUBCONTRACTED TO YOU BY DECISIONS FOR $2,874.00. YOU STATE THAT ALTHOUGH THE WORK WAS COMPLETED AND ACCEPTED BY THE GOVERNMENT, DECISIONS PAID YOU ONLY $1,000.00 ON JUNE 23, 1969, LEAVING AN OUTSTANDING BALANCE OF $1,874.00 OWING TO YOU. NOTWITHSTANDING YOUR REPEATED REQUESTS, YOU ALLEGE THAT DECISIONS REFUSED TO PAY YOU THE BALANCE AND OFFERED TO COMPROMISE IN THE NEIGHBORHOOD OF $1,000.00 ON THE THEORY THAT DECISIONS INCURRED ADDITIONAL EXPENSES TO COMPLETE A PORTION OF THE INSTALLATION WORK. YOU DENY THE ADDITIONAL EXPENSE INCURRED BY DECISIONS.

BY LETTER OF OCTOBER 8, 1969, YOU REQUEST ANSWERS TO FOUR QUESTIONS.

YOUR FIRST QUESTION IS ADDRESSED TO THE FAILURE OF THE ARMY TO REQUIRE THAT DECISIONS OBTAIN A PAYMENT BOND. THE MILLER ACT, 40 U.S.C. 270B, WHICH REQUIRES GOVERNMENT CONTRACTORS TO FURNISH PAYMENT BONDS FOR THE PROTECTION OF PERSONS SUPPLYING LABOR AND MATERIALS APPLIES ONLY TO CONTRACTS FOR THE "CONSTRUCTION, ALTERATION OR REPAIR OF ANY BUILDING OR PUBLIC WORK OF THE UNITED STATES.' THE ACT DOES NOT REQUIRE THAT A PAYMENT BOND BE FURNISHED FOR A SUPPLY CONTRACT. SIMILARLY, ARMED SERVICES PROCUREMENT REGULATION (ASPR) 10-104.1B STATES THAT "... PERFORMANCE AND PAYMENT BONDS SHALL NOT BE REQUIRED IN CONNECTION WITH CONTRACTS OTHER THAN CONSTRUCTION CONTRACTS ...' SINCE THE DECISIONS CONTRACT WAS PRIMARILY TO SUPPLY THE AUDIO-VISUAL SYSTEM, AND THE PHYSICAL WORK ON THE BUILDING STRUCTURE INVOLVED IN THE INSTALLATION OF THE SYSTEM WAS A MERELY INCIDENTAL AND RELATIVELY MINOR PORTION OF THE CONTRACT, IT WAS PROPERLY CLASSIFIED AS A SUPPLY CONTRACT AND THEREFORE NO PAYMENT BOND WAS REQUIRED. FURTHER, WHETHER OR NOT THE DETERMINATION BY THE DEPARTMENT OF THE ARMY WAS CORRECT, IT IS HIGHLY QUESTIONABLE WHETHER THE GOVERNMENT IS LIABLE TO SUBCONTRACTORS WHEN THE CONTRACTING OFFICER HAS FAILED TO REQUIRE A PAYMENT BOND FROM THE PRIME CONTRACTOR. SEE UNITED STATES V SMITH, 324 F2 622 (1963).

SECONDLY, YOU QUESTION THE ARMY'S ACTION IN MAKING FINAL PAYMENT TO DECISIONS WHEN IT HAD NOT PAID ITS SUBCONTRACTOR FOR THE WORK PERFORMED. AVSCOM STATES THAT DECISIONS RECEIVED THREE PROGRESS PAYMENTS PLUS FINAL PAYMENT UPON ACCEPTANCE OF THE SUPPLIES FURNISHED AND COMPLETION OF THE INSTALLATION OF THE AUDIO-VISUAL SYSTEM, AND THAT ALL THREE PROGRESS PAYMENTS HAD BEEN MADE BEFORE NOTICE OF YOUR CLAIM WAS RECEIVED. WHILE THE PROGRESS PAYMENT CLAUSE PRESCRIBED BY ASPR APPENDIX E-510.1 (C) ALLOWS REDUCTION OR SUSPENSION OF PAYMENTS IF THE CONTRACTOR "... IS DELINQUENT IN PAYMENT OF THE COSTS OF PERFORMANCE OF THIS CONTRACT IN THE ORDINARY COURSE OF BUSINESS," NO SUCH AUTHORITY IS GRANTED TO THE CONTRACTING OFFICER WITH RESPECT TO FINAL PAYMENT. ON THE CONTRARY, THE CONTRACTING OFFICER IS PROHIBITED FROM PARTICIPATING IN DISPUTES BETWEEN A PRIME CONTRACTOR AND HIS SUBCONTRACTOR, (SEE ASPR 23-203 (A) ( AND THE WITHHOLDING OF FINAL PAYMENT IN THIS CASE WOULD HAVE CONSTITUTED SUCH A PARTICIPATION.

THIRDLY, YOUR QUESTION CONCERNS DECISIONS' PARTICIPATING IN FUTURE GOVERNMENT WORK. ASPR 1-903 SETS FORTH THE MINIMUM STANDARDS FOR RESPONSIBLE PROSPECTIVE CONTRACTORS. SINCE THE RESPONSIBILITY OF A PROSPECTIVE CONTRACTOR IS DETERMINED AT THE TIME AWARD IS CONTEMPLATED, IT IS NOT POSSIBLE TO ASCERTAIN AT THIS TIME WHETHER YOUR DIFFICULTIES WITH DECISIONS WOULD AFFECT THE DETERMINATION OF ITS RESPONSIBILITY AT A FUTURE DATE.

LASTLY, YOU ASK WHAT RECOURSE YOU MAY HAVE OTHER THAN A PRIVATE LAWSUIT TO ACQUIRE THE AMOUNT IN DISPUTE. AS A GENERAL RULE A CONTRACT OR AGREEMENT TO PERFORM FOR OR TO FURNISH SUPPLIES TO A PRIME CONTRACTOR ENGAGED IN THE PERFORMANCE OF A CONTRACT WITH THE GOVERNMENT CREATES OBLIGATIONS ONLY BETWEEN THE PARTIES TO THE SUBCONTRACT AND DOES NOT CREATE PRIVITY OF CONTRACT BETWEEN THE SUBCONTRACTOR AND THE UNITED STATES. SEE NICKEL V POLLIA, 179 F2 160 (1950); UNITED STATES V DRISCOLL, 96 U.S. 421 (1877); MERRITT V UNITED STATES, 267 U.S. 338 (1925); ARMSTRONG V UNITED STATES, 169 F.SUPP. 259 (1959). SINCE THERE IS NO PRIVITY OF CONTRACT BETWEEN YOU AND THE GOVERNMENT, THERE WOULD NOT APPEAR TO BE ANY BASIS FOR A LEGAL LIABILITY ON THE PART OF THE GOVERNMENT TO PAY YOU THE AMOUNT ALLEGEDLY DUE FROM DECISIONS. THIS DISPUTE IS SOLELY BETWEEN YOU AND DECISIONS, AND IS FOR SETTLEMENT BETWEEN YOURSELVES, WHETHER BY LEGAL ACTION OR OTHERWISE.

IN ANY EVENT, THERE IS NO BASIS UPON WHICH WE MAY UNDERTAKE SETTLEMENT OF YOUR CLAIM.