B-168360(1), FEB 17, 1971

B-168360(1): Feb 17, 1971

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WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING ARE SUBJECT TO CONTINENTAL CASUALTY COMPANY'S RIGHT TO REIMBURSEMENT FOR EXPENSES UNDER THE PERFORMANCE BONDS OF THE CONTRACTS ON WHICH IT WAS SURETY. SECRETARY: REFERENCE IS MADE TO LETTER DATED DECEMBER 8. WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING (UNITED STATES DISTRICT COURT. IT IS REPORTED THAT MIKE BRADFORD & COMPANY. WAS PERFORMING SIX CONSTRUCTION CONTRACTS FOR THE DEPARTMENT OF THE NAVY BEFORE BEING PLACED IN DEFAULT DURING THE MONTH OF MARCH 1968. IS THE SURETY ON THE PERFORMANCE AND PAYMENT BONDS UNDER FIVE OF THE SIX CONTRACTS. THE PARTIES HAVE AGREED THAT ANY CLAIMS OF CONTINENTAL CONCERNING ONE OF THE FIVE CONTRACTS WILL BE CONSIDERED SEPARATELY.

B-168360(1), FEB 17, 1971

CONTRACTS - DEFAULT - SURETY ADVISING THAT CONTRACT FUNDS REMAINING UNDER CERTAIN NAVY CONTRACTS WITH MIKE BRADFORD & CO., INC., WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING ARE SUBJECT TO CONTINENTAL CASUALTY COMPANY'S RIGHT TO REIMBURSEMENT FOR EXPENSES UNDER THE PERFORMANCE BONDS OF THE CONTRACTS ON WHICH IT WAS SURETY, SUBJECT ONLY TO THE RIGHT OF THE GOVERNMENT TO RECOUP ITS OWN CONTRACT COMPLETION COSTS. HOWEVER, ANY OTHER CLAIMS OF CONTINENTAL AGAINST THE CONTRACTOR, INCLUDING THOSE ARISING IN CONNECTION WITH THE DISCHARGE OF ITS OBLIGATION UNDER CONTRACT PAYMENT BONDS, WOULD BE INFERIOR TO THE GOVERNMENT'S RIGHT OF SET-OFF FOR THE CONTRACTOR'S DEBTS TO THE UNITED STATES.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER DATED DECEMBER 8, 1970, FAC 0211E/RSL:RME, FROM THE NAVAL FACILITIES ENGINEERING COMMAND, CONCERNING THE QUESTION OF ENTITLEMENT TO CONTRACT FUNDS REMAINING UNDER CERTAIN NAVY CONTRACTS WITH MIKE BRADFORD & COMPANY, INCORPORATED, MIAMI, FLORIDA, WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING (UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF FLORIDA, MIAMI, FLORIDA, IN BANKRUPTCY NO. 68-483, BK-TC).

IT IS REPORTED THAT MIKE BRADFORD & COMPANY, INCORPORATED, WAS PERFORMING SIX CONSTRUCTION CONTRACTS FOR THE DEPARTMENT OF THE NAVY BEFORE BEING PLACED IN DEFAULT DURING THE MONTH OF MARCH 1968. THE CONTINENTAL CASUALTY COMPANY, CHICAGO, ILLINOIS, IS THE SURETY ON THE PERFORMANCE AND PAYMENT BONDS UNDER FIVE OF THE SIX CONTRACTS. THE PARTIES HAVE AGREED THAT ANY CLAIMS OF CONTINENTAL CONCERNING ONE OF THE FIVE CONTRACTS WILL BE CONSIDERED SEPARATELY. THE OTHER FOUR CONTRACTS CONSIDERED IN THE LETTER OF DECEMBER 8, 1970, ARE NOS. NBY 67651, NBY-71005, NBY-75934 AND NBY-81568.

THE CONTRACTOR REPORTEDLY DID NOT DEFAULT UNDER CONTRACT NO. NBY 71005, AND THERE IS AN AVAILABLE CONTRACT BALANCE OF $30,981.24. CONTINENTAL HAS INDICATED THAT IT SUFFERED NO LOSSES UNDER THE BONDS FOR THAT CONTRACT, AND IT IS PROPOSED TO APPLY THE CONTRACT BALANCE TOWARD SATISFACTION OF A CLAIM OF THE DEPARTMENT OF THE AIR FORCE AGAINST THE CONTRACTOR FOR $189,318.84, COVERING CONTRACTOR SUPPORT SERVICES AND MILITARY AIRLIFT COMMAND SERVICES PROVIDED UNDER CONTRACT NO. NBY-71005.

