B-183100, APR 3, 1975, 54 COMP GEN 823

B-183100: Apr 3, 1975

Additional Materials:

Contact:

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

 

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

SET-OFF - CONTRACT PAYMENTS - TAX DEBTS RIGHT OF UNITED STATES TO COLLECT TAX INDEBTEDNESS OF CONTRACTOR BY OFFSETTING OBLIGATION AGAINST RETAINAGES UNDER GOVERNMENT CONTRACT IS SUPERIOR TO CLAIM OF PAYMENT BOND SURETY OR CONTRACTOR. F44600-73-C-0280 WAS ISSUED BY THE BASE PROCUREMENT OFFICE. THE AIR FORCE REFUSED TO PROVIDE IT SINCE EASTERN WAS NOT IN DEFAULT AND WAS SATISFACTORILY COMPLETING THE PROJECT. THE SURETY HAS CONFIRMED THAT IT DID NOT COMPLETE THE CONTRACT AND THAT ITS SOLE INVOLVEMENT WAS TO PAY THE OBLIGATIONS OF THE CONTRACTOR. 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.

B-183100, APR 3, 1975, 54 COMP GEN 823

SET-OFF - CONTRACT PAYMENTS - TAX DEBTS RIGHT OF UNITED STATES TO COLLECT TAX INDEBTEDNESS OF CONTRACTOR BY OFFSETTING OBLIGATION AGAINST RETAINAGES UNDER GOVERNMENT CONTRACT IS SUPERIOR TO CLAIM OF PAYMENT BOND SURETY OR CONTRACTOR.

IN THE MATTER OF RELIANCE INSURANCE COMPANIES, INC.; EASTERN CONSTRUCTION CORPORATION, APRIL 3, 1975:

THIS MATTER CONCERNS A REQUEST FOR AN ADVANCE DECISION BY THE DEPARTMENT OF THE AIR FORCE ON THE DISPOSITION OF THE FINAL PAYMENT ON A CONSTRUCTION CONTRACT BETWEEN ITSELF AND EASTERN CONSTRUCTION CORPORATION (EASTERN). CONTRACT NO. F44600-73-C-0280 WAS ISSUED BY THE BASE PROCUREMENT OFFICE, LANGLEY AIR FORCE BASE, VIRGINIA, ON JUNE 22, 1973, FOR REPAIR OF STEAM AND CONDENSATE PIPES BETWEEN CERTAIN BUILDINGS ON THE BASE. THE CONTRACT HAS BEEN COMPLETED AND ALL PROGRESS PAYMENTS MADE BY THE AIR FORCE, EXCEPT FOR THE FINAL PAYMENT OF $5,143.88 WHICH THE AIR FORCE HAS RETAINED.

RELIANCE INSURANCE COMPANIES (RELIANCE), A MILLER ACT PAYMENT AND PERFORMANCE SURETY ON THE CONTRACT, HAS REQUESTED THAT NO FURTHER PAYMENTS BE MADE TO EASTERN AND THAT FINAL PAYMENT BE MADE TO IT SINCE IT HAS PAID CLAIMS BY EASTERN'S LABORERS AND MATERIALMEN AMOUNTING TO $13,364.61. EASTERN HAS ALSO SUBMITTED A CLAIM FOR THE FINAL PROGRESS PAYMENT. HOWEVER, THE INTERNAL REVENUE SERVICE (IRS) HAS CLAIMED THE FINAL PAYMENT IN PARTIAL SATISFACTION OF AN OUTSTANDING TAX LIEN LEVIED AGAINST EASTERN IN THE AMOUNT OF $47,298.55.

SINCE THE CONTRACT HAS BEEN SATISFACTORILY COMPLETED AND THE JOB ACCEPTED, THE AIR FORCE, AS A MERE STAKEHOLDER, REQUESTS OUR ADVICE AS TO WHOM IT SHOULD PAY.

THE RECORD REFLECTS THAT EASTERN COMPLETED THE CONTRACT ON ITS OWN. ALTHOUGH RELIANCE REQUESTED A LETTER OF DEFAULT FROM THE AIR FORCE ON FEBRUARY 12, 1974, THE AIR FORCE REFUSED TO PROVIDE IT SINCE EASTERN WAS NOT IN DEFAULT AND WAS SATISFACTORILY COMPLETING THE PROJECT. THE SURETY HAS CONFIRMED THAT IT DID NOT COMPLETE THE CONTRACT AND THAT ITS SOLE INVOLVEMENT WAS TO PAY THE OBLIGATIONS OF THE CONTRACTOR. THEREFORE, WE CONCLUDE THAT RELIANCE PAID CLAIMS AGAINST EASTERN PURSUANT TO ITS PAYMENT BOND.

BY PAYING CLAIMS OF LABORERS AND MATERIALMEN OF EASTERN, RELIANCE SUCCEEDED BY RIGHT OF SUBROGATION TO EASTERN'S CLAIM FOR THE UNPAID $5,143.88. FIREMAN'S FUND INSURANCE COMPANY V. UNITED STATES, 421 F.2D 706, 708; 190 CT. CL. 804 (1970). HOWEVER, 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. UNITED STATES FIDELITY & GUARANTY COMPANY V. UNITED STATES, 475 F.2D 1377, 1383; 201 CT. CL. 1 (1973); UNITED STATES V. MUNSEY TRUST CO., 332 U.S. 234 (1947) AND PACIFIC INSURANCE COMPANY, LIMITED, B-180333, APRIL 2, 1974.

ACCORDINGLY, THE BALANCE REMAINING UNDER THE CONTRACT SHOULD BE PAID TO THE IRS IN PARTIAL SATISFACTION OF THE TAX LIEN LEVIED AGAINST THE CONTRACTOR.