B-175500, FEB 23, 1973

B-175500, FEB 23, 1973

CONTRACT - SUBCONTRACTOR CLAIMS - MILLER ACT PAYMENT BONDS - FACTUAL DISPUTES - WITHHOLDING OF PAYMENTS DECISION DIRECTING THAT FINAL PAYMENT BE MADE TO GEORGE E. JENSEN, D/B/A GEORGE E. JENSEN, CONTRACTOR, INC., UNDER A CONTRACT AWARDED TO HIM PURSUANT TO AN IFB ISSUED BY THE NATIONAL WEATHER SERVICE FOR THE REPAIR OF THE WEATHER SERVICE FACILITY AT BOOTHVILLE, LA. THE GOVERNMENT ONLY HAS A DUTY TO WITHHOLD PAYMENTS OTHERWISE DUE A PRIME CONTRACTOR IF IT HAS ACTUALLY BEEN NOTIFIED BY THE CONTRACTOR'S SURETY THAT A SUB-CONTRACTOR HAS A CLAIM AGAINST THE MILLER ACT PAYMENT BOND SURETY. SEE HOME INDEMNITY CO V. UNITED STATES, 376 F.2D 890 (1967). ACCORDINGLY, IN THIS CASE, THE GOVERNMENT SHOULD NOT WITHHOLD THE FINAL PAYMENT PENDING RECEIPT OF A SIGNED RELEASE FROM THE SURETY BECAUSE NO LEGAL ACTION OR CLAIM FOR PAYMENT UNDER THE MILLER ACT HAS BEEN MADE BY THE SUBCONTRACTOR, NOR HAS THE SURETY REQUESTED THE GOVERNMENT TO WITHHOLD FINAL PAYMENT TO THE CONTRACTOR. SEE B-168267, NOVEMBER 17, 1969. ALSO, GAO CANNOT CONSIDER THE FACTUAL DISPUTE ARISING OUT OF THE CONTRACT SINCE SUCH MATTERS ARE FOR RESOLUTION UNDER THE DISPUTES CLAUSE. SEE S&E CONTRACTORS, INC. V UNITED STATES, 406 U.S. 1 (1972).

TO MR. GEORGE P. CRESSMAN:

THIS IS IN FURTHER REFERENCE TO THE REQUEST OF GEORGE E. JENSEN, DOING BUSINESS AS GEORGE E. JENSEN CONTRACTOR, INCORPORATED, IN CORRESPONDENCE DATED DECEMBER 4, 1972, AND IN PRIOR CORRESPONDENCE, FOR PAYMENT OF $1,220.19, WHICH IS THE AMOUNT REMAINING DUE UNDER A CONTRACT AWARDED PURSUANT TO IFB NO. 3-WB-S-70, WHICH CALLED FOR REPAIR OF A WHEATHER SERVICE FACILITY.

THE NATIONAL WEATHER SERVICE, NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION, DEPARTMENT OF COMMERCE, SOUTHERN REGION, CONTRACTED WITH GEORGE E. JENSEN CONTRACTOR, INCORPORATED (JENSEN) TO REHABILITATE A WEATHER SERVICE FACILITY AT BOOTHVILLE, LOUISIANA, THAT HAD BEEN DAMAGED BY HURRICANE CAMILLE. A DISPUTE AROSE BETWEEN THE PRIME CONTRACTOR, JENSEN, AND THE GOVERNMENT AS TO WHO WAS RESPONSIBLE FOR REPLACING A 2 INCH CONDUIT THAT HAD BEEN "TORN OFF" THE FACILITY, EITHER BY THE HURRICANE, OR DURING THE REPAIR OF THE FACILITY. JENSEN CLAIMED, AND THE GOVERNMENT AGREED, THAT THE DAMAGE TO THE CONDUIT WAS CAUSED BY JENSEN'S SUBCONTRACTOR, WINNSBORO ROOFING COMPANY. THIS CLAIM, HOWEVER, WAS DENIED BY WINNSBORO WHICH MAINTAINED THAT SUCH DAMAGE WAS PRESENT WHEN THEY ENTERED UPON THE JOB. IN ANY EVENT, IT WAS THE CONTRACTING OFFICER'S OPINION THAT REGARDLESS OF HOW THE DAMAGE WAS CAUSED, THE PRIME CONTRACTOR WAS RESPONSIBLE BY THE TERMS OF THE CONTRACT FOR REPAIRING THE CONDUIT.

JENSEN PROCEEDED UNDER PROTEST TO EFFECT THE NECESSARY REPAIRS TO THE CONDUIT IN QUESTION, AT A COST OF $860.96. IT WAS HIS BELIEF, HOWEVER, THAT SUCH REPAIR WAS NOT INCLUDED UNDER THE TERMS OF THE CONTRACT AND THAT, THEREFORE, HE SHOULD BE REIMBURSED BY THE GOVERNMENT FOR THE ADDITIONAL WORK.