THE CONTRACTOR DEFAULTED UNDER THE OTHER THREE CONTRACTS. CONTINENTAL REPORTEDLY AGREED TO AN ASSESSMENT OF $42,593.52 AGAINST IT FOR EXCESS COSTS OCCASIONED THE GOVERNMENT IN CONNECTION WITH THE COMPLETION OF CONTRACT NO. NBY-81568. UNDER CONTRACT NO. NBY-75934, THERE WAS AN AVAILABLE CONTRACT BALANCE OF $38,917.98 WHEN THE CONTRACTOR DEFAULTED. BOTH THE GOVERNMENT AND CONTINENTAL INCURRED COSTS FOR COMPLETION OF THE CONTRACT WORK. THE GOVERNMENT EXPENDED THE AMOUNT OF $4,183 AND CONTINENTAL EXPENDED APPROXIMATELY $52,600. IT IS PROPOSED TO WITHHOLD THE SUM OF $4,183 SO THAT THE GOVERNMENT WOULD RECOVER ITS CONTRACT COMPLETION COSTS, AND TO PAY CONTINENTAL THE DIFFERENCE BETWEEN THAT AMOUNT AND $38,917.98, OR $34,734.98.

UNDER CONTRACT NO. NBY-67651, FUNDS IN THE AMOUNT OF $747,945.44 REMAINED AVAILABLE FOR COMPLETION AT TIME OF DEFAULT. CONTINENTAL WAS AWARDED A COMPLETION CONTRACT IN AN AMOUNT NOT TO EXCEED $400,000, ALTHOUGH IT WAS RECOGNIZED THAT COMPLETION OF THE WORK PROBABLY WOULD REQUIRE A GREATER EXPENDITURE. AT CONTINENTAL'S REQUEST, THE COMPLETION CONTRACT INCLUDED A PROVISION TO THE EFFECT THAT EXECUTION OF THE CONTRACT WOULD NOT PREJUDICE THE RIGHTS OF CONTINENTAL, AS SURETY UNDER THE ORIGINAL CONTRACT, TO ANY UNPAID OR RETAINED AMOUNTS UNDER THE ORIGINAL CONTRACT. IT HAS BEEN ADMINISTRATIVELY DETERMINED THAT CONTINENTAL EXPENDED A MINIMUM OF $387,000, OVER AND ABOVE THE $400,000 MAXIMUM COMPLETION CONTRACT AMOUNT, IN DISCHARGING ITS OBLIGATIONS UNDER THE CONTRACT PERFORMANCE BOND, AND IT IS PROPOSED TO PAY CONTINENTAL THE ENTIRE AVAILABLE CONTRACT BALANCE OF $347,945.44.

THERE IS NO QUESTION AS TO CONTINENTAL'S RIGHT TO REIMBURSEMENT FOR EXPENSES UNDER THE PERFORMANCE BONDS OF CONTRACTS NOS. NBY-75934 AND NBY- 67651 OUT OF MONEYS AVAILABLE FOR PAYMENT UNDER THE CONTRACTS, AND SUBJECT ONLY TO THE RIGHT OF THE GOVERNMENT TO RECOUP ITS OWN CONTRACT COMPLETION COSTS IN THE CASE OF CONTRACT NO. NBY-75934. SEE SECURITY INSURANCE COMPANY OF HARTFORD V UNITED STATES, 428 F. 2D 838 (CT. CL. 1970). HOWEVER, ANY OTHER CLAIMS OF CONTINENTAL AGAINST THE CONTRACTOR, INCLUDING THOSE ARISING IN CONNECTION WITH THE DISCHARGE OF CONTINENTAL'S OBLIGATION UNDER CONTRACT PAYMENT BONDS, WOULD BE INFERIOR TO THE GOVERNMENT'S RIGHT OF SET-OFF FOR THE CONTRACTOR'S DEBTS TO THE UNITED STATES. WE THEREFORE AGREE WITH THE RECOMMENDATIONS FOR ALLOWANCE OF THE AMOUNTS OF $34,734.98 AND $347,945.44 SUBJECT TO THE GOVERNMENT'S CLAIM OF $42,593.52 AGAINST CONTINENTAL UNDER THE PERFORMANCE BOND FOR CONTRACT NO. NBY-81568 TO WHICH CONTINENTAL REPORTEDLY AGREES. WE ALSO AGREE WITH THE RECOMMENDATION THAT THE $30,981.24 BALANCE DUE UNDER CONTRACT NO. NBY 71005 BE WITHHELD IN PARTIAL LIQUIDATION OF THE CLAIM OF THE DEPARTMENT OF THE AIR FORCE FOR SERVICES RENDERED IN CONNECTION WITH THE PERFORMANCE OF THAT CONTRACT. OUR RECORDS SHOW THAT THE AIR FORCE CLAIM WAS THE SUBJECT OF A PROOF OF CLAIM FILED IN THE BANKRUPTCY PROCEEDING.

A COPY OF THIS DECISION IS BEING FORWARDED TO THE SECRETARY OF THE AIR FORCE.