B-171063, FEB 16, 1971

B-171063: Feb 16, 1971

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A SUPPLIER WHO FURNISHED MATERIALS TO A CONTRACTOR WITH THE COAST GUARD ON THE BASIS OF AN ESCROW ACCOUNT ARRANGEMENT THAT WAS SUBSEQUENTLY DETERMINED TO BE NULL AND VOID AS NOT AN ASSIGNMENT UNDER 31 U.S.C. 203 BECAUSE THE BANK ACTED AS A MERE AGENT FOR DISBURSEMENT OF MONIES HAS NO RECOURSE AGAINST THE GOVERNMENT ABSENT PRIVITY OF CONTRACT. THEREFORE PAYMENT BY GOVERNMENT LESS AMOUNTS SET OFF UNDER ANOTHER CONTRACT TO THE CONTRACTOR WERE PROPER. TO DOVER CORPORATION/OPW DIVISION: REFERENCE IS MADE TO YOUR LETTERS OF OCTOBER 15 AND NOVEMBER 18. YOU STATE THAT THE ABOVE CONTRACT WAS AWARDED TO TRADERS DISTRIBUTING COMPANY. A SMALL ORDER FOR USE AS A PROTOTYPE WAS SHIPPED ON A C.O.D. THE CONTRACTOR WAS TO ASSIGN TO THE BANK PAYMENTS TO BE RECEIVED FROM THE GOVERNMENT UNDER THE CONTRACT AND THE RANK.

B-171063, FEB 16, 1971

CONTRACTS - PAYMENTS - ASSIGNMENTS V ESCROW ARRANGEMENT - SUPPLIER CLAIM ADVICE THAT SUPPLIER WHO FURNISHED MATERIAL TO TRADERS DISTRIBUTING CO., LTD., (FAR EAST EXPORT SALES, INC.) IN ACCORDANCE WITH AN ESCROW ACCOUNT ASSIGNMENT SUBSEQUENTLY HELD NULL AND VOID HAS NO RECOURSE AGAINST GOVERNMENT FOR CONTRACTOR'S FAILURE TO MAKE PAYMENT. A SUPPLIER WHO FURNISHED MATERIALS TO A CONTRACTOR WITH THE COAST GUARD ON THE BASIS OF AN ESCROW ACCOUNT ARRANGEMENT THAT WAS SUBSEQUENTLY DETERMINED TO BE NULL AND VOID AS NOT AN ASSIGNMENT UNDER 31 U.S.C. 203 BECAUSE THE BANK ACTED AS A MERE AGENT FOR DISBURSEMENT OF MONIES HAS NO RECOURSE AGAINST THE GOVERNMENT ABSENT PRIVITY OF CONTRACT. THEREFORE PAYMENT BY GOVERNMENT LESS AMOUNTS SET OFF UNDER ANOTHER CONTRACT TO THE CONTRACTOR WERE PROPER.

TO DOVER CORPORATION/OPW DIVISION:

REFERENCE IS MADE TO YOUR LETTERS OF OCTOBER 15 AND NOVEMBER 18, 1970, REQUESTING OUR ASSISTANCE IN CONNECTION WITH THE COLLECTION OF AMOUNTS CLAIMED BY YOUR COMPANY AS A SUPPLIER TO THE CONTRACTOR UNDER UNITED STATES COAST GUARD CONTRACT NO. DOT-CG35-2135-B, DATED DECEMBER 31, 1969.

YOU STATE THAT THE ABOVE CONTRACT WAS AWARDED TO TRADERS DISTRIBUTING COMPANY, LIMITED, OF SAN FRANCISCO, CALIFORNIA; THAT YOU REFUSED AN INITIAL PURCHASE ORDER FROM FAR EAST EXPORT SALES, INCORPORATED, ALSO KNOWN AS TRADERS DISTRIBUTING COMPANY, FOR LACK OF CREDIT INFORMATION; THAT IN MARCH 1970, A SMALL ORDER FOR USE AS A PROTOTYPE WAS SHIPPED ON A C.O.D. BASIS. YOU FURTHER STATE THAT PURSUANT TO AN ESCROW ACCOUNT ARRANGEMENT WITH THE LIBERTY NATIONAL BANK, SAN FRANCISCO, CALIFORNIA, YOU SHIPPED MERCHANDISE TO THE CONTRACTOR. UNDER THE ARRANGEMENT, THE CONTRACTOR WAS TO ASSIGN TO THE BANK PAYMENTS TO BE RECEIVED FROM THE GOVERNMENT UNDER THE CONTRACT AND THE RANK, IN TURN, WOULD PAY YOU ON YOUR INVOICES A PERCENTAGE OF THE AMOUNT RECEIVED FROM THE GOVERNMENT; THAT SEVERAL SHIPMENTS WERE MADE AND PRORATED PAYMENTS RECEIVED FROM THE BANK. THEREAFTER, FOLLOWING THE FINAL SHIPMENT YOU RECEIVED ADVICE THAT THE ESCROW ACCOUNT ASSIGNMENT HAD BEEN HELD NULL AND VOID BY THE UNITED STATES COAST GUARD AND NO FURTHER PAYMENTS WOULD BE MADE TO THE BANK. YOU RECEIVED NO FURTHER PAYMENTS FROM THE BANK AND HAVE BEEN UNABLE TO OBTAIN PAYMENT FROM EITHER THE BANK OR THE CONTRACTOR. IN FACT, YOU HAVE BEEN UNABLE TO CONTACT EITHER COMPANY MENTIONED OR ANY OF ITS OFFICERS BY WIRE OR BY TELEPHONE. HENCE, YOU SEEK OUR ASSISTANCE.

