B-174534, DEC 10, 1971

B-174534: Dec 10, 1971

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

THE FOREST SERVICE WAS SERVED WITH A NOTICE OF LEVY BY IRS IN THE AMOUNT OF $8. BECAUSE NO MILLER ACT BOND WAS PROVIDED BY THE CONTRACTOR. THOMSON: REFERENCE IS MADE TO YOUR LETTER. CONTRACT NO. 11-140 WAS NEGOTIATED WITH YELLOW JACKET ELECTRIC INC. THE CONTRACTOR WAS GIVEN NOTICE TO PROCEED WITH THE WORK IMMEDIATELY. WAS EXPLAINED DURING NEGOTIATION. THE FOREST SERVICE WAS SERVED WITH A NOTICE OF LEVY BY THE INTERNAL REVENUE SERVICE IN THE AMOUNT OF $8. YOU INQUIRE: "INASMUCH AS THERE WAS NO PAYMENT BOND. ARE WE OBLIGATED TO CONSIDER THE LIEN OR WOULD IT BE PROPER TO DIRECT THE ENTIRE AMOUNT DUE THE CONTRACTOR IN FAVOR OF INTERNAL REVENUE SERVICE?". THE SETTLEMENT OF OBLIGATIONS BETWEEN GOVERNMENT CONTRACTORS AND THOSE FURNISHING MATERIAL FOR THE PROSECUTION OF THE CONTRACT WORK IS NOT REQUIRED OF THE GOVERNMENT.

B-174534, DEC 10, 1971

CONTRACTS - MILLER ACT BOND - TAX LEVY DECISION CONCERNING PROPER DISBURSEMENT OF EARNINGS UNDER A CONTRACT BETWEEN THE FOREST SERVICE AND YELLOW JACKET ELECTRIC INC. PRIOR TO COMPLETION OF WORK, FOR WHICH THE GOVERNMENT OWES YELLOW JACKET $2,889.12, THE FOREST SERVICE WAS SERVED WITH A NOTICE OF LEVY BY IRS IN THE AMOUNT OF $8,653.05 FOR BACK TAXES, AND A LIEN FOR MATERIALS BY GRAYBAR ELECTRIC COMPANY, INC., IN THE AMOUNT OF $1,243.62. BECAUSE NO MILLER ACT BOND WAS PROVIDED BY THE CONTRACTOR, DUE TO THE URGENCY REQUIREMENT, AND THERE BEING NO PRIVITY OF CONTRACT BETWEEN THE SUPPLIER AND UNITED STATES, NO BASIS EXISTS FOR CONSIDERING THE CLAIM OF GRAYBAR. HOWEVER, THE GOVERNMENT HAS A COMMON LAW RIGHT TO COLLECT UNPAID TAXES BY WAY OF SETOFF, BARRETT V UNITED STATES, 367 F.2D 834 (1966); THEREFORE, CONTRACT EARNINGS SHOULD BE PAID TO IRS IN PARTIAL SATISFACTION OF ITS TAX LIEN AGAINST THE CONTRACTOR.

TO MR. THOMSON:

REFERENCE IS MADE TO YOUR LETTER, FILE REFERENCE 6320, OF NOVEMBER 11, 1971, WITH ENCLOSURES, REQUESTING A DECISION CONCERNING THE DISBURSEMENT OF EARNINGS UNDER CONTRACT NO. 11-140 BETWEEN THE FOREST SERVICE AND YELLOW JACKET ELECTRIC INC.

ON MAY 17, 1971, CONTRACT NO. 11-140 WAS NEGOTIATED WITH YELLOW JACKET ELECTRIC INC., UNDER THE AUTHORITY OF 41 U.S.C. 252(C)(2), IN THE AMOUNT OF $2,889.12. DUE TO THE URGENCY THAT EXISTED, THE CONTRACTOR WAS GIVEN NOTICE TO PROCEED WITH THE WORK IMMEDIATELY. THE REQUIREMENT FOR PERFORMANCE AND PAYMENT BONDS AS PROVIDED IN THE MILLER ACT, 40 U.S.C. 270A, WAS EXPLAINED DURING NEGOTIATION. THE CONTRACTOR STATED THE BONDS WOULD BE SUBMITTED AS SOON AS POSSIBLE. HOWEVER, THE CONTRACTOR PERFORMED THE WORK TO COMPLETION WITHOUT FURNISHING THE BONDS.

