Matter of: Department of Agriculture--Request for Advance Decision File: B-249824 Date: October 7, 1992

B-249824: Oct 7, 1992

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The United States is liable to the surety for its substantiated claims. 203.71) was made directly to Bell. [1] is concerned that the contracting officer's September 17 letter was sent to Bell. USF&G is entitled to payment. The United States is liable to the surety for its substantiated claims. The Forest Service does not suggest that USF&G's notice to the government of its payments to Bell's supplier was in any way deficient. Admits that the payment to Bell was an administrative error. A statement by the surety that any funds it might recover from Bell will be forwarded to the government.

Matter of: Department of Agriculture--Request for Advance Decision File: B-249824 Date: October 7, 1992

PROCUREMENT Payment/Discharge Payment priority Payment sureties Where a payment bond surety notifies the government of its claim to undisbursed contract funds, but the government nevertheless pays the funds to the contractor, the United States is liable to the surety for its substantiated claims.

DECISION

A Forest Service certifying officer requests an advance decision on whether United States Fidelity and Guaranty Company (USF&G), the payment bond surety under a government construction contract with Bell Trucking and Construction, should be reimbursed $18,609.39 that USF&G paid to one of Bell's suppliers. The Forest Service included that amount in a final payment to Bell under the contract, issued after the agency knew of the surety's payment.

The Forest Service should pay USF&G as discussed below.

The record indicates that on September 9, 1991, USF&G sent a letter to the Forest Service contracting officer advising that the surety had paid Bell's supplier pursuant to the payment bond. In a letter to Bell dated September 17, the contracting officer noted USF&G's claim and indicated that USF&G would "be involved in" the disbursement of the remaining funds under the contract. However, because of an administrative error, final payment in full ($46,203.71) was made directly to Bell. Bell has since filed for bankruptcy.

The certifying officer, while recognizing USF&G's apparent right to reimbursement, [1] is concerned that the contracting officer's September 17 letter was sent to Bell, not the surety; only stated that USF&G would "be involved in" any further payment; and had not been provided to the certifying officer.

USF&G is entitled to payment. Where the government, after due notice of the facts giving rise to a surety's equitable right, and of the surety's assertion of that right, pays the money to someone else without a valid reason for doing so, the United States is liable to the surety for its substantiated claims. See American Fidelity Fire Ins. Co., 58 Comp.Gen. 64 (1978); Cotton States Mutual Ins. Co., B-214985 May 22, 1984, 84-1 CPD Para. 554; American Fidelity Fire Ins. Co., et al., B-200374, Oct. 21, 1980, 80-2 CPD Para. 307.

The Forest Service does not suggest that USF&G's notice to the government of its payments to Bell's supplier was in any way deficient, and admits that the payment to Bell was an administrative error. We see no reason to conclude that the contracting officer's decision to write to Bell instead of to the surety, or his failure to relay notice to the certifying officer, defeats USF&G's equitable right to reimbursement.

The record includes invoices showing payments by USF&G, and a statement by the surety that any funds it might recover from Bell will be forwarded to the government. We note, however, that the invoices in the record presented to our Office total only $17,713.50, not the $18,609.39 claimed. Accordingly, payment to the surety should be in the lesser amount, unless the firm furnishes evidence establishing entitlement to the full amount claimed. American Fidelity Fire Ins. Co., 58 Comp.Gen., supra.

1. Forest Service legal counsel "advised the contracting officer of the government's liability to the surety.