B-180333, APR 2, 1974

B-180333: Apr 2, 1974

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PAYMENT BOND SURETY WHICH PAID VARIOUS SUPPLIERS OF DEFAULTED CONTRACTOR IN EXCESS OF BALANCE REMAINING UNDER CONTRACT IS NOT ENTITLED TO ANY PORTION OF BALANCE. RIGHT OF UNITED STATES TO COLLECT TAXES OR OTHER DEBTS OF CONTRACTOR BY OFFSETTING OBLIGATIONS AGAINST RETAINAGES UNDER GOVERNMENT CONTRACT IS SUPERIOR TO CLAIMS OF PAYMENT BOND SURETY. 2. SINCE TAX CLAIM IS SUBORDINATE TO EXCESS COST AND LIQUIDATED DAMAGE CLAIM. THE PAINTING WORK WAS COMPLETED BY ANOTHER CONTRACTOR UNDER CONTRACT NO. AFTER PAYMENT WAS MADE TO THE COMPLETING CONTRACTOR. 780.28 WAS WITHHELD FOR WAGE CLAIMS AND $60 FOR CONTRACT WORK HOURS AND SAFETY STANDARDS ACT LIQUIDATED DAMAGES. THERE WERE EXCESS COMPLETION COSTS IN THE AMOUNT OF $18 AND LIQUIDATED DAMAGES IN THE AMOUNT OF $2.

B-180333, APR 2, 1974

1. PAYMENT BOND SURETY WHICH PAID VARIOUS SUPPLIERS OF DEFAULTED CONTRACTOR IN EXCESS OF BALANCE REMAINING UNDER CONTRACT IS NOT ENTITLED TO ANY PORTION OF BALANCE, SINCE CONTRACTOR'S LIABILITIES FOR LIQUIDATED DAMAGES, EXCESS COSTS ON ANOTHER DEFAULTED CONTRACT AND FOR TAXES EXCEED BALANCE. RIGHT OF UNITED STATES TO COLLECT TAXES OR OTHER DEBTS OF CONTRACTOR BY OFFSETTING OBLIGATIONS AGAINST RETAINAGES UNDER GOVERNMENT CONTRACT IS SUPERIOR TO CLAIMS OF PAYMENT BOND SURETY. 2. CLAIM OF DEPARTMENT OF NAVY FOR EXCESS COSTS AND LIQUIDATED DAMAGES DUE UNDER ONE CONTRACT MAY BE SET OFF AGAINST BALANCE DUE UNDER ANOTHER CONTRACT PRIOR TO SET OFF FOR CONTRACTOR'S INDEBTEDNESS TO INTERNAL REVENUE SERVICE FOR TAXES, SINCE TAX CLAIM IS SUBORDINATE TO EXCESS COST AND LIQUIDATED DAMAGE CLAIM.

TO PACIFIC INSURANCE COMPANY, LIMITED:

THE NAVAL FACILITIES ENGINEERING COMMAND, DEPARTMENT OF THE NAVY, AWARDED CONTRACT NO. N62471-69-C-0056, IN THE AMOUNT OF $17,864 TO A&B PAINTING, INC. (A&B), HONOLULU, HAWAII, FOR THE EXTERIOR PAINTING OF VARIOUS BUILDINGS AT THE NAVAL SUBMARINE BASE, PEARL HARBOR, OAHU, HAWAII. A&B COMMENCED PAINTING SOME OF THE BUILDINGS. AFTER RECEIVING PARTIAL PAYMENTS TOTALING $5,005, A&B DEFAULTED. AT THE TIME OF THE DEFAULT, A BALANCE OF $12,859 ($17,864 - $5,005) REMAINED AVAILABLE FOR COMPLETION OF THE WORK. THE PAINTING WORK WAS COMPLETED BY ANOTHER CONTRACTOR UNDER CONTRACT NO. N62471-70-C-0045 FOR THE SUM OF $5,100. AFTER PAYMENT WAS MADE TO THE COMPLETING CONTRACTOR, THERE REMAINED A SURPLUS OF $7,759. A RESULT OF A LABOR STANDARDS INVESTIGATION, $1,780.28 WAS WITHHELD FOR WAGE CLAIMS AND $60 FOR CONTRACT WORK HOURS AND SAFETY STANDARDS ACT LIQUIDATED DAMAGES, LEAVING A BALANCE OF $5,918.72. FROM THAT BALANCE THE DEPARTMENT OF THE NAVY DEDUCTED THE SUM OF $1,056 TO COVER THE LIQUIDATED DAMAGES ASSESSED AGAINST A&B FOR THE DELAY IN COMPLETION OF THE WORK. AFTER THIS DEDUCTION, THERE REMAINS A SURPLUS OF $4,862.72.