PRIOR TO COMPLETION OF THE WORK, THE FOREST SERVICE WAS SERVED WITH A NOTICE OF LEVY BY THE INTERNAL REVENUE SERVICE IN THE AMOUNT OF $8,653.05 FOR BACK TAXES OWED TO THE GOVERNMENT BY YELLOW JACKET ELECTRIC INC. THEREAFTER, GRAYBAR ELECTRIC COMPANY, INC., THROUGH ITS ATTORNEY, SERVED THE FOREST SERVICE WITH A LIEN FOR MATERIALS FURNISHED TO THE CONTRACTOR IN THE AMOUNT OF $1,243.62.

IN THE CIRCUMSTANCES, YOU INQUIRE:

"INASMUCH AS THERE WAS NO PAYMENT BOND, DUE TO THE EXIGENCY CIRCUMSTANCES, TO PROTECT THE SUPPLIER AS REQUIRED BY THE MILLER ACT, ARE WE OBLIGATED TO CONSIDER THE LIEN OR WOULD IT BE PROPER TO DIRECT THE ENTIRE AMOUNT DUE THE CONTRACTOR IN FAVOR OF INTERNAL REVENUE SERVICE?"

THE GOVERNMENT HAS A COMMON LAW RIGHT TO COLLECT UNPAID TAXES BY WAY OF SETOFF. BARRETT V UNITED STATES, 367 F. 2D 834 (1966). FURTHER, THE SETTLEMENT OF OBLIGATIONS BETWEEN GOVERNMENT CONTRACTORS AND THOSE FURNISHING MATERIAL FOR THE PROSECUTION OF THE CONTRACT WORK IS NOT REQUIRED OF THE GOVERNMENT, THERE BEING NO PRIVITY OF CONTRACT BETWEEN SUCH PERSONS AND THE UNITED STATES. KELLOGG V UNITED STATES, 7 WALL. 361 (1868); UNITED STATES V DRISCOLL, 96 U.S. 421 (1877); H. HERFURTH, JR., INC. V UNITED STATES, 89 CT. CL. 122 (1939); AND JOSEPH PETRIN ET AL. V UNITED STATES, 90 CT. CL. 670 (1940). MOREOVER, THE MILLER ACT PAYMENT BOND, WHICH IS IN THE NATURE OF A SUBSTITUTE FOR MECHANICS LIENS NOT RECOGNIZABLE BY THE GOVERNMENT, IS THE ONLY PROTECTION PROVIDED BY STATUTE FOR PERSONS SUPPLYING MATERIAL FOR THE PROSECUTION OF THE CONTRACT. BUT THAT STATUTE DOES NOT ESTABLISH ANY PRIVITY BETWEEN THE UNITED STATES AND MATERIALMEN SO AS TO AUTHORIZE THE SETTLEMENT OF THEIR CLAIMS BY THE GOVERNMENT.

THUS, NO BASIS EXISTS FOR CONSIDERING THE CLAIM OF A MATERIALMAN WHEN THE STATUTORY BOND HAS NOT BEEN FURNISHED BY A PRIME CONTRACTOR TO THE GOVERNMENT. ACCORDINGLY, THE CLAIM OF GRAYBAR ELECTRIC COMPANY, INC., SHOULD BE DENIED AND THE CONTRACT EARNINGS SHOULD BE PAID OVER TO THE INTERNAL REVENUE SERVICE IN PARTIAL SATISFACTION OF ITS TAX LIEN AGAINST YELLOW JACK ELECTRIC INC. ..END :