THE UNITED STATES COAST GUARD ADVISES THAT ON DECEMBER 31, 1969, THE CONTRACTING OFFICER AWARDED A CONTRACT TO TRADERS DISTRIBUTING COMPANY TO FURNISH 400 PUMP KITS AT A TOTAL COST OF $91,180. CONTRACT CHANGES DECREASED THE PRICE TO $91,017.50. CONTRACT MODIFICATION NO. 3, DATED JUNE 2, 1970, RECORDED THE ASSIGNMENT OF MONIES PAYABLE UNDER THE CONTRACT TO LIBERTY NATIONAL BANK. MODIFICATION NO. 7, DATED JULY 13, 1970, CANCELLED MODIFICATION NO. 3. THE CONTRACT WAS FULLY PERFORMED ON AUGUST 7, 1970.

IN MAY 1970, THE UNITED STATES GEOLOGICAL SURVEY (USGS) AND DEFENSE CONTRACT ADMINISTRATION SERVICES REGION (DCASR), SAN FRANCISCO, REQUESTED THAT THE CONTRACTING OFFICER SET OFF MONIES PAYABLE UNDER THE COAST GUARD CONTRACT TO SATISFY THEIR CLAIMS AGAINST FAR EAST EXPORT SALES, INCORPORATED, THE PARENT COMPANY OF TRADERS DISTRIBUTING COMPANY, LIMITED. DURING DISCUSSIONS BETWEEN TRADERS AND THE CONTRACTING OFFICER CONCERNING DISPOSITION OF MONIES PAYABLE UNDER THE CONTRACT, THE CONTRACTING OFFICER FIRST LEARNED THAT THE ASSIGNMENT OF FUNDS TO THE BANK STEMMED FROM AN ESCROW AGREEMENT. THE BANK CONFIRMED THAT IT HAD NOT LENT FINANCIAL ASSISTANCE TO THE CONTRACTOR AS CONTEMPLATED BY THE ASSIGNMENT OF CLAIMS ACT OF 1940, 31 U.S.C. 203, BUT WAS A MERE AGENT FOR THE DISBURSEMENT OF MONIES.

THE COAST GUARD, RELYING UPON THE COURT'S DECISION IN CHATTANOOGA WHEELBARROW CO. V UNITED STATES, CIVIL ACTION NO. 4755, UNITED STATES DISTRICT COURT FOR THE DISTRICT OF TENNESSEE, SOUTHERN DIVISION, JANUARY 26, 1967, AND OUR DECISION REPORTED AT 49 COMP. GEN. 44 (1969), FOUND THE ASSIGNMENT TO THE BANK NULL AND VOID. WE BELIEVE THE COAST GUARD ACTION TO HAVE BEEN CONSISTENT WITH THE CITED DECISIONS.

THE CONTRACTOR, BY LETTERS DATED JULY 9, 1970, AUTHORIZED THE SET-OFF AGAINST MONIES PAYABLE UNDER THE CONTRACT.

FOLLOWING THE DETERMINATION OF NULLITY OF THE ASSIGNMENT, SUBSEQUENT PAYMENTS LESS THE AMOUNTS SET OFF WERE MADE DIRECTLY TO THE CONTRACTOR, INCLUDING FINAL PAYMENT ON AUGUST 11, 1970.

CONCERNING LIABILITY OF THE GOVERNMENT TO YOUR COMPANY, WE MUST FIND THAT NO PRIVITY OF CONTRACT EXISTED BETWEEN YOUR COMPANY AND THE GOVERNMENT. IT IS WELL-SETTLED THAT CONTRACTS OR AGREEMENTS TO FURNISH SUPPLIES TO PRIME CONTRACTORS ENGAGED IN THE PERFORMANCE OF CONTRACTS WITH THE GOVERNMENT ORDINARILY DO NOT RESULT IN PRIVITY OF CONTRACT BETWEEN SUBCONTRACTORS AND THE UNITED STATES. IN THE ABSENCE OF SUCH PRIVITY WE DISCERN NO LIABILITY TO YOUR COMPANY BY THE GOVERNMENT.

ONE OTHER ITEM APPEARING IN THE CONTRACT MAY BE OF ASSISTANCE TO YOU. THE ADDRESS OF TRADERS DISTRIBUTING COMPANY'S PLANT WAS STATED TO BE AT 1418 WALLACE STREET, SAN FRANCISCO, CALIFORNIA 94124.

WE REGRET OUR INABILITY TO BE OF SUBSTANTIAL ASSISTANCE.