[Priority of Payment Between Payment Bond Surety and Assignee]

The Army requested a decision concerning the priority of payment of remaining contract funds between a payment bond surety and an assignee bank. GAO held that the surety had claims priority over the assignee bank to the funds paid to the subcontractors under the payment bond, since: (1) the doctrine of subrogation allowed a payment bond surety that paid the debts of its principal to assert all the rights of the creditors; and (2) the creditors were paid to enforce the surety's rights to reimbursement. Accordingly, the Army should pay the surety from the remaining funds.