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[Request for Decision Regarding Disbursement of Funds Withheld Under Army Contracts]

B-216209 Sep 24, 1984
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Highlights

A decision was requested regarding the disbursement of funds withheld under two contracts between a contractor and the Army. When work on one of the contracts was substantially completed, the contractor failed to pay all of its subcontractors, and a surety has claimed the balance to be paid under this contract because it has paid the subcontractors. Since performance has been completed, and the contractor has paid its principal's obligations; the Army recognized that the surety is subrogated to the contractor's unpaid portion under the contract. However, the Army questioned whether the unpaid amount under this contract should be set off by the government to pay the contractor's subcontractors not protected by a surety bond under another contract, rather than being paid to the surety. Since the subcontractors under the second contract lacked the privity of a contract with the United States, GAO found that they could not sue the government for payment under the contract. Therefore, the surety was entitled to payment of the retained funds under the first contract. Under the second contract, the contractor admitted that: (1) it had not fully paid its subcontractors; (2) there was no surety to pay the subcontractors; (3) there would be excess retained contract funds in the hands of the government; and (4) the relative rights of the parties competing for the funds remained unclear. Therefore, GAO recommended that the Army retain the funds and not make payment except pursuant to an agreement by all of the parties or pursuant to an order by a court of competent jurisdiction.

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