A&B ALSO DEFAULTED UNDER NAVY CONTRACT NO. N62471-69-C-0093. THERE WERE EXCESS COMPLETION COSTS IN THE AMOUNT OF $18 AND LIQUIDATED DAMAGES IN THE AMOUNT OF $2,270, A TOTAL OF $2,288. THERE WERE NO PERFORMANCE OR PAYMENT BONDS UNDER THIS CONTRACT. THE DEPARTMENT PROPOSES TO OFFSET THE $2,288 INDEBTEDNESS UNDER DEFAULTED CONTRACT NO. N62471-69-C-0093 AGAINST THE $4,862.72 BALANCE REMAINING UNPAID UNDER DEFAULTED CONTRACT NO. N62471-69- C-0056.

THE PACIFIC INSURANCE COMPANY, LIMITED, THE SURETY WHICH FURNISHED PAYMENT AND PERFORMANCE BONDS UNDER DEFAULTED CONTRACT NO. N62471-69-C 0056 HAS MADE CLAIM FOR THE $4,862.72 BALANCE BY VIRTUE OF ITS PAYMENT OF $5,138.44 TO VARIOUS SUPPLIERS OF A&B PURSUANT TO THE TERMS OF THE PAYMENT BOND. THE SURETY STATES THAT SINCE IT DID NOT BIND A&B UNDER DEFAULTED CONTRACT NO. N62471-69-C-0093, THE EXCESS COSTS AND LIQUIDATED DAMAGES ACCRUING UNDER THAT CONTRACT SHOULD NOT BE CONSIDERED WITH ITS CLAIM UNDER DEFAULTED CONTRACT NO. N62471-69-C 0056.

THE INTERNAL REVENUE SERVICE HAS SERVED TWO NOTICES OF TAX LEVY UPON THE DEPARTMENT OF THE NAVY IN THE AMOUNTS OF $6,904.95 AND $7,103.81 AGAINST ANY PROCEEDS DUE TO A&B.

THE DEPARTMENT OF THE NAVY HAS REQUESTED GAO TO RENDER A DECISION AS TO THE APPROPRIATE DISTRIBUTION OF FUNDS IN THE GOVERNMENT'S POSSESSION.

IN REGARD TO THE CLAIM OF PACIFIC INSURANCE, WE NOTE THAT THE SURETY DID NOT COMPLETE THE CONTRACT. THE GOVERNMENT OBTAINED A THIRD-PARTY CONTRACTOR TO COMPLETE THE WORK AND PAID THIS COMPLETING CONTRACTOR FROM THE UNPAID CONTRACT BALANCE. HENCE, THE SURETY'S CLAIM IS UNDER THE PAYMENT BOND AND NOT UNDER THE PERFORMANCE BOND OR AS COMPLETING SURETY. THE SUM CLAIMED, $4,862.72, AS STATED ABOVE, REPRESENTS A SUBSTANTIAL PORTION OF THE AMOUNT PAID BY THE SURETY TO VARIOUS SUPPLIERS OF A&B PURSUANT TO THE TERMS OF THE PAYMENT BOND.

IT IS WELL SETTLED THAT THE RIGHT OF THE UNITED STATES TO COLLECT TAXES OR OTHER DEBTS OF THE CONTRACTOR BY OFFSETTING THE OBLIGATIONS AGAINST RETAINAGES UNDER A GOVERNMENT CONTRACT IS SUPERIOR TO THE CLAIMS OF THE PAYMENT BOND SURETY. SEE BARRETT V UNITED STATES, 177 CT. CL. 380 (1966), AND AETNA INSURANCE COMPANY V UNITED STATES, 197 CT. CL. 173 (1972). THEREFORE, SINCE THE CONTRACTOR'S LIABILITY FOR TAXES, LIQUIDATED DAMAGES AND EXCESS COSTS EXCEED THE BALANCE REMAINING UNDER CONTRACT N62471-69-C- 0056, THE SURETY IS NOT ENTITLED TO ANY PORTION OF THE BALANCE.

WITH REGARD TO THE CLAIM OF THE DEPARTMENT OF THE NAVY FOR EXCESS COSTS AND LIQUIDATED DAMAGES ACCRUING UNDER DEFAULTED CONTRACT NO. N62471-69-C- 0093 AND THE TAX CLAIM OF THE INTERNAL REVENUE SERVICE, THE TAX CLAIM IS SUBORDINATE TO THE EXCESS COST AND LIQUIDATED DAMAGES CLAIM. B-161460, MAY 25, 1967. ACCORDINGLY, THE CLAIM OF THE DEPARTMENT OF THE NAVY IN THE AMOUNT OF $2,288, REPRESENTING EXCESS COMPLETION COSTS AND LIQUIDATED DAMAGES ASSESSED AGAINST A&B UNDER DEFAULTED CONTRACT NO. N62471-69-C-0093 MAY BE SATISFIED FROM THE BALANCE OF $4,862.72 REMAINING UNDER CONTRACT NO. N62471-69-C-0056. THE $2,574.72 BALANCE THEREAFTER REMAINING MAY BE REMITTED TO THE INTERNAL REVENUE SERVICE TO PARTIALLY LIQUIDATE THE A&B TAX INDEBTEDNESS.