B-168360(2), FEB 17, 1971

B-168360(2): Feb 17, 1971

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WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING SHOULD BE MADE AVAILABLE FOR PAYMENT TO UNITED STATES FIDELITY & GUARANTY COMPANY AS SURETY ON THE CONTRACT PERFORMANCE BOND SINCE THE SURETY'S RIGHT TO REIMBURSEMENT FOR EXPENDITURES INCURRED IN DISCHARGING ITS OBLIGATIONS UNDER THE BOND IS SUPERIOR TO THE GOVERNMENT'S RIGHT TO SET-OFF FOR CONTRACTOR DEBTS TO THE UNITED STATES ARISING UNDER OTHER CONTRACTS. SECRETARY: REFERENCE IS MADE TO LETTER DATED DECEMBER 23. WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING (UNITED STATES DISTRICT COURT. IT IS REPORTED THAT THE AIR FORCE IS INVOLVED TO THE EXTENT THAT IT HAS A CLAIM AGAINST THE CONTRACTOR IN THE AMOUNT OF $189. THAT THE AIR FORCE IS HOLDING $44.

B-168360(2), FEB 17, 1971

CONTRACTS - DEFAULT - SURETY ADVISING THAT CONTRACT FUNDS HELD BY THE AIR FORCE REMAINING UNDER CONTRACTS OF THE DEPARTMENT OF DEFENSE WITH MIKE BRADFORD & CO., INC., WHICH IS INVOLVED IN A BANKRUPTCY PROCEEDING SHOULD BE MADE AVAILABLE FOR PAYMENT TO UNITED STATES FIDELITY & GUARANTY COMPANY AS SURETY ON THE CONTRACT PERFORMANCE BOND SINCE THE SURETY'S RIGHT TO REIMBURSEMENT FOR EXPENDITURES INCURRED IN DISCHARGING ITS OBLIGATIONS UNDER THE BOND IS SUPERIOR TO THE GOVERNMENT'S RIGHT TO SET-OFF FOR CONTRACTOR DEBTS TO THE UNITED STATES ARISING UNDER OTHER CONTRACTS.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER DATED DECEMBER 23, 1970, AF/ACC, FROM HEADQUARTERS, UNITED STATES AIR FORCE, CONCERNING THE ENTITLEMENT TO CONTRACT FUNDS REMAINING UNDER CERTAIN CONTRACTS OF THE DEPARTMENT OF DEFENSE 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 THE AIR FORCE IS INVOLVED TO THE EXTENT THAT IT HAS A CLAIM AGAINST THE CONTRACTOR IN THE AMOUNT OF $189,318.84 FOR AIRLIFT AND SUPPORT SERVICES FURNISHED BY THE AIR FORCE IN CONNECTION WITH THE PERFORMANCE OF NAVY CONTRACT NO. NBY-71005; THAT THE AIR FORCE IS HOLDING $44,513.32 WHICH WAS WITHHELD UNDER AN ARMY CONTRACT WITH MIKE BRADFORD & COMPANY, INCORPORATED, AT AIR FORCE REQUEST; AND THAT THE AIR FORCE HAS NOT APPLIED THE $44,513.32 BALANCE AGAINST THE $189,318.84 CLAIM OF THE AIR FORCE, INASMUCH AS THE SURETY FOR THE ARMY CONTRACT, UNITED STATES FIDELITY AND GUARANTY COMPANY, HAS CLAIMED ENTITLEMENT TO THAT AMOUNT.

THE RECORD SHOWS THAT THE SURETY ENTERED INTO A TAKE-OVER AGREEMENT WITH THE DEPARTMENT OF THE ARMY AFTER THE CONTRACTOR DEFAULTED AND THAT THE SURETY'S COMPLETION COSTS WERE CONSIDERABLY IN EXCESS OF THE $44,513.32 AVAILABLE UNDER THE ARMY CONTRACT AT THE TIME THE CONTRACTOR DEFAULTED. THE AIR FORCE JUDGE ADVOCATE GENERAL'S OFFICE CONCURRED WITH THE SURETY'S POSITION THAT THE SUM OF $44,513.32 IS PROPERLY OWING TO THE SURETY.

IN ACCORDANCE WITH THE CONCLUSIONS REACHED BY THE COURT OF CLAIMS IN THE CITED CASE OF SECURITY INSURANCE COMPANY OF HARTFORD V UNITED STATES, 428 F. 2D 838 (CT. CL. 1970), THE SURETY'S RIGHT TO REIMBURSEMENT FOR EXPENDITURES INCURRED IN DISCHARGING ITS OBLIGATIONS UNDER THE CONTRACT PERFORMANCE BOND SHOULD BE CONSIDERED SUPERIOR TO THE GOVERNMENT'S RIGHT OF SET-OFF FOR CONTRACTOR DEBTS TO THE UNITED STATES ARISING UNDER OTHER CONTRACTS.

ACCORDINGLY, WE ARE OF THE OPINION THAT THE SUM OF $44,513.32, HELD IN A SUSPENSE ACCOUNT, SHOULD BE RETURNED TO THE DEPARTMENT OF THE ARMY FOR DISBURSEMENT TO THE UNITED STATES FIDELITY AND GUARANTY COMPANY AS SURETY ON THE ARMY CONTRACT PERFORMANCE BOND.

THE LETTER OF DECEMBER 23, 1970, ALSO REFERS TO CERTAIN NAVY CONTRACTS WITH MIKE BRADFORD & COMPANY, INCORPORATED. IN OUR DECISION OF TODAY TO THE SECRETARY OF THE NAVY, COPY HEREWITH, WE CONCUR WITH THE ADMINISTRATIVE RECOMMENDATIONS REGARDING THE QUESTION OF ENTITLEMENT TO BALANCES REMAINING DUE FROM THE GOVERNMENT UNDER THREE NAVY CONTRACTS. THERE WAS INCLUDED A RECOMMENDATION FOR SET-OFF OF THE SUM OF $30,981.24 REMAINING DUE UNDER NAVY CONTRACT NO. NBY-71005 AGAINST THE AIR FORCE CLAIM IN THE AMOUNT OF $189,318.84. SINCE THE AIR FORCE CLAIM WAS THE SUBJECT OF A PROOF OF CLAIM FILED IN THE BANKRUPTCY PROCEEDING, THE DEPARTMENT OF JUSTICE SHOULD BE ADVISED OF ANY SET-OFF ACTION PROPOSED TO BE TAKEN BY YOUR DEPARTMENT IN THE MATTER.