[Decision Concerning Disposition of Funds Owed Under Panama Canal Commission Contract for Tugboat Construction]

The Panama Canal Commission requested a decision regarding the disposition of funds it owed for tugboat construction, specifically whether the Commission should disburse the amount to the contractor, a subcontractor, or both. GAO noted that: (1) the Commission's contracting officer acted without authorization in agreeing to pay the subcontractor the money that the contractor owed it in return for inspection services; and (2) the contractor was going out of business and had not paid any of the subcontractors. GAO held that: (1) the Commission should pay for the services it received since they were not prohibited by statute or regulation, even in the absence of a proper contract; and (2) the Commission had an obligation to ensure that all the subcontractors were paid, and it should not make any payment except under an agreement by all the parties or pursuant to a court order. Accordingly, the Commission should not pay the contractor, since he neither paid the subcontractors nor had a surety to do so.