AS A RESULT OF HIS CONTENTION THAT WINNSBORO CAUSED THE DAMAGE TO THE CONDUIT, JENSEN WITHHELD THE $860.96 EXPENDED FOR REPAIR OF THE CONDUIT FROM THE $1,220.19 OWED BY HIM TO WINNSBORO. WINNSBORO, HOWEVER, REFUSED TO ACCEPT JENSEN'S CHECK FOR THE UNDISPUTED AMOUNT OF $359.23, AND MADE DEMAND FROM JENSEN FOR THE FULL AMOUNT OF $1,220.19.

DESPITE THE FACT THAT WORK UNDER THE CONTRACT HAD BEEN COMPLETED, THE CONTRACTING OFFICER WITHHELD $1,220.19 FROM THE FINAL PAYMENT TO JENSEN, INSISTING THAT BEFORE HE COULD COMPLETE PAYMENT, JENSEN'S SURETY WOULD BE REQUIRED TO REQUEST PAYMENT, AND TO GIVE THE GOVERNMENT A WRITTEN RELEASE, RELIEVING THE GOVERNMENT FROM ANY LIABILITY REGARDING CLAIMS OF SUBCONTRACTORS.

JENSEN CONTENDS THAT SINCE OBTAINING A RELEASE FROM HIS BONDING COMPANY WAS NOT A CONTRACT REQUIREMENT, THERE IS NO REASON TO DO SO AND, THEREFORE, HE REQUESTS PAYMENT OF THE $1,220.19 REMAINING DUE UNDER THE CONTRACT.

IT HAS CONSISTENTLY BEEN HELD THAT SUBCONTRACTORS DO NOT HAVE LEGALLY ENFORCEABLE RIGHTS AGAINST THE UNITED STATES FOR MONEY DUE THEM FROM GOVERNMENT PRIME CONTRACTORS. SEE B-168267, NOVEMBER 17, 1969; UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234, 241 (1947); UNITED PACIFIC INSURANCE CO. V. UNITED STATES, 319 F.2D 893 (1963). RATHER, THE SUBCONTRACTOR'S REMEDY IS AN ACTION ON THE PAYMENT BOND BROUGHT UNDER THE MILLER ACT, 40 U.S.C. 270(B). UNITED PACIFIC INSURANCE CO., SUPRA, AT 896.

ADDITIONALLY, IT HAS BEEN HELD THAT "LABORERS AND MATERIALMEN HAVE A RIGHT TO BE PAID OUT OF THE RETAINED FUND," PEARLMAN V. RELIANCE INSURANCE CO., 371 U.S. 132, 141 (1962); BUT THAT RIGHT IS "*** THE ANALOGUE OF THE 'EQUITABLE OBLIGATIONS' OF THE UNITED STATES 'TO SEE THAT THE LABORERS AND SUPPLY MEN WERE PAID'." BARRETT V. UNITED STATES, 367 F.2D 834, 837-838 (1966). IN THIS CONNECTION, OUR OFFICE HAS STATED THAT THE EQUITABLE OBLIGATION IS DISCHARGED BY PROVIDING A MILLER ACT PAYMENT BOND FOR THE PROTECTION OF LABORERS AND MATERIALMEN. B-168267, NOVEMBER 17, 1969.

AS A CONSEQUENCE OF THESE HOLDINGS, IT WOULD APPEAR THAT THERE IS NO DUTY ON THE PART OF THE GOVERNMENT TO WITHHOLD PAYMENTS OTHERWISE DUE TO THE PRIME CONTRACTOR IN ORDER TO PROTECT THE RIGHTS OF SUBCONTRACTORS SINCE THEY ARE PROTECTED BY THE PAYMENT BOND. HOWEVER, IN HOME INDEMNITY CO. V. UNITED STATES, 376 F.2D 890 (1967) WHERE THE GOVERNMENT HAD NOTICE FROM THE PRIME CONTRACTOR'S SURETY THAT CLAIMS HAD BEEN MADE BY UNPAID LABORERS AND MATERIALMEN ON THE PAYMENT BOND AND THE GOVERNMENT MADE FINAL PAYMENT TO THE CONTRACTOR, THE COURT HELD THAT THE FUNDS SHOULD HAVE BEEN HELD FOR THE SURETY AND JUDGMENT WAS RENDERED ACCORDINGLY. THE COURT'S RATIONALE WAS THAT "WHEN THE CONTRACT *** WAS COMPLETED, THE GOVERNMENT WAS THE STAKEHOLDER OF THE FINAL PAYMENT OR SECURITY FOR WHICH THERE WERE TWO CONTENDING CLAIMANTS, THE SURETY AND THE CONTRACTOR. (AND THAT) THE GOVERNMENT HAD NO RIGHT AS A STAKEHOLDER TO SETTLE THE QUESTION UNILATERALLY BY PAYING THE FUND TO THE CONTRACTOR."

IT IS OUR OPINION THAT THE DECISION IN HOME INDICATES THAT THE GOVERNMENT'S INTERESTS MIGHT BE JEOPARDIZED WHERE IT PAYS A PRIME CONTRACTOR WHEN IT IS ON NOTICE OF LABORERS' AND MATERIALMEN'S CLAIMS AGAINST THE PAYMENT BOND SURETY. B-168267, NOVEMBER 17, 1969. THEREFORE, WE CONCLUDED IN THE CITED DECISION, WHERE WE WERE ASKED BY A SUBCONTRACTOR TO WITHHOLD PAYMENT OF ANY CONTRACT FUNDS UNTIL THERE WAS A JUDICIAL DETERMINATION OF A PENDING MILLER ACT SUIT, OR UNTIL THE CONTRACTOR OR HIS SURETY MADE PAYMENT, THAT:

WE THINK *** PAYMENT SHOULD BE MADE TO THE PRIME CONTRACTOR IF THE SURETY AGREES IN WRITING. OTHERWISE, PAYMENT SHOULD BE WITHHELD PENDING JUDICIAL DETERMINATION OF THE RIGHTS OF THE PARTIES IN SUCH PROCEEDINGS AS MAY BE INSTITUTED. SEE 46 COMP. GEN. 389, 392 (1966).

IN THE INSTANT CASE, HOWEVER, IT IS REPORTED THAT NO JUDICIAL PROCEEDINGS HAVE BEEN INSTITUTED, AND THAT THE CONTRACTOR'S SURETY HAS NEITHER MADE CLAIM AGAINST THE GOVERNMENT FOR PAYMENT UNDER THE MILLER ACT, NOR REQUESTED THE GOVERNMENT TO WITHHOLD PAYMENT FROM THE CONTRACTOR. ADDITIONALLY, INSOFAR AS WE ARE ABLE TO DETERMINE, THE SUBCONTRACTOR HAS NOT MADE CLAIM AGAINST THE SURETY FOR PAYMENT OF ANY AMOUNT IT MAY BE ENTITLED TO RECEIVE.

AS A RESULT, IT WOULD APPEAR THAT THE GOVERNMENT, IN THE PRESENT CASE, IS NOT IN THE POSITION OF A STAKEHOLDER OF THE FINAL PAYMENT FOR WHICH THERE ARE TWO CONTENDING CLAIMANTS. RATHER, THERE IS APPARENTLY ONLY ONE CLAIMANT OF THE FUNDS, THE CONTRACTOR, AND THUS, SHOULD THE GOVERNMENT MAKE PAYMENT, IT WOULD NOT BE UNILATERALLY ACTING AS AN ARBITER OF A CONTROVERSY BETWEEN RIVAL CLAIMANTS.

ALTHOUGH THE GOVERNMENT IS AWARE OF A DISPUTE BETWEEN THE CONTRACTOR AND SUBCONTRACTOR, WE DO NOT BELIEVE THAT IT IS THE OBLIGATION OF THE GOVERNMENT TO PROTECT THE SURETY WHEN THE SURETY IS LESS THAN DILIGENT IN PROTECTING ITS OWN RIGHTS. SEE UNITED PACIFIC INSURANCE CO. V. UNITED STATES, 362 F.2D 805, 808, 810 (1966); AND HOME INDEMNITY CO. V. UNITED STATES, 376 F.2D 890, 894-5 (1967), WHEREIN THE COURT FOUND THAT THE SURETY'S FAILURE TO PROVIDE THE GOVERNMENT WITH ADEQUATE INFORMATION THAT THE CONTRACTOR WAS IN DEFAULT ON ITS PAYMENT BOND, AND ITS FAILURE TO REQUEST THE GOVERNMENT TO WITHHOLD THE FINAL PAYMENT TO THE CONTRACTOR BEFORE SUCH PAYMENT WAS MADE, PRECLUDED ITS RIGHT TO RECOVER.

BASED UPON THE FOREGOING, WE BELIEVE THAT THE NATIONAL WEATHER SERVICE SHOULD MAKE PAYMENT, IF OTHERWISE PROPER, TO JENSEN WITHOUT THE NECESSITY OF OBTAINING A SIGNED RELEASE FROM THE SURETY.

JENSEN HAS ALSO REQUESTED A DECISION AS TO WHETHER REPLACEMENT OF THE BROKEN CONDUIT WAS INCLUDED UNDER THE TERMS OF THE CONTRACT. RESOLUTION OF FACTUAL DISPUTES ARISING UNDER GOVERNMENT CONTRACTS ARE GOVERNED BY THE DISPUTES CLAUSE OF THE CONTRACT. PROCEDURES UNDER THE DISPUTES CLAUSE MUST BE EXHAUSTED BEFORE RECOURSE MAY BE MADE TO THE COURTS. SEE B- 173965, OCTOBER 18, 1971; 37 COMP. GEN. 568, 570 (1958).

IN THIS CONNECTION, IT SHOULD BE POINTED OUT THAT AN ADMINISTRATIVE DECISION UNDER THE DISPUTES CLAUSE IS NOT REVIEWABLE BY OUR OFFICE IN VIEW OF THE HOLDING IN S&E CONTRACTORS, INC. V. UNITED STATES, 406 U.S. 1 (1972).